Capgemini Consulting   strategic thinking series

Contemporary Strategy in a Changing World

The Capgemini Consulting C...

    About the Capgemini 2008 CEO study                                                        3

About the Capgemini 2008 CEO study

To assess the condition of the Norwegian business climate on selected topics of strate...

      Businesses’ key objectives are naturally        at how the increasing focus on sustainability
Key insights

Analysing the data from our study has lead to five key insights on mastering the Triple Bottom Line.

Sustainability is paramount
    – failure to address these issues
    will put you out of business
    – CEO, Distribution...
Sustainability has become a top priority for CEOs

Winning and retaining stakeholder’s trust has become a key issue for bu...
Sustainability represents unprecedented
                        market opportunities across most industries
Norwegian CEOs...
Sustainability can be the oil-adventure of
Ecoimagination is one of the most
successful cross-company business
initiatives in recent history
– Chairman & CEO, Genera...
Environmental and social performance emerge
                                   as a major source of competitive advantage
CSR can be much more than just a con-
straint or charitable deed. Approached stra-
tegically, it generates opportunity, in...
Mastering the Triple Bottom Line requires
                                            a strategically founded execution
There’s a lot of incompetence and naivety out there,
global expansion to low-cost countries cannot be
performed with Norwe...
Sustainability is one
                                                                                          out of fiv...
best practice companies acknowledge the challenge in executing sustainability

  We have identified a limited number of th...
Sustainability leaders have the potential
                                                  to change the rules of the gam...
Category 1: potential for game                       related to underperformance. The potential
Category 3: Enhance value chain                   Category 4: protect reputation and                and interfaces like vi...
Report - Mastering The Triple Bottom Line
Report - Mastering The Triple Bottom Line
Report - Mastering The Triple Bottom Line
Report - Mastering The Triple Bottom Line
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Report - Mastering The Triple Bottom Line


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Report from CEO study - strategic impact on increased need to deliver social and environmental results.

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Report - Mastering The Triple Bottom Line

  1. 1. Capgemini Consulting strategic thinking series Contemporary Strategy in a Changing World The Capgemini Consulting CEO Study 2008 Mastering the Triple Bottom Line
  2. 2. Contents About the Capgemini 2008 CEO study 3 Introduction 4 Key insights 5 Sustainability has become a top priority for CEOs 7 Sustainability represents unprecedented market opportunities across most industries 8 Environmental and social performance emerge as a major source of competitive advantage 11 Mastering the Triple Bottom Line requires a strategically founded execution 13 Sustainability leaders have the potential to change the rules of the game 18 Mastering the Triple Bottom Line – the way we see it 22 Capgemini Consulting – A trusted sustainability advisor when results matter 23 2
  3. 3. About the Capgemini 2008 CEO study To assess the condition of the Norwegian business climate on selected topics of strategic interest, Capgemini Consult- ing interview Norwegian CEOs on an annual basis. Last year’s study covered strategic planning and innovation. This year we focus on how businesses relate to the increasing demands to deliver performance on environmental and social issues, as well as the traditional financial bottom line. We have adopted the term Triple Bottom ties arising through a sustainability focus, and The interviewed CEOs contributed to our Line (TBL) to label the challenges companies integrating sustainability related opportunities study with insights based upon their knowl- are facing in order to deliver results across with the companies business strategy. edge and experience. Special thanks are di- three dimensions; financial, environmental and rected to representatives from KLP, SN Power social performance. The term Triple Bottom CEOs and top executives of 55 large and and Wilh. Wilhelmsen Group, who contrib- Line was first coined by John Elkington (1994) medium sized Norwegian firms have partici- uted in the identification of key findings. The and is spun out of the sustainability debate pated in one of the largest selections of in Centre for Corporate Responsibility at the introduced by the Brundtland Commision depth interviews that have been conducted on Norwegian School of Management BI has been (1987). Environmental performance includes sustainability in a strategic business perspec- a valuable partner throughout the study. issues like impact on climate change, waste tive in Norway. Out of the 55 companies, 44 management, recycling and choice of materials are headquartered in Norway. The companies We are proud to present a comprehensive while the social dimension covers issues like vary widely in size. The sectors included in and multifaceted report reflecting CEO’s business ethics, child labour, poverty, health the study are: views on challenges and opportunities related and workplace conditions. We see sustainabil- to the complex matter of “Mastering the ity as referring to how enterprises balance the • Manufacturing Triple Bottom Line”. realisation of business objectives, whilst taking • Financial services responsibility and protecting society at large • Retail (also referred to as Corporate Social Respon- • Distribution sibility). The study investigates the positive • Oil and Gas services impacts sustainability can have on businesses • Energy profitability. Mastering the Triple Bottom Line • Property requires identification of strategic opportuni- • IT/Telecom 3
  4. 4. Introduction Businesses’ key objectives are naturally at how the increasing focus on sustainability centred on creating shareholder value. Not can change the rules of the game, and on the until sustainability-related media scandals business opportunities that arise from it. We jeopardised the value of mega-stocks like argue that the ability to balance the Triple Nike, H&M and BP, did we see a rapid build- Bottom Line affects overall competitiveness, up of sustainability programs to manage long term growth prospects and profitability. reputation and risks related to environmental and social performance. Today, the environ- There are generally two ways businesses mental threat has become more real to a can respond to the increasing sustainabil- great amount of people, and the tolerance ity focus: defensive – with a main focus on of unethical behaviour, like corruption, has reducing risk and protecting reputation, or been drastically reduced. Governments and offensive – searching for opportunities to dif- global organisations are increasingly initiat- ferentiate offerings or outperform competitors ing rules and regulations to raise the business on environmental and social performance. In standards on both environmental and social some industries, we clearly see that the of- performance. These changes in business con- fensive approach is a key element in reaching text put pressure on executives to reconsider and/or maintaining industry leadership. their strategic options and their response to complex market dynamics where social and We believe the ability to master the Triple environmental performance matters. Bottom Line will characterise leading en- terprises across most industry sectors in the Lately, considerable attention from con- near future. Capgemini’s CEO study 2008 sultancies, media and academia has been examines how Norwegian companies view given to the risks related to sustainability. the challenges and opportunities related to Less focus has been given to the potential sustainability, and how mastering the Triple strategic opportunities that emerge from this Bottom Line can prove to be a strategic new business context. In our study, we look differentiator. 4
  5. 5. Key insights Analysing the data from our study has lead to five key insights on mastering the Triple Bottom Line. KEY INSIGHT 1 – SuSTaINabILITY HaS bECOmE a TOp prIOrITY fOr CEOS. Significant shifts in customer demands, newly passed or anticipated rules and regulations, and an increase in media attention has been instrumental in the recent dramatic increase in the demands CEOs face to deliver Triple Bottom Line results. KEY INSIGHT 2 – SuSTaINabILITY rEprESENTS uNprECEdENTEd buSINESS OppOr- TuNITIES. Close to 85 percent of the participating CEOs state that sustainability creates new market opportunities to a medium or higher extent. Furthermore, most CEOs believe that sus- tainability will have a major impact on their business in the near future. There is a strong perception among CEOs that sustainability creates business opportunities across most sectors. KEY INSIGHT 3 – ENvIrONmENTaL aNd SOCIaL pErfOrmaNCE EmErGE aS a majOr SOurCE Of COmpETITIvE advaNTaGE. The CEOs believe social and environmental per- formance can be leveraged to create competitive advantages across most sectors. Positive effects on brand, risk management and access to talent are the most promising strategic levers. Hence, social and environmental initiatives can enhance your company’s competitiveness. KEY INSIGHT 4 – maSTErING THE TrIpLE bOTTOm LINE rEquIrES THOrOuGH aNd STraTEGICaLLY fOuNdEd ExECuTION. In mastering the Triple Bottom Line, formulating the sustainability strategy is the necessary first step to create clear direction. In order to incor- porate the strategy into day-to-day management decisions at all levels, and towards all stake- holders, it requires a governance structure that supports the sustainability strategy, a broad mo- bilisation in the organisation and an organisation that successfully communicates the strategy towards all stakeholders. KEY INSIGHT 5 – SuSTaINabILITY LEadErS HavE THE pOTENTIaL TO CHaNGE THE ruLES Of THE GamE. Differences in demands and opportunities create particular strategic playgrounds for different industries. The attractiveness of sustainability leadership varies, but offer promising benefits across all sectors. The ability to select the right issues, integrating social and environmental ambitions into your game plan and turning your key capabilities into sus- tainable practices, have emerged as crucial elements of reaching and/or maintaining industry leadership. On the following pages we will explore each of the key findings in more depth. 5
  6. 6. Sustainability is paramount – failure to address these issues will put you out of business – CEO, Distribution sector 6
  7. 7. Sustainability has become a top priority for CEOs Winning and retaining stakeholder’s trust has become a key issue for business executives, and addressing sustainability issues a necessity to succeed for most businesses. 70 percent of the CEOs in our study consid- ered the demands to deliver on the environmental and social, in addition to the financial, dimension to have in- creased significantly. Only 15 percent of CEOs claim that they experience increased demands to a small extent. To which extent do you experience increasing Across industries, CEOs point out ethical demands to deliver results on environmental, dilemmas that arise when conducting busi- ethical and other social conditions in addi- ness, especially in certain developing coun- tion to financial results? tries. Attention in developed countries are high on corruption, and the US Anti-corrup- 50 % tion Act, put into effect in 1999, represents a 45 % significant threat to companies violating the 40 % principles outlined. However, when dealing 35 % with emerging markets there is a notion 30 % among Norwegian executives that compa- 25 % nies based outside Europe and US tend to be 20 % more aggressive and inclined to offer ethical 15 % compromises. Most of the Norwegian CEOs 10 % with international operations in developing 5% countries claim they offer working standards 0% above the general level in the countries they Very small Small Medium Large Very large operate. The study shows that there has been a What are the key drivers for shifting busi- 70 percent increase in the number of CEOs nesses approach to sustainability? having sustainability issues frequently on the agenda in board meetings the last two 45 % years compared to the last five years. This 40 % confirms that sustainability has become a 35 % 30 % top priority for CEO’s, and as a result, busi- 25 % nesses need to generate increased insight, 20 % 15 % strategic thinking and new capabilities 10 % related to a new business climate. 5% 0% t gs s ce O en ee ds g NG ian in in oy an m av nd pl ge pl & s a m a Br st om a de di Em an Co C e er m M To which extent do you experience increasing sk m Ri to s Cu demands to deliver results on environmental, Percentage of CEOs ethical and other social conditions in addi- tion to financial results (per sector)? Oil & Gas Services Looking forward, almost all CEOs inter- Energy viewed believe that sustainability will have Property a significant impact on their business within Manufacturing the next 10 to 20 years. Governing bodies, Distribution employees, customers, new technologies, media and Non Governmental Organisa- Retail tions (NGOs) are among the driving forces FSI mentioned when assessing the sources of Telcom & IT increased demand. Total average 1 2 3 4 5 Very small Small Medium Large Very large 7
  8. 8. Sustainability represents unprecedented market opportunities across most industries Norwegian CEOs seem well aware that the rules of the game are about to change in most industries. The graph below illustrates that approximately 85 percent of the CEOs believe a sustainability focus can create market opportunities for their business to a medium or high degree. furthermore, more than 65 percent of the CEO’s believe that focus on sus- tainability will create major market opportunities and that it will have a considerable impact on their business . To which extent may an increased focus on While the degree of market opportunities sustainability create new market opportuni- varies widely across the covered sectors, even ties in your sector? the lowest scoring industries believe there are moderate levels of opportunities. How closely the environmental and/or social dimension 35 % of sustainability is related to the core of the 30 % companies’ products and/or services have a 25 % large influence on the extent to which the 20 % CEOs perceive that market opportunities 15 % arise from a focus on sustainability. Whole 10 % industries, e.g. renewable energy and clean- 5% tech, are developed around sustainability 0% driven markets. Until the financial crisis Very small Small Medium Large Very large shook the capital markets, investors where * 7 percent answered ”do not know” flooding these industries with capital. All By mapping initiatives discussed with CEOs CEOs in the energy sector state that there are in the study, market opportunities can be more than moderate market opportunities divided into five broad and distinct categories. related to sustainability, and 64 percent of (Figure 2.1.) Exploration and utilisation of them give market opportunities the high- scarce resources, need for cleaner technologies, est possible score. Financial services have a the raise of the LOHAS (Lifestyle of Health and different opportunity space, and in average Sustainability) segment, enabling the unprivi- CEOs consider there to be moderate market leged and exploring sustainability options. opportunities related to sustainability. CEOs in the Energy sector focused on market opportunities arising from Exploration and exploring sources of renewable energy, increasing productivity and sus- 1 utilisation of scarce tainable use of natural resources like minerals, water, rain forest and food; resources opportunities that can lead to both cost savings and revenue increases. Many CEOs mentioned market opportunities related to adaption to a low-carbon economy. Especially the CEOs in the Property, Manufac- Need for cleaner turing and IT / Telecom sectors saw large market potential in cleaner 2 technology solutions within production, buildings, logistics, infrastruc- technologies ture, recycling and transport. Conversion to environmental materials and packaging were also mentioned. CEOs in the Retail sector acknowledged the growth of consumers that The raise of the are willing to act responsible by selecting sustainable products or services 3 – the Lifestyle of Health and Sustainability (LOHAS) segment. A range of LOHaS segment green-, eco-, health- and fairtrade- products represent growth markets. Some of the global companies in the study also focused on the oppor- Enabling the tunities that arise from poverty and its implications. Levelling out dif- 4 ferences between developing and industrialised countries represents an unprivileged untapped potential for attracting talent and targeting future consumers. Across sectors we found CEOs acknowledging how increasing demand Exploring from customers, employees and regulators create opportunities to capi- 5 sustainability talise on sustainability leadership. Sources of competitive advantage based on environmental and social performance has the potential to be leadership options leveraged into higher market share and premiums. Fig. 2.1. 8
  9. 9. Sustainability can be the oil-adventure of the Norwegian generation to come – CEO, Energy sector unprecedented opportunities exist To which extent may an increased focus on Willingness to pay a higher price for products sustainability create new market opportuni- that support sustainability requirements Early movers in the enterprise world will ties in your sector? (% who answered ”yes, a premium /yes, small respond to the sustainability challenge and price difference”) 1) introduce innovative products and services. Based on unprecedented market opportunities, Energy we believe new winners will emerge as sus- Property 24 % 61 % Fair trade issues tainability leaders in a number of industries. Telcom & IT Sustainable manu- Innovation is a key part of the process – by 21 % 63 % facturing features Retail introducing environmental and social per- Organic food 20 % 64 % Distribution formance as two new dimensions to the busi- Environmentally Oil & Gas Services 15 % 64 % friendly packaging ness, the opportunity space is expanded. The Manufacturing Energy/water 14 % 62 % experience of General Electric, a pioneering usage FSI Waste reduction/ innovator dating back to Edison’s first com- 14 % 62 % management Total average mercial light bulb, illustrates how sustainabil- 0% 20 % 40 % 60 % 80 % ity can represent promising growth initiatives. 1 2 3 4 5 Yes, a premium Yes, a small price difference Very small Small Medium Large Very large GE launched their “Ecoimagination” initiative tapping into sustainability market opportuni- ties in 2005. By 2007, revenue from 60 new Sustainability issues are consid- Although consumers rate sustainability portfolio products reached $14 billion and ered in buying decisions issues as highly important, the majority of orders and commitments have increased to The rationale for competitive advantage consumers are only willing to pay a small $70 billion. Despite current economical tur- based on sustainability is largely arising sustainability premium, and the price moil, GE’s revenue from the “Ecoimagination” from choices among buyers – both businesses elasticity does not match the ranking of initiative rose 21% to $17 billion in 2008. The (B2B) and consumers (B2C). Consumers’ and importance. However, the LOHAS-segment is amount is expected to increase to $25 billion businesses willingness to pay a sustainability growing in both US and Europe, and increas- in 2009. GE chairman and CEO Jeff Immelt premium on goods and services has been ingly strong presence will eventually lead to put it this way: “Ecoimagination is one of limited, but is growing. In recent years, the a large segment of conscious buyers. These the most successful cross-company business emergence of the LOHAS segment indicates a changing preferences is also reflected in the initiatives in recent history”. shift in focus with significant impact on con- B2B segment, where we see an increase in sumer behaviour. In the US, different sources sustainability as an important buying and/ indicate that 15–20 percent of the US popula- or decision criteria. As an example, compa- tion can be categorised as LOHAS which are nies that have experienced negative incidents actively searching for sustainable products related to sustainability face challenges and services. This trend is confirmed in a related to their participation in public tender recent (2008) Capgemini study of consumers processes and/or struggle to acquire attractive in the US, UK, Netherlands and France. The joint venture partners. Other CEOs state that study shows that more than 80 percent of the sustainability performance has proved to be consumers consider issues like energy/water an important aspect of the strategy in win- usage, sustainable manufacturing features and ning large tendering processes. waste reduction and management as impor- tant or extremely important. 9
  10. 10. Ecoimagination is one of the most successful cross-company business initiatives in recent history – Chairman & CEO, General Electric, Jeff Immelt All new products must use less material, have less weight and be more recyclable – CEO, Oil & Gas Services sector 10
  11. 11. Environmental and social performance emerge as a major source of competitive advantage from a strategic point of view, business executives should always explore ways to develop competitive advantages. Competitive advantages, based on superior resources and capabilities, enable companies to harvest more than average returns from their business. We have identified eight strategic param- Increasing 1 eters (figure 3.1.) where social and environ- New performance dimensions create new competitive space. innovation mental performance can be developed into competitive advantages: increasing innovation, positive brand Positive attention on environmental and social issues are valued both in 2 positive brand effect, differentiation, reduced the B2B and B2C market. effects use of resources, reduced risk of bad publicity differentiated Environmental and social performance can be used to differentiate and probability of unwanted incidents, secure 3 products or services. offerings market access and access to talent. All the interviewed CEO’s considered one or more of reduced use of The company’s cost base can be reduced by introducing environmental 4 the listed strategic parameters to represent a solutions. resources major source of competitive advantage. reduce the risk of Negative attention on social or environmental issues can damage a 5 company’s core business. bad publicity In which way can social, ethical and en- vironmental initiatives also enhance your reduce the company’s competitiveness? 6 probability of Damaging incidents can be reduced by raising the HSE standards. unwanted incidents Positive effect on brand Secure market To earn a licence to operate the company must comply to rules and 7 Reduce the risk of bad publicity regulations. access Access to talent Secure market 8 access to talent Environmental and social performance increasingly attract talent. access Differentiate from competitors Fig. 3.1. Creating innovation Reduce probability of unwanted events Reduce the use of resources Sustainability is The CEOs’ main concern is that comprehen- 1 2 3 4 5 Very small Small Medium Large Very large sive initiatives on sustainability may lead to particularly important increased costs which in turn may reduce to attract talent competitiveness. Challenges regarding access Positive brand effects, reduced risk of to certain foreign markets are also a major negative publicity and access to talent stand concern for many of the CEOs. – CEO, Energy company out as the most important parameters of competitive advantage created through developing competitive sustainability initiatives. Positive effect on the advantages through sustainability company’s brand is an important factor for is potentially rewarding the majority of CEOs across different sectors and companies in the study. Reduced risk Selecting the right environmental and so- for bad publicity is even more evident as a cial issues, where company resources can be competitive advantage among the CEOs of effectively utilised to enhance sustainability the larger corporations. Unfortunately, fear performance, requires careful consideration of for bad publicity can be a major barrier for strategic options and potential for developing Sustainability is the an offensive sustainability game plan. The competitive advantage. Too often compa- importance of sustainability to get access nies are caught on the defence with reactive single biggest opportunity to young talent is widely recognised among sustainability actions. We believe companies most CEOs in the study. should consider a more offensive approach in the 21st century and and identify a few strategic sustainability will be the next source of While the CEOs overwhelmingly see a initiatives where current capabilities can be potential for increasing competitive strength leveraged to solve environmental and social competitive advantage through sustainability, 65 percent of them problems while tapping into some of the ben- also see situations where focus on sustain- efits offered by the eight strategic parameters – CEO, Wal Mart, H. Lee Scott ability could reduce their competitiveness. mentioned. 11
  12. 12. CSR can be much more than just a con- straint or charitable deed. Approached stra- tegically, it generates opportunity, innovation and competitive advantage for corporations – while solving pressing social problems – M. Porter & R. Kramer Harvard Business Review 2007 12
  13. 13. Mastering the Triple Bottom Line requires a strategically founded execution In the previous sections, we have seen that opportunities exist for companies in most sectors when it comes to position- ing themselves on sustainability. While developing the right sustainability strategy, formulation is the necessary first step. This study confirms however that incorporating the strategy into day-to-day management decisions at all levels, and towards all stakeholders, is perhaps the greatest challenge. Based on findings from our study, we have Sustainability is yet not an area included in the business strategy identified four key success factors for sustain- 1 Clear direction process for most Norwegian companies. To achieve sustainability ability execution, as illustrated in figure 4.1. leadership, clear direction and well thought priorities are necessary. Only a minority of the companies measure the sustainability ele- ments with the strongest strategic impact. In order for the governance Governance Success factor 1: Clear direction system to function as a vehicle for operationalisation, the sustain- reflecting 2 ability strategy should be reflected in the selection of measurement Developing a mission statement, establish- sustainability parameters and in the detailing of roles and responsibilities. Progress ing codes of conduct for employees, actions to ambitions should be evaluated according to the sustainability ambitions towards support local environment and good citizen- different stakeholders. ship – these are all examples given by CEOs For companies with international operations, anchoring the on initiatives to increase their sustainability sustainability strategy within the entire organisation and in the performance. Although this study clearly relations with external stakeholders is perhaps the greatest execution 3 broad mobilisation indicates that opportunities exist to leverage challenge. The answer is not necessarily uniform performance across operations, but finding the right balance between local adoption and social and environmental performance to uniform standards. enhance competitiveness, it is challenging to While internal communication on sustainability is widespread, most identify the right issues to address. The most CEOs are more reluctant when it comes to communication towards mature companies in terms of sustainability Targeted external stakeholders. Even though external communication can 4 are also the most humble ones on this issue, generate risk, an offensive communication approach tailored to the communication acknowledging the complexity of addressing different external stakeholders is necessary in order to take advantage environmental and social issues while deliv- of potential competitive advantages related to brand-building. ering a robust financial performance. 2) Fig. 4.1. The study confirms that best practice companies develop a coherent sustainability strategy that incorporates company values, Economic responsibility commitments and goals. Incorporating issues with significant social and environmental Value creation Profitability impacts in strategy formulation is key to Efficiency Corruption and bribery bring balance to the Triple Bottom Line, as Quality goods Job creation illustrated in Figure 4.2. Selecting the right sustainability issues without a clear direction Marketing standards Innovations and at the same time taking advantage of Competitiveness Supply chain the strategic sustainability opportunities that Responsible accounting Pricing arises, is difficult, at best. Just above 20 percent of described envi- ronmental or social actions by the CEOs Environmental responsibility Social responsibility in this study fall into Porters and Kramer’s Eco-efficiency Corporate governance (2006) definition of strategic CSR: environ- mental and social issues affected by business Genetically modified products Use of human resources activities, and environmental and social Energy use Water use Workplace issues Philantropy issues affecting the drivers of competitiveness. Waste control Product stewardship Human rights Community development Examples on strategic sustainability actions from the study are: focus on growth in renew- Use of forest Climate change Culture Equal opportunities able energy for a company within the Energy Emissions Minorities Diversity sector; increasing the use of electric cars for Recycling & product take back a company in transport-intensive businesses; lowering energy usage in buildings within Fig. 4.2. 13
  14. 14. There’s a lot of incompetence and naivety out there, global expansion to low-cost countries cannot be performed with Norwegian standards on all aspects – CEO, Manufacturing company the Property sector; and responsible mortgage company’s standards related to sustainability as the risk in communicating sustainability lending in the Finance sector. towards suppliers is seen as important by the strategy towards the media and the general CEOs facing this issue. public is substantial, these stakeholders are also increasing their demands for a corporate Success factor 2: Governance re- Both towards own employees and sub-level sustainability strategy.4) The solution could be flecting sustainability ambitions suppliers, the challenge lies in identifying the indirect communication, communicating to Structures and systems that encourage em- right balance between uniformed corporate external stakeholders through third party “ex- ployees to pursue and measure Triple Bottom and locally adopted standards, and in suc- perts” (e.g. in industry collaboration forums) Line performance are instrumental in im- ceeding with embedding the chosen practice or also through employees instead of in a top proving the overall effects of social and envi- level into the cultural awareness and mobilis- management fashion. ronmental actions. Additionally, this lays the ing the executers. foundation for holding employees accountable Do you communicate your efforts and results for their contribution to the sustainability of sustainability initiatives to the following Success factor 4: Communication goals. While 58 percent of the CEOs say they stakeholders? towards stakeholders have ways of measuring social and environ- mental performance, these are mainly related The majority of the participating CEOs 100 % 90 % to environmental costs aspects. Examples are communicate environmental and social 80 % 70 % energy usage and emissions. A minority of initiatives to all stakeholders, but to a vary- 60 % the firms measure the sustainability elements ing degree. Communication towards inter- 50 % 40 % with the strongest strategic impact. While 64 nal stakeholders is especially strong, as 85 30 % percent of the CEOs state that sustainability percent of the CEOs state that they actively 20 % 10 % is reported to the CEO in one way or another, communicate sustainability to their internal 0% very few companies have clearly defined stakeholders. Internal communication on the Investor Society/Media Customers Internally/Employees environmental or social measures, such as sustainability strategy lays the foundation KPIs. This indicates that most companies lack for trustworthy external communication. As Percentage of CEOs structures for tracking sustainability-related much as 78 percent of the CEOs communi- actions that may be of great strategic impor- cate their sustainability efforts to customers, tance to their business performance. mainly through the quarterly and annual reports and the company homepage. Success factor 3: Communication on sustainability towards broad mobilisation society and media varies to a great extent. To succeed operationally, the sustainability While some companies send out press releases priorities must be part of the employees core on important initiatives and actions, others values, of the established routines and the state that they do not want to market their action guidelines for “how we do things here”. sustainability actions. Overall, CEOs express Implementing sustainability guidelines be- a reluctance to open external communica- comes particularly challenging for companies tion regarding sustainability performance with international operations, where the cor- due to fear of attracting negative attention porate cultures tend to be more complex. To by the press. Research somewhat supports maintain corporate sustainability standards CEOs reluctance, as the companies most ac- while succeeding in the local market is an- tive within CSR are also the most criticised, other major challenge mentioned by several whereas companies doing the least are the CEOs, especially among those operating in least criticised (Vallentin: 2003).3) A Danish emerging economies. Executing sustainabil- survey has even found the public to be rather ity standards is equally challenging related sceptical towards conspicuous corporate com- to sub-level suppliers, both in foreign and munication regarding sustainability issues domestic markets. Nevertheless, to apply the (M. Morsing et al: 2008).4) At the same time 14
  15. 15. Sustainability is one out of five goals I have to report on – CEO, Distribution firm In order to avoid negative press coverage we don’t communicate our sustainability efforts actively towards external stakeholders – CEO, Financial services Case: unilever uK works strategically to embed sustainability into the ”culture of the organisation” unilever uK, a global consumer goods business, is building a culture emphasising sustainability through encouraging a sustainability mindset from the moment an employee enters the organisation Three ”lessons” from Unilever are: 1) Corporate culture and values influence internal business processes to a large degree 2) Corporate ethics is about allowing people to use their own personal values to guide them in their work 3) Continuity and consistency of communication are vital to reinforcing commitment to sustainability 15
  16. 16. best practice companies acknowledge the challenge in executing sustainability We have identified a limited number of the We argue that performance above standard participating companies who truly stand out on these parameters are important levers in with their ability to maximize the benefits building a position as a sustainability leader. for themselves and society by taking a strong position on sustainability. The firms stand On the matter of successfully balancing out with specific initiatives on sustainability execution with ambition in sustainability strategies, one CEO pinpointed it well: “it as well as their ambitions on the matter, and might be necessary to aim lower in the first subjective rankings of own performance. By few years in order to ensure that the entire comparing the average performers to the more organisation is committed, rather than to try mature players, the four key success factors for to reach for the stars straight away”. executing sustainability are confirmed. The mature players clearly outperform the To which extent do you succeed in implement- more average players on several key areas: ing your guidelines in your organisation and • Engaging senior executives in sustainability towards your suppliers? issues • Considerably higher frequency of sustain- 5,0 ability related topics in board meetings over Mature Average the last two years 4,5 • Placing the overall responsibility for sus- 4,0 tainability at corporate level, and cascading 3,5 responsibility for execution to all manage- 3,0 ment levels 2,5 • Creating an engagement for sustainability 2,0 performance throughout the entire organi- 1,5 sation 1,0 • Communicating more towards all stake- Succeess in implementation of Success in implementing own guidelines in organisation guidelines towards suppliers holders, and being far more proactive in 5 = Very large extent 1 = Very small extent external communication • Realising the complexity in implementing sustainability guidelines both internally and towards suppliers Case: adidas as a high-performer in sustainability world-wide adidas is according to the Dow Jones Sustainability Index, one of the high performers on sustainability in their industry world wide. They have a supplier strategy that is based on a long-term vision of self-governance in the supply chain where suppliers take ownership of their compliance programme. This is done through a set of different tools. Standards and guidelines have been developed and have been in use, with minor updates, for the last ten years. They have a dedicated team of auditors who monitor and verify that the suppliers are following the standards, and give each supplier a rating based on those criteria. Those results are again incorporated in the overall supplier rating that informs their decision of which suppliers to use. 16
  17. 17. 17
  18. 18. Sustainability leaders have the potential to change the rules of the game The way CEOs view the impact of sustain- Very High ability issues on their business context can be Oil & Gas Very High Services summarised in two categories: the extent to Oil & Gas Services which they experience an increase in sustain- Increased Sustainability demands Increased Sustainability demands property Energy manu- ability demands, and the degree they experi- High facturing ence an increase in sustainability driven mar- distribution retail ket opportunities. While the opportunities property Energy manu- Moderate financial facturing Services High and challenges businesses are facing related IT/Telecom to sustainability differ, CEOs across industry distribution retail Limited sectors experience increasing demands and expect new market opportunities to arise financial (illustrated in Figure 5.1). Further more, as Moderate Services IT/Telecom many as 75 percent of CEOs state that Very Low they have evaluated their existing product portfolio based on Very Low Limited Moderate High Very High Moderate High Very High sustainability issues. Sustainability driven market Opportunities Sustainability driven market Opportunities Fig. 5.1. We believe that industries facing increasing demands related to sustainability, and that have a high exposure to sustainability driven market opportunities, have a strong potential Strategic playground Sustainability leadership for strategic differentiation. Based on the sector Potential for game changing strategies characteristics across these two dimensions, we retail Energy have identified four distinct strategic play- Energy grounds related to sustainability. We argue that property Attractive positions for sustainability leadership within most sectors there will always be niche market driven leadership market driven leadership markets where sustainability has a strong property distribution retail distribution impact, and even game changing potential. Enhance value chain performance and increase standards to put competition on defence Going further, and looking at sustainability manu- Oil & Gas manu- IT/Telecom facturing leadership as a business strategy, the four Services facturing Oil & Gas strategic playgrounds give rise to two distinct Services Protect reputation and increase standards to put financial competition on defence types of sustainability leadership: 1) Market Services driven leadership, and 2) Compliance driven financial IT/Telecom Services leadership. The first type refers to the poten- tial for developing new products and achiev- Compliance driven leadership Compliance driven leadership ing market differentiation, and the second to Fig. 5.2. the potential of outperforming competitors by driving the development of sustainability practices within regulated industries. See figure 5.2 for illustration. Case: vattenfall pursues sustainability leadership within the energy sector vattenfall produces, distributes and sells energy and energy related products to several million customers in the Nordic countries and northern Europe. 11th of January 2007, Vattenfall launched an initiative to Combat Climate Change (3C). The 3C initiative consists of business leaders demanding integration of climate issues in trade and markets. At present, 55 leading companies, including major global companies like GE, BP and Siemens, have joined the initiative. This ambitious group of companies has defined a roadmap to combat climate change, which includes recommendations on political priorities to the world’s politicians, in order to reduce emissions. CEO Lars Josefsson has a strong commitment to develop Vattenfall into a sustainability leader within their sector. This include ambitious environ- mental targets to reduce CO2 emissions, and he declares that the company’s mission is to reach carbon neutrality by 2050. A mission which according to Josefsson means Vattenfall will be way ahead of its competitors, and the requirements set by regulators and society. 18
  19. 19. Category 1: potential for game related to underperformance. The potential changing strategies upside of taking a clear sustainability posi- tion related to overall business and/or niche In industries where the market oppor- segments is significant. A combination of tunities and the demands to deliver social increasing regulations and changing customer and environmental performance are high, preferences creates the opportunity to use sustainability becomes strongly linked to sustainability for strategic differentiation. This the business core, and hence a key strategic is especially relevant in order to create a new parameter. In the Energy sector, issues on en- competitive space and new market opportuni- ergy production, energy efficiency and clean ties, and to strengthen competitive advantage. energy are critical and given a strong focus. Sectors included in this category are Property, Within a limited time span we believe the Distribution and Retail. leading companies within the Energy sector will have the ability to explore opportuni- In Property, the use of environmental ties and take risks to capitalise on innovation friendly materials, energy efficient buildings related to sustainability. Competitiveness will and recycling are examples of issues where be further enhanced by the ability of inte- sustainability leaders could excel. Increased grating environmental and social ambitions regulation of the industry may be appar- into core operations. As an example, Vatten- ent, as buildings alone represent 40 percent fall has taken a clearly defined position on of CO2 emissions in Norway. Distribution sustainability leadership, as part of an overall companies’ key issues are related to both their ambition of reaching industry leadership. infrastructure and their need for transporta- tion and logistics. Differentiation based on Category 2: attractive positions for more energy efficient solutions and reducing sustainability leadership carbon emissions represent possible strategic options for achieving and/or maintaining In this category, the degree of sustainabil- industry leadership. To retailers, the selection ity driven opportunities is seen as high, and of consumer products, reduction of waste companies strongly experience increasing and of the use of energy, environmental demands to include sustainability in strategy packaging and new and innovative solutions development. While sustainability may not for transport and logistics are all possible dif- be as directly related to the business core as ferentiation parameters. in the first category, there are significant risks Case: marks & Spencer’s plan a integrates key sustainability issues into every aspect of their business marks & Spencer is one of UK’s leading retailers, employing 75 000 people, and having more than 21 million people visiting their stores every week. M&S’s plan to grow into a world class retailer, includes an ‘eco plan’ for every aspect of the business to ensure sustainable growth. Plan A is a five year plan, consisting of 100 points to tackle environmental and social challenges. The ambitious plan is divided into five pillars, each with its own goals. By 2012, M&S aims to: 1) become carbon neutral, 2) send no waste to landfill, 3) extend sustainable sourcing, 4) help improve the lives of people in their supply chain and 5) help customers and employees live a healthier life. 19
  20. 20. Category 3: Enhance value chain Category 4: protect reputation and and interfaces like virtual meetings and video performance and increase stan- increase standards to put competi- conferencing. The increasing globalisation of dards to put competition on tion on defence the industry also makes issues related to the defence societal dimension of sustainability essen- In the category with the lowest score on tial. In short, ignoring the environmental or Sectors with moderate market opportunities sustainability demands and market opportu- social bottom line represents significant risks and high demands to deliver environmental nities, CEOs rate the increase in demands and related to profit and company reputation, and social performance usually have strong opportunities resulting from sustainability as while mastering it create opportunities in regulatory regimes giving significant chal- moderate. Thus, companies that fall into this new niche markets. lenges related to production, manufacturing category should also assess how sustainabil- and operating environment. ity could impact their competitive advantage. Typically, industries within this category Companies in the Oil & Gas Service sector are less raw material and energy intensive. have faced strong regulations on HSE over Among the sectors analysed in this study, Fi- time, and this has led HSE-issues to become nancial Services and IT/Telecom are the only incorporated into the daily operations. Being ones placed within this category. in an extremely carbon intensive industry, players have experienced increasing demands Business ethics is as an area CEOs across related to sustainability. The most likely all industries are looking into, but especially scenario is that the demands will continue to highlighted by CEOs in the Financial Services increase, leading to a tightening of industry sector, as they are faced by ethical dilem- regulations. Thus, to ensure compliancy, mas related to transparency and asymmetric leaders should strive to deliver beyond the knowledge of complex financial products. imposed standards. Additionally, this sector Early movers on sustainability within this offers attractive niche markets where sustain- sector are proactively using their investment ability represents new market opportunities. placing power to influence companies to act Examples are carbon capture and decommis- upon sustainability issues. Other leading Fi- sioning of offshore installations, where win- nancial Services companies have also created ners capitalise on sustainability leadership. new products linked to sustainability, includ- ing renewable energy and clean-tech funds. Manufacturing is a diverse sector, but leading companies within this sector should Vodafone, a leading European telecom pro- investigate the entire value chain with re- vider, estimates that 80 percent of its carbon spect to use of scarce resources, energy usage, footprint is associated with its network opera- recycling and carbon emissions. Companies tions. In this context, smarter and cleaner with global operations also need to carefully energy solutions can reduce both carbon address their impact on social, political and footprint and spending. In addition, IT and ethical performance in the countries where Telecom companies can be key players in cre- they have a presence. ating more environmental friendly solutions Case: Toyota has established a unique sustainability position within the automotive sector Toyota, headquartered in Japan, is the world’s largest auto-maker. They emerged as the sector sustainability leader as they responded to the concerns over automobile emissions by launching Prius, a hybrid electric/gasoline car, voted 2004 Car of the Year by the Motor Trend magazine. A saying is that; when California introduced regulations to promote hybrid cars, US manu- facturers hired myriads of lawyers to avoid the new regime, while Toyota hired engineers to take on the challenge and produce a quality car that fulfilled the requirements. Today, Toyota is recognised and awarded for their environmental commitment, while US manufacturers are struggling to survive through the present financial crisis. 20