Last month I got a call from a VP of sustainability at a Global Fortune 500 company (let’s refer to her as ‘Ellen’ to protect the innocent). This person had guided her company’s sustainability initiatives to early success. But her department is struggling to gain ongoing funding for sustainability efforts. In fact her company is questioning whether its sustainability strategy will achieve its goals.
What happened? And what can we learn? This VP’s sustainability strategy wasn’t integrated into her company’s competitive strategy. Typically what gets into the strategic plan gets funded via the operating plan. Since her sustainability strategy resided outside the operating plan, she turned to her colleagues for funding help. Those dollars have run out.
I often hear variants of Ellen’s story. In fact, over the past two years I’ve interviewed more than 100 sustainability, strategy, finance, and business unit leaders at Global Fortune 500 companies in support of my forthcoming book, The Future of Value. A frequent topic was the “separate sustainability strategy” versus “integrated sustainability and competitive strategy” debate.
Ellen’s story is consistent with other stories I’ve heard from companies with failed sustainability strategies. Indeed Ellen’s story illustrates why I believe two-thirds of the Global Fortune 500 companies’ sustainability commitments are doomed to fail. From the start. Despite their best intentions.
While there are several reasons for these failures, two stand out. The first is a lack of sufficient funding. The second is a lack of easily understood and clearly documented link between sustainability goals and competitive strategy tactics. These two challenges place difficult to navigate roadblocks—limited funding and limited senior executive support—in the path towards sustainability.
Placing a commitment to embrace sustainability on the right track to success is less difficult than one might think. An ‘ah-ha’ from my interviews—“what gets planned gets funded”—suggests a solution. That is, integration of sustainability commitments into a company’s competitive strategy plan, instead of enacting a sustainability strategy separate from competitive strategy, will increase the likelihood of ongoing funding.
More and more Global Fortune 500 companies are following this approach. Ben Packard, VP of global responsibility at Starbucks, a company that adheres to approach, described his company’s rationale thusly:
At Starbucks, sustainability and strategy are now integrated at the strategic planning level. The Global Responsibility strategy is driven at the enterprise, strategic planning, and annual operating planning level. One reason we do this is because the bigger costs of driving changes in our supply chain occur outside of the Global Responsibility budget.
The road to sustainability integration into competitive strategy is difficult. But companies such as Starbucks, UPS, Centrica, and Hitachi are employing three common steps to create ‘sustainability infused competitive strategies.’ These steps include:
- Seek natural ways to tie sustainability and strategy together
The benefits of securing senior management support for sustainability have been well covered. Once that support is earned, the next step is to seek natural ways to tie sustainability together with strategy. Typically this integration journey starts by framing the copious amount of sustainability data, trends, and forecasts in terms relevant to their companies’ strategic planning efforts. UPS’s experience provides an insightful example. Ed Rogers, global strategy manager at UPS, was tasked with the responsibility for tying sustainability and strategy together at his company. He recalled his experience, starting with finding a relevant rubric to tie sustainability information to UPS strategy:
“I thought if I could show how sustainability relates to our mission, strategy, and performance, then people would get behind sustainability. I wanted to choose a language that was familiar to UPS’ers. UPS functions and business units rely on ‘strategic frameworks’ to lay out their mission and vision, and supporting strategies and initiatives. Using these familiar frameworks seemed like a good way to organize all of the sustainability information we collected and lay it out in a manner relevant to UPS strategy. Then we highlighted things that we weren’t doing but other companies were. Finally we concluded that we should consider making sustainability part of our strategy.”
- Connect sustainability to opportunity
Successful integration of sustainability with corporate strategy requires a mindset that sustainability is synonymous with high performance. Such is the case at Centrica, the large UK based utility company. Simon Henderson, Director of Corporate Responsibility and Digital Media at Centrica, described how Centrica connects sustainability to opportunity:
Our CR vision is to be the most trusted energy company leading the move to a low-carbon future. The trust element covers securing energy supplies, delivering high-quality customer service, health and safety, and how we look after our people. Developing a clear narrative to explain how all the different facets of CR support our business operations has helped to integrate them into our corporate strategy. As a result, last year we announced new corporate strategic priorities, underpinned by a commitment to provide energy for a low-carbon world.
- Integrate issues of materiality into competitive strategy
Companies rely on materiality assessments to prioritize sustainability issues both they and their stakeholders care about. These priorities are then planned for within competitive strategy. Dan Cherian, general manager of Nike’s Sustainable Business & Innovation Lab, uses one such table:
Draw a two-by-two table. Label one axis “fungible importance to the business.” Label the other side “ability to do anything about it.” For example, take cotton. During our strategic planning process we would say “Cotton prices are going up. What can we do about it?” This two-by-two table helps us see there’s a lot we can do about a material issue such as cotton prices. Our sustainability perspective enables us to be more creative about all the external partners with which we could partner. Once we apply this approach, the business looks at us differently because sustainability is directly supporting corporate strategy.
Integrating sustainability with competitive strategy isn’t without drawbacks. One challenge: employees are less likely to know what their company’s sustainability strategy is. As a result, they might not be able to fully represent your company’s efforts publicly. One company’s head of sustainability explained this to me:
It’s not always easy for our employees to understand the fact that our citizenship strategy is also our business strategy. So when somebody asks an employee externally, ‘What does [our company] do to focus on citizenship?’ it’s sometimes easier for employees to say something more programmatic, such as philanthropy or volunteering, because that may be more tangible to them.
While not insignificant, this drawback can be managed through effective corporate and employee messaging. For example, many Sustainable Market Leaders provide their employees with sustainability training programs employees can take online.
The benefits of melding sustainability with strategy—increased likelihood of funding and, therefore, success—far outweigh potential drawbacks. How is your company integrating sustainability and competitive strategy?
Eric Lowitt is a sustainability consultant, speaker and author of “The Future of Value: How Sustainability Creates Value Through Competitive Differentiation”. Learn more about Eric at www.EricLowitt.com and follow him on Twitter @EricLowitt