Sustainability programs not only provide environmental and brand benefits, but also deliver value to a company’s stakeholders.
Managers who are not directly involved in overseeing environmental and social sustainability initiatives at their company often have too limited an understanding of how much value they bring to their corporation. The focus is often on the cost of the initiative and less attention is paid to the total value. As with any major business decision, management must consider the ramifications for key stakeholders as they discuss the impact on the bottom line. Will this decision lead to a higher share price for investors? Will this decision lead to new or satisfied customers? Will a decision make employees more likely to stay with a company? How will it affect the way regulators view the company? These are just a few of the many stakeholder concerns that management must consider when reviewing a new strategy.
The good news is that the impact of a company’s sustainability improvements on stakeholders is generally beneficial. In this article, we look at each of a company’s major stakeholders—investors, customers, employees, and regulators—and describe how environmental initiatives in particular deliver value to each.
investors
An investor’s priority is to maximize the return on their investment. With this in mind, an increasing number of investors are realizing that the environmental performance of their investments is a real contributor to better returns. A key component of any environmental program is providing improvements in energy and resource efficiency, simply by doing the same or more with less. This reduces costs, increases profits, and ultimately creates shareholder value.
Smart investors also care deeply about a company’s ability to mitigate long-term risks, including market and regulatory risks. Many companies are working hard to manage these risks and the environment and investors are benefiting. Take, for example, United Parcel Service, the largest shipping company at work, with 92,734 parcel cars, trucks, tractors and motorcycles: they analyzed and automated the routes their delivery trucks take to reduce fuel consumption. In 2007, UPS estimated that they saved 3 million gallons of gasoline and traveled 30 million miles. Not only did this reduce their greenhouse gas emissions, lower fuel costs and improve delivery times, but it also lessened the severity of the market risk of rising oil prices.
Another strong indication that environmental performance is becoming increasingly important to investors is the growth of socially responsible investing (SRI). According to the US SIF, in the United States alone, socially responsible investment funds represent US$3 trillion of assets. In addition, many of the largest financial institutions are implementing green underwriting standards and joining industry alliances that promote environmental and social underwriting, such as the Equator Principles. These changes are being driven in large part by investor demand that companies actively manage their sustainability performance as part of their overall performance.
Customers
Just as more investors consider environmental impact when investing money, more customers consider the environmental footprint of various products when making a purchase. A well-known Indonesian example is consumer products giants Unilever and P&G, which have started a process to source only certified sustainable palm oil based on growing consumer awareness of the product’s impact and pressure to start minimizing it.
Walmart, the world’s largest retailer, is pushing its suppliers to adopt sustainable practices through its Walmart Sustainability Index. While many have criticized this action as an unfair abuse of power by the big retailer, it is undeniable that it is forcing suppliers to reduce the impact of their operations. The resulting cost savings are passed on to Walmart and consumers. These giant corporations are driving green innovations to gain even more market share. It will be necessary for other companies, suppliers and direct competitors to adapt or be left behind.
Employees
The value that employees place on working for a sustainable company is often overlooked. Many see it as a source of moral pride that they are contributing to an organization that has a positive impact on the planet. Sustainability can also help attract talented new employees. A survey conducted in the United States by Harris Interactive National Quorum found that 63% of people believe that a company’s environmental impact is vital when evaluating a new workplace. This strong preference may not yet be as high in Indonesia; Still, sustainability can be a positive differentiator to help your company attract top talent.
In addition to the recruitment and retention benefits, a greener workplace has tangible health benefits for employees. Numerous studies have concluded that a company can increase the productivity of its workforce by providing a green work environment. A 2010 study supported by the US Green Building Council found that improved indoor environmental quality “contributed to reductions in perceived absenteeism and work hours affected by asthma, respiratory allergies, depression, and stress, and to self-reported improvements in productivity”. For many industries, employee salary is the largest cost category, and improved employee attendance and productivity will directly contribute to the company’s bottom line.
Policymakers and regulators
Policymakers and regulators at all levels of government are placing an increasing priority on environmental protection as they hear from scientists about the growing threats to our natural systems and receive calls from citizens asking their governments to take further action. This is exemplified by President Susilo Bambang Yudhoyono’s commitment to reduce greenhouse gas emissions by 26% by 2020 and by 41% with international support. Government officials know that they will need to partner with the private sector to achieve national and international sustainability goals. Governments seek to promote corporate leaders and put pressure on laggards. Ministries now have awards for corporate environmental and social standard setters. At the same time, regulators are assessing record penalties for environmental crimes, as dramatically evidenced in the $20 billion settlement that BP was required to pay for the 2010 Gulf of Mexico oil spill. In this regard, when companies compete by government awards, i.e. infrastructure contracts, subsidies, loan guarantees, wireless spectrum, etc. You can only increase a company’s chances if it is in good standing with regulators.
Now that we know that virtually everyone who matters to a company cares about the company’s sustainability performance, how do we make sure all these stakeholders know what that is? The following are some recommended tips:
- Engage stakeholders sooner rather than later to ensure you have the freedom to develop an effective strategy and develop a reputation for transparency.
- Nobody and no company is perfect, you will develop more trust with stakeholders if you share the bad with the good.
- Your strategy for engaging stakeholders should include a variety of channels including: ubiquitous yet informal social media, direct face-to-face meetings, and detailed protocol-based reporting that makes the full story available to anyone interested in seeing your business. performance at any time.