Businesses with successful sustainability strategies eschew the single profit driven bottom line in favor of using the triple bottom line to assess their corporate KPIs. The success seen by early adopters forged the path forward for corporate sustainability and the TBL method evolving to become the accepted standard business model across every sector.
Until recently, environmental sustainability in business was primarily a marketing issue with initiatives focused on symbolic rather than substantial green strategies. The digital age has transformed the corporate-consumer relationship from ‘wholesale’ one-way mass communication to ‘retail’ one-to-one conversations taking place via the various social media platforms. For better or worse, social media has made retail B2C discourse a wholesale operation and separates the corporate wheat from the chaff. Social media users reward businesses for their transparency and authentic engagement with increased brand awareness and consumer loyalty. Likewise, companies who merely pay lip service to consumer concerns can and do pay dearly for misleading or disingenuous interactions with their audience.
When this lip service is paid to corporate environmental practices, it is referred to as “green washing”, and it is not only consumers who balk at supporting a business with divergent environmental branding and practices. Lending institutions, insurers, and investors provide favorable rates on interest, loans, and premiums to companies who commit to sustainability and develop appropriate environmental key performance indicators (KPIs) into their management practices and business frameworks. No longer confined only to boutique Environment-Society-Government (ESG) funds, the mainstream financial sector is embracing the sustainable investments they once eschewed as ‘high risk’. Sustainable investments were perceived as delivering inferior returns; however, research increasingly shows that the opposite in fact is true. Research supports the theory that corporations which demonstrate a commitment to improving their environmental, social, and governance practices are consistently more profitable.
Companies with transparent sustainability plans who disclose key findings from their annual reports and EPA compliance records may benefit from these favorable financial benefits regardless of their size. Moreover, these favorable rates are rewarded to organizations that demonstrate a commitment to improving their sustainability measures rather than those who already have the means to roll out comprehensive strategies. Financial institutions reward demonstrative commitment to sustainable management rather than its results because corporate sustainable development goals are routinely assessed and improved. These audits and adjustments lead to improvements in efficiency which reduce costs, improve workplace and community safety, and improve consumer brand perception.
The benefits of integrating corporate sustainability measures into an organization are felt at every touch-point —
- Top-down analyses of operations necessary to develop practical sustainability tactics uncover areas of improvement missed in prior management audits.
- Improved EH&S measures result in improved employee retention, engagement, and productivity.
- Production life-cycle audits inform ways to develop a practical and profitable circular economy.
- Reviewing relationships with vendors and suppliers allow you to strengthen successful partnerships and isolate redundancies.
When approached as an evolving process, sustainable development goals can grow with a business, and each piece can be adjusted in order to realistically satisfy KPI objectives. Whether an organization commits to one tactic or rolls out an all-encompassing sustainability plan, each piece will improve its overall operational efficiency, safety, and profitability.
What is Corporate Sustainability?
The International Institute for Sustainable Development (IISD) defines sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. In the corporate environment, the success of sustainable practices is measured using the Triple Bottom Line approach. Triple Bottom Line (TBL) is a phrase coined by entrepreneur and business author John Elkington to describe what he proposed are the three metrics which most accurately measure corporate success beyond just profitability.
Triple Bottom Line quantifies a company’s success against the benchmarks of People, Profit, and Planet.
The Profit component of TBL is the one best understood and most easily measured. It inspired Adam Smith’s 1776 magnum opus, The Wealth of Nations, which has ever since shaped the socio-political values of the West. In the quarter-century since Elkington coined TBL, trends towards assessing corporate success using People and Planet alongside Profit have made steep inroads into both public and private sector strategic development policies. What early adopters have learned is that gains in their ‘People’ and ‘Profit’ lines will result in strong gains to the linear OG- Profit.
For the triple bottom line model, ‘People’ refers to a corporation’s stakeholders, or “any person, social group, or society at large that has a stake in the business.” Companies rely on local resources—whether as employees, suppliers, or in the form of community cooperation—in order to be successful. Likewise, communities are reliant on the continued success of the corporations that operate within them not only for the employment they provide, but for the businesses that thrive as a result. When they commit to implementing strategies towards sustainable development, corporations ensure not only their future success but also the strong and sustained future viability of the communities where they operate.
‘Planet’ speaks, of course, to reducing a company’s environmental impact. Reducing waste, investing in renewable energy, optimizing natural resource management, and improving logistics are a few environmental sustainability strategies that convert decreasing environmental impact into increased profit margins. Improvements to an organization’s eco-footprint will reduce or even eliminate delays, fines, and scrutiny which result from incidents or corporate policies that impact the health of employees and/or the community. By routinely assessing the fitness of your supply chain, chemical inventory, waste management, and operating equipment, your business will identify opportunities to improve operations, review relationships, and even uncover unexpected revenue streams to add to your business portfolio.
What Makes a Company Sustainable in the Long Run?
The wide-scale reticence that many sectors, particularly manufacturing, exhibit in adopting sustainable management practices have arisen due to a perception that environmental sustainability must come at the cost of economic viability; that the benefits of green investment do not outweigh their cost. There is a substantial archive of literature which exists pertaining to the quantified measurement of sustainability. Notably absent, however, is literature which contributes to an understanding of how sustainability can be integrated into both practice and performance management. The conflict between economic development and environmental protection can in no small part be attributed to this gap in understanding.
At its essence, this conflict is no different than the one that you face when we try to adopt a healthier lifestyle. Whether it’s going to the gym, quitting smoking, or something else, you understand fully why it’s necessary. There are plenty of tools available, and even more stories of people who have successfully achieved what you have not. Success stories tend to focus on the results rather than the process, and nearly all fail to consider the full extent of what needs to change in order to trade good habits for the bad ones. On both the micro and macro levels, the challenge is as unique as the entity committed to changing it. It follows, then, that the solution must be equally individual if it is to be successful.
The challenge to successfully design and develop effective management frameworks and practices is not a new one. In the early 1960’s, academic and management consultant Jay Galbraith developed the Star Model™ as a solution to this problem, and it has since become the gold standard in management design and development. Galbraith describes it as a management framework providing “the tools with which management must become skilled in order to shape the decisions and behaviors of their organizations effectively”—in other words, its culture.
Management strategies and practices evolve concurrent with the culture within the organization. The culture of any organization is a visceral reflection of its leadership and shapes the message and methods adopted by everyone within it. Businesses that are intentional in creating and maintaining a corporate culture that upholds the tenets of its vision and mission statements experience less resistance and see earlier and higher levels of success when initiating changes. The successful adoption of any new practice begins with ensuring that both your leadership and your plan are in alignment with your stated corporate vision and mission.
Galbraith identified five corporate culture touch-points that must be considered when designing management frameworks--
- Strategy, which determines direction
- Structure, which determines decision making power
- Processes, which determine the flow of and response to information and technologies
- Incentives, which determine the motivation to achieve operational goals
- Human resources policies, determine the necessary skill and mind sets employees require
As the parts necessary to operate the dynamic, integrated whole.
What are the key elements of sustainability?
Sustainable management frameworks define organizational sustainability goals, outline and assign implementation practices, and establish the key performance indicators, and the business’ triple bottom line is the yardstick by which the framework is measured. The triple bottom line allows businesses to assess and quantify areas of their business that impact profit margins but are not considered significant measurements in the traditional single bottom line model. The ‘iron triangle’ of price, cost, and time prized above all else in the single bottom line continue as importance metrics in the triple bottom line approach.
Successful sustainability policy construction leverage the iron triangle’s stability to ground and stabilize its social and environmental initiatives.
- Price (Iron triangle peak)
- Quality (Iron triangle leg)
- Time (iron triangle leg)
These give principles guide sustainable project management, and, when combined with the five areas identified by Galbraith, they inform the design and development effective corporate sustainability policies, procedures, and most importantly, the metrics that will quantify their success.
How do you measure corporate sustainability programs?
Environmental KPIs provide data valuable for the internal and external assessment of an organization’s potential. This data, along with data provided by the EPA’s Toxic Release Inventory (TRI) is used by business strategists to identify and correct both the glaring problems and the smaller operational issues whose insignificance allowed them to remain uncorrected. While these smaller problems may be insignificant individually, but collectively they represent a substantial factor in the health of your company’s profit margin.
Essentially, sustainability projects should be understood as having a cumulative effect—that the small improvements that make up a sustainability program like reducing paper waste, improving employee training, and influencing vendors by supporting green suppliers all compound the return on investment to your profit margins.
The impact of sustainability programs on your profits is undeniable, evidenced not only by the countless case studies and green trends observed in the largest industry sectors, but also by the growing importance of the Dow Jones Sustainability Indices (DSJI) to investors assessing the investment potential of sustainable businesses. The financial sector has sat up and taken notice as companies who adopt sustainable management practices reap rewards in the form of increased stability and profitability. The DSJI is the financial sector’s solution for quantifying the investment potential of a sustainable company and measures their performance against the TBL pillars of People, Profit, and Planet.
What is especially important for executives to understand is that over half of the evidence used by the DSJI to determine whether to include a business in their index is generated by a company’s EHS department. Just a handful of reports required by DSJI include:
- Environmental reports like Toxic Release Inventory, EPCRA, and emissions inventory
- Health & Safety reports (OSHA reports, CFR 26, etc.)
- Sector-specific questionnaires sent by DSJI partners and verified by PricewaterhouseCooper (PwC)
- Internal EH&S reports like corporate governance
- And, of course, sustainability reports
When developing performance measures for sustainable development strategies, forecasters and business planners take a life-cycle approach and assess the efficiency of each area therein. In doing so, they can create, define, and assess KPIs which take into account all factors impacting a company’s overall management strategies for sustained growth and success.
How important to business if culture in your organization? What tips do you have for implementing a strong corporate culture of sustainability? Tell us about it in the comments!
Contact us today to learn more about how ERA Environmental can help your business integrate sustainability measures and develop the right KPIs to measure their impact on your triple bottom line.