Is sustainability a priority for your company?
Instituting a well-developed sustainability plan can bring tangible and intangible benefits to a family firm.
Sustainability is serious business. A well-developed sustainability plan will help your company to mitigate risk and will position it to leverage opportunities for value creation. Sustainability is particularly relevant for family-controlled businesses, which are strongly connected to their communities and are oriented toward preserving wealth and ensuring success for future generations.
There are many definitions of sustainability. A 1987 report from the United Nations’ World Commission on Environment and Development, “Our Common Future,” defined it as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” John Elkington, a leading authority on corporate responsibility and sustainable development, coined the term “triple bottom line,” which requires consideration of “people, planet and profit.” The Dow Jones Sustainability Index defines corporate sustainability as “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.”
However sustainability is defined, it’s important, and many corporations have stepped up to develop plans. At Duke Energy, one of the U.S.’s largest electric energy companies, alternatives are assessed through a “sustainability filter” with four elements: “connections to the big picture and the interrelationships between issues; efficiency to save money and respect our planet’s limits; balance, effectively addressing competing interests; and grandchildren, anticipating how future generations will view the actions we take (or don’t take) today.”
Why it’s essential
The massive Deepwater Horizon oil spill in the Gulf of Mexico in 2010 made it abundantly clear why companies must deal with environmental, social and economic issues. But, given the many challenges facing family-controlled businesses, should sustainability be a priority in family companies? We believe it must be, and the reasons are compelling.
• Sources of capital for privately held businesses are limited. Increasingly, banks and other financial institutions are considering a company’s environmental exposures and opportunities. Lenders such as Goldman Sachs say they seek to identify “the best managed companies around the globe that will succeed on a sustainable basis.” Others, including Deutsche Bank and StateStreet, regard sustainability as important for investment decisions. Environmental exposures increase a company’s costs of capital and insurance.
• Risk tolerance for major environmental issues is lower. One environmental mishap can ruin years and years of dedication, hard work and good will.
• Family-controlled businesses often have a unique relationship with the communities in which they operate and recognize the need to contribute to them. Many family companies provide their employees paid time off for community service and donate generously to local charities and institutions.
• Long-term stewardship is generally a core value at family firms. Fisk Johnson, chairman and CEO of SC Johnson, has said that business has both an opportunity and an obligation to make the world better by advancing environmental and social progress.
While some companies regard sustainability issues as no more than required compliance with regulations, other firms have embraced it as an opportunity for significant value creation. Nearly all businesses can reduce operating expenses through increased energy efficiency, reduced water consumption and elimination of waste.
Several years ago, with oil hovering at only $60 per barrel, the World Business Council for Sustainable Development found that energy use in buildings could be reduced on average by 40%, with investments generating a payback in five years. Just as important, companies are finding that significant savings are available through collaboration with their suppliers to improve the eco-efficiency of the supply chain. Optimizing logistics can yield dual benefits of reduced energy expense and reduced emissions. A key to increasing operating sustainability is a systems approach—from product designs for increased material efficiency or reusability, to improved packaging, to optimized logistics.
Visionary companies are leveraging sustainability to increase revenues through competitive advantage. “As a family-owned business, we take seriously our responsibility to create a healthy future that we all can savor,” Bob Boller at Kendall-Jackson Vineyards wrote in a blog post. “[W]e take the same approach to sustainability as we do with any other business activity—we demonstrate leadership. Whether it’s quality, customer service or sustainability, our expectations are to lead all industry.”
Companies have found that marketing more sustainable products leads to increased revenues. A key finding is that while consumers will not pay more or accept diminished performance for green attributes, they will favor green products over other comparable alternatives.
Assessing the benefits
How can the benefits of improved sustainability be funded, monitored and captured? A key is a comprehensive but pragmatic sustainability strategy. A coherent plan for a firm’s sustainability initiatives should be based on an assessment of both the needs (what’s clearly not sustainable and creates risks?) and the opportunities (how do we make this financially viable?). Actions to address needs and opportunities can be prioritized, with near-term operating efficiency improvements funding longer-term efforts to redesign products and grow markets.
Consumers, financial institutions, regulators and the public at large are becoming increasingly sensitive to the challenges of fulfilling the needs of the present without jeopardizing the ability of our children, our grandchildren and future generations to do so. Family-owned businesses have unique challenges and a heightened sense of responsibility to the community in which they operate. Attention to sustainability offers the family business opportunities to reduce costs, enhance products and services, and mitigate the risk of potential environmental issues. An enterprise sustainability strategy can unite and energize employees, undergird public relations and drive value creation.
Fred C. Mason is a consultant at ReProduct Inc., a firm based in Kennett Square, Pa. He assists corporations in creating shareholder value and competitive differentiation through sustainability (www.reproduct.net).