Management for sustainability

4th July 2011

Sustainability is one of the big new buzzwords in business-speak. Chairmen and CEOs of large enterprises are almost lining up to tell us how sustainable their companies are, and nearly every corporate annual report and website seems to have ‘sustainability statement’ or something similar tacked onto it. Morgen Witzel, FSN writer and honorary senior fellow at the University of Exeter Business School explains why sustainability makes good business sense.

The concept of sustainability has many critics. There are cynics who say that talk of sustainability is all so much hot air. Sometimes they are right; we are probably all familiar with examples of ‘greenwash’, companies that claim publicly to have cut waste, increased recycling and so forth, while in practice doing very little. Others dismiss the whole concept as worthless, regarding people who talk about sustainability as ‘tree huggers’. The purpose of a business is to make money, not to save the planet. 

Granted that the purpose (or one of them) of a business is to make money, there are still some very good and valid reasons why sustainability should not be dismissed as a fad, but rather taken very seriously indeed. For those companies that fully understand what sustainability means and know how to make it work for them, managing sustainably can be a really powerful source of competitive advantage. Put it another way: all other factors being equal, a company that is managed sustainably is always likely to beat one which is not, hands down. 

Let us start with the term itself. The term ‘sustainability’ was coined by the UN World Commission on Environment and Development (also known as the Brundtland Commission) in the 1980s. The Commission defined sustainability as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’ This was a vague and not always very helpful definition. However, in the 1990s the consultant John Elkington came up with a much more helpful concept. In his book Cannibals With Forks, Elkington suggested that businesses needed to think about sustainability in terms of three dimensions: economic, societal and environmental. He called this concept  the ‘triple bottom line’. 

A truly sustainable business, argues Professor Peter Senge in his book The Necessary Revolution, has to be sustainable on all three dimensions. Let us consider the implications of this before turning to the main point, how sustainability can be used for competitive advantage. 

The economic dimension will be obvious. A business has to make a profit in order to survive. To survive into the future, it has to be capable of continuously meeting customer needs in a cost-effective manner. Of course, this is not easy. News of the woes of the British retail sector, where several more major chains went into administration in late June, shows that meeting customer needs on an ongoing basis is itself a task that is beyond the capabilities of many managers and many companies. Patrick Barwise and Seán Meehan’s book Beyond the Familiar shows that only companies that expend vast amounts of time, energy and money getting close to their customers can hope to achieve over the long run. 

Societal sustainability means in effect ensuring that businesses make a net contribution to the societies in which they trade and where they operate. The founder of the Tata group in India, Jamsetji N. Tata, believed that the fundamental purpose of business was the creation of wealth, not just for the owners of the business but for all of society. In practice this meant things such as rewarding workers fairly for their work, ensuring customers got value for money and also making some sort of further contribution to the country or society as a whole, whether through charitable works, developing new products and services that would improve the quality of people’s lives, providing employment and training opportunities – or in the case of Tata, all three. 

One of the values by which the Tata group lives is the notion that ‘what comes from the people goes back to the people, many times over’. In other words, Tata has put much more into India than it has taken out. Sound idealistic? That idealism has taken Tata from a small textiles business into the international super-league of businesses. It is the largest Indian business group by a distance, and its brand is one of the fifty most valuable brands in the world. The strength of the Tata group and the Tata brand rests squarely on its commitment to societal sustainability. 

The third part of the triple bottom line, environmental sustainability, relates to managing the impact that a business has on the physical environment around it. The usual formula, as used by companies such as Tetra Pak and Coca-Cola, is that ‘we should not take out more than we put in’. Coca-Cola’s bottling plants around the world are major consumers of fresh water. This includes plants in some parts of the world such as southern India and China where fresh water supplies are dwindling. Coca-Cola realised that it had a real vulnerability here, on two levels. First, if it consumed more than its fair share of water resources, it would arouse resentment among other water users such as farmers and domestic households that could lead to a backlash. Second, if water consumption levels continued at their present rates, the price of water extraction would only go up. Working with the World Wildlife Fund, Coca-Cola developed a new water management strategy that cut water usage and emphasised the cleaning and recycling of water so that clean, potable water was returned to the aquifers. 

The Coca-Cola example shows how managing sustainably can bring benefits on all three dimensions. The water management strategy cut costs – the costs of recycling were more than balanced out by the reduction of costs through less water usage – showed the company to be a good corporate citizen and thus won friends in the communities where it operates, and reduced the harm to the environment. 

Another example of this phenomenon comes from Tetra Pak. The world’s largest food packaging company has a major operation in China, where it sells about 60 billion packs a year to dairies and drinks makers. Recently, Tetra Pak has begun to concentrate on renewable energy, which is much cleaner than energy produced by the gas or coal fired generators which produce the smogs that hang over many Chinese cities. The company has also begun advising its customers on how to do the same, and shares technology with them for free. Tetra Pak is also helping its customers with recycling initiatives. Why? First, all of these things help to cut costs, important in a dynamic and highly competitive market; for example, renewable energy turns out to be cheaper in many parts of China, and gets around the problem of energy shortages. Second, these things show the Chinese government and Chinese people that Tetra Pak has their interests at heart – and long experience shows that the Chinese are suspicious of foreign companies whom they believe are only coming to China to make a fast buck. That kind of commitment is crucial to success in China. And finally, Tetra Pak and its customers are becoming compliant with the tough new regulations brought in under the most recent Five-Year Plan. This is not just a win-win situation; it is a win-win-win situation. 

The important thing to remember about the three dimensions of the triple bottom line is that they are all connected. The environment matters because people live in it, including our customers and our employees. Protecting the environment protects their interests, and makes it more likely that they will continue to buy our products and work in our operations. Contributing to stable communities likewise builds loyalty and good relationships with customers and employees. And what is necessary to creating a business that is economically sustainable and profitable over the long term? Precisely that: good relationships with customers and employees. We noted above that getting close and staying close to customers is very hard to do. Examples such as Tata show that commitment to the triple bottom line can be a useful tool for doing so. 

Tetra Pak, Tata, Coca-Cola and many others are showing that managing for sustainability delivers tangible economic benefits. It probably is time for all businesses, large and small, to see whether and how they can follow these examples, profitably.