April/May, 2008

Cover & Feature Stories

The Path To Sustainability

Few issues have more saliency than sustainability. In the food industry, retailers around the world have seized upon the issue. So if you are a vendor to Marks & Spencer in the United Kingdom, you know what it means to follow its sustainability mantra: “Plan A. Because there is no plan B.” If you sell to Wal-Mart, you’ve already been to summits focused on reducing packaging and have possibly toured one of Wal-Mart’s new “green” supercenters.

Retailers are drawn to these efforts for many reasons. In some cases, it is the expectation of government regulation. As Jeffrey R. Immelt, chairman and CEO of General Electric, points out, “There’s no percentage for any CEO in the world to run his or her business thinking that there are not going to be carbon caps someday. Because the day it becomes law, you’re five years late. And you either get out ahead of these things or you get stomped by them.”

Other business leaders have found in sustainability a reflection of the core purposes of their organizations. Wal-Mart’s CEO and president H. Lee Scott explains Wal-Mart’s commitment to sustainability this way: “It’s consistent with what we say our purpose is, and that is saving people money so they can live better. We looked at what Sam Walton started and how he developed the company. It was by eliminating waste, bringing in efficiencies.”

Although it is commonly used, sustainability itself is actually an awkward term; it really is best thought of as a kind of catch-all phrase, incorporating sustainable development, corporate social responsibility and other initiatives. The term of art is really “sustainable development”—in which development is the way that people, organizations and society at large seek to improve their lot and achieve goals.

As far as what sustainable means, well, the classic definition by the World Commission on the Environment and Development, 1987, goes like this:

Sustainable Development “...development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Although the definition has a pleasing vagueness, in many ways it begs the question: How are we supposed to know what future generations are going to need?

 

Definition Problematic

If you apply the definition to any actual choice, you wind up struggling. Imagine if oil was discovered in your backyard and further imagine consulting this definition to figure out what would be the sustainable thing to do.

You would pretty quickly come to the decision that extracting the oil and selling it would meet this generation’s needs very well. You could use the money, and lots of people could use the oil.

But would it compromise the ability of future generations to meet their needs?

It really is not very clear. For one thing, perhaps future generations will have other options, such as inexpensive solar power or fuel cell-powered vehicles and won’t need the petroleum at all. Then there is this rub: If we were to simply decide that sustainable development requires us to keep the petroleum available for future generations, wouldn’t that same criteria hold for future generations as well? If so, they could never touch the oil either. If future generations can’t touch the oil, how would we be compromising the ability of future generations to meet their needs if we used the oil right now?

In the end, the best we can say is that beyond necessities, future generations will likely value having choices just as we do.

So, if the classic definition is problematic, what does sustainable development encompass? Perhaps the greatest misunderstanding is that sustainability is often thought of as a strictly environmental initiative. It is not and cannot be. And the reason is simple: There are many things that would help the environment, but they may not be sustainable.

If a company spent all its money cleaning up toxic waste sites, that would be very environmentally friendly, but when the company fails to pay its employees their wages, it would be socially very damaging. Families would lose their homes, and children would be malnourished. It would not be a sustainable situation at all.

For that matter, if a company invested heavily in a technology that might be environmentally friendly, but uneconomic—say extensive solar voltaic cell panels on its properties in Maine—the business would start to either lose money or earn sub-par returns, making it difficult to attract the capital needed for growth. In time, the business would have to close. Once again, not very sustainable.

Sustainability by definition recognizes that businesses have economic, environmental and social responsibilities.

 

Different Approaches

Our understanding of the best way to achieve sustainability is also evolving. Initially much of the focus was on doing less of a bad thing. You can hear echoes of this approach in Lee Scott’s words: “...it really is about how do you take cost out, which is waste, whether it’s through less energy use in the store, through the construction techniques we are using, through the supply chain. All of those things are simply the creation of waste.”

Today, however, advocates of sustainability are looking to harness the collective wisdom of stakeholders—especially employees—in the cause of sustainability.

There are basically two ways for a company to approach sustainable development. The traditional method is focused on benchmarks/best practices and on adherence to creeds/codes and standards. It is proscriptive and tends to be a “top-down” initiative. The other method is focused on continuous improvement, and is viewed as a “bottom-up” process. Employees work with stakeholders to advance the cause and do things because they offer compelling opportunities to move toward sustainability.

There can be no “one-size-fits-all” notion of sustainability. In many ways, the movement is about desire, a thirst to advance a company, an industry and the world by going through a series of continuous improvement cycles—good, better, best—to take the entity to a new height.

Employees first analyze and understand a particular process, identify opportunities to improve that process—making it more sustainable—and then implement the improvements. The constant learning that comes from this problem-solving, decision-making activity serves to foster an ever more sustainable organization.

 

Reasons For Being

The intellectual paradigm buster that makes sustainability logical for business consists of two concepts: “License to Operate” and “Reputational Capital.”

This “License to Operate” is not the one you pick up in exchange for a fee at the county clerk’s office; it is a concept associated with sustainability, recognizing that in today’s world the ability of business to operate successfully can be crucially affected by the attitudes and actions of numerous stakeholders—including some the business may not even know exist.

Wal-Mart, for example, has been unable to open supercenters in city after city as local opposition from unions, competitive retailers, people concerned about the viability of “main street” life, residents concerned with traffic and noise, etc., have combined to put up obstacles to Wal-Mart’s expansion.

A “License to Operate,” to be meaningful, must be given freely. It must be given prior to beginning the activity in question and be based on the informed consent of the stakeholders. Many times, businesses operate in multiple communities and may require multiple “licenses” from the local and national community.

Recognition of the need for such a license leads businesses to modify their business planning procedures. This includes mapping out who the stakeholders are and engaging with them on economic, social, financial, environmental, technological and other subjects. In the end, this process enables a business to avoid the informal sanctions that can be imposed by the public, the media and non-governmental organizations (NGOs).

The knowledge that a “”License to Operate” needs to be obtained and sustained leads to the recognition that “Reputational Capital” can be extremely important. “Reputational Capital” is the goodwill or reputation that a business has in a community with regulators and other important stakeholders.

The key to the concept is that acquiring “Reputational Capital” is so valuable that it justifies expenditures not justified by traditional methods of quantitative analysis. If a business has no “Reputational Capital,” then NGOs and others will be skeptical about the initiatives that business elects to undertake. So they might protest granting the business permits, push for regulatory and judicial oversight, and organize consumer boycotts.

On the other hand, a business rich with “Reputational Capital” will find NGOs predisposed to working with them. This business can expect open discussion as opposed to hostile opposition. A company with reservoirs of “Reputational Capital” can expect to have the ear of the government, the trust of regulators and the tolerance of the local community.

As with everything in sustainability, the concept is clear, but the implementation often less so. The concepts of “License to Operate” and “Reputational Capital” might encourage a business to build a solar voltaic cell array on the roof of its distribution center—as, for example, British supermarket operator Tesco did with its new distribution center in California—even if the economics of the installation don’t justify it. Why? Because the people, the NGOs, the government and many other stakeholders will think better of Tesco for not contributing to carbon emissions. In other words, building the array is a way of making a deposit in Tesco’s “Reputational Capital” account.

The problem, of course, is that the concept is not self-limiting. Tesco could have put solar voltaic panels on every store as well as on schools and daycare centers—all would have contributed to its “Reputational Capital” account. The concept doesn’t tell us exactly how far we can go in using this metric to justify otherwise unjustifiable expenditures.

Evaluations of the success of sustainability programs also pose challenges. It is easy to celebrate when businesses do good things for the world, but moral philosophy offers two ways of thinking about business ethics. The “Theory of the Good” speaks to the notion of doing good deeds and improving the world, but many of the moral attributes of business fall under the “Theory of the Right.”

These theories are often in conflict and involve issues such as promise-keeping. The “Theory of the Good” tells us it may be good for the world if a business spends its money cleaning up toxic waste dumps it didn’t create, but “The Theory of the Right” requires the business to honor mundane obligations—meeting payroll or honoring contracts—before “doing good.”

 

Today’s World

While sustainability itself is complex and evaluations uncertain, this is the way the world is turning. Just look at Tesco’s announcement about the opening of its first U.S. Fresh & Easy store:

“After great anticipation, we are thrilled to open our doors to neighborhoods in Southern California and offer them fresh, wholesome food at affordable prices,” said Tim Mason, Fresh & Easy’s CEO. “We are also excited to demonstrate our strong commitment to being a good neighbor and a great place to work.”

Fresh & Easy has gone to great lengths to ensure all its private label products contain no added trans fats, artificial colors or flavors, and have limited amounts of preservatives. Deliveries will be made daily to each store to ensure all products are as fresh as possible.

Each Fresh & Easy store will employ approximately 20 to 30 people. The company interviews on-site at each store location, aiming to hire from the local neighborhood. Fresh & Easy intends all store employees will work 20 hours a week or more, and be eligible for comprehensive health care and other benefits. Entry-level positions will pay well over the minimum wage, starting at $10 an hour in California, and offer a potential bonus of up to 10 percent on top.

As part of the company’s promise to be a good neighbor and steward of the environment, Fresh & Easy has committed to build LEED (Leadership in Energy and Environmental Design) certified buildings, recycle or reuse all shipping and display materials, and use environmentally friendly trailers to transport food. The company also invested in California’s largest solar roof installation on its distribution center in Riverside.

Note the clear emphasis on sustainability. No store even five years ago would have issued that press release. The challenge is to think about what that press release can say five years from now and then align our businesses and industry with these principles and opportunities.

Remember, at the heart of sustainability is continuous improvement, so if you don’t think you are there, don’t worry. As Lao-Tzu is popularly translated: “A journey of a thousand miles begins with a single step.” Or, as the original is more accurately translated: “The journey of a thousand miles begins beneath one’s feet.”

In any case, the best way to get started on the path to sustainable development is, simply, to begin.  DB