Will Crisis Management drive Sustainability Adoption? (also published on TriplePundit.com)

(This post was also published on TriplePundit.com)

Recent conversations with sustainability execs, including those in the product - centric industries (CPG, discrete mfg) and in technology firms, have centered around adoption of internal sustainability programs (that is: executive sponsorship and enactment of internal initiatives to create a sustainable organization and business model).

A central issue comes up: how to convince executives that sustainability programs are critical to the welfare, brand, and growth of their company?

As in any nascent market or as part of a new management trend, there are always 'thought leader' executives that 'get it' quickly; in this case: they understand the sustainability value proposition for their company, and more importantly, may articulate the specific programs and initiatives that need to be executed to acheive success.

But many execs are viewing sustainablity with a jaundiced eye; it may appear to be 'one more corporate exercise' as one exec told me. And many view sustainability as an additional layer of compliance (more on this in a future post).

This is not to denigrate or judge those executives who don't get it; the incentives for most of these people are ones that you would expect:

- Increase profitability
- Find and develop new product and services lines, or expand to new markets
- Attract and retain the best talent
- And, keep the company out of trouble (i.e. regulatory compliance, product liability mgt, maintain positive press and brand image, etc)

So what may drive sustainability adoption broadly throughout various sectors, beyond that of the 'thought leaders'?

Perhaps the lessons of the environmental regulations wave in the 1970 - 1980's are applicable; when corporations were hit with a multitude of regulations, such as hazardous waste rememdiation, toxics management, and clean air and water requirements.

I worked with corporate environmental officers in the leading process, discrete, and energy companies in that time period, and I was frustrated when I tried to advance proactive strategic environmental risk programs. The value proposition was simply: it pays to stay out of trouble by investing in such a program on an enterprise level.

This sales approach was not extremely successful.

Clients would listen and adopt strategic programs after a crisis hit; a spill or leak of hazardous materials, or evidence of disposal at a Superfund site, for examples. It is hard to invest in the future, especially for events that have not been experienced.

The driving force of adoption of more proactive, strategic environmental risk managment programs was 'crisis management': some companies found themselves in significant risk, in terms of past environmental management practices (or legacies'), with associated regulatory, cost, legal, and negative public image issues as a result. When viewed in this light, proactive strategies (such as sustainability) that encompass processes, people, and products, look like very good investments after all.

When we view sustainability program adoption today, there are certainly those companies who are visible due to their proactive approach (think Walmart), but: we are also drawn to environmental and health crisis's that have occurred; the Mattel issue with it's suppliers was a highly visible example of the need for a corporate sustainability program (or at least a sustainability initiative for the supply chain).

I would advance the idea that in the near term, the vast majority of corporations (i.e. those that are not 'thought leaders', and are in the population within 2 standard deviations of the bell shape curve of their sector) will not adopt sustainability programs unless faced with a crisis; either their own or one from a competitor or well known company. The crisis may not be a major one, but could be big enough to cause negative impacts on brand, customers or employees. They could be: product returns, worker health & safety, past environmental liabilities, losing key talent to competitors, or have a supplier face the same issues.

I don't think this adoption driver will continue on indefinitely, but given the lagging economy and business investment in key sectors (construction, manufacturing), many companies may defer on moving forward with enterprise level programs. When the economy turns around, adoption will probably hit some level of inflection point in the near future (2 years), where sustainability programs will not be a 'nice to have', but will be necessary to compete. But I do not think we are there yet. Read more!

Use of Life Cycle Assessments (LCA) in Sustainability Programs

Recently read a blog post on TriplePundit by ClimateCheck, regarding the development of ISO 14064, which covers the measurement and reduction of GHG emissions.

A comment in the article (link is here) caught my eye:

"One of the challenges is the use of an “approved or standardized” approach to quantifying the carbon credits created by new technologies. There are many approaches being used, ranging from in-house engineering calculations to full life cycle analyses (LCA) and computer models"

It made me think about the 'state of the art' of LCAs...(yes, I know: I may lead a very lonely life)......anyway, I do think that LCAs can be a very powerful tool to identify, measure, and manage GHG emissions, as well as do the same for other important 'sustainability' metrics such as: resource consumption (i.e. water); toxics use and emissions, and of course carbon footprinting.

LCAs have been around for quite a while; I developed (rudimentary) tools for environmental management problems in the 80s and 90s; focusing on chemical disposal / recycling challenges. Product Stewardship and 'Responsible Care' were the primary drivers of this market at this time; both programs were developed by the chemical industry in response to potential strict regulations in the aftermath of catastrophic environmental incidents (Bhopal, West Virginia chemical releases). But these programs did not really look at impacts in production; they focused more on the impacts after the sale.

Currently, qualitative LCAs are in use ("LCA Lite" is a term a peer of mine in the manufacturing consulting industry has used). These are quite useful for strategic planning, prioritization and ranking of initiatives and programs, and communications / marketing purposes, but may not add value for decision making on supply chain optimization and 'greening', or similar decisions in green product development in PLM efforts.

I think the standards organizations such as ISO and the Voluntary Carbon Standard are taking a lead in the development of rigorous methodologies, as well as definition of metrics that may be accepted by industries.

This is a market sector that I think both technology companies and service providers may have significant success in the next few years; tech companies in the CSR and supply chain mgt sectors are well positioned to incorporate LCA functionality (and data sets); and 'white space' development and industry - specific customization will be required to get LCAs to the point of being widely accepted tools for sustainability decision making.
Read more!

Who are the buyers (and users) of Sustainability Solutions?

Have had conversations with leading CSR and Sustainability technology companies in the past month or so; focusing on how this market is going to evolve, what are the technology needs, and how to sell complex solutions in an emerging space. What results in this post are some insights from specific tech firms coming at 'sustainablity' from differing business process and requrements.

That leads to the question: who is buying (and using) sustainability solutions? The answer is probably dependant upon what type of sustainability solution is being sold, as much as in how the term 'sustainability' is defined.

Credit360 is a European company with offices here in the US, and providing sustainability reporting solutions to clients such as Ford Motor Company. Christina O’Connell is the director of US sales, and had some interesting perspectives on selling these types of solutions. She mentioned that "sustainability teams are not comprised of technical staff, but have more brand management and PR teams involved". For their clients, many are using solutions to report on sustainability protocols such as GRI, but will also modify those protocols according to company - specific criteria as well.

Bill Best is CEO of Proquis, an UK based risk management technlogy firm. Given their offering in corporate governance and risk, many buyers and users are at a corporate level, and report into the chief counsel or CFO. Many of their clients are pursuing sustainability, but view it as part of a larger risk management strategy. Bill mentioned that their clients are "executives who want to see everything"; assuming a dashboard or similar portal, with the ability to drill down on issues.

From an environmental management system perspective, the usual buyers have been corporate EHS officers. With the need of managing greenhouse house gases (GHG), these EMS systems take on added importance. Users in this case may include those in the CFOs office, as well as the aforementioned EHS officers. Larry Goldenhersh, CEO of Enviance, an EMS technology firm, said that many of their clients have established a role of "Chief Risk Officer", who will oversee GHG emission monitoring and control. An interesting comment: "Many companies are going back to compliance in order to get it right", meaning that sustainability is important, but not at the expense of compliance.

There are other buyers of sustainability solutions in the supply chain and PLM (product lifecycle management space) that represent a more product - centric group of users; that will covered in an upcoming post.

Read more!

Forrester releases CSR Tech Vendor review

Had a chance to review the just released Forrester report, and it is a sign of the growing maturity of this market that a research company like Forrester is covering CSR technology as an emerging segment. I have met with a few market research firms in the past 6 months to discuss the cleantech and CSR markets. For the most part, they are just starting with their own due diligence into this space, so they are not up to speed on the market, vendors, key initiatives, and growth strategies. They will most likely address this space coming from their own areas or strength: enterprise software, business analytics, supply chain management, etc.

Forrester broke down CSR technology categories as follows:

• Niche CSR
• GRC (Governance, Regulatory, Compliance)
• EMS (Environmental Management Systems)
• Business Applications (performance mgt, analytics)

No specific mention of technology platforms for sustainability in the greening of the supply chain, though. I think that this need, along with greening of IT / Data Centers and GRI Reporting, are the primary market drivers for buying these technology solutions today. The supply chain management issue (along with PLM) also directs ties into compliance with new toxics regulations such as REACH and RoHS; creating an additional market driver.

They talked to about 30 companies, which may seem like a good number, but still is a relatively small sample, given the breadth of technologies that they are covering (GRC tech companies alone comprise a big group, and there are a significant number of emerging CSR reporting technology firms on the horizon).

I thought the recommendations were rather broad, but recognize that the report is geared towards a technology buyer community who may be just getting up to speed on this segment. Recognizing that this report will most likely be followed in the near future with in-depth vendor analyses and market segment reviews, I think buyers will need corresponding strategies around the type of complimentary services that are required. It is clear that each technology platform arrives at the CSR market with its own strength and focus, but CSR itself is based on the premise of enterprise level and multiple domain business process development. At this stage of the market, significant consulting help will be required to build enterprise level solutions, regardless of the technology platform strengths.

Consulting services such as CSR strategy development, systems integration, domain specific expertise (i.e. environmental, community development, etc) and also 3^rd party validation / assurance are necessary and critical at this early stage of market maturity. Look for an upcoming blog post on this subject…

Read more!