Sustainability and the bottom line: making competitors green with envy

28 September 2012

CEOs throughout the UK are looking at making their businesses more sustainable by building long-term growth strategies. As the National Business Awards announce ten finalists for the ICAEW Sustainability Award, NBA programme director Alex Evans and ICAEW CEO Michael Izza led a discussion on the rewards of embedding sustainable practices into businesses.

Focusing on the policies, processes and activities enabling corporate longevity, the ICAEW Sustainability Award was designed to highlight those organisations that are truly committed to long-term growth. With the hope of inspiring by example, the National Business Awards (NBA) and ICAEW invited thought and practice leaders in the sustainability arena to share insights on the commercial impact of green growth strategies.

Meet the panel:

  • Alex Evans, programme director, National Business Awards
  • Michael Izza, chief executive, ICAEW
  • Lord Taylor of Holbeach, under secretary of state for the Department of Environment, Food and Rural Affairs (Defra)
  • Jennifer Morgan, founder and co-convener, The Finance Innovation Lab
  • Lindsey Parnell, CEO, Interface
  • Neil Carson, CEO, Johnson Matthey
  • Will Oulton, head of responsible investment, First State Investment
  • Gideon Hyde, founder, Market Gravity

A truly sustainable business

"A truly sustainable business is one that will be around for a long time," said Alex Evans, NBA programme director and co-chair of this debate on sustainability. "By investing in its people, carefully managing costs and reducing supplier risk, an organisation can continue to adapt and grow."

Early adopters of true sustainability are motivated by a range of factors, from future-proofing in anticipation of new green legislation through to differentiation of themselves from competitors, explained fellow chair and chief executive of ICAEW Michael Izza. "Businesses listed on the London Stock Exchange will now have to report their emissions, but what is the impetus for private businesses and SMEs?" he added.

Lord Taylor of Holbeach, under secretary of state at Defra, said SME-specific guidance on how to measure and report greenhouse emissions was already available. "Emissions are an issue of increasing interest, especially to the investment community, and this was one of the reasons why the Deputy Prime Minister and I announced at the Rio+20 summit that we would introduce mandatory reporting of greenhouse gas (GHG) emissions by quoted companies," he said. "Although only quoted companies will be required to do this next year, I would encourage SMEs to see the potential benefits and opportunities they could gain from actively managing their emissions and other environmental impacts."

"A truly sustainable business is one that will be around for a long time."

While an increasing number of CEOs from businesses of all sizes are voluntarily measuring, managing and publicly disclosing their carbon emissions, according to Izza, this is only one aspect of sustainability. "To date, the business case for sustainability has sometimes been weakened because it is based on marginal improvements in eco-efficiency," he explained. "Many companies are now realising that there are much bigger gains to be made from more radical repositioning. There is money to be made in positioning well - and there is plenty to be lost through getting it wrong."

Testing new models of business

Putting its money where its mouth is, ICAEW has co-developed an initiative with the WWF to test new sustainable business models through a network that combines hundreds of social enterprises and FTSE-listed companies. Known as the Finance Innovation Lab, it provides organisations with various forums throughout the year to increase their knowledge about achieving more with less, and working more collaboratively with suppliers, customers and partners.

Inviting one of the lab's leaders to explain the significance of such an initiative, Izza asked if sustainability in the context of resilience and growth was truly embedded in the collective consciousness of business.

"This perception of sustainability is relatively new," said Finance Innovation Lab founder and co-convener Jen Morgan. "When the Lab launched two years ago, it had a very ideological approach. Now we need a complete reframing of business sustainability. It's about businesses looking 20, 50 years ahead, considering various scenarios and working backwards."

But have perceptions among the business community changed, particularly at board level?

Company boards may appear to champion sustainability, but it isn't always clear whether this is lip service or a true commitment that everyone has bought into."

"Pension funds investing in businesses are interested in their resilience and longevity; they want businesses that demonstrate strong leadership and a long-term strategic vision, with sustainability at the forefront," Morgan explained. "People want authentic leadership that seeks to empower others in a more collective way."

"Company boards may appear to champion sustainability, but it isn't always clear whether this is lip service or a true commitment that everyone has bought into," added Evans.

Leaders in sustainability

Recognition of excellence is one major indicator and a man with the credentials to back up his commitment is Lindsey Parnell, CEO of modular flooring specialist Interface - winner of the ICAEW Sustainability Award 2011.

"In our experience," he said, "the optimal mix for achieving transformational change includes powerful vision and passion from the top, with commitment and leadership in place right across the organisation to help make this vision a reality. This is one of the reasons why we created our Sustainability Ambassadors Network - to nurture leadership potential right across our company."

Parnell explained that when Interface embarked on its Mission Zero to "put back in more than it takes from the environment and the community", it was with clear aims around cost management.

"Reduced energy usage and process innovations at our factories have allowed us to manufacture our products more efficiently and therefore save money," Lindsey explained. "In 2011 alone, we saved $1.7m by avoiding waste."

Having established its credible benefit to businesses, Izza explored the additional, often unseen or unexpected benefits of sustainable practice.

"Our products are better than ever, as Mission Zero has proved to be a tremendous source of inspiration for our design teams, spurring them on to come up with lots of great innovations," Lindsay added. "Mission Zero has been hugely beneficial from a talent point of view, allowing us to attract and retain some of the best people in the industry. It has also had a very positive effect on our corporate reputation, which clearly helps in attracting new business."

Stigma around the profit motive and sustainability must be dispelled. Companies have to make profit to survive and invest in sustainable strategies, and any business that forgets that will not last long."

Following this demonstration of broader value arising from Interface's eco-efficiency, Izza asked if businesses should reassess their understanding of sustainability. "There seems to be some stigma around the profit motive and sustainability, which must be dispelled," Parnell asserted. "Companies have to make profit to survive and invest in sustainable strategies. The profit 'P' is just as important as the planet 'P' and any business that forgets that will not last long."

Stakeholder value

Chemical giant Johnson Matthey won the Coutts Large Cap Business of the Year in 2011 because it clearly demonstrated to judges how it was going to sustain growth and continue creating value for all of its stakeholders - from employees and investors through to customers and suppliers.

Its CEO Neil Carson explained the motives behind the company's commitment to sustainability and why it is so closely aligned with its core commercial objectives.

"Our Sustainability 2017 vision is underpinned by six challenging targets relating to the financial, environmental, and health and safety performance of our business, all of which we continuously monitor and report on both internally and externally," said Carson. "Four of our nine group key performance indicators directly relate to these sustainability targets."

But how accountable does he feel the board, or he as leader, should be?

"I believe that we must report performance against these targets to our employees and the world, so that we are encouraged to do better or explain why we cannot," Carson explained. "In short, it keeps our feet to the fire."

Carson added that, while accountability is important, sustainability targets should be continuously reviewed. "After all, the science and business case continues to evolve. This year, we took a detailed look at our commitment to reduce carbon emissions from our operations, and decided to amend our target to better reflect our business and the evolution of carbon legislation."

While accountability is important, sustainability targets should be continuously reviewed; after all, the science and business case continues to evolve."

Small firms think big

Having established that carbon and eco-efficiency is only one aspect of business sustainability, Izza opened up the debate to explore the broader elements.

"Businesses are realising that long-term profitability has more to do with operational excellence, talent retention and risk management than it does with recycling and energy management - and the most pioneering organisations are demonstrating the value of 'softer' policies to deliver harder financial targets," he observed.

"But the earlier this realisation is made in the development of a business, the better for all involved," said Evans. "With SMEs perceived as the backbone of the UK economy and the UK becoming a nation of entrepreneurs, what is the role of small business in driving the sustainability agenda and demonstrating its impact, not only on the community and the environment, but also on the bottom line?"

Representing 99% of businesses in the UK and providing half of all private-sector employment, SMEs will play a key role as the economy shifts to a greener footing, said Lord Taylor.

"Defra research estimates that UK SMEs alone could save £10bn a year by using raw materials, energy and water more efficiently," he explained. "SMEs can also contribute to long-term green growth in many ways, from the development of low-carbon technologies through to the creation of environmental goods and services, and improvements in the way in which natural resources are used."

Talented people are looking beyond the pay cheque and prospects, and towards what the company stands for and is doing to ensure corporate longevity. And dynamic, agile businesses offer great appeal.

"Fast-growing SMEs understand the need for valued people to buy into the company's founding principles - not only embedding sustainability into growth plans, but also engaging innovative employees in design and delivery," said Evans, who recalled exemplary businesses recognised over the last two years.

"Waste management firm Alex Smiles, for example, was shortlisted in 2011 for how it recognises those helping to increase commercial success through sustainability initiatives - from its own Champagne Awards to press publicity," he explained. "Two firms shortlisted in 2010 showed how industry leadership around sustainability helped to engage staff by sharing best practice. Recruitment consultancy Morgan Hunt also set up an industry recruiter forum to share and benchmark best practice, which boosted its reputation as an ethical company. And Commercial, the UK's largest independently owned office services and supplies company, built its corporate responsibility strategy around ten Green Angel Commitments -achieving a 92% reduction in waste to landfill and a 70% drop in carbon emissions, as well as over 95% staff engagement in the programme."

Representing 99% of businesses in the UK and providing half of all private-sector employment, SMEs will play a key role as the economy shifts to a greener footing."

"It's not just about generating profit for a lot of companies, but defining values through new business models," said Morgan. "Organisations want to serve a wider purpose, generate greater employee engagement and attract talent."

It's much easier for SMEs to achieve this, however, than big businesses, said Izza. "Sustainability has been part of business discourse for years now, but it's still a major transformation for long-established corporates."

"It's much harder for big businesses to reframe overnight due to competitive pressure, but SMEs can be more agile," added Morgan. "Big businesses, however, are increasingly collaborating with SMEs and social enterprises to test new innovations and business models, or expand their R&D depts."

This view is endorsed by Gideon Hyde, founder of growth strategy consultancy Market Gravity, which facilitates such partnerships and helps to incubate and accelerate Big Society projects for large and small businesses.

"Innovation is a vital part of sustainable growth and big companies are exploring new ways to develop their internal entrepreneurs," he said. "Identifying and supporting talented managers who apply entrepreneurial approaches to overcome inherent obstacles is key to driving the growth agenda. It's not just about today's leaders, but also tomorrow's."

Human capital

Talent development is a big component of sustainability, added Evans. "Some of the big corporations entering the NBA are engaging staff through community or pro bono projects, where talented employees gain experience of more complex projects that enable the company to secure new clients. This is win-win for everyone involved," he explained. "We are also seeing charities that have adopted a more corporate approach competing to win awards for enterprise excellence as a result of what they have learned from the business community."

Collaboration at all levels, internally and externally, is transforming businesses of all sizes and the organisation of the future may look very different, concluded Morgan. "The world is so complex that it requires people to work together in new ways, enriched by better ideas and more informed decision-making."