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Sustainability: It’s Not About Tree-Hugging

Delivering a Concrete Competitive Advantage

January 27, 2011
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    In This Interview
    Knut Haanæs, Partner & Managing Director
    Global Leader, Strategy Practice

    Career Highlights

    Knut is a partner and managing director in the Geneva office and the global leader of BCG’s Sustainability practice.



    He started working at BCG in 2000 and is also a member of the Technology, Media & Telecommunications practice and the Strategy practice.

     

    Sustainability tends to get a lot of positive press coverage. Who can argue with the principle that it’s good to save the planet? But in some boardrooms, sustainability has often been dismissed as a diversion from the core purpose of a business: making money and serving the interests of the shareholders. But CEOs—at least, the smart ones—are starting to think again. According to the second annual innovation and sustainability survey conducted by The Boston Consulting Group and MIT Sloan Management Review, corporate investment in environmentally aware strategies is on the rise. Why now? Simon Targett, BCG’s editor in chief, spoke with Knut Haanæs—global leader of BCG’s Sustainability Initiative and a coauthor of the report on the survey conducted with MIT Sloan Management Review—to discuss why companies are increasingly viewing sustainability-driven strategies as a worthy investment of time and money. 

    Simon Targett: How do you define “sustainability” for companies?

    Knut Haanæs: Sustainability—deriving from the Latin words meaning to keep up or maintain—has come to mean the capacity to endure. And, in a business context, it signifies a robust and forward-looking strategy. A company that is excellent at sustainability has several striking characteristics: It is continuously seeking to improve the way it manages its resources—not only raw materials for products but also time, information, and people. It is sensitive to the fast-changing outside world, and its leaders think about how to thrive tomorrow rather than how to make a fast buck today.

    Sometimes, sustainability is viewed as a “nice-to-have”: once you’re making money, this theory holds, you can afford to think about being altruistic. But, in actuality, sustainability is not about being altruistic and “doing good.” Rather it’s about being profitable and “doing well.” In this sense, it is a “must-have” rather than a “nice-to-have.” Yes, there is a sense that sustainability is good for the brand—and certainly it offers a good insurance policy for companies. But it is more than this: sustainability offers a company the chance to gain a real competitive advantage over its rivals and over the long term.

    You have, in partnership with MIT Sloan Management Review, conducted a survey of more than 3,000 managers from around the world. What has been your top finding?

    We've found that, despite the troubles in the global economy, companies say they are increasing the amount of time and money that they are investing in sustainability-driven strategies. Of the managers we polled, some 59 percent revealed that they had boosted their investment in such efforts. And this rise is set to continue: some 68 percent of our survey respondents said that they plan to increase their investment this year.

    Why are executives increasing their investment in sustainability? Do we know?

    To some extent, it seems to be a leap of faith. We found that only one in three executives were able to say with any real conviction that sustainability adds to profitability today.

    Yet, probe a bit deeper, and you find that the top-performing companies are significantly stronger “embracers” of sustainability than low-performing companies are.

    February 2011
    Sustainability: The “Embracers” Seize Advantage
    New research by MIT Sloan Management Review and BCG identifies two camps in sustainability-driven management: “embracers” and “cautious adopters.”
    Of course, this isn’t causation—but it’s an indication. And it’s interesting to note that investment analysts, who are always searching for predictors of company performance, are starting to turn their attention to sustainability. They’re acting on the assumption that a company’s efficiency with resources, its ability to recruit and retain top talent, its focus on the long-term—all of which are measures of sustainability—are predictors of overall business profitability.

    Respondents say that an improved brand reputation is the biggest benefit: nearly 50 percent of the managers in the poll cited it. Other significant benefits were reduced costs due to energy efficiency, increased competitive advantage, and access to new markets; these benefits were cited by 28 percent, 26 percent, and 22 percent of respondents, respectively. When it comes to the benefits of sustainability, we found it especially interesting that embracers focus significantly more on opportunities and growth, while others focus more on risk mitigation and cost reduction.

    Are some industries or sectors more receptive to sustainability-driven strategies than others?

    Unquestionably yes. Some companies—especially those in the chemical and resource-based industries—have long regarded sustainability as an important issue, often for risk mitigation and license-to-operate reasons.

    We expect that they will continue to view it as an important topic—although increasingly, they are recognizing that it can be not only a defense mechanism but also a means of gaining competitive advantage over rivals. In the chemicals industry, some 83 percent of survey respondents said that they would increase their investment in sustainability this year, compared with 70 percent last year. The jump for those working in commodities companies was even bigger: 80 percent said they would increase investment, compared with 63 percent last year.

    Then there are those companies for which sustainability has, historically, not been a key issue—for example, those in the media and entertainment sector. Last year, 40 percent of survey respondents from this sector said that they increased their commitment to sustainability. Yet, this year, many are rethinking this approach, and 55 percent told us that they would be increasing their investment in 2011.

    But the growth trajectory is not uniform. For instance, companies in the automobile sector are less focused on sustainability-driven strategies than one might think. Given all the talk of electric vehicles one would have thought that sustainability was at, or near, the top of the agenda for carmakers. Yet, according to our research, only 67 percent of the respondents from these companies are planning to increase their commitment to sustainability this year, up from 63 percent last year.

    Finally, it is worth noting that our survey found that Asian companies are most likely to embrace sustainability. Sustainability actually looks more like an opportunity for companies—and regions—that are growing.

    If I'm a skeptical CEO, what is the one thing you would say to me to convince me that I should embrace sustainability-driven strategies?

    I’d say this: Sustainability is about you and your business. It’s not about being nice and friendly to the environment—although that is a happy byproduct of a sustainability-driven strategy. It’s about doing what’s right to ensure that your company is ready to make the most of new opportunities—now and in the future.

    Remember, if your company survives and thrives, the chances are that you, as CEO, will too. And make no mistake, your employees, your investors, and your customers are watching how you run the business.  Trash the environment, and you’ll probably trash the company’s prospects and your own.

    So if you’re a skeptical CEO, think again. Embracing sustainability really doesn’t mean you have to become a tree-hugger.

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