September, 2008

Cover & Feature Stories

The Green Issue Sustainabilty Resource Guide

This issue is a terrific resource tackling sustainability from many angles. Yet sustainability is still, to echo Winston Churchill in another context, “a riddle wrapped in a mystery inside an enigma.”

There is the marketing puff — although that is becoming less effective as consumer sensitivity to “greenwashing” grows. Real sustainability, though, is difficult to quantify and express. Oh sure, there are loads of certifications out there, but they only testify to one’s conformance with those particular standards, and those particular standards are not objectively correct — rather they grow out of the particular priorities and dispositions of particular people and groups.

The problem is that no outsider can ever know if a particular action is truly sustainable because the definition of sustainable involves confronting three separate responsibilities: environmental, economic and social. So if a company puts a bunch of solar panels on the roof of all its facilities, it may make a good press release, it may even be environmentally beneficial — but is it sustainable? That depends on the trade-offs. Is the price paid such that the company will get a good return on investment and thus grow and prosper? Or is the company overpaying and the cost of the solar panels and installation will lead to slower growth and less innovation and employment, maybe even bankruptcy? A policy is not sustainable if it makes you close up shop.

A sensible way of thinking about sustainability is really to consider it as a kind of business discipline in which the goal is to avoid inadvertent waste. Sustainability, properly considered, functions as a kind of consciousness-raising in which a business conducts itself so as to evaluate things that might not normally be evaluated.

In the normal course of business, companies tend to neglect many possibilities to do things better. They rely on vendors or the forces of competition to bring things to their attention. When will a company evaluate its light bulbs? In many cases never — unless, perhaps, a new light bulb vendor walks in the door and suggests it can save the company a lot of money.

When will most companies consider telling a vendor to reexamine the way it packages something? For the most part never. However, if an alternative vendor comes calling and is able to offer a better price because it has developed more economical packaging or packaging that can be transported more economically, the buyer may switch suppliers and thus the new packaging becomes standard. Yet being sustainable requires evaluating business practices such as these. Done right, it requires a systemic approach to make sure opportunities for improvement are identified and improvements are sustained over time.

In other words, sustainability should be viewed as a business discipline and, in fact, the key to successfully implementing a sustainability program is in many senses to move from random initiatives to a sustainability business management system.

Yet if sustainability must be profitable and if it should be integrated into a normal business operation, how does sustainability differ from good, solid business practices?

It is an interesting question and the answer is not as clear as advocates of sustainability really would like. It seems, however, reasonable to identify three key distinctions:

1) Sustainability biases toward the long term.

It is a mistake to install windmills if the return on investment doesn’t exceed one’s cost of capital — no, more than that, it is unsustainable. If, however, the return on investment is adequate but you don’t invest because you hope to flip the company next year, it is fair to say that this short-term thinking is not a sustainable attitude.

2) Sustainability involves carefully considering the value of “reputational capital.”

Almost all businesses recognize that certain expenditures, which at first glance seem like losers, actually produce intangible but important gains. Supporting the local hospital or volunteer fire department or sponsoring a Little League team may be expected, and a failure to do these things may make it difficult to attract employees or may lead the city council to be unsympathetic when your company requires a zoning variance.

This principle is a tricky one as, of course, it has no natural limits. One can assert that building a windmill will win goodwill without being able to quantify it.

Yet, nonetheless, it is an important point. It requires at least a consciousness of the value of being thought well of and thus a willingness to at least attempt to assess that value in making decisions.

3) A recognition of the influence of non-contractual stakeholders.

Every executive knows you can’t conduct business without the approval of those parties that have contractual rights. A CEO may want to sell the company, but if the shareholders don’t agree, the deal is off. Perhaps a CEO wants to build a new building but if the bank won’t finance it or the city won’t allow the zoning change needed, construction can’t proceed.

One business phenomenon of the modern age has been the rise of the NGO or non-governmental organization. Sustainability acknowledges the power of these groups and thus requires extensive stakeholder engagement as a common business practice.

In other words, although it may be true that your neighbors have no legal claim against your planned as-of-right facility expansion, we have learned that agitated neighbors can form NGOs and get zoning changed or tie things up in court. So, although sustainability requires no fixed outcome — in other words, you don’t have to agree with your neighbors — it does require outreach. It requires an honest attempt to understand the opinions of all stakeholders and consideration for those opinions.

Many in the industry can embrace all this. They value being sustainable in reference to the environment and recognize the value of the economic responsibility as a check on irrational spending, yet they shudder at facing the third component of sustainability, the social responsibility.

It is understandable why this would be so. It is through laws such as the minimum wage law and child labor laws that we compromise among different sectors of our society on issues such as how people ought to be treated. In raising the spectre of some amorphous “social responsibility,” we seem to open the floodgates to unlimited and unreasonable demands from social activists.

Yet intrinsic to sustainability is that legal minimums are not always enough. Our behavior cannot be justified simply by pointing to its legality; we have to live in our own skins and think ourselves to be doing the right thing.

Although this can make for some heated battles, the self-conscious attitude this requires — not so much dictating any behavior as dictating that we think about what we are doing — is really the crucial element of sustainability.

And it is not as much of a challenge as one might think. In fact, the social component is a crucial offset to the environmental. After all, although helping the planet may be an important value, it is not our only value.

So if the environment would benefit from moving a facility to a less trafficked area but local people would lose jobs or suffer a loss of income, there is no slam-dunk answer. A balancing between different interests — social and environmental — is what is required.

Although it is true that acknowledging social responsibilities beyond obeying the law opens the door to those who would advocate all kinds of expenditures including increases in labor costs, it is also true that conducting such a discussion within the context of sustainability creates an automatic framework to moderate unreasonable demands. After all, urging a larger payroll is fine but it has to make sense in terms of our economic responsibility.

With so many multi-generational family businesses in the industry, many have been practicing sustainability for a long time. Family businesses are motivated not only in the obvious sense of preserving the vitality of the land for the next generation but also in the broader sense of being cognizant of the desirability of sustaining and enhancing the reputation of the family and business for generations yet to come.

It is unfortunate that so often sustainability comes across as somewhat dour — such as being forced to focus on doing whatever is required to win a certification or an emphasis on doing less of a bad thing — such as emitting carbon or pollution. Done well, sustainability can and should be joyful, a kind of celebration of a journey of continuous improvement with priorities established and projects undertaken because doing so is so compelling to stakeholders and, especially, employees.

Throughout this issue, you will read the thoughts and stories of an industry inching toward a new way of perceiving business, of an industry trying to become more sustainable as it comes to understand sustainability.  pb