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Why CEOs Should Advocate for Sustainability

Type: Featured Article
By Ryan Honeyman
6 January 2015

CEO-sustainability-advocates750One of the most persuasive arguments for increasing your company’s social and environmental performance is that you will save money, enhance profitability, and generate more business value.

Curiously, it is not the Sierra Club, Greenpeace, or the Rainforest Alliance that is making this argument. It is traditional management consulting firms like Goldman Sachs and Global 500 CEOs.

While writing my book The B Corp Handbook: How to Use Business as a Force for Good, I found that a veritable who’s who of thought leaders such as Accenture, Deloitte, Goldman Sachs, Harvard Business School, McKinsey & Company, and PricewaterhouseCoopers have released data-driven case studies, global surveys and exhaustive reports that offer compelling proof that using business as a force for good is good for business.

In addition, CEOs such as Doug McMillon from Walmart, Indra Nooyi from Pepsi, and Paul Polman from Unilever all believe that sustainability drives greater profitability and long-term value for shareholders.

If you or others in your company, such as C-suite executives, investors or an influential board member, are skeptical about anything that hints of “green” or “socially responsible,” then this article will give you a brief snapshot of the bottom-line, business case for sustainability.

For example, Goldman Sachs reported that “more capital is now focused on sustainable business models, and the market is rewarding leaders and new entrants in a way that could scarcely have been predicted even 15 years ago.” Goldman Sachs found that there has been a dramatic increase in the number of investors seeking to incorporate sustainability and environmental, social, and governance factors into their portfolio construction.

In a report that echoes this sentiment, the International Finance Corporation found that the Dow Jones Sustainability Index performed an average of 36.1 percent better than the traditional Dow Jones Index over a period of five years. Comparable results have been found by some of the top academic institutions in the world. For example, a Harvard Business School study concluded that “high sustainability companies significantly outperform their counterparts over the long term, both in terms of stock market as well as accounting performance.”

If you were on the fence, PricewaterhouseCoopers found a “positive, statistically significant, linear association between sustainability and corporate financial performance,” and McKinsey, in no uncertain terms, said, “The choice for companies today is not if, but how, they should manage their sustainability activities.” McKinsey also reported that a fragmented, reactive approach to sustainability is no longer enough. “Companies can choose to see this agenda as a necessary evil—a matter of compliance or a risk to be managed while they get on with the business of business—or they can think of it as a novel way to open up new business opportunities while creating value for society.”

Importantly, sustainability is not just about reducing your environmental footprint. Goldman Sachs notes that “research at both the corporate and university levels suggests that this next generation of employees and consumers have specific needs at work that are dramatically different from previous generations. High among these is a desire to align personal and corporate values. To attract and retain this group, we believe that companies need to provide rewards beyond financial gain.”

Accenture, in a global study of CEOs’ perspectives on sustainability, found that 93 percent of CEOs see sustainability as important to their company’s future success. Accenture reported that “demonstrating a visible and authentic commitment to sustainability is especially important… to regain and build trust from the public and other key stakeholders, such as consumers and governments—trust that was shaken by the recent global financial crisis.”

Paul Polman, CEO of Unilever, made headlines when he decided that Unilever would stop reporting on the company’s earnings on a quarterly basis. “It takes a longer-term model to address these issues,” said Polman. “We needed to remove the temptation to work only toward the next set of numbers.”

The dramatic market shift towards sustainability is also reflected in the practices of Walmart (now the world’s largest retailer). Walmart, which had one of the worst corporate reputations in the U.S. in the 1990s and early 2000s, has rejuvenated its brand image by strongly focusing on social and environmental responsibility. In addition, Doug McMillon, Walmart’s CEO, says that the company’s three sustainability goals–to be supplied 100% by renewable energy sources, to create zero waste, and to sell products that sustain people and the environment–have produced bottom line results. “We save money, we are more efficient, and we are more responsible,” says McMillon.

Indra Nooyi, CEO of Pepsi, says, “business does not operate in a vacuum–it operates under a license from society.” Nooyi says that Pepsi recognized early that delivering value for consumers, protecting the environment, and investing in employees helps them achieve sustained value. “In fact,” Nooyi says, “these actions fuel our financial returns.”

Want to take the next step towards improving your social and environmental performance? One of the best tools I have found is the free B Impact Assessment. In my experience, the B Impact Assessment is  useful because it can help turn the somewhat vague concept of sustainability into a series of concrete, measurable, and actionable steps.

In addition, for an impressive compilation of credible studies on the business case for sustainability, including studies from McKinsey, Deloitte, The Harvard Business Review, The Economist Intelligence Unit, MIT, AT Kearney, Gallup, The US Department of Energy, and many others, please see Sustainability Pays: Studies That Prove the Business Case for Sustainability by Natural Capitalism Solutions.

 

A version of this article originally appeared on the Fast Company CoExist blog

Ryan Honeyman Ryan Honeyman is a sustainability consultant and author of The B Corp Handbook: How to Use Business as a Force for Good (Berrett-Koehler Publishers, October 2014). Ryan helps organizations like Ben & Jerry’s, Method and Klean Kanteen become B Corporations and maximize the value of their B Corp certification. To learn more, visit honeymanconsulting.com or follow Ryan on Twitter.

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