By Dave Pedersen
In July, Senate Majority Leader Harry Reid announced that climate change legislation would not be pursued in any meaningful way by Senate leadership during 2010. With Democratic prospects looking tough for the mid-term elections, it is unclear when this legislation will be revived. Based on this news, public corporations might be tempted to take their foot off the accelerator in heading toward sustainability (or smile at their good fortune in not having to develop basic awareness of their environmental impact). However, they would be wise to understand the multiple drivers of sustainability and their additive effect. For a useful analogy, think of your last trip to the hardware store. In the electrical section, you will find two basic types of switches: on-off switches and dimmer switches. They provide a model for understanding sustainability.
Some business issues are like on-off switches. It is all or nothing. While there may be awareness of an issue brewing, there is no compelling reason to act until the “Big Bang”. A classic example is Sarbanes-Oxley legislation. While we all watched numerous examples of corporations behaving badly, public corporations faced a radically different compliance environment once the law was passed. Other “on-off” switches are unforeseeable, such as 9/11. The business climate changed radically from September 10th to September 12th in 2001.
Then, there are the dimmer switches. Apparently named by a pessimist, they could just as easily be called brightener switches, allowing a slow and steady change in light. These switches provide a useful analogy for business trends that develop over time, showing consistent momentum toward changed market expectations and business priorities.
The movement toward sustainability is definitely a dimmer switch issue. While federal legislation that prices externalities will be a key driver, there are many other forces pushing toward a more sustainable environment in the business world. Additive in nature, they will provide continual movement toward sustainability. Consider these drivers:
1) Investors- The Carbon Disclosure Project provides $64 trillion of institutional investing muscle behind their annual sustainability survey of public corporations. Through this survey, the CDP continues to ask the uncomfortable questions and publish the responses for all to see. Additionally, there are dozens of green and socially responsible investing choices for individual investors.
2) NGO’s- Large and small, their focus, pressure and engagement will continue to push corporations toward meaningful sustainability progress.
3) Business customers- As corporate supply chains remain global and lengthy, companies will need to respond to the demands of their most sustainable business partner. Look no further than Wal-mart.
4) Resource shortages- Wise companies are already considering resource availability when sourcing materials or locating facilities. As Coca-Cola’s President of Great Britain Sanjay Guha noted in 2009 “Water sustainability is also now central to our investment decisions. Potential markets and ease of distribution were once the key factors in deciding where to build plants. Now it is the long-term supply of water.”
5) Consumer Preference- While consumer surveys may overstate their willingness to pay a premium for green products, shoppers are definitely a force and the push toward green products will continue to move into the mainstream.
6) ROI projects- There will continue to be hard dollar justification for companies to push toward efficiency. Examples include energy conservation, reductions in direct material usage, building efficiency (LEED), etc.
7) Local, state and national laws- Despite stalled legislation in Washington, we will see state, local and national regulation that requires increased compliance and transparency on numerous issues. Regulations from agencies such as the EPA will shape corporate behavior. When Washington fails to deliver meaningful climate change legislation, others may step in. California’s AB-32 is shaping up as the next battleground.
8) Employee recruitment and retention- Many employees view a company’s corporate sustainability efforts when choosing an employer. With long-term retention of great employees a continuing business imperative, companies simply cannot afford to wave off a significant segment of their potential workforce.
9) Brand equity- Regardless of your target demographic, lack of environmental savvy can rapidly erode your brand. This used to be a concern for brands like Gap and Apple. In the “post-BP” environment, it is now a concern for all brands.
These drivers will continue to work together to push sustainability forward for public corporations. Wise executives will study these trends and the impact they have on their specific business. Given this dynamic, there is continued potential for sustainability to brighten.
Dave Pedersen is Supply Chain Director for Resources Global Professionals, a publicly traded global consulting firm. Within that role, he provides thought leadership on Corporate Social Responsibility issues. Dave also serves a member of the Green Task Force and Carbon Neutral City Committee for Hermosa Beach, Californi