Originally published by Real Leaders Magazine, August 8, 2020.
“Possible is more a matter of attitude; a matter of decision to choose; among the impossible possibilities; when one sound opportunity; becomes a possible solution.” ― Dejan Stojanovic
The imperative for companies today is to be purpose-driven in how they operate.
The acute health and economic crises we are living through from Covid-19 have beamed a spotlight on the urgency to build stabilizing coalitions, support the whole individual, and share in collective pain. Intersect the twin existential crises of coronavirus and climate change with the social justice movements of #MeToo and #BLM, and a necessary mindset shift becomes apparent. We must wholesale pivot away from a single-minded pursuit of growth and profits toward a more measured, nuanced, and holistic organizational mindset that embraces servant leadership. Pursuing sustainability is the path for doing so.
Consider the mindset of Signify’s CEO, Eric Rondolet.
He articulates purpose and sustainability this way: “Sustainability starts with being the purpose of the company. The company’s purpose is not what it does, but what is its reason for existing.” During the acute period of Covid-19 in Europe, Signify prioritized its employees’ health and safety while taking collective mitigation measures to support a broad swath of its stakeholders.
The company mandated a 20% salary reduction in the second quarter for its supervisory board and executive leadership team, mirroring the request of its workforce to take a voluntary 20% work-time reduction in pro-rata pay adjustment.
Nike, one of America’s best-known brands, quietly yet boldly clarified its purpose in 2019. Noel Kinder, Nike’s CSO, affirmed conditions were right to align Nike’s initiatives within diversity and inclusion, community and environment under one umbrella. The company’s new “Purpose Committee” has accountability to Nike’s Board of Directors and C-Suite and aims to catalyze sustainability decision-making across its workforce and global business operations. As quarantine measures set-in in Oregon where Nike Inc. is headquartered, John Donahoe, Nike’s CEO, inwardly communicated to employees his commitment to servant leadership to see the company through the economic upheaval during the early weeks of spring. Outwardly, he reinforced that the company would provide employee pay continuity and committed more than $25 million to Covid-19 response efforts and local communities heavily impacted by business closures. Nike benefitted from a 75% increase in digital sales in its fourth quarter of 2019.
Businesses Must Continue to Address Climate Change Head-On
Corporate leaders are being forced to acknowledge a growing imperative: our economic system is inextricably linked to Earth’s eco-system. Blackrock’s Larry Fink stated in his latest annual letter, “Every government, company, and shareholder must confront climate change.” Earth’s survival is becoming every company’s strategic priority. And the foundational goal of corporate sustainability is to operate with a net neutral carbon impact. Climate change did not cause our current pandemic. But impacts from climate change increasingly will be on a comparable scale as the pandemic: disruptive, disorienting, and detrimental to our way of life, well-being, and economic productivity.
Sustainability-driven companies reform governance to align better boards, shareholders, and financial markets to a new framework of value creation. The four conversation areas include:
1) Having corporate Boards and the C-suite agree to a multi-stakeholder approach to value creation.
2) Taking a medium-to-long-term approach to measuring business results. Corporate sustainability measures often need time to implement, lacking quick ROIs. Signify has adopted a long-term compensation scheme and educated its investors on its value.
3) Valuing business initiatives that support climate change mitigation. In one example, one-year after Interface launched its Climate Take Back initiative in 2016, the company’s R&D team had developed a carbon-negative carpet tile prototype. Just three years later, those carbon-capturing tiles will be commercially available globally.
4) Investing in businesses that seek-out rather than shy away from the pursuit of sustainability, even if their efforts are incomplete to date. Markets should provide higher valuations to companies such as Patagonia for its post-consumer waste recycling efforts; Adidas for its commitment to using ocean plastic pollution to create new, high-value consumer products, and Heineken for its emphasis on freshwater resource stewardship, particularly in water-stressed regions in which it operates.
An Action Plan
Taking action can be difficult, demanding, and laborious work – yet necessary for a company to move from pronouncements of sustainable intent to results. Take heart; many companies have walked this path before yours. Rondolet emphasizes that reinforcement of words with action is a strong sustainability activation mechanism: “Sustainability is quite intuitive at this point in Signify’s life. There is a straightforward mechanism for this to happen. First, we were saying it very consistently. Then, we were achieving it consistently. We had a reinforcement of our words through results.”
Below are the steps toward building a lasting sustainably-driven company:
1) Take an inventory of your company’s Scope 1 and Scope 2 Greenhouse Gas (GHG) emissions. This initial carbon accounting allows a company to identify opportunities to pursue greater operational efficiency and energy optimization measures at its place of business and across its fleet of owned assets.
2) Commit to a more in-depth carbon accounting. Conduct a Scope 3 GHG inventory of your company’s full value chain. The majority (80-90%) of companies’ GHG balance falls into their Scope 3 totals. Scope 3 work greases the runway toward increased efficiency measures, product innovations, and operational transformations.
3) Open enlightened and productive conversations around circular business models and closed-loop processes. Rondolet talks about lighting systems and the utilization of 3D manufacturing to offer “full-circularity to customers. We can sell a luminaire that [Signify] can reprint after a few years so that we just take back the old one, reuse the raw material, give it a new shape, and [the customer] has a new luminaire. No need for virgin materials.”
Companies must conduct these inventories to gain a base assessment of their environmental impact. Once a baseline is achieved, conversations around setting performance goals and success metrics are warranted.
Interface uses the following metrics around stakeholder value creation to measure its progress towards stated goals, including:
● For customers: the net promoter score.
● For employees: benchmark against other high-performing companies’ culture scores.
● For shareowners: shareholder return over time.
● For the environment: track carbon emissions.
Signify reports on, among other metrics, the percentage of revenue from the sale of sustainable products (79%) and is committed to reaching carbon neutrality across its operations by the end of 2020. Best Buy has set an absolute goal to reduce carbon emissions across its value chain by 50% by 2030. After its 2018 Scope 3 inventory analysis, Best Buy extended its carbon reduction goals to its products, post-consumer purchase. The company’s sustainable technology goal is to reduce product carbon emissions by 20% by 2030, helping customers save $5 billion in energy costs. A company’s commitment to progressing its reporting of Scope 1 and 2 GHG emissions to Scope 3 supports strategic sustainability thinking, robust vision-setting, and competitive product differentiation.
Reporting Sustainability Initiatives, Goals and Progress Made
The pursuit of sustainability involves transparency. It is wise to avoid both greenwashing (i.e., marketing spin of insubstantial sustainability measures) and greenwishing (i.e., setting goals that are well-intentioned but have a negligible positive impact on climate change mitigation). Corporate stakeholders are an increasingly sophisticated bunch.
Annual reporting of a company’s environmental impact is standard practice. What reporting standard a company decides to use is dependent on several factors. Many small and medium-sized, privately-held businesses that are registered Benefit companies in their state and a certified B Lab organizations will opt to publish their sustainability reports using B Lab’s impact assessment protocol. If a company is publicly-traded, it will use either GRI’s Core or Comprehensive Reporting Standard or SASB’s reporting framework.
Both GRI’s and SASB’s reporting protocols support deeper material disclosures to the financial markets.
Aligning with the Paris Climate Accord
Managing an organization’s environmental impact means tying its individual goals to something larger, world-recognized, and measurable: The 2015 Paris Climate Accord. Under the climate agreement, all nations agreed to work toward keeping global temperatures from rising more than 2 degrees Celsius above pre-industrial levels and to ideally “limit the global temperature increase to no more than 1.5 degrees Celsius.” The CDP (formerly the Climate Disclosure Project) asks companies to disclose their sustainability climate targets, creating aggregated data sets that are reported to key stakeholders and the financial community. CDP is the great amplifier of climate change mitigation targets. It uses company disclosures to put pressure on value chain suppliers to report meaningful actions taken in support of GHG emissions reductions.
The Science-Based Target Initiative (SBTi) guides companies in setting climate change mitigation targets that a) align corporate GHG performance targets to the goals of the Paris Climate Accord and b) set businesses on the path to meeting net carbon neutrality by some set date (i.e., 2030). Best Buy, Nike, Heinekin, and Signify have just in the last year (July 2019, September 2019, November 2019, and December 2018, respectively) submitted GHG reduction targets to SBTi for approval.
SBT-verified companies will grow substantially in 2020.
Progress Financial Reporting of Climate Change Impacts
In 2018, CDP began embedding The Task Force on Climate-Related Financial Disclosures (TCFD) recommendations into its corporate disclosure and supplier surveys. CDP questionnaires now ask companies to consider taking a forward-looking approach to climate risk in their businesses and across their global operations and assess climate change impacts through risk scenario planning and business opportunity identification. With each passing reporting year, CDP’s sustainability ratings will grow more stringent, requiring reporting companies to embed the TCFD framework into their decision-making models.
The goal of TCFD more broadly is to persuade publicly-traded companies to disclose to investors, quantitatively, how, where, and to what extent climate change impacts are a risk to their businesses. Investors seek to utilize the disclosed information to better inform their decisions on how best to allocate their financial resources in support of a low-carbon economy.
The World Economic Forum publishes an annual Global Risks Report where experts and business leaders are surveyed to predict from a set of global risks which ones are likely to occur and have the highest impact on economies and businesses. The 2019 Global Risks Report identified climate change impacts made-up half of the high likelihood and high impact risks. Notably, the “spread of infectious disease” risk was predicted to have a higher-than-average impact but lower than the average probability of this year. Although forecasting the relative likelihood that a pandemic would happen was off-mark, it was an identifiable risk to businesses.
Sustainability-embedded companies have a distinct competitive advantage over unsustainable ones when they invest in planning, risk management, and resiliency tools to assess future outcomes that are increasingly likely. The art of business nimbleness relies on taking science and sustainability measures seriously. The potential with TCFD is that it formally and fundamentally drives sustainability planning into the heart of corporations’ financial strategic business decision-making.
Declaring the desire to be sustainable does not make a sustainably-driven company. Intention, values, alignment, action, reporting, and goal-setting will win the day. To be sustainable is not a nice-to-have but a need-to-be. Sustainability-driven companies that take a multi-stakeholder approach to value creation is a stand for justice. Black Lives Matter, #MeToo, Covid-19, and plastic pollution are all social justice issues. Embedding sustainability into a company’s core makes for a compelling, efficient, innovative, inclusive, and performance-driven organization that progresses ‘business as usual’ toward tomorrow’s business.
 Scope 1 GHG emissions are on-site combustion of gas and fuel consumption from vehicles that a company owns. Scope 2 GHG emissions are indirect emissions from energy used at facilities owned or controlled by a company.
 This is a significant statement in that, it is recognized that annual sustainability/impact reports are historical summaries of corporate actions taken and read as snapshots in time.
Kate Gaertner is the founder and CEO of TripleWin Advisory, a corporate consultancy dedicated to helping companies pursue circular operations and net-neutral carbon goals across their business value chain. She is the author of an upcoming book to be published on sustainability and systems change titled, “The I in Climate Change.”