Sustainability is a serious consideration for businesses, and is no longer perceived as an environmental issue alone. The implications of this shift are significant, and subsequently, industry leaders are determining ways to embed sustainability throughout their business operations and strategic goals.
This publication, produced alongside KPMG, examines how organisations can approach sustainability, discussing how to build sustainability into your strategy, how to implement the strategy, how to embed sustainability considerations into core business processes and how to create value through reporting. Does your business factor in sustainability when making long-term decisions? How can you ensure your business has a viable future?
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3. Business briefing series
20 issues on building a While many businesses are committed to the principles of building a sustainable
business, many find it difficult to implement practical strategies that will enable this.
sustainable business
At the Institute, accounting for environmental, social and governance (ESG) factors
impacting an organisation has been on our agenda for some time, with the advent
of Broad-Based Business Reporting (BBBR). A recent leadership paper, integrating
sustainability into business practices: a case study approach, highlighted five
case studies of Australian and New Zealand organisations that have implemented
sustainable business practices.
In this leadership paper, Business briefing: 20 issues on building a sustainable
business, we have partnered with KPMG to take a strategic, big-picture look at
how businesses can address ESG risks and practically incorporate sustainability
into their business plan.
The paper offers guidance in a number of business areas, including strategy,
internal and external buy-in, risk management and reporting principles.
This is the fifth publication in our successful Business Briefing Series, which
provide guidance for business leaders and financial professionals on a range of
issues relevant to contemporary businesses.
As the profile of sustainability evolves, I hope this publication sheds some light
for you on how to make a sustainable business your reality.
Rachel Grimes FCA
President
Institute of Chartered Accountants in Australia
Business briefing series: 20 issues on building a sustainable business 3
4. 4 Business briefing series: 20 issues on building a sustainable business
6. Executive summary
Sustainability is a business case Sustainability has entered the mainstream of corporate
Sustainability has transitioned from an environmental life, according to a 2010 study by KPMG and the
issue to a serious business consideration. Industry Economist Intelligence Unit.3 Nearly two-thirds of the
leaders have already anticipated the management companies surveyed had already adopted a strategy
implications of this shift and are embedding sustainability for corporate sustainability, up from just over half in
throughout the operations of their business and strategic February 2008. A further 11% were currently developing
goals. However, running a sustainable business appears a sustainability strategy.
challenging to corporations across Australia, many of Sustainability issues are reshaping the rules of business
which require a new approach to remain competitive competition, driving new business models, transforming
in a fast-changing world. industry structures, redefining markets, and creating
The World Commission on Environment and new risks and opportunities. How businesses choose
Development has defined sustainability as ‘economic to respond to and integrate sustainability with core
development that meets the needs of the present business strategy will underpin their success in achieving
generation without compromising the ability of future a long-term competitive advantage.
generations to meet their own needs’.1 Sustainability This paper identifies 20 key issues that are relevant to
issues can potentially affect most elements of implementing a new strategic approach to sustainability
business strategy, including the price and availability in a corporate context. These are discussed under four
of capital, competitive relativities, operating costs, headings:
risk management, process improvement, innovation,
• Build sustainability into your strategy
consumer preferences, supply chain management and
regulatory compliance. • Implement the strategy
• Embed sustainability into core business processes
There is growing official and public expectation that
organisations will conduct their business in a sustainable • Create value through reporting.
manner in order to retain public trust and their licence
to operate. Beyond that, however, there is a realisation
across all industry sectors that an organisation’s To build a
sustainable Implement
sustainability poses significant risks and opportunities business, start the
to its future profitability. with the strategy
strategy
This position is reflected in the views of business leaders,
according to a 2010 UN Global Compact, Accenture CEO Building a
Study.2 It reported that 96% of the business and civic sustainable
leaders polled thought that sustainability issues should business
be fully integrated into strategies and operations, up from
72% in 2007. Over 90% of CEOs surveyed believed that
Embed
sustainability matters would be critical to the success of Create value sustainability
their businesses. through into core
reporting business
processes
1. Oxford: Oxford University Press, Our Common Future: World Commission on Environment and Development, 1987.
2. United Nations Global Compact, Accenture CEO Study, A New Era of Sustainability, 2010.
3. KPMG in cooperation with the Economist Intelligence Unit, Corporate Sustainability: A Progress Report, November 2010.
6 Business briefing series: 20 issues on building a sustainable business
7. Build sustainability into your strategy
To build a sustainable business, sustainability related issues, developed in consideration of
externalities and stakeholder concerns and expectations, should be appropriately considered and
embedded in the business strategy. You may also consider trade-offs in order to optimise social,
environmental and business performance for long-term value creation.
The resulting strategy will identify and respond to both potential limits to growth and business
opportunities, such as access to new products or new markets, and apply across the entire
organisation. Performance measurement should be aligned with corporate level objectives and
resonate with management’s business priorities.
Currently, some companies have developed separate standalone sustainability strategies, while
others have integrated sustainability considerations into core business strategy. As integrated
strategies are becoming more commonplace, sustainability is increasingly acknowledged as a
critical component of good governance, risk management and a source of competitive advantage.
The issues are presented in the context of an integrated strategy, but are equally relevant for
standalone sustainability strategies.
1. Understanding industry externalities and needs, and demographic shifts may impact the
and stakeholders’ expectations assumptions behind business strategies.
Is your organisation exposed to industry-specific Each industry faces its own unique environmental and
regulatory changes? social challenges which may affect business models,
technological innovation and business outlook. It is
What physical, social, environmental,
important that a strategy is formulated to capture
technological and economic factors may
the various risks and opportunities, with particular
impact your operating environment?
attention to physical, environmental, technological,
Does your business strategy incorporate social, regulatory and economic factors that will
changing stakeholder expectations? impact the operating environment of the organisation.
It also requires recognising and understanding the
Understanding the broader context in which your interconnections between industries, where a disruption
organisation operates is a critical first step in incorporating in one may cascade to other industries with random
sustainability considerations into business strategy. This consequences (e.g. fires in Russia may result in export
requires taking steps to capture, understand and assess embargoes, which may push up grain prices around the
the unique sustainability-related factors impacting an globe or lead to an increased demand for corn-based
organisation’s industry and geography, such as how bio-fuels, which may influence affordability of basic
stakeholder expectations, changing societal tastes food produce).
Business briefing series: 20 issues on building a sustainable business 7
8. Build sustainability into your strategy (continued)
Stakeholder engagement involves obtaining input into
Example: Sustainability challenges key strategies and objectives, which will ensure
facing the airline industry that organisations understand and respond to external
The airline industry is highly competitive and input when developing strategy.
characterised by thin margins, volatile yields,
In this context, stakeholders can include shareholders,
price-sensitive customers and technological
investors, financiers, employees, customers, suppliers,
limitations (e.g. reliance on oil-based fuels). These
and other factors impact business sustainability governments, regulators, NGOs, academics, and
and sustainability performance. Other sustainability communities with strong links to a particular enterprise.
challenges may include: The table below summarises issues facing the financial
• Managing and reducing greenhouse gas services industry and relevant stakeholder groups.
emissions within the constraints of limited
Seeking input from relevant employees, as critical
abatement opportunities
stakeholders, during strategy development allows
• Managing the economic impact of emission their unique understanding of risks and opportunities
constraints in different global markets
to be captured. In addition, early engagement will
• Monopolistic behaviours in parts of the value strengthen internal ownership of the strategy during
chain (e.g. airport managers)
implementation.
• Growth constraints as hub airports reach
capacity
• Poor labour flexibility and productivity in
certain markets
• Airline safety and security issues.
Issues facing the financial services industry and relevant stakeholder groups
Material issues Relevant stakeholder groups
Bank fees and charges, and interest rate decisions Customers, governments
Sustainable and responsible investment, Environmental social governance (ESG) and mainstream
lending, products and screening investment analysts, employees, NGOs, customers, academics
Customer service Customers, ESG and investment analysts, employees
Equal opportunity Employees, ESG and investment analysts
Job security, talent retention Employees, ESG and investment analysts
Financial inclusion and global financial crisis Customers, ESG and investment analysts
Climate change Community, ESG and investment analysts, customers,
employees, NGOs, academics
Governance and compliance ESG and investment analysts, employees, customers
Economic contribution ESG and investment analysts, employees, community
Safety and security Customers, employees, unions
8 Business briefing series: 20 issues on building a sustainable business
9. Example: Mapping the key issues in New Zealand Agribusiness
KPMG recently conducted a survey Highest ranked priority issues for New Zealand agribusiness
of over 80 agribusiness industry (on a scale of 1 to 10)
leaders in order to understand the
Maintain a robust biosecurity system
key opportunities, policy settings
Understand global products
and industry actions facing and eating trends
agribusiness in New Zealand.
Ensure practices support ‘clean/green’ image
Recognising that the agribusiness
Effective mechanisms for extension
sector should be closely involved
as the key driver of New Zealand’s Build high value solutions with customers
export earnings in the future, the Recognition of importance
survey results could help industry of governance
stakeholders develop a strategy Aligned industries with a common goal
that will capture the potential Recognise consumer trends
that exists for the sector in global around sustainability
Develop brands for global fast moving
markets. Key issues were ranked by consumer goods markets
level of priority, and many of those
Realise benefits of free trade agreements
in the top 10 relate to sustainability
issues such as biodiversity and 0 2 4 6 8 10
changing consumer trends. Source: KPMG Agribusiness Agenda 2011
2. Mapping business risks and time with regard to abatement activities developed
opportunities through technological innovation.
What industry challenges and growth constraints Materiality is another issue to consider. Certain
are most material to your organisation? sustainability issues will have a larger effect on the
Is a process in place to review changes and performance of the organisation than others, just as
assess the impact of these issues on strategy? certain activities produce more significant sustainability
consequences than others. Concentrate on identifying
How can these changes be leveraged to create
a competitive advantage? issues that are likely to have the greatest negative or
positive impact.
Mapping business risks and opportunities will help While sustainability challenges vary considerably
relevant linkages and relationships become evident. between organisations and industries, they invariably
Doing this allows you to pull together and summarise relate to physical, regulatory or market-driven factors
the knowledge and ideas developed in earlier phases that can limit growth and impact on competitiveness.
of strategy formation. At this stage, it is important Limitations can be physically imposed (e.g. water
to make sure that the relevant industry challenges, scarcity), regulatory driven (e.g. carbon pricing,
growth constraints and stakeholder expectations have emission standards) or a consequence of consumer
been properly assessed and included in the process. preference (e.g. demand for greener products).
The mapping process captures relevant knowledge Identifying and understanding constraints to growth are
at a point in time. This process needs to be regularly key challenges and require strategic responses. Crucial
reviewed because many of the inputs can change as for business longevity and competitive advantage is an
a result of technological, economic and regulatory
understanding of tipping points and your organisation’s
developments. For example, the risks presented by
preparedness to respond to these factors.
the introduction of a carbon price in Australia will
be intensified during the first year as businesses adapt Ultimately, with good planning, constraints and limits can
to the changes and opportunities will increase over be turned into opportunities and competitive advantage.
Business briefing series: 20 issues on building a sustainable business 9
10. Build sustainability into your strategy (continued)
Common risks and opportunities for consideration in a sustainable growth strategy
Regulatory change. Sustainability strategy should Licence to operate. Most organisations function
include a capacity to track and respond quickly and under an implicit licence to operate. Adverse
effectively to relevant regulatory changes (e.g. a price developments in public opinion and government
on carbon emissions, changes to energy efficiency attitudes can cause the licence to be removed or have
standards or water allocations). While there has been conditions imposed upon it. Events involving one
considerable focus on changes to environmental industry participant can have adverse consequences
regulations, governments are also increasingly using for other players. For example, the BP oil spill in the
regulation to address social issues. An example of Gulf of Mexico in 2010 resulted in tighter regulation
this is the federal government’s plan to introduce of the global oil and gas industries.
plain packaging for tobacco products by 1 July 2012
Workforce considerations. Sustainability needs
in an effort to reduce smoking rates and improve
to be considered in the context of an organisation’s
public health.
ability to attract, manage and retain quality employees.
Eco-efficiency. The value of constrained resources This element may be a critical issue in regards to
and the ability to maximise access to them will become employment choices.
a major driver of competitive advantage. In many
Supply chain pressures. Sustainability factors are
cases, activities such as improving energy efficiency
becoming increasingly important in supply chain
or reducing packaging can also lead to a reduction in
security and performance, and are influencing
operating costs, increased innovation, and enhanced
consumer choices. Issues such as sustainable sourcing
brand image and regulatory compliance.
of raw materials, carbon and water performance and
Customer preferences and brand loyalty. While employee human rights are increasingly becoming
there is only anecdotal evidence of sustainability brand and reputation issues for organisations and
issues impacting a customer’s decision to buy a are therefore attracting greater scrutiny. An example
product, there is significant evidence that customers of this was seen in 2010 when Greenpeace targeted
may choose not to buy a product on the basis of an Nestlé’s Kit Kat product over concerns about the use
organisation’s sustainability performance. An example of palm oil and the resulting impact on the habitats
of this is the backlash faced by Nike during the of orangutans. A viral advertising campaign led to
1990s after accusations of using sweatshops drew significant pressure on Nestlé’s brand and the product
the attention of human rights groups and the media, itself, prompting Nestlé to announce it would stop
prompting campaigns to boycott products. Customer using ingredients that may be sourced as a result of
expectations need to be researched and monitored as rainforest destruction.
they evolve.
Licence
to operate
Eco Regulatory
efficiency change
Limits to
sustainable
growth
Supply chain Customer
pressure needs
Workforce
considerations
10 Business briefing series: 20 issues on building a sustainable business
11. 3. Assessing competition and 4. Integrating sustainability into
defining positioning strategy and strategic objectives
How do your competitors define and Is your sustainability strategy linked to core
implement sustainability? business objectives?
Do your sustainability initiatives place you What potential intangible benefits could
as an industry leader? investment in sustainability deliver?
How can your organisation be differentiated Does your organisation have resilience
to gain competitive advantage? to sustainability shocks?
Analysing your organisation’s peers and competitors An effective sustainability strategy should focus on
is critical in order to define an appropriate strategic delivering core business objectives and creating business
positioning for market differentiation. For example, are value in terms of cost reduction, revenue growth and
you seeking to be an industry leader and innovator, a enhanced brand value, or any combination of these.
fast follower or a niche player? This analysis provides an
One of the challenges is balancing short- and long-
understanding of your positioning within your industry
term business needs. A popular lens for sustainability
and helps to identify how and where your organisation
investment is the ‘J curve’ (see below). This involves
wishes to move in the future.
initial investment to deliver longer-term benefits for the
Integrating sustainability risks and opportunities within organisation. At times, this investment may need to be
business strategies is an opportunity for individual not only ahead of the market but ahead of regulation
organisations to positively differentiate themselves from in order to maximise the competitive benefit. Indeed,
their competitors. Organisations can gain positional a common challenge in investment approval is the lack
advantages (both in terms of cost and brand reputation) of recognition of intangible benefits, such as reputation
by establishing themselves as industry leaders in and improved customer loyalty, within cost-benefit and
sustainability matters. Consumers respond positively payback analyses.
to perceptions that organisations conduct themselves
in a sustainable and ethical manner.
Sustainability investment returns over time
As noted in Issue 2, how an organisation tackles
the risks and challenges posed by management of
sustainability issues will provide the greatest opportunity
for differentiation from competitors and for the broader
positioning of the organisation.
Returns
Time
0
Sustainability issues can directly impact competitive
positions within industries. For example, in one
high-emission manufacturing industry, the leading
organisation sources and manufactures most of its
products within Australia, while its major competitor
sources material offshore. Consequently, the imposition
The development of an effective sustainability strategy
of a carbon price in Australia is likely to impact their
will involve certain business performance trade-offs, and
relative competitive positions.
numerous considerations must be taken into account to
determine how to best optimise the situation. A saving
in energy efficiency that in turn increases waste may
not necessarily be considered sustainable. Decisions
also need to make commercial sense. Overall, strategy
formation is about optimising the balance.
Business briefing series: 20 issues on building a sustainable business 11
12. Build sustainability into your strategy (continued)
Trade-offs: The Qantas experience Setting sustainability goals and
‘Managing environmental impacts (and other objectives
sustainability target areas) is a balancing act. After assessing the actual and potential implications
Actions to mitigate one consequently may adversely of sustainability issues for your organisation, it is
affect another. For example, the Group is washing important to establish clear business objectives.
more aircraft to reduce drag to improve fuel This will include defining what sustainability means
efficiency. While fuel consumption is reduced, to your organisation, given that there are many
water consumption is increased. Another example different definitions.
is that the most fuel efficient flight path may reduce
In setting goals and objectives, your organisation
greenhouse gas emissions but may increase the
needs to consider the scale of threats and
number of people exposed to aircraft noise. In some
opportunities, the potential impacts on current
cases, the Group has been required to operate a fully
business and growth goals, and positioning in
noise compliant but less fuel-efficient flight path in
relation to competitors around these issues.
response to local community concerns. These types
of trade-offs between different impact areas create As suggested earlier, isolating sustainability within
additional complexity in both setting environmental only one part of your organisation is set to almost
improvement targets and in identifying improvement guarantee failure, as the costs of sustainability
initiatives.’ programs will be incurred but many of the benefits
Source: Qantas Data Book 2010 will not be captured.
Sustainability should become a part of core business
activities, such as procurement, risk management,
Decisions tend to become more difficult as marketing and product development. This integration
sustainability’s ‘lowest-hanging fruit’ is picked and needs to be implemented across the organisation
consumed. Technological innovation, regulatory both hierarchically and geographically.
change and shifts in the economic climate can offer Implementing a sustainability strategy and building
opportunities for sustainability and performance resilience into your organisation requires process
breakthroughs. The ability to identify such opportunities changes and behaviour change at all levels.
ahead of competitors is becoming a highly desirable Sustainability considerations can also be integrated
more broadly, in areas such as recruitment, cultural
competency.
change programs, partnerships and alliances.
One of the outcomes of integrating sustainability into
strategy is that it enables an organisation to develop
resilience to sustainability shocks. Sustainable business
policies and practices should provide a measure of
protection against adverse, unexpected external events
by making your organisation capable of responding to
shocks and setbacks.4
Once it has been determined to what level sustainability
will be integrated into an organisation, it is important
to clarify these decisions within the strategy with clear
goals and objectives.
4. Examples of this can be found in Early warning systems: can more be done to avert economic and financial crises, a leadership paper released
by the Institute in February 2011.
12 Business briefing series: 20 issues on building a sustainable business
13. 5. Developing the business case The introduction of a carbon price in Australia creates
further incentive to address these key areas of value as
Is there an opportunity to reduce long-term
they will be fundamental in mitigating any additional
operating costs through implementing
carbon costs faced by businesses directly and
sustainability measures?
throughout their supply chain.
Is there a threat to brand equity beyond the
operational control of your organisation which
could be minimised through sustainability
investment?
Demonstrating the business value of a sustainability
strategy is an essential element of building a sustainable
business. When building a business case, there are three
key areas of value to consider:
• Reduced operating costs
With increasing energy, water and waste costs,
reductions in use will not only reduce dependence on
scarce resources and greenhouse gas emissions but
also impact future operating costs. To give an accurate
picture of operating cost reductions, modelling future
price increases is essential. For example, DuPont
(once named the most polluting company in the
world) found it cost less to implement energy-saving
measures than it did to buy and burn fuel. As a
result, the company estimated that every tonne
of carbon it displaced saved it $6 5.
• New product and market opportunities
For many organisations, there is a potential upside
in integrating sustainability into business strategy
via new products and markets. A striking example of
this is General Electric’s ‘Ecomagination’, a business
initiative focused on developing green technology.
This helped turn the company’s image around
following its controversial dumping of toxic chemicals
in the Hudson River.
• Brand equity
Sustainability draws focus onto both the protection
and promotion of an organisation’s brand. You need
to be aware of the risks to brand and reputation,
particularly around areas where you have reduced
control, such as joint ventures, contractors and
supply chain if they are not meeting your standards.
Appropriate influence should be applied
to third parties so that their performance supports
your organisation’s reputation.
5. Lovins, L. Hunter, The economic case for climate action (March 2010) p 12, www.climateactionproject.com/docs/HL_Economics.pdf
Business briefing series: 20 issues on building a sustainable business 13
14. Implement the strategy
To ensure a sustainability strategy is successful, an organisation’s leadership will play a critical role
in supporting and driving its implementation.
6. Leading from the top • How and when will the change process
take place?
Are the Board of Directors and senior management While the detail of the strategy development and
actively involved in communicating the value of
implementation is likely to be articulated by specialist
sustainability to the organisation?
leaders, senior management should outline the overall
Are the drivers and outcomes of your sustainability approach, accountabilities and timeline
approach relevant and clear to employees and
• Are support structures in place throughout
stakeholders?
the organisation?
While leading from the top is essential, it is also
As with most organisational changes, lasting progress
important to show support for middle management,
on sustainability is unlikely without strong and focused
who can be caught between the demands of the
leadership, preferably starting at the Board level. Many
Board and the resistance of employees.
employees welcome sustainability initiatives and are
ready to apply them once they see strong leadership
on these initiatives. Key leadership success factors
Strong leaders create both passion and momentum • Take every opportunity to discuss
around sustainability issues. To do this, leaders should • Behave in a way that is clear and consistent
consider a number of questions: • ‘Live the values’ and embed sustainability
into your daily life
• What does sustainability mean for our organisation?
A clear definition sets the boundaries within which • Show support to middle management and
to consider these issues. Sustainability could take on operational employees
different meanings for different people 6 • Communicate the strategy and highlight results
• What are the drivers for sustainability issues to • Encourage employees to challenge the status
quo, and reward innovative thinking.
be among the top issues facing the organisation?
In other words, why are we doing this? These drivers
are likely to include alignment with organisational
Board directors and senior management should
values, regulatory compliance, meeting of stakeholder
think about why they are supporting and promoting
expectations, improved operating efficiencies, cost
sustainability and ensure the organisation clearly
reductions, enhanced competitiveness and increased
understands this. Demonstrating value and obtaining
innovation. It is important to outline opportunities as
well as risk mitigation as a key driver for change buy-in is crucial for securing internal support.
• How will sustainability initiatives fit within Enabling cultural and business change is an essential
the existing business strategy? part of success and needs to start at the top. This will
It is critical that the sustainability strategy is integrated help ensure the effective integration of sustainability
into the current and future business strategy from the into the business strategy.
beginning of the process. Articulating how the strategy
will protect and promote current business objectives
will help the rest of the organisation, as well as
external stakeholders, put the work into context.
6. Examples of different sustainability case studies can be found in Integrating sustainability into business practices: a case study approach, a leadership
paper released by the Institute, May 2011.
14 Business briefing series: 20 issues on building a sustainable business
15. Successfully integrating sustainability into your
Demonstrating value and securing organisation requires employees to be aware of the
internal support for sustainability ‘big picture’ of what is trying to be achieved, as well as
Management sometimes views sustainability as a what they need to do as individuals for implementation
compliance exercise, and a distraction from more to be successful. The key question for business is
important activities. This view can be changed by how to build this awareness in a cost and time
clearly aligning sustainability strategy with core efficient manner, using existing programs for
business objectives. The Sloan Management employee engagement where they exist.
Review/BCG study 7 found a strong link between
an organisation’s ability to integrate sustainability Arguably, the most critical factor for successfully
into overall business strategy and both the incorporating sustainability into a business is that
effectiveness of the relevant sustainability initiatives each employee clearly understands what they are
and the overall performance of the enterprise. responsible for and that they acquire the right knowledge
To place sustainability in its proper context for to be successful. How this is achieved will vary and
employees, an organisation should discuss the is influenced by existing structures for employee
business challenges facing it, and the role of engagement and knowledge sharing. Here are some
sustainability in meeting these challenges.
suggested strategies:
Boards and CEOs should clearly demonstrate
the value of sustainability to the organisation • Conduct group-level workshops to explain how
and the stakeholders, making it clear that the sustainability strategy will affect each business
decisions and choices that lead to better group, and encourage group members to develop
sustainability outcomes will be rewarded. their own implementation strategies
As sustainability benefits can sometimes be • Identify key individuals from each business group
difficult to monetise and reduce to a calculation to take on the role of sustainability ‘champion’, to
of return on investment, gaining business buy-in identify and communicate what the group is required
and support for sustainability initiatives can be to do, generate ideas, drive implementation of the
challenging. Early consideration of alternate strategy within the group, and identify and seek
ways to measure the benefits is often required. assistance to remedy blockages in the implementation
process should they arise
• Create a ‘live’ library of sustainability information
relevant to the business which individuals can access
7. Building internal awareness
and add to
and knowledge
• Start with achievable ‘quick wins’ in the sustainability
Are the ‘big picture’ sustainability objectives strategy and ensure they are communicated to
clear to employees? employees
Is everyone in the organisation aware of their role • Provide access to knowledge sources such as
in the implementation and ongoing success of industry and interest groups, newsletters, magazines
sustainability as a core business function? and journals.
What tools can you use to enhance communication
and support employee awareness?
7. MIT Sloan Management Review and the Boston Consulting Group, Sustainability: The ‘embracers’ seize advantage, 2011
Business briefing series: 20 issues on building a sustainable business 15
16. Implement the strategy (continued)
8. Developing a cultural change process 9. Involving external stakeholders
Are the differences between the current culture Which key external stakeholders can provide input
and the desired culture clear and understood to your organisation’s sustainability position?
by employees? Have external stakeholders been engaged early
Which areas of the organisation are likely to be so they can understand your organisation’s
most heavily impacted? What support is in place? sustainability perspectives?
Are there opportunities for partnerships with
For many organisations, embedding sustainability into key stakeholders to drive sustainability results?
the core function of a business requires a significant
shift in the culture. For implementation to be successful, Effective stakeholder engagement is essential as your
the organisation needs to know where support is organisation progresses its sustainability agenda.
required to sustain this change, and to put it in place Many organisations focus stakeholder relationships on
before the transition. governments, shareholders and industry bodies, with
It is often useful to identify what the current culture consumer research also providing input. However,
of the organisation is and how this compares to the engaging with other groups – such as non-government
desired culture. This will indicate the degree of support organisations (NGOs), academics, customers and
required to facilitate the transition. community groups – can also provide significant input
into an organisation’s sustainability position.
A cultural change process is most successful when
individuals are well informed and supported. The Effective engagement requires clearly defining who your
following are some steps organisations can take to organisation’s stakeholders are and their perspectives
identify what is required: on sustainability issues and concerns. Engaging with
stakeholders early in the strategy development process
• Ensure everyone in the organisation understands
brings important external input into this process. Early
what is trying to be achieved and what this means for
them in their individual roles (as discussed in Issue 7) engagement also helps organisations ‘stress test’ their
strategy externally, signal to key stakeholders that
• Identify which individuals and groups across the
the organisation is seriously addressing sustainability
organisation will be more impacted than others.
concerns, and identify partnership opportunities which
Ensure they and their managers understand what
will support the achievement of outcomes.
they require to successfully fulfil their roles
• Ensure appropriate mechanisms and supports are Your organisation should also continue to engage
in place before people transition to their new roles with stakeholders during the implementation process.
• Be prepared to change goals and key performance Done effectively, this will create trust and enable the
indicators, retrain individuals, provide access to organisation to positively influence outcomes to
further education and/or reassign roles support sustainability and business objectives.
• Link sustainability criteria to incentive schemes Ongoing engagement and communication with
• Bring together groups or individuals who have stakeholders can be achieved via a variety of methods.
previously worked independently and will now Some organisations create a stakeholder council, which
be required to interact and share information. meets several times a year and is consulted on key
organisational initiatives. Other organisations take a more
targeted approach by creating close relationships with a
select group of stakeholders. For broader engagement,
a major channel of communicating with stakeholders is
public reporting and disclosure. The quality of reporting
is a critical factor in effective stakeholder engagement
(see Issue 18).
16 Business briefing series: 20 issues on building a sustainable business
17. 10. Developing relevant sustainability
metrics Example: Stockland liveability index
Liveability is fundamental to the long-term
What are the sustainability indicators material to sustainability of residential communities developer,
your organisation’s strategic objectives? Stockland’s, business. Stockland is designing
Do they address meaningful key performance its own liveability index to better understand,
indicators (KPIs), targets, and short and long-term benchmark and measure liveability in the planning
outcomes? and development of its residential communities.
The sustainability and liveability of its communities
has always been a top priority and a key strategic
Increasingly, companies understand the value of
objective of Stockland; however, prior to developing
transparent, accurate and timely reporting of matters liveability metrics it was difficult to quantify and
material to their business, as both the core of corporate objectively manage liveability within a community.
governance and a requirement of the market. But the
Stockland recognised that enhancing the liveability
success and sustainability of an organisation will be of its communities was both a key sustainability
influenced by how well it can measure, manage and initiative and a key business priority. Stockland
report its performance against a range of new reporting Managing Director Matthew Quinn told a recent
metrics. Sustainability metrics will become increasingly Sustainability challenge: business creativity in
important in defining the value of an organisation and practice forum that innovative approaches to
providing indicators of long-term growth potential. sustainability and customer engagement can
deliver strong financial rewards for businesses.
Further, your organisation’s strategy should reflect
The liveability indicators that Stockland developed
issues material to the organisation and its stakeholders. help to measure the unique themes that create
Measuring sustainability performance against strategic liveability in communities. This index will revolve
objectives and benchmarks is essential to ensure around six key themes:
sustainability-related initiatives retain their credibility. • Affordable living and working
The challenge is to translate strategic goals into • Economic prosperity
meaningful KPIs and targets, and achieve the right • Access and connectivity
balance between long-term performance (required • Sense of belonging and identity
to deliver sustainability outcomes) and short-term
• Wellbeing and healthy living
performance pressures.
• Governance and engagement.
Organisations should avoid wholesale adoption of
As a result of developing the liveability indicators,
indicators specified in sustainability reporting guidelines
Stockland will be better placed to internally
without first mapping those indicators against identified measure the liveability of projects, enhance
material issues and strategic priorities. the liveability of communities, and externally
communicate the liveability of projects to planning
Information systems need to be in place to capture
authorities, customers, and other key stakeholders.
the required information and to measure, monitor and
In addition to improving the liveability of Stockland
report against KPIs. Key to developing an appropriate communities, Stockland believes the indicators
and lasting system is the support of your finance team. will provide a competitive advantage in the market.
The team’s involvement in developing and measuring
metrics and achievable sustainability targets will help
ensure consistency of data management and reporting,
and in the long term help with the transition to integrated
reporting (see Issue 19).
Business briefing series: 20 issues on building a sustainable business 17
18. Embed sustainability into core business
processes
Sustainability considerations touch on many management functions and processes. Organisations
should assess the extent to which sustainability risks, opportunities, goals and performance targets need
to be reflected within these processes. Failure to adequately review and update processes may result in
dysfunctional or sub-optimal decision-making, or a lack of alignment with strategy and commitments.
11. Incorporating sustainability within 12. Understanding product development
the risk management framework and customer attitudes and behaviours
Have the outputs of stakeholder engagement been Has your organisation undertaken adequate
considered in the risk management process? research to understand current and future
Are the impacts of sustainability-related risks trends and their implications?
understood and quantified? What factors are likely to drive changes in
your industry?
An organisation’s risk management framework is Are there financial incentives available to
central to its business. Ensuring that sustainability issues support new sustainable product innovation?
are adequately covered in your organisation’s risk
management framework will minimise the potential for Individuals’ responses to sustainability issues affect their
sustainability-related risk to impede the achievement attitudes and behaviours as customers. Anticipating
of business objectives. It will also provide a formal market transformations and the factors driving them
framework for managing these risks through establishing can help your organisation respond more effectively
clear mitigation actions and accountabilities. Common to changes in consumer behaviour and societal norms.
challenges organisations face include: With this in mind, leading organisations often engage
• Reconciling the enterprise risk map to the and collaborate with customers in product development.
identified material sustainability issues
It is also important to explore emerging trends and
In some cases, the risk mapping process may have
drivers that may impact on product demand. Customer
been carried out without sufficient consideration
preferences, identified today through engagement, may
of sustainability risks. In others, there may be
not provide insight into tomorrow’s demand. For that,
insufficient linkage between the outputs of
deeper research and engagement with industry experts
stakeholder engagement, which is a core mechanism
may be beneficial. The example overleaf illustrates the
for capturing current and emerging sustainability
dynamics that impact food demand trends flowing
risks, and the risk management process
from changing demographics and income levels.
• Quantifying the impact of risks associated
A range of considerations influence purchasing
with brand and reputational damage
decisions. Care must be taken in teasing out the various
Some sustainability-related risks fail to become
factors involved, and in understanding their relative
recognised and prioritised because their impacts
importance and how they interact with each other.
are not appropriately quantified.
Detailed information will enable your organisation to
create a risk profile which can be used to compare
elements such as likelihood and size of impact. This
will determine the level of threat and guide appropriate
actions. Proactive leaders in this space will be able to use
the risk management framework to identify opportunities
to develop new products and services and enhance
market credibility.
18 Business briefing series: 20 issues on building a sustainable business
19. Key consumer attributes and corresponding food product trends
Emerging consumer profile attributes Trend implications
Income levels/income distribution Different expectations of ‘food product’ e.g.
portion sizes, prepared vs. making from scratch,
Household size decreasing more competition with take-away
Organic food demand, education seeking, ‘natural‘
Healthy lifestyle desirability
food, alternative products to traditional market
Base demographics
New food offerings desired
(age and ethnicity in particular)
13. Promoting sustainable procurement which may not have been a consideration previously.
and supply chain management While examples like this may pressure an organisation
to reduce waste and cut emissions, it may also increase
What elements of your supply chain may create awareness and potentially improve profitability.
extra risk or lack efficiency?
Have environmental, social and ethical criteria Many Australian businesses have undertaken
been developed, in addition to price and the journey towards sustainable business practices.
availability criteria, in your purchasing decisions? Detailed examples can be found in the Institute’s
Can you leverage your position in the industry publication, Integrating sustainability into business
to influence your suppliers’ actions? practices: a case study approach, available on
our website.
Major global corporations, such as large retailers Tesco
and Walmart, have enjoyed considerable success Most organisations lack the ability to leverage supplier
in getting their suppliers to be ‘greener’ and more contracts that these powerful retailers have, but they
sustainable. In 2009, Walmart introduced its Supplier can still incorporate sustainability considerations into
Sustainability Assessment, a brief survey that evaluates supply chain decision-making. They can also enter into
the sustainability of suppliers (in terms of energy, partnerships with suppliers to drive both sustainability
climate, material efficiency, natural resource use, people and efficiency. Understanding the sustainability risks
and community), with the intention of developing the that may impact the supply chain and having effective
first index of a product’s lifecycle impact.8 Walmart’s mitigation plans in place, is essential to building supply
suppliers are required to develop systems to measure chain resilience.
and report the sustainability issues of each product,
8. Walmart Sustainability Index accessed on 17 May, 2011 from http://walmartstores.com/sustainability/9292.aspx
Business briefing series: 20 issues on building a sustainable business 19
20. Embed sustainability into core business processes (continued)
Putting sustainable procurement into practice
Technology is enabling ethical To facilitate putting sustainable procurement into
choices for consumers practice, consider the following questions:
Organisations are under increasing pressure from • Strategic level
consumers to ensure their products and services How can sustainable procurement help achieve
are produced in an ethical and sustainable way,
business goals? What is our ambition – industry
and new technology and social media are making
leader or fast follower?
it easier to make these choices. For example,
iPhone applications such as Shop Ethical! show • Tactical level
consumers the environmental and social record What product categories and suppliers should we
of companies behind common brands in the focus on? How do we collaborate with suppliers?
supermarket, allowing them to make informed
choices based on considerations such as food • Operational level
miles, palm oil use, overfishing, child labour, What requirements do we have for product specification,
genetic engineering, multinational ownership and supplier selection, control and monitoring, follow-up,
packaging. There are also applications that suggest evaluation and implementation?
alternative products available, which is basically
free marketing for the most sustainable.
14. Understanding the investment
decision-making process
Integrating sustainability into the Are sustainability issues and risks properly
procurement process evaluated as part of the due diligence process?
• How is it done? Where they can be measured, are sustainability
Organisations should factor sustainability into factors included in your valuation models?
purchasing decisions and matching the intention
to be sustainable with the action There are heightened sustainability risks associated
• What criteria would you use? with some of the most critical business decisions
Organisations can use environmental (e.g. lifecycle) an organisation might make, such as mergers and
or social (e.g. working and living conditions) criteria acquisitions, entering a new market overseas, forming
to decide who to buy goods and services from, in a joint venture and making major capital expenditures.
addition to conventional purchasing criteria such as Sustainability should therefore be seen as part of the due
price, availability and value for money diligence process. In relation to a potential investment,
• Key drivers of action: your organisation could consider, for example:
Globalisation of supply chains and increasing scrutiny • How a carbon price could be factored into your
and awareness from stakeholders (e.g. consumers organisation’s valuation model
and specialised NGOs), drive organisations to act in • How constraints and variability of the supply of
the sustainabillity space. water impact operations and supply chain
Six reasons to implement sustainable • How human rights and corruption risks apply in
an organisation’s country of operations
procurement:
1. Corporate reputation • How a potential joint venture partner’s sustainability
record and alignment of policies and practices align
2. Legislation
with your organisation’s standards.
3. Increased revenue (opening new markets)
4. Stimulant for innovation
5. Reduced risk of conflict with stakeholders
6. Shareholder value.
20 Business briefing series: 20 issues on building a sustainable business
21. Schematic overview of procurement process
Level Definition
Strategic Long-term impact of purchasing and supply decisions
level on an organisation’s business; determine mission and
vision on purchasing responsibility of top-management Mission & Vision
Purchasing
Function
Tactical Encompasses the involvement of the purchasing
level function in decisions affecting product, process Supply Policies
and supplier selection; draw directive supply policies
for commodities/segments; medium-term impact Commodities /Segments
Operational All activities related to Supplier Selection
level (product specification, supplier selection), Supplier
Supplier
Contracting of supplier and Supplier Contract Performance
Selection
Performance Measurement (monitoring Measurement
and evaluation)
Source: KPMG
Procurement / Ordering
It is important that due diligence and capital expenditure
processes properly incorporate sustainability risks and
considerations. In most organisations, actions required
to achieve this include:
• Updating procedures and decision-making criteria,
and changing documentation for process approvals
• Upskilling the due diligence and capital project
appraisal teams to be able to properly identify and
evaluate sustainability issues and risks
• Ensuring related governance processes incorporate
an assessment of the appropriateness of the
consideration and mitigation of sustainability-related
risks and issues.
By ensuring sustainability considerations form part of
the due diligence process, an organisation will have a
broader understanding of the longer term risks arising
from any potential investment.
Business briefing series: 20 issues on building a sustainable business 21
22. Embed sustainability into core business processes (continued)
15. Measuring performance 16. Ongoing monitoring of externalities
Can incentive schemes be implemented What tools (such as industry groups or associations)
or updated to align to key sustainable can be used to keep your organisation informed of
business goals? relevant developments?
How can the quality and reliability of Can your organisation be involved in the regulatory
sustainability-related metrics be continually process and also maintain independence?
improved? Who is responsible for monitoring externalities?
Once your organisation has appropriate metrics and Regulation, societal attitudes and physical conditions
targets in place to manage sustainability-related can change rapidly, with significant consequences.
commitments and issues, the main considerations While relevant externalities can initially be identified and
that follow are: assessed in developing a strategy, it cannot be assumed
• What are the implications for incentive schemes that they will remain static and relevant over time. As
and systems and how should they be updated such, these factors need to be monitored and considered
to align outcomes with new commitments and on an ongoing basis.
targets? Which targets need to be revised to
Two major considerations for organisations when it
enforce compliance with commitments?
comes to monitoring are who will be responsible for
• How does management reporting need to change monitoring and how trusted and up-to-date information
to incorporate the wider focus on sustainability-
can be sourced in a cost-effective way.
related metrics and targets? Is there clarity on
which metrics are core? What are the implications Which individual or team is responsible for monitoring
for internal assurance over core metrics? will largely depend on the size of your organisation and
their ability to commit resources to the task. In larger
Typically, systems that support the reporting of
organisations, dedicated sustainability managers are
sustainability measures are less mature than those
often assigned this task, with assistance from group-
relevant to financial reporting. Organisations need
level individuals. In smaller organisations, it is often an
to understand the quality of information relating to
individual with a personal and passionate interest in
sustainability and develop a roadmap for improving
sustainability issues who is best for this role.
the reliability of information.
When it comes to monitoring factors that have the
The involvement of your organisation’s finance team
potential to impact the organisation, ongoing (day-to-
in identifying sustainable value drivers, related KPIs
day/week-to-week) monitoring is more effective than
and measureable targets and outcomes will enhance
annual monitoring. Having regular access to information
the credibility of the systems and processes, and the
relating to relevant factors will enable your organisation
effectiveness of the reporting structure. KPIs and
to flag changes and respond in a timely manner, thereby
qualitative outcomes must be relevant and material if
minimising potential impacts.
they are to be aligned with overall strategy and vision.
22 Business briefing series: 20 issues on building a sustainable business