The market has changed, turning the traditional business model on its head. Whether due to increasing knowledge of the economic costs of environmental degradation, rising oil and food costs, or simple greenwashing, businesses around the world are reacting to customers and shareholders who are becoming more informed and more vocal in insisting upon corporate sustainability. No longer can corporations justify a wasteful business model with a temporarily strong bottom line. Facing shareholder and market demands, and sometimes legal and compliance standards, full environmental, social and fiscal accountability has become the yardstick, not the exception, in the market. Moreover, what currently is limited to market demands will rapidly expand to legal requirements. Congress is debating, and both presidential candidates support, a massive regulatory mandate that will cap and allow trading of greenhouse gas emissions, principally carbon dioxide. On the corporate front, analysis and reporting of the costs of compliance with laws regulating carbon emissions is a given, but companies are coming under increasing pressure from investors and the government to consider and report on the broader effects of climate change. Whether limited to legal compliance or expanded to broad sustainability goals, businesses currently are, and increasingly will be, facing a broad array of market, customer and legal demands for corporate sustainability.

What is Corporate Sustainability?

In their 1999 book Natural Capitalism, sustainability leaders Paul Hawken, Amory Lovins and Hunter Lovins wrote:

While industrial systems have reached pinnacles of success, able to muster and accumulate human-made capital on vast levels, natural capital, on which civilization depends to create prosperity, is rapidly declining and the rate of loss is increasing proportionate to gains in material well-being.

Facing new challenges, smart companies are embracing corporate sustainability and using these new strategies and theories to build a competitive advantage. In the words of Mary A. Ferdig of the Sustainability Leadership Institute, a research and educational organization, “No one would want to lead or invest in a company that destroys or wastes the resources upon which it depends.”

Corporate sustainability is a focus on the “triple bottom line” of social, environmental and economic concerns. Triple bottom line sustainability is a targeted strategy designed to make a company socially and environmentally responsible, as well as economically viable long term. Far from greenwashing, companies with a commitment to environmental and social stewardship demonstrate a commitment toward innovation and responsibility that pays off not only within the company in terms of employee satisfaction, but outside in the market as well.

Thus, corporate sustainability is, in essence, a compromise between staunchly conservative economists and idyllic environmentalists. Corporate sustainability is about innovation. It is about looking outside the box from inside the company to find new, more efficient ways to produce a product or offer a service. It is an entirely fresh way of doing business that makes sense not only for the community in which the business operates, but also for the bottom line.

In their book From Green to Gold, authors Daniel C. Esty and Andrew S. Winston state their research shows that companies viewing their businesses through an environmental lens are generally more innovative and entrepreneurial, which offers a “vital new path to innovation and to creating enduring value and competitive advantage.”

In 2007, Goldman Sachs studied six industrial sectors: energy, mining, steel, food, beverages and media. The study found that companies considered innovators and leaders in environmental stewardship, social responsibility and governance outperformed the overall stock market by nearly 25 percent since August 2005. The general consensus is that innovation is a sign of strength, which receives a positive response from the market. And within their own sectors, these sustainable companies had outpaced their peers by approximately 72 percent.

Thus, the traditional business model has expanded to include consideration of an entirely new realm of concerns. Responsible and innovative executives are taking into account such issues as use of resources, waste management, pollution, climate change and biodiversity. Esty and Winston believe that companies that “manage nature’s bounty and boundaries best will minimize vulnerabilities and move ahead of their competitors.” In essence, business practices that result in massive amounts of waste or consume an enormous amount of energy are now seen as shortsighted and irresponsible and
may, very quickly, cease to operate.

The Bottom Line

The real issue for business remains the practical one: how can a company be environmentally and socially responsible and still make money?

Many companies are showing they can do just that. These pace-setting businesses are demonstrating that socially and environmentally responsible business decisions can also be the most profitable. For example, reducing energy and water consumption and cutting raw materials costs can lead to more competitive pricing and a stronger bottom line. Many businesses are finding they can save money — or make more — by assessing what they are currently throwing out and trying to reduce, reuse or resell those wastes. Fortune lists companies that recycle scrap metal into steel as among the “100 Fastest Growing Companies.”

The types of companies and institutions that have adopted sustainability measures range from Coca-Cola and General Electric to Ford Motor Company, Barclays and Newscorp. For example, Staples Inc. has reconfigured and retrofitted all of its warehouses in an effort to reduce energy consumption. Goldman Sachs has announced it will promote activities that “protect interests and guard against climate change” and, to back that statement, has pledged $1 billion for investment in alternative energy. The poster child for sustainability, Georgia-based carpet company Interface, pioneered the concept of “Mission Zero,” a program in which the company leases carpet and then reclaims and recycles it at the end of the lease term. Just one of Interface’s sustainability programs, Mission Zero generates a strong profit margin. And big-box retailer Wal-Mart has begun requiring that its suppliers demonstrate compliance with minimum sustainability standards (and audits them to ensure they comply). The overall goal is to do business with companies that minimize their carbon emissions, energy consumption and overall impact on the environment. (Wal-Mart has also committed to cutting
its own energy use by 30 percent and using 100-percent renewable energy.)

Corporate sustainability is about innovation. It is an entirely fresh way of doing business that makes sense not only for the community in which the business operates, but also for the bottom line.

Although the companies implementing sustainability initiatives vary widely, one common thread emerges: each company is successful due in large part to a strong commitment from the company’s leadership. In fact, consulting firm McKinsey & Company conducted a study concluding that more than 90 percent of chief executives are doing more today to incorporate environmental and social issues into their mission statement and corporate strategy. Executives who desire to implement corporate sustainability goals must rely on their managers to implement them at each level. Often, the most successful companies task an individual or a committee with defining the company’s leadership statement or corporate mission on sustainability, and then implementing that statement in day-to-day operations.

Getting There

Many companies are interested in adopting green policies, but are unsure where to begin. In response, the service industry, including SGR, is offering services, consultation and practices that assist businesses and institutions in identifying and implementing sustainability initiatives, and maximizing the benefits from those initiatives.

One tool for doing so is conducting sustainability audits. These audits can be targeted toward a company’s specific needs, and can begin with an initial sustainability review, such as the process offered by SGR (see article, Compliance: The Original Sustainability).

Such an initial review can identify areas that can then be targeted for a more thorough audit. A thorough audit will evaluate everything from energy and water consumption, employee satisfaction, and transportation requirements to waste management and recycling. Life cycle assessment (LCA) is also a valuable tool for a company seeking to improve its impact on the environment. LCA tracks the environmental impacts from “cradle to grave” — from the raw materials through disposal at the end of a product’s life. Once an LCA is conducted, a company can implement changes along the cycle that reduce the natural resources consumed and thereby lower economic and environmental costs. The results of such audits can aid a company in establishing workable sustainability goals or an environmental management system.

Esty and Winston explain that in addition to being the right thing to do, “smart companies get ahead of the Green Wave and lower both financial and operational risk” and that, in taking an honest assessment of a company’s existence, companies are seeing positive financial results. Companies that adopt “eco-efficient” measures — that is, measures to cut waste and reduce resource use — tend to save money that drops almost immediately to the bottom line. Such actions also create a more robust company. For example, if a company redesigns its product to use less energy, the company simultaneously reduces its exposure to volatile oil and gas prices.

Also helpful to companies seeking to go green are a number of industry-specific, third-party, voluntary organizations. The Marine Stewardship Council provides certification based on established standards for sustainable and well-managed fisheries, aimed at preventing over-fishing. Companies such as Whole Foods can then use the fisheries thus certified to provide the sustainable seafood being demanded by the market. The Forest Stewardship Council sets international standards for responsible forest/timber management.

Sustainability Legal Services

Recognizing that achieving sustainability requires legal assistance as well as business acumen, SGR’s Sustainability Practice Group contains experts in all the legal fields that businesses and institutions will need to reach their sustainability goals: environmental attorneys grounded in understanding and implementing wise use of natural resources; real estate, land use and construction lawyers experienced in green development and construction; intellectual property lawyers with expertise in clean technology and alternative energy; corporate and securities experts familiar with the implications of establishing, implementing and publicizing sustainability goals and actions; tax experts familiar with incentives and benefits of sustainability projects; and international lawyers who have worked with leaders in alternative energy and clean technology from other parts of the world. Businesses and institutions that are implementing sustainability projects find that they can benefit from focused legal services ranging from contract drafting, compliance consulting and intellectual property protection to corporate reporting, vendor and supplier standards, and allocation of responsibility for meeting sustainability goals. These sustainability-focused legal services are fast becoming a necessity in a rapidly changing marketplace.

Conclusion

In the past, concern for the environment beyond legal compliance could be described as a fringe issue, not a business model. Not anymore. It is a time of fundamental change and a paradigm shift in how business is done. Those companies that stand at the forefront, ready to adopt and embrace sustainable practices, will find themselves best suited to meet new challenges in a rapidly changing business environment. The bottom line is now more than just a number; the bottom line is accountability.