The Future of Corporate Environmental Sustainability: We Thought You’d Never Ask!
Sustainable is a charming and positive word. It’s become so familiar that it might dull our senses to the alternative outcome: with the average global temperature and extreme weather rising while air and water quality fall, life (let alone business) on our planet risks becoming unsustainable.
Greenhouse gasses such as carbon dioxide trap heat, and the biggest sources of C02 are transportation, electricity, and industry. That means the business world has to take the lead to keep the planet cool.
So what’s the future of corporate sustainability, also known as the E in ESG (for environmental, social, and governance)? This work is so vital that environmental reporting is becoming the second method for evaluating company performance, alongside traditional financial reporting. After all, we’ve been contributing to our planet’s rapid warming for centuries, and it’s starting to show us the consequences. Slowing or reversing those consequences is a huge challenge with a lot of questions about how to best proceed.
We’re here with answers about all the key topics: how to measure your effect, report it to stakeholders, and improve sustainability across strategy, materials, operations, transportation, and partnerships.
Go ahead – ask the tough questions. We’re not afraid.
The ROI of Corporate Sustainability Programs
Sustainability Measurement, Reporting, and Standards
Corporate Sustainability Actions and Examples for Right Now (and for the Future)
The ROI of Corporate Sustainability Programs
Our employees have led an excellent grassroots awareness program. Are you asking for more investment?
Yes, it’s well past time for top-down leadership to join in. Post-its and posters that say “Remember to turn out the lights!” certainly aren’t enough. Addressing climate change will require more than these pro forma environmental moves.
But it’s not just about throwing money at a problem. To make meaningful progress, move past the basics and get to work on a full-blown sustainability strategy, detailing how your company will organize and prioritize its work to make emissions and waste reduction part of its business model and processes.
Convince me that we’ll see a bottom-line payback. Are sustainable companies more profitable?
Yes. (And Milton Friedman would thank you for asking.) In terms of plain old money, there is both upside potential and downside risk affecting businesses at different rates.
For starters, in an ENGIE Impact survey of 200 executives at large multinational corporations, 75% say that sustainability strategy done well drives competitive advantage.
SAP’s own research found three groups of organizations that each act differently when it comes to environmental sustainability. We call them the Nows, Imminents, and Laters, based on when they expect sustainability to be financially material to their companies’ operations.
The Nows, which represent 17% of the response base, are more likely to make sustainability part of their business strategies, and they are outperforming the other groups. They have the most data, and the organizations with the most data are the most certain about environmental action yielding a near-term financial result. Specifically, the Nows are also more likely to see increased revenue.
Find SAP’s complete findings here: How Environmental Sustainability Affects Competitiveness and Profits.
Are regulators really applying significant penalties for noncompliance?
They are. If the ROI carrots aren’t enough to motivate you, regulators will supply the stick instead.
For example, in 2021, European antitrust authorities found that Volkswagen, BMW, and Daimler colluded to delay emissions-reducing technologies. VW and BMW are paying €875 million in fines. (Daimler got a pass for blowing the whistle on the scheme.)
Lawsuits are another form of penalty. Across the pond, the Commonwealth of Massachusetts sued Exxon in 2021 for “unfair and deceptive practices” in its climate-change communications with investors and consumers.
If you won’t invest in sustainability now, you can pay in fines and brand damage later. And then you’ll have to do the work anyway.
Where can we make the biggest difference right away?
Every company and every industry are a bit different, but here are four high-impact ideas for supercharging your sustainability efforts:
A 2021 study by the World Economic Forum (WEF) and Boston Consulting Group states that this is a great place to focus. For companies in most customer-facing sectors, end-to-end emissions are much higher than the direct emissions in their own operations. By engaging suppliers to create a net-zero supply chain, companies can boost their positive climate impact, improve emission reduction in hard-to-abate sectors, and take climate action in countries where it would otherwise not be high on the agenda.
The research also found that the supply chains in eight industries – food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services, and freight – produce more than half of global emissions, and that net-zero supply chains would have “only marginal impact on product costs.”
Within your company walls, take your energy efficiency and recycling efforts to the next level with a full-blown waste reduction program. Food, water, raw materials, furniture, electronics, packaging, unused supplies – a lot goes to waste in a typical business. Some of these things can even be turned into new revenue streams.
Waste reduction inevitably means digitizing processes to reduce or eliminate paper usage, along with all the ancillary power and fuel that is used moving that paper around.
This is one example of why digital transformation work is so closely tied to sustainability efforts.
As you go digital, choose data center and cloud providers that have a clear focus on sustainability.
The International Energy Agency reported in late 2021 that data centers account for about 1% of global energy demand, with data center transmission networks consuming another 1%. Sounds small, but the total is more than many entire countries use. (Also, those numbers don’t include blockchain and crypto mining, which is a huge energy hog.)
You’ll find numerous other strategies and tactics as you read on.
Most of these actions will incur new costs. What appetite do my customers have for higher prices while I sort all this out?
According to 2021 research from IBM, 84% of global consumers consider sustainability important when they are choosing a brand. Sixty-two percent say they’re willing to change their buying behavior to help reduce negative effects on the environment.
Also, on the B2B side, experts recommend offering customers the choice. For example, some businesses will opt for a slower or more expensive delivery if it means less carbon output, which can help both buyer and seller to lower their emissions.
What about investors? How will they respond as we take on higher costs to pay for sustainability improvements?
In the IBM study mentioned above, 83% of personal investors say they would invest, divest, or lobby fund managers to change investments based on ESG considerations.
If that doesn’t grab your attention, in a 2021 PwC survey, 68% of respondents say ESG performance measures and targets should be included in executive pay.
Sustainability Measurement, Reporting, and Standards
Ah, yes, measures and targets. How are we supposed to measure all this ESG stuff? This isn’t like financial reporting, where everyone is using comparable metrics.
Two thoughts on the measurement challenge:
First, you can’t wait for absolute clarity, so pick a standard – based on your industry, markets, regulatory requirements, partners, and so on – and start using it. Many companies are also approaching the different standards smorgasbord style – a little of this and little of that – and filling in the gaps with their own metrics, SAP research finds.
Second, the situation is gradually becoming clearer. For example, in late 2020, the five ESG framework organizations mentioned above worked together to publish a prototype for climate-related financial disclosure, providing companies a practical example to follow.
Still, different standards and measurement approaches exist for different purposes. Some focus on specific aspects of climate impact, such as sustainably harvested forestry products and buildings’ water and energy usage.
Others focus on the financial reporting aspect. For example: in the academic world, Harvard Business School’s Impact-Weighted Accounts Project is developing a way to assign monetary value to ESG results, as is the Center for Sustainable Business at New York University’s Stern School of Business. In the UK, the Cambridge Institute for Sustainability Leadership promotes and directs capital to sustainable business models. The Oxford Sustainable Finance Programme is responsible for the key concept of “climate-related stranded assets,” which is important to energy companies. You can find descriptions and links for all these initiatives and many more in “The Quest to Redefine Success with Sustainability.”
The environment has never been considered “material” to financial performance like, say, a labor strike or a major product recall. Is that changing?
Increasingly, the answer is yes, SAP’s sustainability research has found.
The “material now” group of respondents – companies that see sustainability having an immediate material effect on their profit and operations – see a strong correlation between that effect and their overall business success.
The regulatory environment is starting to reflect this new reality as well. “Starting in 2024, the European Union (EU) is going to require any company doing business in Europe to report on its environmental and social performance and also to do a double materiality analysis reporting on activities that are material to both their financial performance and their impact on society, the economy, and the environment,” says author and consultant Chris Coulter.
How do I gather the data I need to set realistic targets and measure sustainability improvement?
Instrument your facilities and equipment. Build data capture into business processes. Use partnerships and public data sources for comparisons. Require sustainability reporting from your suppliers and service providers. A lot of data is already available.
Some companies are crafting tools beyond simple dashboards for their specific needs. The fashion company Stella McCartney piloted a digital tool that assesses the environmental risk of different fabrics (and their sources) in relation to factors such as air pollution, biodiversity, greenhouse gas emissions, forestry, and water use and provides risk reduction actions. Using the tool in conjunction with its sustainability strategy, the company identified that its cotton sources in Turkey were facing increased water and soil loss risks. This data-gathering work led to real decisions with effects on the environment: the clothing designer doubled down on investments in local farming communities and focused on water management and soil regeneration.
Let’s talk about greenwashing. A lot of companies pick and choose what sustainability metrics they report on – much of which is unverifiable. Won’t that come back to haunt them?
Like Charles Dickens’ Ghost of Christmas Past.
In May 2022, the U.S. Securities and Exchange Commission (SEC) fined BNY Mellon $15 million for ESG misstatements. As one expert told Funds Europe’s coverage, “This case may be the first of its kind, but we all know it won’t be the last. The SEC’s greenwashing task force is on a mission.”
Canada’s Competition Bureau hit Keurig Canada with a variety of fees in early 2022 for misleading claims (all dollars Canadian): a $3 million penalty, an $800,000 donation to an environmental charity, and an extra $85,000 in investigation costs for good measure.
France’s Climate and Resilience Law, enacted in 2021, includes greenwashing penalties up to €300,000 plus prison time.
Japan is promulgating new greenwashing laws.
You get the picture. The writing’s on the wall for greenwashing Scrooges.
What about buying carbon offsets? Is that a cop-out, as opposed to taking real action?
Why not do both? Take action and buy offsets. Both have value.
Offsets are important and bring us to the idea of “drawdown”; producing less carbon dioxide isn’t going to be enough. We also need to reduce the carbon dioxide (and other greenhouse gasses such as methane) that are already in the atmosphere.
That’s what carbon offsets are for. Purchased from a reliable supplier, carbon offsets most commonly involve planting trees, which “breathe” in carbon dioxide, store the carbon, and release the oxygen. By one estimate, 100 acres of forestland can store (or “sequester”) close to a quarter-million pounds of carbon in a year.
(While you’re at it, stop mowing the corporate campus grass and plant a bunch of trees instead. Lower lawnmower emissions, water less, and draw down more carbon. A variety of free online tools can help calculate and report the results you’ll get based on your location and plans.)
Take care, though, in how you represent offsets. Dutch airline KLM was slapped with a July 2022 lawsuit over its advertising claims, in part regarding carbon offsets — which don’t make your products or operations environmentally friendly per se. (See “greenwashing” question above.)
There’s a lot of confusing terminology involved in corporate sustainability. Everyone talks about scopes: Scope 1, Scope 2, Scope 3. What are these, and what am I supposed to do about them?
This terminology refers specifically to greenhouse gas emissions.
- Scope 1: Emissions produced by your company’s operations
- Scope 2: Emissions produced in generating the energy your company uses
- Scope 3: Emissions produced by your business partners and by indirect sources related to your business, such as your employees commuting to work
Scope 1 is entirely within your control.
Your energy providers should be able to provide your Scope 2 data, and tell you how they’re improving, to go along with your own energy consumption improvements.
Scope 3 is harder to manage, of course, but companies are doing it through a mix of collaborative efforts, incentives, and supplier or partner requirements. Measurement is always the first step, and data sharing is the second. You can’t manage what you can’t see.
What’s the so-called circular economy? Is that just another term for sustainability?
It’s definitely a close cousin of sustainability, but the concepts are distinct.
WEF’s circular economy definition is “an industrial system that is restorative or regenerative by intention and design.” A traditional linear economic process model transforms raw materials into products that are used once and discarded; the circular model closes the loop by bringing products back into the cycle after use so that they can be reused, recycled, or repurposed again and again. In a perfect circular model, nothing ever goes to waste.
The circular economy concept is based on three principles:
- Design out waste and pollution.
- Keep products and materials in use.
- Regenerate natural systems.
And in all of this, a circular economy is underpinned by a transition to renewable energy sources.
And what’s the difference between sustainable and regenerative?
Sustainable means using systems without degrading them. A sustainable system can keep going indefinitely because it has a net-neutral effect on resources.
More attention is now being paid to getting beyond that point to develop regenerative practices and systems, which restore and improve resources as they operate. A regenerative system actually increases the health and productivity of its environment – a net-positive effect.
The concept of regeneration is probably best understood in agriculture. Crop rotation rebuilds soil nutrients, giving healthier and more productive harvests overall.
The challenge is to expand this thinking into other business areas. Examples: modular carpet maker Interface has a product line that stores more carbon than is emitted in making it. Apparel brand Timberland has committed to making all its products environmentally net positive by 2030 and has made strides with partners in creating regenerative supply chains for rubber and leather.
Even when we settle on the terms and standards that apply best to our business, most measurement standards efforts are works in progress. And outside agencies are going to use them in grading our work? We don’t love that.
It certainly is fair to acknowledge that not everyone loves it. A 2021 research project in Italy found that “firms may react very differently to being rated…[and] corporate responses depend on managers’ beliefs regarding the material benefits of adjusting to and scoring well on ESG ratings and their alignment with corporate strategy.”
That study grouped corporate reactions into four buckets:
- Passive conformity (Our interpretation of this attitude: “Well, if you insist.”)
- Active conformity (“We’re good with this rating process.”)
- Passive resistance (“Knock yourself out; we’ll be doing business as usual.”)
- Active resistance (“Ratings? We don’t need no stinkin’ ratings.”)
Clearly, only one of those attitudes sounds like love for ESG ratings.
But yes, sooner or later you will have to report, and your work will be graded.
Governments are beginning to mandate stricter environmental actions and reporting. Can I just wait until these regulations go into effect?
That seems like a terrifically inefficient and expensive idea.
Forthcoming 2024 EU regulations (mentioned by author Chris Coulter above) will affect millions of companies worldwide that do business in Europe. “If they haven’t already adopted a reporting infrastructure to incorporate sustainability into their broader accounting, they don’t have time to waste,” Coulter says, in a mild understatement.
If you want to start from zero, then scramble and do a halfhearted job at whatever deadline, that’s certainly your call. But scientific consensus finds that decision is socially irresponsible as well as unsustainable, and you likely increase your risk of running afoul of regulators.
Corporate Sustainability Actions and Examples for Right Now (and for the Future)
Okay, time for concrete, sustainability-enhancing actions. WEF says supply chain is a good starting place – what can we do to improve our sustainability there?
Here’s a bunch of supply chain and sustainable logistics examples and actions from other companies and researchers.
Reassign your delivery fleet.
Pick the right vehicle for each delivery route.
Transport planning systems can optimize routes, reduce mileage and emissions, and analyze the topographical effects on truck performance. You’ve likely already optimized for speed. Considering your carbon footprint will help solve for efficiency, which may be even better.
Josué Velázquez Martínez of MIT Center for Transportation and Logistics has found examples of better fuel efficiency up to 15% through a study with Mexican logistics company Coppel. The study applied machine learning to classify regions based on average delivery speed, segment lengths (the amount of stops on a specific route), and topographic profile. Different vehicles were more efficient on certain kinds of routes, depending on these variables.
Give your customers green options.
Same-day delivery is challenging because it means a lot of trips to the same neighborhoods with trucks that aren’t always fully loaded, which increases emissions. The Sustainable Supply Chains Lab did an experiment to see whether consumers make different delivery choices according to how green the choices are and whether they’re willing to wait.
“Imagine that you can actually communicate [to a customer], ‘If you are willing to wait two, three, four days more, you’re actually going to be able to reduce that footprint by a certain percentage,’” Martínez says. This “green button” experiment found that 52% of customers changed their delivery decisions to minimize the environmental impact.
Up your warehouse game.
- Localize warehouses to reduce travel distances.
- Add solar: in Elizabeth, New Jersey, East Coast Warehouse has a solar array on its warehouse that’s one of the largest in the Northeast. Kevin Daly, chief commercial officer, says the company recently installed another 4,900 high-efficiency solar modules that generated over two and a half gigawatts of solar energy in 2020. “Our solar array has really outperformed our expectations,” he says.
- Replace paper with tablets and handhelds. With digital options, truck drivers can stay in the trucks and use tablets to do all the paperwork, including the bills of lading, which can be digitally sent directly to the consignees. In addition to reducing paper, this makes for better transparency. The proof of delivery – where, when, and who signed – can be put into a transport management system and automatically archived.
Add a recycling section in your own warehouse.
Shimon Gowda, manager of supply chain design at Chainalytics, says a growing number of companies have corrugated cardboard recycling facilities in their warehouses so that they can reduce waste.
Share your data.
The supply chain concept called “collaborative planning and forecasting replenishment” is gaining ground. It’s another example in which a digital twin plays a key role because everyone in the supply chain can see one another’s data transfers. For example, a manufacturer can see the end retailer’s forecast three months in advance. If there’s a problem, it’s more likely to be identified and fixed sooner. “This can really drive toward a circular economy because you’re being minimalistic with your consumption, with your transfers, with everything,” she says.
Tell me more about the circular economy concept — is that the ultimate goal we should shoot for? How realistic is it?
The basic idea is that recycling and reuse are not an afterthought but an essential part of the business strategy. In some ways, yes, the circular economy is sustainability taken to its ultimate goal: zero waste, including zero emissions. In such an economy, waste is a failure. Success, on the other hand, can really yield great returns: Accenture estimates that organizations could create up to US$4.5 trillion in value by 2030 by adopting circular economy principles more widely.
Here’s another example of circular economy principles in action. A company named Algramo sells detergent in reusable smart containers that have radio-frequency identification (RFID) chips; the consumer brings the container back to the kiosk, which charges only for the exact amount of detergent refilled. This eliminates single-use plastic, which is especially important in areas with no recycling infrastructure. It also increases manufacturers’ margins by letting them sell more product without needing to purchase additional materials to package items individually.
No question – it’s tough to create a completely circular company, let alone a full economy.
It’s also nearly impossible to play a perfect round of golf, but that doesn’t seem to stop anyone from trying.
What can we do about the sustainability of materials used in our products? Do we have to wait for sci-fi supermaterials to save us?
There’s plenty of room for improvement using today’s materials and technologies.
Apple, for example, gives customers the option of returning their used phones, laptops, and other products. Newer items earn trade-in credit, which the company recoups by refurbishing and reselling them. It also disassembles unrepairable and obsolete technology, both for parts and to extract and recycle or reuse materials such as aluminum and gold. As one result, the latest MacBook Airs, Mac Minis, and iPads are encased in 100% recycled aluminum from Apple’s own manufacturing scrap as well as postconsumer building and construction waste. This approach recaptures the value of materials that would otherwise be discarded while keeping e-waste out of landfills and incinerators.
You might identify ways to avoid materials (such as plastic) that can’t currently be recycled in a key market. You might also develop new product designs based on more sustainable materials. Sportswear brand Cariuma makes knit sneakers from thread that combines plastic reclaimed from the ocean with highly renewable bamboo – an approach that reduces manufacturing waste and promotes alternative textiles while creating new markets among eco-conscious consumers.
You may even discover new ways that your sustainability focus can shift or extend your entire business model. Seventh Generation, which makes eco-friendly cleaning products, created an ultraconcentrated version of its flagship laundry detergent that contains 50% less water and requires 60% less plastic to package. By having consumers reconstitute the detergent from their own taps instead of paying to ship water around the world, the company distributed more product at less cost while making that product even more sustainable.
Meanwhile, in places where governments are using regulations to promote recyclable materials and minimize waste, companies willing to pay more for materials that include recycled content will find ways to recoup these costs through lower taxes and fees in those markets.
Find more ideas in “How to Make Sustainable Materials Use Matter.”
What about some more ideas for reducing my company’s carbon emissions?
No question – shifting to lower-carbon and renewable energy sources is key to slowing climate change. Today, beyond hoisting solar panels and spinning up a wind turbine, you can:
- Equip homes and offices with AI-driven smart devices that track and optimize power use in real time.
- Use efficient batteries that can capture solar energy, store it, and make it available during high-demand times. This lowers your own power bill but also reduces reliance on aging and smog-emitting peaker plants.
- Trim down software code to use less power.
- Choose Leadership in Energy and Environmental Design (LEED)-certified buildings and data centers that are designed for power and emissions efficiency.
- Apply the Prius Principle in new ways. The Empire State Building cut its greenhouse gas emissions by a reported 40% by installing elevators with regenerative breaks, which feed power back into the building as the cars slow down.
Innovation on the energy front is necessary, and it’s happening. Down the road, we could see the following:
- Plastics that are free of petroleum, made of material that captures carbon dioxide (C02) when it’s produced, and manufactured more efficiently
- Buildings with carbon fiber walls that store energy, elevators with regenerative brakes, or windows made from transparent wood that’s five times more thermally efficient than glass
- Biofuel made from seaweed
- Solar-collecting clothing
- Capture of the kinetic energy of rain, ocean waves, and the frequent starts and stops of skyscraper elevators
In July 2022, researchers in Australia announced a breakthrough process that has the potential to dramatically reduce the power used in refining petroleum – which currently consumes an amazing 15% of worldwide energy usage and therefore produces significant emissions. It also may make hydrogen easier to use and less risky as an alternative energy source.
Quickly finding, commercializing, and adopting these types of discoveries is vital. Keep an eye out for the ones happening in your industry, even as you’re taking the smaller steps available today.
Lightning round: can you give me five more compelling examples of real-world corporate sustainability improvement?
Even more sustainability examples? Why, of course:
Unilever, the consumer packaged goods giant, plans to label the carbon emissions associated with 70,000 of its products as it cuts emissions to zero by 2039. ENGIE Impact says Unilever is also working to hold suppliers accountable on sustainability goals. (There’s Scope 3 in action.)
H&M, Sweden’s giant of fast fashion, has set a goal to use all recycled or sustainably sourced materials by 2030. H&M was the first large fashion retailer to offer transparency about its manufacturing, starting with its Conscious collection: consumers can click on a mock-turtleneck sweater, for example, and see that it’s made of acrylic, polyester, and wool while also discovering the origin of the materials. (Research has shown that increasing numbers of consumers will pay more for environmentally conscious products.)
CVS has transcended its role as the corner drugstore, officially positioning itself a healthcare company in 2014 with high-profile moves to stop the sale of cigarettes (relinquishing about $2 billion in annual revenue) and offer minute-clinic health services and vaccinations at its stores. CVS Health revenues have increased steadily since 2015. This example is heavy on the S (social) in ESG, but anyone who’s ever picked up cigarette butts knows there’s an environmental aspect too; the World Health Organization says tobacco production annually creates 84 million tons of CO2 emissions along with numerous other forms of environmental damage.
In Kalundborg, Denmark, an oil refinery began piping excess gas to a gypsum-board manufacturer nearby; one company’s waste became another’s raw material input. The oil refinery gained a new source of revenue, and the gypsum-board company saved money on buying gas. But this profit-driven corporate decision – which, by the way, was made in 1972 – set Kalundborg on a path to becoming perhaps the best model of a citywide circular economy. Now, 11 different companies in the area save nearly US $900 million a year while significantly reducing waste and emissions. (We’ll count this as just one example, though.)
Automotive giant Ford also shows that early industrial companies can get in the game. Its Dearborn, Michigan assembly plant has a 10-acre living roof; some Ford factories use geothermal cooling systems, and some recycle paint fumes to produce electricity. Its Focus and Escape models are 80% recyclable. Since 2000, Ford says it has reduced its operational energy use by 30%, CO2 emissions from facilities by 39%, and water use by 43%.
None of these companies were built ground-up on a sustainable business model, but they’re all working on it and showing material progress.
Indeed, there aren’t any perfect examples; every company of size and every industry has plenty of room for improvement in its sustainability efforts.
But surely by now, it’s clear that this work has the proverbial triple-bottom-line payoff. People and planet benefit – and it’s imperative for that reason – but profits can too.