The Sustainability Frontier: Where are you on the Journey?

Beth Davis-Sramek, Ph.D.

University of Louisville

Why the focus on sustainability?

Why Even Bother?

"There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits…..

so long as it stays within the rules of the game..”

Milton Friedman, New York Times Magazine, 1970

“Rules of the Game”

Organizations must conform to the rules and belief systems prevailing in the environment to earn the organization legitimacy

Formal Institutions Informal Institutions

Premise

The Rules of the Game are Changing: Ex: The Palm Oil Controversy

The Rules of the Game are Changing: Ex: The Palm Oil Controversy

Source: RSPO.org

The Rules of the Game are Changing: Ex: The Palm Oil Controversy

The Rules of the Game are Changing: Ex: Palm Oil Controversy Response

Fortune, Dec 2014

Perhaps More Compelling…NOW:-- Global population of 7 Billion-- 2 Billion people in global middle class -- More than half of the world’s population live in cities-- There are 34 “megacities” (more than 10M inhabitants)

BY 2030:-- 3 Billion MORE people will be joining the global middle class-- There will be 41 “megacities”

Tremendous opportunity – resource/risk management is KEY.

Forces of Change

“Expect the Unexpected:

Building business value in a changing world,”

KPMG, 2012

Sustainability defined…

“Meeting the needs of the present generation without compromising the ability of

future generations to meet their own needs.”

“Enough, for all, forever.”

“The simultaneous pursuit of economic prosperity, environmental quality and social

equity. Companies aiming for sustainability need to perform not against a single, financial bottom

line but against the triple bottom line.”

Sustainability and the Triple-Bottom Line

People Planet

Profits

Sustainable Businesses are

RESILIENT, and they create:

Economic valueHealthy ecosystemsStrong communities

Sustainability and the Triple-Bottom Line

People

Planet

Profits

Strategy

Mission & Objectives

Sustainable Businesses are

RESILIENT, and they create:

Economic valueHealthy ecosystemsStrong communities

The Sustainability

Journey

Pre- Compliance

Compliance

BeyondCompliance

Purpose&

Passion

Integrated Strategy

“The Next Sustainability Wave,” Bob Willard, 2005

1. Pre-Compliance

Nike, 1997 Annual Report: We are not here to eliminate poverty and famine or lead the war against violence and crime. Our critics say that the world is going to hell in a Nike sports bag. Then, again, for the most part, our critics aren’t athletes.

The Sustainability Journey

2. Compliance Avoid fines, prosecution, bad PR

The Sustainability Journey

2. Compliance

The Sustainability Journey

3. Beyond Compliance

3.0 Improve company eco-efficiencies and brand

3.1 Improve supply chain conditions and footprints

3.2 Create new eco-effective products, services, leases

3.3 Embed sustainable governance

The Sustainability Journey

3. Beyond Compliance

3.0 Improve company eco-efficiencies and brand

3.1 Improve supply chain conditions and footprints

3.2 Create new eco-effective products, services, leases

3.3 Embed sustainable governance

Wal-Mart Mission Statement: We save people money so they can

live better.http://corporate.walmart.com/global-responsibility/

2. Compliance

The Sustainability Journey

3. Beyond Compliance

4. Integrated Strategy

Nike, 2011 Annual Report: I believe that any company doing business today has two simple options: embrace sustainability as a core part of your growth strategy, or eventually stop growing.

Nike Profile, TODAY: NIKE, Inc. fosters a culture of invention. We create products, services and experiences for today’s athlete while solving problems for the next generation.

2. Compliance

The Sustainability Journey

3. Beyond Compliance

4. Integrated Strategy

Patagonia Mission Statement: Build the best product, cause no

unnecessary harm, use business to inspire and implement solutions to

the environmental crisis.

Purpose&

Passion

Endangered Species Chocolate

Promise: 10% of our net

profits are donated annually to current

10% GiveBack Partners

The Sustainability Journey: Where are we now?

And the Survey Says…..

“New Business Models: Shared Value in the 21st Century,” The Economist Intelligence Unit, October 2014.

David Kiron, Nina Kruschwitz, Holger Rubel, Martin Reeves and Sonja-Katrin Fuisz-Kehrbach, “Sustainability’s Next Frontier,” MIT Sloan Review, December 2013.

Motivators for Sustainability

• 66%: there is a strong causal link between a company’s commitment to embed sustainability goals and its long-term (5-10 years) financial performance

• 70%: having a sustainability strategy is a prerequisite for the company’s long-term growth

• 48%: sustainability practices are a source of competitive advantage

Obstacles for Sustainability

• 52%: immediate financial goals are more urgent

• 44%: absence of a business case

• 31%: no consensus on ultimate sustainability goals

• 30%: inadequate budget

• 27%: insufficient clarity concerning responsibilities of the company

• 26%: lack of clarity on legal or regulatory obligations to meet sustainability standards

Are companies putting more focus on sustainabiliy issues? Yes…

67% say social and and environmental issues are “significant” or “very significant”

BUT…

40% say their companies are largely addressing them, and 10% say their companies fully tackle them.

THOUGHT ACTION

Little progress to establish a business case…

Defining Talkers vs. Walkers

Organizational Capabilities for Sustainability

Moving from Talking to Walking

Most Influential

Stakeholders

More Collaboration

Sustainability’s Next Frontier

People

Planet

Profits

Strategy

Mission & Objectives Power in numbers through systemic

sustainability collaborations

Addressing global sustainability challenges is beyond the capabilities of even the largest company.

Four Models of Sustainable Collaborations

PLAYERS

FO

CU

S

Ope

rati

onal

pro

cess

esO

utco

mes

Companies acrossthe value chain

Companies and Nonbusiness stakeholders

Develop industry benchmarks and standardized systems for measuring environmental performance across the value chain

Institute "payment for ecosystem services" models in which firms invest in funds that compensate local communities for improvingconservation and protectionoutcomes

Identify and share industrywide operational processes that protect the environment or protect human rights

Initiate extended collaborationsTo engage businesses and noncorporate stakeholdersin the pursuit of operationalinnovations and best practicesthat create shared value

Enabling Successful Collaborations• Start with a small, committed group• Link self-interest to shared interest• Monetize system value• Create a clear path to quick wins• Acquire independent project management

experience• Build in structured competition• Nurture a culture of trust

The Collaboration Imperative, HBR, April 2014

Sustainability is no longer a nice-to-do.

It’s a must-do.