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Management magnifiedSustainability and corporate growthA report from the Economist Intelligence UnitSponsored by SAS
Management magnified                                                                           Sustainability and corporate...
Management magnified    Sustainability and corporate growth    Management magnified: Sustainability and    corporate growth ...
Management magnified                                                                                 Sustainability and cor...
Management magnified    Sustainability and corporate growth    Sustainability isn’t about being nice, but seeing profits    ...
Management magnified                                                                                              Sustainab...
Management magnified    Sustainability and corporate growth    success (cited by 37%), and a lack of interest by senior man...
Management magnified                                                                             Sustainability and corpora...
Appendix         Management magnifiedSurvey results   Sustainability and corporate growth                 Appendix         ...
Management magnified                                              Appendix                                                 ...
Appendix         Management magnifiedSurvey results   Sustainability and corporate growth                 In your opinion, ...
Management magnified                  Appendix                                                                             ...
Appendix         Management magnifiedSurvey results   Sustainability and corporate growth                 In which country ...
Management magnified            Appendix                                                            Sustainability and corp...
Cover image: iStockphoto.com                               Whilst every effort has been made to verify the accuracy       ...
LONDON26 Red Lion SquareLondonWC1R 4HQUnited KingdomTel: (44.20) 7576 8000Fax: (44.20) 7576 8476E-mail: london@eiu.comNEW ...
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Management magnified: Sustainability and corporate growth

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Management magnified: Sustainability and corporate growth is the third in a series of three reports written by the Economist Intelligence Unit and sponsored by SAS.

The first report, Management magnified: Getting ahead in a recession by making better decisions, was published in August 2009, and the second report, Management magnified: Strategies for revenue growth in an economic downturn, was published in September 2009.

The quantitative findings presented in this report come from a global online survey of 183 respondents—79 of whom are board members or C-level executives—conducted by the Economist Intelligence Unit in August and September 2009. The survey asked respondents about the importance of sustainability to corporate strategy.

The findings and views expressed do not necessarily refl ect those of the sponsor. The Economist Intelligence Unit’s editorial team executed the survey and wrote the report. Kim Andreasson was the editor and project manager. Dr Paul Kielstra was the author. Mike Kenny was responsible for the design of the report.

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Transcript of "Management magnified: Sustainability and corporate growth"

  1. 1. Management magnifiedSustainability and corporate growthA report from the Economist Intelligence UnitSponsored by SAS
  2. 2. Management magnified Sustainability and corporate growthPrefaceManagement magnified: Sustainability and corporate growth is the third in a series of three reports writtenby the Economist Intelligence Unit and sponsored by SAS. The first report, Management magnified: Getting ahead in a recession by making better decisions, waspublished in August, and the second report, Management magnified: Strategies for revenue growth in aneconomic downturn, was published in September. The quantitative findings presented in this report come from a global online survey of 183respondents—79 of whom are board members or C-level executives—conducted by the EconomistIntelligence Unit in August and September 2009. The survey asked respondents about the importance ofsustainability to corporate strategy. The findings and views expressed do not necessarily reflect those of the sponsor. The EconomistIntelligence Unit’s editorial team executed the survey and wrote the report. Kim Andreasson was theeditor and project manager. Dr Paul Kielstra was the author. Mike Kenny was responsible for the design ofthe report. Our thanks are due to all survey respondents for their time and insight.November 2009© Economist Intelligence Unit Limited 2009 1
  3. 3. Management magnified Sustainability and corporate growth Management magnified: Sustainability and corporate growth A s the link between sustainability and corporate growth is typically indirect and intangible, sceptics often dismiss initiatives in this area as window dressing. But in the survey conducted for this report, executives counter the criticism. Seventy-eight percent of respondents say sustainability initiatives are very or somewhat important to their current business strategy. Eighty-seven percent see them as very or somewhat important to future growth plans and the same number expect them to be very or somewhat important in five years’ time. Respondents, who represent a wide variety of industries and a broad range of functions, say they spend 22% of their working time, on average, integrating sustainability initiatives into business strategy, a sizeable investment. Yet a significant number of organisations do not devote sufficient resources to sustainability. Thirty- three percent of those surveyed say their companies do not do enough to integrate sustainability initiatives into strategy. An equal number of respondents (45%) say their organisation does not spend enough of its budget on sustainability initiatives as those who say they do (45%). Window dressing? Before the economic downturn of 2008-09, almost every company seemed to stress its credentials as a socially responsible organisation, where environmental and social bottom lines mattered as much as the financial one. The business case for this thinking was, and remains, that these three areas do not About the survey (26%) and North America (26%), with the rest from the Middle East and Africa (10%) and Latin America (8%). Roughly one-half (51%) work for companies with In order to assess the importance of sustainability global annual revenue exceeding US$1bn. to corporate strategy, the Economist Intelligence Respondents represented a wide variety of Unit conducted a global online survey in August and industries, led by financial services (20%), professional September 2009. services (13%), energy and natural resources (9%), and Of the 183 respondents to the survey, 79 describe healthcare, pharmaceuticals and biotechnology (9%). themselves as board members or C-level executives. Respondents also came from a broad range of functions, Survey takers came from around the world, led by including strategy and business development (43%), respondents in the Asia-Pacific region (31%), Europe general management (39%) and finance (25%).2 © Economist Intelligence Unit Limited 2009
  4. 4. Management magnified Sustainability and corporate growthrequire trade-offs but are mutually reinforcing. As Stan Litow, vice-president for corporate citizenship andcorporate affairs at IBM, has explained: “If corporate citizenship were a frill and had no clear benefit, itought not survive in any economic climate, good or bad. But if it is viewed as something tied to businessstrategy with a real, measurable and clear return on investment established over time, then it’s notviewed as something you can or should do less of in a time of economic crises.”1 Yet perhaps as a consequence of the economic downturn, much of the business community remainsunconvinced that sustainability initiatives are more than window dressing. In a March 2009 surveyconducted by the Economist Intelligence Unit, 67% of executives agreed that economic conditions wouldforce environmental issues down on the corporate agenda.2 So which is it? Given the pressure on sustainability, this report looks behind the rhetoric and evaluatessustainability from a corporate growth perspective.Sustainability and corporate performanceInconsistent implementation of sustainability initiatives harms businesses. Survey respondents saythat over the past year, poor implementation of such projects has decreased their company’s ability toexecute strategy (21%) and to innovate (20%). Companies have also suffered in the past 12 monthsfrom traditional issues associated with sustainability failures, such as damage to brand (cited by 15%of respondents), increased regulatory risk (14%) and loss of market share (14%). Overall, 58% ofrespondents say their company has suffered at least one negative consequence to their ability to operatein the past 12 months as a result of inconsistent sustainability implementation. Similarly, good performance on sustainability is accompanied by superior results elsewhere. Twenty-seven percent of executives surveyed rate their organisation above average in every sustainability-relatedcategory—ability to integrate initiatives into core strategy, investment in initiatives and reputationamong stakeholders. Members of this “sustainability leaders” group of companies report better thanaverage results in other areas as well [see chart].Percentage of companies rating themselves much stronger than peers in select areas(% respondents) Sustainability leaders All othersFinancial performance 1. Economist Intelligence Unit, 35 Corporate citizenship: Profiting 14 from a sustainable business,Revenue growth November 2008, quoted on 33 page 5. 10 2. Economist Intelligence Unit,Reacting to changing risks and opportunities Countdown to Copenhagen: 29 Government, business and the 13 battle against climate change, Source: Economist Intelligence Unit survey, September 2009. March 2009.© Economist Intelligence Unit Limited 2009 3
  5. 5. Management magnified Sustainability and corporate growth Sustainability isn’t about being nice, but seeing profits The fundamental difference between sustainability leaders and other companies is a greater conviction that business benefits will arise out of sustainability initiatives. In particular, leaders believe that sustainability provides a market advantage: 43% say that it is important to customers compared with only 16% of respondents from other firms in the survey. Similarly, 39% of sustainability leaders believe that sustainability can enhance revenue growth a great deal, compared with 26% from other firms. The results can be impressive. While many companies were performing poorly in 2008, sales of General Electric’s Ecomagination line of products, for example, rose by 21%, to US$17bn, compared with just 5.8% growth for the company as a whole. Ecomagination products now represent more than 9% of total revenue. In March 2009, Proctor & Gamble felt confident enough to increase its 2012 target for sales from its sustainable innovation products from US$20bn to US$50bn. As a result, internal stakeholder groups at firms that are sustainability leaders are more likely to consider the issue significant [see chart]. They are also more convinced of the importance of sustainability to strategy. For example, 65% see them as very important to current overall strategy, compared with 34% of all others in the survey. Looking ahead, 80% of sustainability leaders see these initiatives as very important to future growth, compared with 40% of all others in the survey. These findings flow into the practical necessity of better performance, such as an increase in resources: 79% of sustainability leaders say that they spend enough on sustainability, compared with 32% of other companies. This perspective changes the corporate drivers of sustainability. According to the survey, leaders in this area most often cite brand enhancement as a leading motivation for sustainability initiatives (47%), Proportion who say stakeholder groups consider sustainability initiatives “very important” (% respondents) Sustainability leaders All others Board of directors 71 34 Senior management 57 28 Middle management 33 14 Employees 29 17 Investors 35 18 Source: Economist Intelligence Unit survey, September 2009.4 © Economist Intelligence Unit Limited 2009
  6. 6. Management magnified Sustainability and corporate growthLeading motivations for sustainability initiatives(% respondents) Sustainability leaders All othersBrand enhancement 47 25Revenue growth 35 31Cost savings 31 28Environmental protection 31 37Increasing profit 29 23Opening of new markets 27 14Public relations 27 29External pressure from stakeholders to do good 22 25Regulatory compliance 18 23 Source: Economist Intelligence Unit survey, September 2009.followed by revenue growth (35%) and cost savings (31%). Other companies instead point first to a goalwhich, although laudable, is not directly related to financial performance—environmental protection(37%). Overall, matters that relate to the bottom line are more likely to resonate as sustainability driverswith leaders than with other companies, while the reverse is true of traditional external drivers, such asregulation or outside pressure [see chart]. Simply put: to be good at sustainability, companies must findthe business benefits.Leadership countsLeadership at all levels is essential to effective sustainability programmes at all organisations. Whenintegrating sustainability into strategy, by far the two most important keys to success are clear directivesfrom policymakers or senior management (cited by 64% of all respondents) and the active involvementof senior management (60%). Similarly, a lack of clear mandates or objectives is the leading barrier to© Economist Intelligence Unit Limited 2009 5
  7. 7. Management magnified Sustainability and corporate growth success (cited by 37%), and a lack of interest by senior management comes in third (29%). Unsurprisingly, engagement of leadership is seen as crucial everywhere in business. When it comes to sustainability, however, there appears to be a disconnect in the levels of support between various stakeholders. Sustainability initiatives are very important to the boards at 44% of companies, and to senior management at 36%. But these figures are much higher than those of any other stakeholder, whether inside the company—middle management (19%), employees (20%) and investors (23%)—or outside—local communities (28%), customers (23%) and suppliers (9%). This indicates that management needs to do more to educate both internal and external groups on the importance of sustainability to corporate strategy.6 © Economist Intelligence Unit Limited 2009
  8. 8. Management magnified Sustainability and corporate growthConclusionW hen it comes to sustainability, many companies talk a good game yet institute isolated policies that fail to resonate with managers and employees, let alone customers. Still, a significant number ofbusinesses genuinely see market opportunities from sustainability. At companies deemed by respondentsto be sustainability leaders, people at all levels of the organisation attach greater importance to the issue.As a result, their businesses are much more likely to provide the financial resources necessary for success. The data suggest that all industries stand to benefit from integrating sustainability into corporatestrategy. More than one-half of all companies surveyed have suffered some negative effect on theirability to operate from inconsistent implementation of sustainability initiatives. And leaders in this areaare more likely to outperform their peers financially. The bottom line is that sustainability remains animportant issue for businesses today precisely because companies have discovered that success can leadto good financial performance, no matter the economic climate.© Economist Intelligence Unit Limited 2009 7
  9. 9. Appendix Management magnifiedSurvey results Sustainability and corporate growth Appendix Survey results In your view, how important are sustainability initiatives to In your view, does your organisation do enough to integrate your company’s overall business strategy today? sustainability initiatives into business strategy? (% respondents) (% respondents) Very important 43 Somewhat important Yes 63 35 No 33 Neither important nor unimportant 10 Don’t know 4 Somewhat unimportant 3 Not at all important 6 Don’t know 3 In your view, how important are sustainability initiatives to your company’s future growth plans? In your view, does your organisation spend enough of its (% respondents) budget on sustainability initiatives? (% respondents) Very important 51 Somewhat important Yes 45 36 No 45 Neither important nor unimportant 3 Don’t know 10 Somewhat unimportant 4 Not at all important 3 Don’t know 2 In your view, how important will sustainability initiatives be to your company 5 years from now? (% respondents) Very important 59 Somewhat important 28 Neither important nor unimportant 4 Somewhat unimportant 2 Not at all important 4 Don’t know 38 © Economist Intelligence Unit Limited 2009
  10. 10. Management magnified Appendix Sustainability and corporate growth Survey resultsWhat percentage of your working time is spent on integrating sustainability initiatives into business strategy?(% respondents) 7 22 14 13 11 8 5 3 3 0 2 1 3 2 1 1 2 0 1 0 1 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100How important do you think your organisation’s sustainability initiatives are to the following stakeholder groups?Select one for each row.(% respondents) Very important Somewhat important Neither important nor unimportant Somewhat unimportant Not at all important Don’t knowBoard of directors 44 35 10 3 5 2Senior management 36 46 9 2 71Middle management 19 43 24 6 6 1Employees 20 34 27 12 6 2Customers 23 34 29 8 4 3Investors 23 36 24 3 7 7Suppliers 9 29 35 11 8 8Local community 28 39 18 7 3 40 20 40 60 80 100© Economist Intelligence Unit Limited 2009 9
  11. 11. Appendix Management magnifiedSurvey results Sustainability and corporate growth In your opinion, how does your organisation compare with its closest competitors in the following areas? Rate on a scale of 1 to 5, where 1=We are much stronger and 5=We are much weaker. (% respondents) 1 We are much stronger 2 3 4 5 We are much weaker Don’t know Profitability 20 35 29 8 5 4 Revenue growth 16 37 30 10 4 2 Ability to react to changing risks and opportunities 17 44 23 10 3 3 Ability to integrate sustainability initiatives into core strategy 14 33 30 12 4 7 Investment in sustainability initiatives 10 28 33 12 9 8 Reputation among stakeholders for sustainability 14 31 31 10 6 8 0 20 40 60 80 100 What are the biggest barriers to consistent, successful In your opinion, which of the following factors are most implementation of sustainability initiatives across your important to successful integration of sustainability organisation? Select up to three. initiatives at your organisation? Select all that apply. (% respondents) (% respondents) Lack of clear objectives or mandates Clear directive from policy-makers or senior management 37 64 The complexity of consistent implementation Active involvement of senior management 36 60 Lack of interest from/understanding by senior management Alignment with broader company goals 29 43 Difficulty in aligning sustainability goals with financial ones Sufficient funding 27 38 Inability to quantify financial costs and benefits (ROI) Establishment of processes 22 33 Insufficient funding/resources (eg, the organisation does not spend Alignment of financial incentives with successful implementation enough of its budget on sustainability) 33 21 Thorough planning before implementation Cost (eg, the financial cost of implementation is too high relative to 33 perceived benefits (ROI)) Return on investment 20 25 Lack of interest/push back from employees Use of technology 19 24 Poor planning of implementation Broad consultation with employees 17 23 Cultural issues Effective communication with customers 15 16 Negative impact on competitive position Other 9 2 Inability to set strategy (what initiatives to take on first) Don’t know 9 1 Other 4 Don’t know 310 © Economist Intelligence Unit Limited 2009
  12. 12. Management magnified Appendix Sustainability and corporate growth Survey resultsHas inconsistent implementation of sustainability initiatives What are your company’s primary motivations for newacross your organisation caused any of the following in the sustainability initiatives? Select up to three.past year? Select all that apply. (% respondents)(% respondents) Environmental protectionDecreased ability to execute strategy 35 21 Revenue growthDecreased innovation 32 20 Brand enhancementSlower time to market with new products 31 18 Cost savingsReduced collaboration across teams 28 16 Public relationsLoss of brand reputation 28 15 Increasing profitLoss of market share 25 14 External pressure from stakeholders to do goodIncreased regulatory risk 24 14 Regulatory complianceReduced customer satisfaction 22 11 Opening of new marketsOther 17 6 Internal pressure to do goodDon’t know 17 29 Recruitment and retention 7 Worker rights 3In your view, to what extent can sustainabilityenhance company revenue growth?(% respondents) To great extent 29 To some extent 57 Not at all 9 Don’t know 4© Economist Intelligence Unit Limited 2009 11
  13. 13. Appendix Management magnifiedSurvey results Sustainability and corporate growth In which country are you personally located? Which of the following best describes your job title? (% respondents) (% respondents) US Board member 21 4 India CEO/President/Managing director 15 27 Brazil CFO/Treasurer/Comptroller 5 4 Canada, Australia, Spain CIO/Technology director 4 2 China, UK, Nigeria, UAE Other C-level executive 3 6 Germany, Hong Kong, Japan, Russia, Austria, Denmark, Poland, Singapore SVP/VP/Director 2 21 Argentina, Greece, Iceland, Indonesia, Mexico, Portugal, Romania, Head of business unit South Africa, Sweden, Uganda, Ukraine, Egypt, Finland, Hungary, Jordan, 3 Kenya, Lithuania, New Zealand, Philippines, Slovenia, South Korea, Head of department Switzerland, Taiwan, Trinidad and Tobago, Zambia 9 1 Manager 19 Other 5 In which region are you personally based? (% respondents) Asia-Pacific What is your primary industry? 31 (% respondents) North America 26 Financial services Western Europe 20 21 Professional services Middle East and Africa 13 10 Energy and natural resources Latin America 9 8 Healthcare, pharmaceuticals and biotechnology Eastern Europe 9 5 IT and technology 7 Manufacturing 7 What is your organisation’s global annual revenues Government/Public sector in US dollars? 6 (% respondents) Telecommunications 5 Consumer goods $500m or less 41 4 Transportation, travel and tourism $500m to $1bn 8 4 $1bn to $5bn 17 Construction and real estate 3 $5bn to $10bn 7 Retailing $10bn or more 26 3 Chemicals 3 Entertainment, media and publishing 3 Education 2 Aerospace/Defence 1 Logistics and distribution 1 Agriculture and agribusiness 112 © Economist Intelligence Unit Limited 2009
  14. 14. Management magnified Appendix Sustainability and corporate growth Survey resultsWhat are your main functional roles?Please choose no more than three functions.(% respondents)Strategy and business development 43General management 39Finance 25Marketing and sales 20Operations and production 16Risk 13IT 11Information and research 8R&D 8Customer service 7Human resources 6Supply-chain management 4Procurement 3Legal 2Other 3© Economist Intelligence Unit Limited 2009 13
  15. 15. Cover image: iStockphoto.com Whilst every effort has been made to verify the accuracy of this information, neither the Economist Intelligence Unit Ltd nor the sponsors of this report can accept any responsibility for liability for reliance by any person on this report or any other information, opinions or conclusions set out herein.
  16. 16. LONDON26 Red Lion SquareLondonWC1R 4HQUnited KingdomTel: (44.20) 7576 8000Fax: (44.20) 7576 8476E-mail: london@eiu.comNEW YORK111 West 57th StreetNew YorkNY 10019United StatesTel: (1.212) 554 0600Fax: (1.212) 586 1181/2E-mail: newyork@eiu.comHONG KONG6001, Central Plaza18 Harbour RoadWanchaiHong KongTel: (852) 2585 3888Fax: (852) 2802 7638E-mail: hongkong@eiu.com

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