Conventional business wisdom states that one can have profits or sustainability, but not both. However, conventional wisdom isn’t ALWAYS right.
Greater numbers of companies are embracing sustainability initiatives, and there is growing evidence that sustainably-managed companies can achieve the balance of both sustainability and profitability.
You can view these arguments in the Case For Sustainable Manufacturing.
So, what’s changed?
Economic factors have changed the outlook on sustainability, including:
- Reduction of carbon footprint in organizational decision making.
- Changing consumer demand combined with younger consumers willingness to pay a premium for sustainably-produced products.
- Fluctuation in commodity pricing for fossil fuels and water, providing financial incentives for companies to invest in sustainable business strategies to reduce costs.
These factors present an opportunity for sustainability initiatives to add value to corporate bottom lines. More and more companies are taking the leap but developing sustainable manufacturing business practices is not easy.
It requires leadership and involvement from the C-suite, acceptance across the enterprise and collaboration with external stakeholders, among other things.
If your organization is looking to become more sustainable, we’ve outlined six ways to develop sustainable business practices.
#1 - Commit to Sustainability Across The Enterprise
What’s the best way to achieve sustainability success?
Leadership across the enterprise.
A leader is one who knows the way, goes the way, and shows the way - John C. Maxwell
Sustainability objectives must be connected to the core business strategy to create value. Sustainability will struggle to attract attention or the talent and resources to reach its potential, if its success is left to one department or an ad hoc committee.
Research shows that the more engaged the C-suite is with sustainability, the better the results of the organization.
According to McKinsey, companies whose sustainability initiatives outperform and provide real financial value to the organization have common leadership traits, including:
- Aggressive internal and external targets or goals for sustainability initiatives.
- A unified sustainability strategy with clearly articulated priorities ACROSS THE ORGANIZATION.
- A broad leadership across the enterprise is involved in creating strategy, goals and milestones.
- The financial benefits of sustainability are broadly understood across the organization.
#2 Develop a Long-Term Focus
Sustainability requires a shift in focus and a longer-term view than what is common in most traditional organizations. This is where privately held companies have an advantage over their publicly traded competitors.
Because privately held companies are immune from shareholder scrutiny over short-term results, they have greater tolerance for waiting out returns on investment (ROI). Payback and ROI still must take place in a reasonable amount of time, but sometimes there is a longer payback period on capital investment than can be justified for companies with a short-term earnings focus.
Here is a great example of a sustainability project that can add to the bottom line from the Murphy Warehouse Company in Minneapolis, MN:
CEO Richard Murphy performed an analysis of energy costs related to lighting in its warehouses. After performing an internal analysis on one of its buildings, they realized they had a couple of options…...state-of-the-art T-5 fluorescent lighting OR LED’s (light-emitting diodes) which use far less energy at twice the cost.
“The study showed that LEDs with motion sensors offered a 4.4-year ROI, compared with 2.6 years with T-5s. Despite that, the company chose to invest in LEDs—something public companies would have difficulty justifying.”
"They are double the cost, but use one-third of the energy," Murphy says. "And we will never touch those lights in our working lifetimes." The LEDs, he says, have an expected life span of 17 years in a two-shift operation, compared with three years for modern fluorescents. (Source: DC Velocity)
A thorough analysis viewed through the prism of sustainability allowed Murphy to comfortably make the more difficult, MORE sustainable long-term investment. This choice helped them earn LEED Certification for the business, an important factor that they feel is allowing them to win new business.
“Murphy considers the not-insignificant cost of earning LEED certification to be a strategic benefit for his company—largely because a growing number of customers now factor in sustainability when they go to choose a vendor.”
These types of strategic choices are simply not possible with a short-term mindset. Leadership must take a longer view of sustainable strategic choices. While easier for privately held corporations to make these strategic decisions, public companies can make them too.
However, it will take leadership commitment to ride out short-term fluctuations in share value.
#3 Move Beyond Compliance
In the past, many companies adopted sustainability programs ONLY to come into compliance with the law and all labor, environmental, health and safety regulations.
Companies that take this narrow view of sustainability consider these compliance-related actions as costs with little perceived value beyond compliance.
However, many companies are moving toward sustainable strategies, because they want to gain a long-term competitive advantage over their rivals. This is the true power of sustainability.
Here are some benefits to moving beyond compliance:
- Staying out of the crosshairs of watchdog groups, which can reduce negative media exposure.
- Avoiding fines and legal expenses due to non-compliance.
- Proactivity reduces risk.
- Sustainable companies gain competitive advantage over non-compliant companies.
- Ability to meet growing consumer demand for responsibly produced products.
Companies that move beyond compliance can create true value for their shareholders. More customers are seeking out sustainably-manufactured products. This is particularly true of millennials, who are coming into peak spending years and are showing a willingness to spend more on these types of products.
Sustainability is proving to be a competitive advantage.
#4 Engage Your Employees
Improving employee engagement in your company’s sustainability initiatives can lead to a more motivated, productive, and dynamic workforce – one that understands the importance and value of good business ethics and corporate responsibility.
Engaged employees understand the organization’s sustainability strategic initiatives and are empowered to bring ideas and opportunities to management.
Here are several signals that employees are engaged in the corporate objectives:
- Human resources hire people that are a match with corporate culture.
- Employees are rewarded for reaching internal sustainability targets.
- Employees are empowered to bring ideas that are in alignment with sustainability initiatives and the organization acts on promising ideas.
- Salespeople know the environmental and social impacts of the company’s products or services (e.g. their carbon footprint or energy consumption, whether they were produced locally or are fair trade). They use these qualities to distinguish their company’s products or services from competitors.
- Front-line staff regularly identify ways to reduce energy or water use.
- When considering products from new suppliers, purchasing managers automatically screen the products to see if they meet the company’s environmental or ethical criteria.
- Senior leadership drives industry-wide efforts to improve the environmental or social impact of the entire sector. “Leading By Example.”
The bottom line: your employees are your most valuable corporate asset. Engaging them in your sustainability initiatives harnesses their creative energy to bring life to your initiatives and value to your bottom line.
#5 - Focus on increased competitiveness and revenues
Sustainable manufacturing strategies hold real promise towards helping companies operate more effectively and more competitively.
Let’s look at how a real-world example, consumer products giant Unilever, is operating more competitively and increasing their revenues.
According to GreenBiz:
“Unilever's designated "sustainable living" brands delivered almost half of the consumer goods giant's growth in the last year, it revealed yesterday.
Defined by the firm as brands which have "integrated sustainability into both their purpose and products" and including high profile names such as Knorr, Dove, Lipton, Hellman's and Dirt is Good, Unilever's "sustainable living" brands grew 30 percent faster than the rest of the business, the company said.
The firm revealed the positive results in its fifth annual report on progress towards its 2010 Sustainable Living Plan, which aimed to show that sustainability is "no longer a niche issue" for consumers and that "putting sustainable living at the heart of our brands" is helping to increase sales.”
What is the key? Increased competitiveness leads to revenue growth.
“The report said that by May 2015 Unilever's manufacturing network had achieved an annual saving of 1 million tonnes of CO2 compared to a 2008 baseline. It added that in total, CO2 savings from energy per tonne of production have fallen by 39 percent since 2008, and the firm claims to have avoided $370 million in costs by using less energy.”
Companies like Unilever can achieve significant financial benefits that accrue from increased competitive advantage and innovation. Companies are realizing significant cost savings through environmental sustainability-related operational efficiencies.
These freed-up cost savings can be reinvested into research and development opportunities, which leads to more efficient product development to meet growing consumer demand.
#6 Work Collaboratively With External Stakeholders
No company can achieve sustainable initiatives alone, because many issues are simply too big for firms to tackle on their own. Sometimes, entire industries must be transformed which takes the cooperation and commitment of natural competitors.
Just as it is important to engage employees on initiatives, it is also important to involve external stakeholders. External stakeholders come in many forms, including communities where businesses are located, competitors and vendors within the supply chain.
For example, at Temarry, we have been very successful at helping companies located in the Western United States achieve their sustainability initiatives by showing them how to significantly reduce their carbon footprint. By legally exporting their hazardous waste streams to Mexico for recovery through solvent distillation and energy recovery, companies can save thousands of miles of transport time and transportation cost on hazardous waste shipments and recycle spent solvents instead of using them for fuel blending.
By selling recovered solvents back to industry, we are saving valuable natural resources for future generations to use, and since the cost of transporting the waste is significantly less, our customers increase profitability and reduce their carbon footprint.
Our customer education process begins with a thorough explanation of Temarry’s “True Recycling” services, as well as helping our customers understand what the most sustainable hazardous waste disposal codes are, and how this can help reduce carbon footprint, achieve cost savings and improve the bottom line.
Working with vendors like Temarry that understand carbon footprint reduction can help companies use existing technologies to meet their objectives.
There are signals that sustainability is here to stay and will play a big role in how business is transacted in the future. Not only will companies receive competitive advantages to operating cleaner and improving the bottom line, but by investing in cleaner technologies they can significantly reduce their dependence on fluctuating commodity prices.
Growing consumer demand for sustainably-produced products can increase market share even in seasoned industries…all of which can improve profitability and make companies both public and private inherently more valuable.
As you can see, developing sustainable manufacturing business practices will require companies to move beyond contemplating implementations or settling for one-off projects. It must be a company-wide initiative and permeate your organization fully.