Sustainability: A Winning Formula

Embedding stewardship of natural resources into a company’s core values and culture is becoming a winning formula for cost savings and profitability as well as environmental sustainability.

If anyone understands how to identify what makes a company profitable, it’s Bloomberg. And just as its clients utilized the data and insights provided by Bloomberg, the company has turned knowledge about sustainability into action – realizing savings in its own operations of approximately $28 million in energy efficiency and waste reduction since 2008.

When Lee Ballin of Bloomberg’s sustainability group discusses the firm’s success in squeezing out costs, he notes that 78 percent of the Bloomberg work force believe sustainability is a core part of the culture. “We’re doing this because it makes good business sense and it also happens to be the right thing to do,” said Ballin. He noted he would prefer to call these efforts corporate opportunity. “Whereas responsibility makes it something you need to do, opportunity makes it something that you want to do,” Ballin said.

“And opportunity isn’t just educating employees and engaging them and reducing costs. It’s also on the revenue side.” As a provider of financial data, Bloomberg has expanded its portfolio of products to include environmental, social, and governance (ESG) data that includes, analysis and corporate data regarding renewable energy and carbon markets around the world – and many other indicators of corporate performance beyond financial.

At Sprint, Ralph Reid, vice president of corporate social responsibility, also saw a chance to transform the firm’s internal commitment to energy efficiency and recycling into a market opportunity with an eco-friendly phone. He admits it wasn’t easy because of the highly competitive nature of the mobile phone market and the marketing investment needed to succeed. As Reid said, at Sprint there are two things you “don’t mess with” – phones and packaging. But that’s just what he did. Reid knew from the commitment the Sprint work force had made to energy conservation and recycling that there would be an appetite among consumers for these new products.

Even within business-to-business firms, connecting the environmental values of the work force can be leveraged to find savings and provide a market differentiator. As Riva Krut, director of sustainable development for the chemical technology firm Praxair, worked to embed sustainability into the business, she recognized long-term success required a cultural shift that raised awareness about the benefits of environmental stewardship. Beyond the cost savings on energy, Krut said the culture shift to “green thinking” has influenced many other decisions made within the business.

Krut created an employee engagement program called Office Go Green, an effort that reduced greenhouse gas emissions by 20 percent per worker over a four-year period. The early and enthusiastic adopters for the program were employees in India, China, South America, and Mexico. She said she was able to use the momentum from the company’s growth markets to build momentum company-wide.

Practice reflected in Ernst & Young survey 
What’s going on inside Bloomberg, Sprint, and Praxair is reflected in new findings from a recent Ernst & Young LLP and GreenBiz Group survey “Six Growing Trends in Corporate Sustainability”. The report contained an analysis of the results from surveys of 272 sustainability executives in 24 industry sectors who are employed by companies generating revenue greater than $1 billion. The results revealed what’s driving sustainability strategies: cost reduction (74 percent); stakeholder expectations (68 percent); managing risks (61 percent); revenue generation (56 percent); and government regulation (37 percent).

For Brendan LeBlanc, executive director, Climate Change and Sustainability Services at Ernst & Young LLP, the fact that cost reduction was the leading driver came as no surprise. But LeBlanc said it was particularly noteworthy that the No. 2 driver was “meeting stakeholder expectations” followed by “managing risk,” calling this fertile ground for corporate citizenship professionals to make the case for their efforts. The survey also validated the importance of employees to sustainability initiatives. When the executives surveyed were asked to rank stakeholders in terms of importance, customers came in No. 1 at 37 percent, followed by employees at 22 percent.

During a general session of the 2012 International Corporate Citizenship Conference, LeBlanc was joined by colleagues Leisha John, Americas director, Environmental Sustainability, and Beth Rosemond, assistant director, Corporate Responsibility, on a panel that examined the findings of the survey. John and LeBlanc shared how the survey reflects what is happening at Ernst & Young and presented six key findings:

The CFO’s role in sustainability is on the rise
LeBlanc commented that in 2010 and 2011, the No. 1 topic of stakeholder resolutions was environmental, social, and governance issues, and the average support for those resolutions went from 2.6 percent in 2005 to 30 percent in 2011. “That kind of increase means CFOs need to be taking it seriously,” he said.

Despite regulatory uncertainty, greenhouse gas reporting remains strong, along with growing interest in water
To highlight the extent of the reporting, LeBlanc noted that 76 percent of survey respondents currently publicly report greenhouse gas emissions, another 16 percent will within the next five years, and about half are verified by a third party. He added that there are 3,700 voluntary submissions to the Carbon Disclosure Project but also noted that quantity does not ensure quality. LeBlanc commented that he believes eventually indicators will be assured to a high level and will be integrated with financial statements, but it will take some time for reporting to advance to producing investment grade disclosures. “Sustainability reporting will evolve to contain some next-generation-type metrics where stories will become more meaningful because the concept of context will be described in a way that is much more rigorous than it currently is,” LeBlanc said.

Sustainability reporting is growing but the tools are still developing
John commented on the challenges involved for a professional services company such as Ernst & Young where one third of the carbon footprint is energy use in offices and two thirds comes from travel. She said the company compiled three years worth of data to identify the highest energy intensity offices and found 50 percent of energy use was attributed to just a few U.S. offices.

It can be difficult for companies to deliver diagnoses like this. In working with clients, LeBlanc finds that the sustainability function is “under resourced and under tooled,” and faces language issues with the auditing officer, pointing out the risk of producing something incorrect when there is no common standard, that provides common definitions as GAAP does for financial reporting.

LeBlanc added that it is important not just to identify what information should be reported but also how it is prioritized. He noted that what is relevant and material varies from one business context to another.

Awareness is on the rise regarding the scarcity of business resources
Referring to Gaylord Nelson’s comment that “the economy is a wholly owned subsidiary of the environment, not the other way around,” LeBlanc remarked that climate change poses tremendous potential risk to business continuity. He said that to be meaningful, reporting on resource use should include both the numerator and the denominator to understand progress, and resource constraints must be put into context. “Saying you used 20 percent less water than last year – whatdoes that really mean?” he remarked. “How much water is available in your area? Maybe water should be considered differently in Phoenix than in Vermont.”

Employees emerge as a key stakeholder group for sustainability programs and reporting 
John stressed that young workers and students being recruited want to know what a company is doing about sustainability and the environment. She noted that her own position as director of environmental sustainability grew from a push by an employee EcoCare group to make Ernst & Young’s offices greener. The company’s EarthWatch Ambassadors program, which combines skills-based volunteering with scientific research, has become hugely popular. “It’s tougher to get into the EarthWatch Ambassadors program than it is to get into Harvard,” she said.

Rankings and ratings matter to company executives
John cited the competitive nature of corporate leaders as one driving force behind the interest in rankings and ratings. That competitiveness, she added, is also a factor in getting employees to raise recycling rates and meet other standards to earn recognition.

Asked what advice they could give companies on their sustainability efforts, John responded that “meaningful metrics are crucial” to creating increased credibility.

LeBlanc offered a corollary to the wisdom of measuring what you manage. “Figure out what it is you want to manage,” he said, noting that the sooner corporate citizenship professionals can connect the dots between long-term value creation and their sustainability efforts the better.

Sustainable value
Whether it’s introducing green practices to employees, making operations more energy efficient, or advising clients on how to make their businesses more sustainable, a growing number of companies are finding that in focusing on the bottom line, attention to responsible use of natural resources and environmental impacts can deliver differentiating value. Corporate citizenship professionals are demonstrating that rather than sustainability being a costly add-on, it can improve productivity, manage risk, and create value when practiced effectively as part of a company’s core values.