Business and the Environment
The Global 100 and Sustainability's Strategic Worth
Corporate
Knights is a Canadian research and publishing company that compiles an
annual list called the Global 100, identifying the world's most
sustainable companies.
The 2018 edition of the list, presented at
the World Economic Forum in Davos, Switzerland, shows that an
increasing number of major multinational companies take sustainability
seriously, including many U.S. businesses. The highest-ranking U.S.
company is technology giant Cisco, which ranks seventh on the Global 100
list.
Other U.S. companies in the top twenty-five include
Autodesk, Merck, and McCormick & Co. The countries with the best
representation on the list are primarily from North America and Western
Europe: the United States (18), France (15), the United Kingdom (10),
Germany (7), Brazil (5), Finland (5), and Sweden (5).
You may
expect that companies dedicated to sustainability would be less
profitable in the long run as they face additional costs. In fact, data
from the Global 100's return on investment shows this is not the case.
Let's examine the evidence. If an investor had put $250 in Global 100
companies in 2005, it would have been worth $580 in 2015, compared to
$520 for the same amount invested in a typical index fund. The Global
100's cumulative return on high-sustainability firms is about 25 percent
higher than a traditional investment.
Cisco Systems, number
seven on the global list, is a good example of how green procurement and
sustainable sourcing have become a regular part of the supply chain. At
Cisco, according to a top-level supply chain executive, "we take
seriously the responsibility of delivering products in an ethical and
environmentally responsible manner".
Cisco relies on its Supplier
Code of Conduct to set standards for suppliers so they follow fair
labor practices, ensure safe working conditions, and reduce their carbon
footprint, the amount of carbon dioxide and other carbon compounds
released by the consumption of fossil fuels, which can be measured
quantitatively (see the link below). Cisco is in the process of
embedding sustainability into supply chain management at all levels.
Do you know what your carbon footprint is? This personal footprint calculator allows you to find out where you stand.
Another
company dedicated to sustainability is Siemens, which was ranked number
nine on the 2018 list. Siemens is a multinational industrial
conglomerate headquartered in Germany, whose businesses range from power
plants to electrical systems and equipment in the medical field and
high-tech electronics. Siemens was rated the most energy-efficient firm
in its sector, because it produced more dollars in revenue per kilowatt
used than any other industrial corporation. This is a standard technique
to judge efficiency and demonstrates that Siemens has a low carbon
footprint for a company in the industries in which it operates. The
commitment of Siemens to sustainability is further demonstrated by its
decision to manufacture and sell more environmentally friendly
infrastructure products such as green heating and air conditioning
systems.
Cisco and Siemens show that businesses across the globe
are starting to understand that for a supply chain to be sustainable,
companies and their vendors must be partners in a clean and safe
environment. Do businesses simply pay lip service to environmental
issues while using all available natural resources to make as much money
as they can in the present, or are they really committed to
sustainability? There is abundant evidence that sustainability has
become a policy adopted by businesses for financial reasons, not simply
public relations.
McKinsey & Company is one of the world's
largest management consulting firms and a leader in the use of data
analytics, both qualitative and quantitative, to evaluate management
decisions. McKinsey conducts periodic surveys of companies around the
world on matters of importance to corporate leaders. In the 2010 survey,
76 percent of executives agreed that sustainability provides
shareholders long-term value, and in the 2014 survey, entitled
"Sustainability's Strategic Worth," the data indicated that many
companies consider cost savings to be the number-one reason for adopting
such policies. Cost cutting, improved operations, and efficiency were
indicated as the primary reasons for adopting sustainability policies by
over one-third of all companies (36%).
Other major studies have
demonstrated similar results. Grant Thornton is a leading global
accounting and consulting firm. Its 2014 report on CSR showed that the
top reason companies cite for moving towards more environmentally
responsible business practices is financial savings. Grant Thornton
conducted more than 2,500 interviews with clients and business
executives in approximately thirty-five countries to discover why
companies are making a commitment to sustainable practices. The study
found that cost management was the key reason for sustainability (67%).
A
specific example is Dell Computers, headquartered outside Austin,
Texas, and with operations all over the world. The "Dell Legacy of Good
Plan" has set a goal to reduce greenhouse gas emissions from all
facilities and operations by 50 percent by the year 2020, along with
several other environmental goals. As part of this overall plan, Dell
created the Connected Workplace, a flex-work program allowing
alternative arrangements such as variable work hours to avoid rush hour,
full- or part-time work at home flexibility, and job sharing. This
sustainability initiative helps the company avoid about seven thousand
metric tons of greenhouse gas emissions, and, directly related to the
financial benefit of sustainability, it saves the company approximately
$12 million per year.
However, adopting sustainability policies
may require a long-term outlook. A recent article in the Harvard
Business Review discussed the issue of sustainability and how it can
create real cost savings ((Figure)). "It's hard for companies to
recognize that sustainable production can be less expensive. That's in
part because they have to fundamentally change the way they think about
lowering costs, taking a leap of faith . . . that initial investments
made in more-costly materials and methods will lead to greater savings
down the road. It may also require a willingness to buck conventional
financial wisdom by focusing not on reducing the cost of each part but
on increasing the efficiency of the system as a whole".
Sustainability can create long-term cost savings for companies.
Four
stacks of coins and a jar full of coins. The stacks grow in size from
left to right. On top of each stack and on top of the jar are plant
sprouts increasing in size from left to right.
Sustainability Standards
The
International Organization for Standardization, or ISO, is an
independent NGO and the world's largest developer of voluntary
international business standards. More than twenty thousand ISO
standards now cover matters such as sustainability, manufactured
products, technology, food, agriculture, and even healthcare. The
adoption and use of these standards by companies is voluntary, but they
are widely accepted, and following ISO certification guidelines results
in the creation of products and services that are clean, safe, reliable,
and made by workers who enjoy some degree of protection from workplace
hazards.
In the environmental area, the ISO 14000 series of
standards promotes effective environmental management systems in
business organizations by providing cost-effective tools that make use
of best practices for environmental management. These standards were
developed in the 1990s and updated in 2015; they cover everything from
the eco-design (ISO 14006) of factories and buildings to environmental
labels (ISO 14020) to limits on the release of greenhouse gasses (ISO
14064). While their adoption is still voluntary, a growing number of
countries allow only ISO 14000-certified companies to bid on public
government contracts, and the same is true of some private-sector
companies ((Figure)).
According to recent reports, close to fifteen
thousand companies worldwide have chosen to be ISO 14000 certified,
including Nissan, Ford, and IBM.
Another type of sustainability standard
with which businesses may elect to comply is LEED certification. LEED
stands for Leadership in Energy and Environmental Design, and it is a
rating system devised by the U.S. Green Building Council to evaluate a
structure's environmental performance. The most famous example is the
Empire State Building in New York City, which was awarded LEED Gold
status (for existing buildings). The LEED certification was the result
of a multimillion-dollar rebuilding program to bring the building up to
date, and the building is the tallest in the United States to receive
it. There are dozens of other examples of large commercial buildings,
such as the Wells Fargo Tower in Los Angeles, as well as thousands of
smaller buildings and residential homes. LEED certification is the
driver behind the ongoing market transformation towards sustainable
design in all types of structures, including buildings, houses, and
factories.