Success in sustainability and profitability occurs when leadership, strategy, structure, management systems and performance align, writes Dr Kaushik Sridhar.
Companies generally assume and achieve their sustainability goals in three stages:
- Compliance with regulations – Companies have no choice in this area; they must obey the law. Regulations are often the driving force behind sustainability initiatives.
- Gain Competitive Advantage – This is necessary if you want your business operations to be profitable.
- Social, Economic and Environmental Integration of Sustainable Development Practices – Embrace responsibility for sustainable operations as a best practice beyond government or competition mandates.
The top four reasons why sustainability demands our urgent attention are regulations, community relations, cost and revenue imperatives, and societal and moral obligations.
Stakeholders (including shareholders, consumers, vendors, workers, âregulators and communitiesâ) care about a company’s sustainability practices. To meet their expectations, a company must make business decisions that take into account the current and future environmental impact of its products, services, processes and activities. Their leadership challenge is to cost-effectively integrate sustainable environmental practices into day-to-day business decision-making – from the factory to the boardroom.
Use the âcorporate sustainability modelâ
Social and environmental impacts must be included in ROI calculations and managerial decision-making at all levels. Identifying, evaluating and improving the social, environmental and economic impact of your business requires responsibility in all areas of your operations – from product design and cost to capitalization, management of the business. information and enforcement.
Responsibility begins with every person and service. Every staff member should be proactive in implementing the company’s commitment to sustainability as a core value. And each ministry should assess its contribution in all areas. To this end, this model analyzes four areas of business practices necessary for the implementation of a successful sustainability strategy:
- Contributions – What does your company contribute to sustainability in terms of personnel and financial resources? Is your business environment conducive to meeting environmental goals? Maintain open communication between hierarchies and departmental silos to foster the flow of information needed to make and execute critical sustainability decisions.
- Process – Business leaders should establish principles and practices that institutionalize the concept of sustainability. The board of directors and the CEO should develop a sustainability strategy, allocate the necessary resources and drive the appropriate programs and initiatives across the organization. Along with executive engagement, a business needs the right structures, systems, performance measures, rewards, culture, and people to execute its sustainability strategies.
- The exits – This category of business practices covers the cost / benefit ratio for the company of actions in favor of sustainable development. It includes stakeholder feedback and sustainability performance (which can be both an output and an outcome). When focusing your sustainability activities, consider your organizational culture, competitive position, and environmental performance. Take into account regulations, market considerations and geographic conditions. Global companies need to align their overall sustainability strategies with the realities of their operational structure, whether centralized – with less local autonomy – or decentralized – with more local autonomy. Seriously consider all the associated risks and rewards before outsourcing sustainability functions to external vendors.
- Results – What feedback do you receive on sustainable development issues? What are your results on the market? Strong sustainability leads to better product design, production efficiency and good customer service, all of which translate into higher profits, increased customer and employee loyalty, and greater social and environmental benefits. Help your business understand the direct link between improving sustainability performance and improving financial performance.
Costing, capital investments and integration of social risk
There are several management tools that can help you assess how you are integrating sustainability programs into your overall strategy:
- Capital investment decision systems – Some 84% of companies ignore social and political risks when making spending decisions related to sustainability, although these risks affect many areas including product quality, workload capacity, productivity, innovation, costs and revenues.
- Cost calculation systems – Rather than using traditional discounted cash flow analysis, some companies achieve better accounting for social and environmental costs by using activity-based or lifecycle-based costs. Companies that use full cost accounting to evaluate sustainability projects can make simple changes to identify and eliminate environmental expenses and to develop better pricing and customer value.
- Risk assessment systems – Identify and quantify the sources of underlying risk. What is the possibility that the social and political risks associated with the environment will actually materialize?
Keep this concern in mind when making decisions.
Evaluation of performances
Building a culture of sustainability requires the right business setup, from the commitment of your leaders to your organizational structure and rules, systems, communications, performance measurement and incentive structure. As you coordinate these factors, measure your company’s individual and collective sustainability performance using tools like these:
- Performance reviews – Evaluate the results of your sustainability program at company, business unit and individual level.
- Incentives and rewards – Recognize excellence and offer incentives to report potential violations of law or company environmental policy.
- Responsibility for internal waste – Make each business unit responsible for its own rejections.
- Emissions trading – The company’s options include leasing emission allowances, entering into compensation agreements or balancing pollution and positive environmental contributions.
- Strategic management systems – Put in place administrative structures, such as a balanced scoreboard, which ensure real accountability and management control.
Social, environmental and economic impacts
As you collect information on each phase of your sustainability activities, analyze it in financial terms so that you have the information you need to align your corporate financial goals with your sustainability goals. Evaluate the factors that determine your sustainability performance, including potential risks and benefits, and assess your social and environmental results. Advances in technology allow for better identification, collection and interpretation of data to help you make better decisions and conduct more in-depth assessments of sustainability issues. A good assessment will reveal the links between your company’s activities and its environmental, social and financial performance.
All of your business activities – not just sustainability – benefit when managers adjust their strategies based on concrete performance indicators. Your measurement systems should include appropriate mechanisms to provide feedback to managers, so that they can promote knowledge sharing and lifelong learning. Feedback allows managers to check their assumptions on previous plans and modify them over the long term. Your business can improve its sustainability performance by rethinking products, rethinking processes, engaging members of its supply chain, rethinking markets, and using organizational learning and business cycle analysis. life. Improve your internal reporting to boost decision making and strategic planning. Use your data to show staff members the value of their contributions.
Success in sustainability and profitability occurs when leadership, strategy, structure, management systems, performance and continuous learning align. Even if your current efforts do not seem to immediately affect your finances or your performance in the market, your business will feel a positive impact in the future.