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!

Some thoughts on sustainability in the supply chain

As the sustainability technology market develops, it appears that there are a number of segments within (such as CSR reporting, supply chain mgt, etc) that are gaining traction, and may 'drive' general adoption of sustainability within organizations. I find it interesting that there are a number of different tech firms such as Aravo, Stakeware, CSRware, Credit360 and many others, that are coming at sustainability from different business processes. The recent Forrester report on sustainability technology (which I commented on in this post) details the general groups as well, but does not identify supply chain solutions as a specific segment. I think this may be an area that could drive faster adoption, and also be a platform that could integrate with other sustainability processes & metrics as they were developed in an organization.

Initiatives to ‘green’ the supply chain generally follow these key metrics:

• Lower energy use and increase energy efficiency in storage and transportation
• Minimize packaging via improved product design and use of recycleable materials
• Lower carbon footprint and emissions via improved energy (above), use of alternative energy sources (where appropriate)
• Substitution or elimination of toxic materials when possible
• Effecient use of resources; i.e. "embedded water" costs
• Optimize the supply chain as to minimize impacts on stakeholders

The market drivers for greening are:

• Product - specific compliance, such as REACH
• Sustainability reporting
• GHG emission reductions and credits
• Improved risk management (in light of recent supply chain incidents with Mattel, others)
• Cost savings of shippers / suppliers; leading to better value pricing
• Stronger relationships & transparency with key suppliers; strategic value

In discussions with many supply chain management solution providers, it appears that many end user clients are deploying 'green' solutions in the supply chain to achieve better energy efficiency, because it is the most visible and generally the easiest issue to solve with key suppliers and logistics partners. But it remains to be seen whether that issue will continue to drive the growth of this segment. There is a general feeling that any additional 'incidents' with global brands will increase awareness and urgency on the part of corporations to gain complete transparency in their supply chains and manage them beyond just energy efficiency gains. Along those lines, continued regulation enactment similar to REACH and RoHS in the EU will also force companies to align their supply chain (and product management) processes so as to be in compliance with product - centric regulations.

Read more!

Executive CSR roles & pay are growing...

A recent article from the UK indicated that corporate CSR roles have grown significantly, along with pay scale; link is here.

This certainly a promising trend; the key is to encourage / empower these CSR executives to be part of the decision making process at a corporate level. MBOs could include:

- Increased profitability from effective material use and workflow (use of lifecycle cost assessment tools to measure and optimize processes)

- Increased positive brand awareness; measured by feedback from focus groups, advisory & customer panels, stakeholder input

- Effective risk management: compliance with governmental and NGO standards; increased ROI on risk mgt expenditures

- Identification and development of new business lines that embrace sustainable principles

I am sure there are others, but if the executives are not involved in critical corporate decisions, then their roles will be relegated to more of the "EHS" roles of the past 20 years, which were non - mission critical...

Read more!

"Green is the latest opportunity for consulting firms"

...says CNET recently in their Green Tech Blog

I wrote on this opportunity for consulting firms earlier (link).

The article's focus is on opportunities in the energy efficiency and "green corporate practices" (their terminology). Green IT consulting will grow into a $4.8 billion industry by 2013, according to Forrester Research (CNET).

As I have written before, I think the market opportunity for services providers is much more broad, and transcends just energy efficiency consulting services for IT departments and data centers. So, perhaps that $4.8B is a conservative estimate...

The other "green" opportunities for services / consulting firms? Some areas to consider:

- Global Risk Management, incorporating all facets of regulatory and NGO (Non Governmental Organizations) reporting. (Subsets are: sustainability reporting, "greening" of the supply chain, stakeholder analysis, environmental health & safety, REACH or RoHS - like compliance)

- Engineering Design & Construcion Services: leveraging specific cleantech in water, air, energy efficiency, alternative energy development, and material procurement.

- Operations & Facility Management Services: 'outsourced' services to manage operations; with incentives for optimized energy mgt, and low / zero emissions (GHG, water)

- Integrated Cleantech / Services: Services companies may license clean technologies in energy (modeling, monitoring) as well as in emissions mgt, and integrate with their methodologies; thus licensing integrated 'toolkits' to access the SMB market via smaller, regional services providers



Read more!