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Date: 2024-07-24 Page is: DBtxt001.php txt00005430

Ideas ... Metrics
Managing sustainabillity

Daniel Aronson ... How Do We 'Hardwire' Sustainability Into Business?

A comment made to this article:

This article had a lot of potential ... but in the end, disappoints. I was a corporate CFO some years back and I know very well the enormous power of internal analytical accounting metrics to get the business behavior one wants. They have to be designed correctly, but, given that, they are powerful.

The problem, as I see it, is that nobody seems to be grappling with the fundamental job of reforming basic double entry accountancy so that it does as good a job for impact on people and planet as it does for profit.

I also take issue that the primary objective of economic activity should be to optimize simply for organizational profit. This was a simple idea that worked in the days of small enterprises, low energy and low productivity manufacturing that Adam Smith wrote about, but does not work well in the present situation. Money profit accountancy was good enough as well until relatively recently.

Now we need rigorous metrics about all economic activity systematically organized so that the data may be aggregated by implementing organization, by financing organization, by place and by product.

The data should be about revenues and costs that results in profit. Also about impact on people in all the manifestations of people as investors, executives, workers, suppliers, customers, family members, community members, etc. Also about the impact on planet whether it is the consumption of resources, the use of water and land, the disposal of waste, solid, liquid and gaseous.

In order for this to work, there has to be a way to quantify impact. This can be done using the concept of standard value, somewhat similar to standard costs in cost accountancy. Understanding standard values in itself will help to make a lot of sustainable issues much more actionable.

The importance of place is that it is in place that an economic activity is understandable, and more important can be made accountable. A place is also where impact on people and planet comes together in an understandable way.

The idea of aggregation by product is important, because a product (goods and services) is a point of decision. At the moment the decision to buy or not to buy a product is driven by advertising and brand PR sponsored by corporate interests. Complementary data about a product is needed just as easily accessible about the impact of a product on people and planet.

I don't sense that much, if any, of what I am talking about is going to be presented at the upcoming conference, which is a pity. Unless we really get serious about the metrics that matter, the whole business of sustainability will get little traction.

Peter Burgess TrueValueMetrics

How Do We 'Hardwire' Sustainability Into Business?

While there are myriad perspectives on sustainability and corporate responsibility, each with its own unique value, I often find myself focusing on sustainability’s operational aspects: What can we do to increase the pace at which belief in sustainability translates into concrete actions that benefit the environment, society and business? To me*, a key question is how we get more done, how we “hardwire” sustainability into the way businesses operate.

The time is right to focus on the how of increasing sustainability because so much great work has already been done on the what over the years, and sustainability has come to be so well-known in business. For example, the concept of the triple bottom line (social, environmental, economic) is now decades old, and it has been remarkably successful at becoming part of the thinking of businesspeople (There is, however, a long way to go in terms of becoming fully integrated into the day-to-day operation of businesses, as we will discuss later).

While in years past sustainability and responsibility efforts had to fight being perceived as distractions, surveys now routinely find it is perceived as important — for example, one found that 93 percent of CEOs see sustainability as important to their company’s future success. In this context, it makes sense to me that our primary challenge is less about raising awareness of sustainability and responsibility and more about raising the level of action related to it.

Part of raising the level of action is addressing issues that frequently stand in the way of businesses doing more. While there are many barriers, I believe a core issue is the tendency to see sustainability as separate from the business, rather than as integral to how it creates value. This has two key components:

  • Cultural: Sustainability being seen as not as rigorous or financially valuable as other areas of the business

  • Conceptual: Sustainability being seen as tangential, or as outside of the core of how the business creates value

Separation from the business

The response to this perceived disconnect between sustainability and the business can be twofold: First, to demonstrate that sustainability is being run with the same culture of performance (e.g., rigor, focus on value) as the rest of the business; second, to illuminate the links between sustainability and the value-creation engine of the business.

One effective way to address the culture of performance aspect is to run sustainability programs with the same management rigor and focus on value, meeting the same business case requirements and using the same performance improvement processes as the rest of the business. Over the years, many studies — and my personal experience — have found that one of the top barriers to doing more around sustainability is the difficulty of demonstrating the business case. As just one example, a report commissioned by the Institute of Chartered Management Accountants states that sustainability will only be embedded in an organization if it is supported by a robust business case linked to tangible benefits.

I’ve spent over a decade trying to address this specific issue, in particular working on how to better measure and grow the true value sustainability produces for an organization. In my experience, better valuation of sustainability’s benefits produces two key benefits: Proving and Improving. Proving the value sustainability brings is important: first, because a business that underestimates the value of sustainability may then underinvest in it, and, second, because the act of quantifying and valuing benefits can bring sustainability efforts in line with the rest of the business, where that kind of value-focused analysis is a core activity.

This reasoning is a key reason I have been working on sustainability metrics for so long, and, I think, one of the reasons the New Metrics Conference will provide tremendous value to attendees. The reason that not proving the benefits of sustainability normally results in underinvestment is simple: People’s intuitive sense for how much value sustainability provides typically produces an estimate that is too low — much too low. In my experience, when we have finished finding all the “submerged value” that sustainability provides but the company hadn’t previously seen, the actual value produced by sustainability is often 1,000% as much as previously believed. As you might imagine, businesses are frequently investing much less than they would if they saw sustainability as ten times as valuable than they currently do.

Measurement may not only result in increased ability to prove sustainability’s value, but also to improve it. The old saying, “you can’t manage what you can’t measure” is as important to sustainability as it is to other parts of the business — if the business believes that sustainability efforts can’t be measured well, and therefore managed well, sustainability may not have an equal seat at the table. For this reason, breaking down the measurement barrier also leads to breaking down part of the wall separating sustainability from the business.

In addition to helping convince the business that sustainability can be improved through the same processes as the rest of the business (e.g., Six Sigma and related methodologies, which rely heavily on measurement), there is evidence that measurement improves the outcomes of sustainability and responsibility efforts. For example, one report found that:

Measurement, to an extent, is its own reward: it encourages improvement, management, and the explicit formulation of assumptions and expectations. It should be viewed as a process whose greatest value is achieved by organizations that learn from evidence amassed over time.

Similarly, another study found that responsibility practitioners running volunteer programs saw greater success when their programs used measurement and that both they and senior executives at their companies believed that measurement and evaluation was key to program success:

Both CR/volunteer managers and senior executives agree that Measurement and Evaluation is key to the success of their volunteer programs.CR/volunteer managers from companies that measure and/or evaluate volunteer events/activities rate their programs more successful than the programs of their peers whose companies do not measure and/or evaluate. Connecting to the value generation engine of the business

One reason people often intuitively believe that sustainability is not profitable is that they cannot see how it is connected to the way the business generates value. While saving money on the business’s energy bills, for example, is clearly good, it is not a core part of how most businesses compete. For the majority of firms, their competitive position is primarily about something else, such as product differentiation, brand strength, innovation, or overall low cost (primarily driven by controlling other types of costs besides energy, such as labor and materials). To the extent that sustainability’s benefits are seen as tangential to the core of the business, that perception affects efforts to embed it in the business.

One way to address this is to make clear how sustainability is, in fact, tied to the core ways the business creates value. For example:

  • Product differentiation: Many products and services are seen by buyers as commodities — that is, as not very differentiated from the competition’s (in spite of companies’ best efforts to differentiate them). Increasing numbers of buyers have begun including sustainability in their buying decisions — for example, the economic activity of organizations with supplier sustainability programs is well into the hundreds of billions of dollars, and many leading industries have groups of firms that are advancing sustainable purchasing, such as Practice Greenhealth in the health care space.

  • Innovation: Intuitively, it makes sense that including sustainability in a company’s thinking would help it to be more innovative — change the way you think and you change the way you create — and there is increasing evidence that this is the case. Research I led, for example, found that companies that were sustainability leaders were much more likely to be innovation leaders than those that weren’t — 400% more likely, in fact.

  • Overall costs: Sustainability provides a lens that can help identify waste, whether tangible (e.g., material) or intangible (e.g., wasting existing goodwill or wasting the opportunity to develop more of it). Often by following the carbon emissions of a business, for example, companies find wasted material or effort, which leads to identifying opportunities for increased efficiency within the supply chain.

As just one example, suppliers may be sending products to stores over-packaged, costing the suppliers money in materials and the stores money in labor. Fixing this requires little if any investment and can yield millions of dollars in savings, generating a very strong ROI. This may be why research on sustainable supply chain projects finds they deliver such a high return on investment–such as ROI figures well in excess of 100%.

Brand: While there are multiple factors that go into brand strength, many companies see brand protection as one of the values provided by sustainability. For firms whose key advantage is brand strength, this means sustainability can be a way to reduce the risk of damage to that key asset.

Removing impediments to action

If we take the perspective that sustainability is not separate from the business, and that not only should it be “hardwired” into the business, but also that it already is, that can help change how businesses behave. In doing so, we can help businesses create more value, not only for themselves but also for the world.

*Note: I cannot speak for all of Deloitte on this, and my perspective does not necessarily represent that of the firm as a whole or other practitioners in it.

This post first appeared on the Skoll World Forum blog on September 2, 2013.

by Daniel Aronson
September 3rd, 2013
The text being discussed is available at
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