SUSTAINABILITY TOOLBOX
Strategy + Implementation
Contents SUSTAINABILITY TOOLBOX
Introduction + Business Case.............. 1 Strategy Development.......................... 2
Strategy + Implementation
Strategy Implementation...................... 5 Building Internal Capacity................... 6 Metrics, Performance Evaluation and Reporting..................... 6 Vignettes and Case Studies................. 8 Research.............................................. 10 Resources............................................ 11
Strategy + Implementation
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Introduction + Business Case This toolbox is a part of a series of toolboxes designed by the University of Michigan’s Erb Institute to inform and aid a wide variety of sustainability practitioners. Strategy + Implementation builds upon the concepts of stakeholder engagement and materiality assessment. This toolbox presents Erb’s process for developing and then implementing a triple-bottom-line sustainability strategy. We designed the toolbox to be relevant irrespective of geography, industry, organization size or budget.
Topics we’ll cover include: • setting an organizational vision of economic, environmental and social sustainability • creating a set of strategic pillars that support the vision • establishing goals, initiatives and metrics that implement the strategy and track progress • building internal capacity to effectively implement sustainability initiatives • recognizing the link between sustainability strategy and sustainability reporting/communications Toward the end of the toolbox, you’ll find case studies, a list of additional resources and an appendix that contains templates and similar material. A word on the business case for developing a comprehensive sustainability strategy: Companies have multiple business strategies, all of which are supported by evidence, hunch, intuition or inertia. Sustainability should be thought of as a core business strategy, enabled by the same degree of understanding of business value as other business strategies are. Here are some aspects of the business case for sustainability that we frequently encounter:
Brand • identification and mitigation of risks related to economic, environmental and/or social impacts in business operations and extended value chain • enhanced brand equity based on economic, environmental and social value creation
Revenue and Profit • identification and exploitation of opportunities related to innovation in process and products/services • revenue enhancement through new markets
Talent Management • enhanced opportunities to recruit and retain talent based on clear expression (and sometimes, celebration!) of sustainability vision and tangible evidence of efforts and achievements
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Strategy Development Like other key business strategies, best practices suggest following the “plan, do, check, act” framework. This section of the toolbox discusses the “plan” portion of that framework—developing your strategic approach to sustainability. Your first planning task is to establish the business’s sustainability vision.
Set the Vision Sustainability should not be a “bolt on” aspect of the business. Rather, sustainability should be a core strategy that supports key business objectives. Therefore, first set a sustainability-related vision that is consistent with those objectives and aligns with the company’s core competencies.
HOW SHOULD WE SET THE VISION?
WHO SHOULD SET THE VISION?
• the business’s overall mission and brand proposition(s)
>> Ideally, set the vision of the sustainable enterprise at the highest possible level of the business (board or C-suite), to give it legitimacy in the eyes of internal and external stakeholders. This does not mean that the vision cannot be informed by or come from more organic sources (both internal and external); in fact, it often does. For example, your company may gain some ground-level sustainability experience on a project basis because of engagement with a specific stakeholder group. This experience could be communicated up the corporate ladder to senior management in the context of “here’s what one project accomplished; how do we see this as part of a larger vision?”
A REVIEW OF THAT EXPERIENCE COULD THEN LEAD TO DEVELOPMENT AND ARTICULATION OF AN ENTERPRISE-WIDE VISION.
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Use a method that respects your corporate culture. Some companies use a highly structured approach, while others employ facilitated visioning exercises.
We recommend, at a minimum, that your approach consider:
• core business objectives for the next 10 years • areas of concern as evidenced by a materiality assessment • level of ambition compared with an industrybased peer group (for example, we want to be in the top quintile; we want to be leaders) • potential economic, environmental and social “legacies” • organizational capacity, especially around change management
>> Have the vision-setter(s) start by reviewing the company’s mission statement and dissecting its core values and business objectives.1 Then review specific areas of concern and discuss how ambitious you intend your company to be. Capture the essence of intended legacies. 1 A facilitator could be useful in guiding this process, especially if it involves senior management not accustomed to vision-setting exercises.
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Strategy + Implementation
WHAT SHOULD THE VISION CONTAIN? Your company’s commitment to sustainability must clearly articulate a comprehensive vision of economic, environmental and social responsibility. A triplebottom-line approach is preferable to subject-matterspecific statements (such as carbon neutrality), which are more appropriate for strategic pillars or goals.
>> Draft a clear, concise written statement based on the factors the vision-setter(s) reviewed and have it reviewed by a diverse group of key internal stakeholders.
SHOULD WE COMMUNICATE OUR SUSTAINABILITY VISION?
>> All internal stakeholders must know that there is a vision and what it contains, so develop and implement a plan for communicating the vision to internal stakeholders as part of the sustainability strategy’s overall communications plan. As for communicating the vision to external stakeholders, businesses rarely issue explicit public statements about their visions of themselves as sustainable enterprises. Even recognized brands like Patagonia, Timberland and Ikea, don’t share one-sentence or one-paragraph sustainability vision statements. Perhaps this high-level view is not seen as useful to stakeholders or is kept internal for other reasons. Rather, the companies publicly share the carefully chosen strategic pillars that they develop to support their overarching vision.
Establish Strategic Pillars to Operationalize the Vision A sustainability strategy requires that you incorporate an emphasis on economic, environmental and social prosperity into every decision made throughout the business. This is done by establishing sustainability-focused “strategic pillars” that guide efforts in specific areas of concern and are aligned with the sustainability vision and business objectives. In general, these pillars align with economic, environmental and social aspects of sustainability.
Economic
Environmental
Social
Sustainability
>> Assemble a cross-functional team to develop your company’s strategic pillars of sustainability: • Establish a clear understanding of the sustainability vision in the group. • Refer to the results of your materiality assessment, where you reduced the scope of areas of concern and gave them a sense of priority. • Group areas of economic, environmental and social concern together. • Create pillars for each of these groups in a manner that aligns with the sustainability vision and business goals and objectives. (For example, environmental concerns about climate change, water pollution and toxic substances could lead to a pillar entitled “Enable a Healthy Planet.”) • Aim for 3–5 pillars in your sustainability strategy, each of which will be supported by a limited number of strategic goals.
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Set Goals for Each Strategic Pillar Unlike operational goals, which often directly link to business profit, sustainability-related goals are intended to help the business achieve excellence in economic, environmental and social performance simultaneously.
Despite this challenge, like other business goals, sustainability goals must be:
measurable (including costs and benefits)
linked to a system of accountability
aligned with overall corporate strategy (which is accomplished by having them cascade from the sustainability strategy)
How ambitious sustainability goals should be is a frequently discussed topic.
Some evidence shows that: • Setting unattainable or highly aspirational goals can put a damper on internal buy-in. • However, “stretch” goals ultimately result in a higher level of progress and impact. A PwC study referred to in an October 2015 GreenBiz.com article (http://www.greenbiz.com/article/howsetsustainability-goals-amidst-change) showed that companies achieve impact-reduction goals two-thirds of the time. Companies with more ambitious goals have a lower overall success rate but achieve the largest impact reduction.
>> Have a cross-functional team set goals for each of the strategic pillars, establishing quantitative goals whenever possible. This team may include members that were not on the pillars-setting team, particularly if they have specific operational knowledge that will affect achieving goals.
• Industries are coalescing around common sustainability goals, particularly in certain areas of environmental impact (climate change and water, in particular) and social impact (conflict enablement and child labor, in particular).
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Strategy + Implementation
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Strategy Implementation Following the “plan, do, check, act” framework, this part of the toolbox describes the “doing” part— activities that get you from your current state to the goals you established in the planning phase. This is where you will operationalize your sustainability plan, through a series of activities addressing areas of concern. Some of these activities will be signature initiatives; some will be pilot projects that may not get rolled out in their initial form.
SIGNATURE SUSTAINABILITY INITIATIVES Some sustainability goals in your strategy are best approached by implementing signature initiatives— a project or set of projects, each with measurable goals, timelines and deliverables. You will implement these initiatives in or with the assistance of functional areas of your business—operations, finance, HR, supply chain.
Therefore, you must: • get to know, listen to and gain the trust of key business leaders in the functions involved • ensure that each initiative is aligned with the business goals related to that function • clearly explain how the initiative supports the sustainability goals and strategic pillars
To accomplish a signature initiative in sustainability, create: • a working group that includes business unit members from various seniority levels (and possibly facilitators and subject-matter experts)
THE ROLE OF PILOT PROJECTS Many businesses choose to pilot sustainability projects (regardless of whether they are part of signature initiatives) before rolling them out on a larger scale or enterprise-wide. This is often a bethedging strategy, but it also creates the opportunity for innovation based on iterative prototyping— and some evidence indicates that novel topics such as sustainability benefit from a pilot/prototyping approach.
Pilot projects may involve: • testing an approach in areas of the business unlikely to cause significant disruption (such as a pilot program about sourcing environmentally friendly “indirect” materials) • testing an approach in a smaller scope at first (such as a supplier-facing pilot program involving only the top 10% of suppliers based on spend) • testing an approach in areas where rapid results are possible (such as lighting retrofits in facilities using equipment that reduces energy consumption and associated CO2 emissions)
• a group charter that describes the initiative’s scope and the team members’ roles and responsibilities • a project plan that includes specific commitments (including financial resource commitments), deliverables and accountability structures • opportunities for communications about the initiative to and from stakeholders who are not part of the working group
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Building Internal Capacity Like other business strategies, results in corporate sustainability depend in part on your company’s capacity to understand and prioritize the issues, effectively manage projects and analyze large amounts of sometimes-unfamiliar information. While project management issues in sustainability usually aren’t substantially unique, comprehending and prioritizing economic, environmental and social issues and dealing with the related information/data can be a unique challenge. Often, companies lack internal “knowledge centers” to which you can turn.. Some businesses rely on outside resources (consultants, subject matter experts, nonprofits, peer companies) to fill capacity gaps. This often is a good strategy in the beginning, but in the long run, it is essential that your company build internal capacity around sustainability strategy. You must invest in the regular, ongoing training and education necessary to enable employees to succeed. Because sustainability issues are constantly changing, you
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should invest in subject matter knowledge. Because projects in sustainability have many moving parts and are increasingly complex, it’s important to invest in project management capacity. Because sustainability data proliferates, you should invest in technology and the related training required to collect, manage and analyze quantitative and qualitative sustainabilityrelated information.
Metrics, Performance Evaluation and Reporting METRICS AND PERFORMANCE EVALUATION Developing and implementing metrics and performance criteria are critical, and they are best practices in sustainability strategy. Metrics and performance criteria enable the “check” part of “plan, do, check, act.”
Metrics are needed to:
measure results
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audit and use other accountability mechanisms
reward accomplishments and remedy deficiencies “Act” in the “Plan, Do, Check, Act” system
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properly allocate resources
report on sustainability
Strategy + Implementation
Develop a plan for measurement and performance evaluation. The plan should include the metrics and KPIs you want to use, as well as the audit/ accountability and reward system you will use to improve future results and link to the sustainability reporting and communications activities that are part of your sustainability strategy. You may want to refer to industry sources to determine what metrics and performance evaluation criteria others in your industry use. In your plan, include both financial and nonfinancial metrics to assess the effectiveness of your sustainability strategy. Quantitative metrics are preferable, but in sustainability, qualitative information often plays an important role in evaluating effectiveness.
Metrics may include: • project-based financial data, such as cost savings or ROI • impact-related data, such as metric tons of CO2 emissions reduction • activity-related data, such as number of employee volunteer hours • narratives supporting hard data, such as interviews with stakeholders about process and/ or results Auditing performance is a common method for gathering performance-related information that can enable accountability systems. Third-party audits are preferred; in supply-chain contexts, the “best” are unannounced supplier audits. Information from audits can feed into performance “scorecards,” which can inform incentive/penalty schemes. But there is growing concern that auditing schemes in their current form are not sufficient to rectify underperformance. Many experts advocate a more engaged approach to managing resources (particularly external resources) involved in achieving sustainability results (such as supply-chain “ownership” models).
REPORTING Sustainability performance data and other metrics are part of the link between sustainability strategy and sustainability-related reporting and communications. While this toolbox is not intended to cover the ins and outs of sustainability reporting (which are more thoroughly covered in a future Toolbox), it is important to note that reporting and communications are part of a comprehensive, extended sustainability strategy. Whether the audience is a regulatory body, a key external stakeholder or a corporate investor, clear, concise and authentic reporting on sustainability strategy—your efforts, your achievements and your
failures—is integral to success in sustainability. It is part of how you build your brand, create a dialogue about important economic, environmental and social issues and implement continuous improvement strategies based on feedback from consumers of the information you provide. Sustainability reporting has come a long way in recent years. Companies have come to consensus on a reporting framework—the “G4” version of the Global Reporting Initiative’s sustainability reporting framework (http://www.globalreporting.org).
This framework offers a large scope of economic, environmental and social aspects of sustainability on which companies can report; materiality assessment helps companies define a scope that fits their particular situation. It can be useful for a company’s sustainability working group to review the G4 before setting vision, goals and strategy to get a feel for what aspects of sustainability are reportable. STRATEGY + IMPLEMENTATION TOOLBOX | MARCH 2016
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Vignettes and Case Studies McDonald’s has developed and implemented a CSR and sustainability framework with five strategic pillars: • food For example: • • • •
sourcing planet people community
• Food: 2020 goal of serving 100% more fruit, vegetables, low-fat dairy or whole grains in nine of its top 10 markets
The company’s SVP of Global CSR stated, “These pillars are central to our commitment to create shared value for our business and society.” Supporting those pillars is a set of forward-looking goals that focus on a long-term view that will help shape the company’s future.
• Sourcing: lead the development of global principles and criteria for sustainable production of beef • Planet: set a target of 20% increase in energy efficiency of company-owned restaurants in seven of its top nine markets by 2020; franchisee targets will be set in 2016
Source: http://www.mcdonalds.com/us/en/our_story/values_in_action.html
The apparel company Timberland has a long history of developing, executing and communicating its sustainability strategy. Their four strategic pillars and supporting goals include:
PILLAR
SAMPLE GOAL
Climate
• reduce greenhouse gas emissions • increase purchase of renewable energy • improve energy management practices in factories
Product
• reduce volatile organic compounds (VOCs) in footwear • recycle packaging material • increase use of recycled or organic material in apparel
Factories
• 100% of Tier 1 supplier factories covered by code of conduct and audit • decrease # of suppliers selected by sourcing team that earn “pending” or “rejected” designations
Service
• increase # of employee volunteer hours • increase engagement of community engagement volunteer “partners”
Source: http://responsibility.timberland.com/
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Strategy + Implementation
Electronic Industry Citizenship Coalition (EICC) The EICC (http://www.eiccoalition.org/) is a good example of an industry-based approach to setting common sustainability goals in terms of environmental and social performance. The EICC also has developed a large set of tools to help companies in the industry achieve their goals.
Nike has developed a sophisticated methodology to measure results, assess performance and reward accomplishments. Their approach includes: • an advanced system to measure the company’s CO2 footprint • a tool called the “Considered Index” to evaluate a product’s predicted environmental footprint before commercialization • performance measurements that hold employees accountable for their contribution to the sustainability strategy
See: http://www.nikeresponsibility.com/report/content/chapter/targets-and-performance.
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Research Research undertaken by Andy Hoffman, Holcim Professor of Sustainable Enterprise at Ross/SEAS and Member of the Core Faculty of the University of MIchigan’s Erb Institute, has focused on the evolution of business-sustainability strategy over the past 50 years—a series of “waves” of management science. In a recent publication (https://gre.presswarehouse.com/Books/BookDetail.aspx?productID=439453), Professor Hoffman and MIT Professor John Ehrenfeld explore the transformation of corporate sustainability strategy, landing in the age of the Anthropocene—the Fourth Wave of strategy.
Their analysis concludes that today’s strategy is exemplified by:
SYSTEMS FRAMING— one firm’s actions are related to those of others, including those in its extended value chain
COOPERATION FRAMING – partnerships and collaborations are an essential framework for success in sustainability
ORGANIZATIONAL FRAMING – new forms of organizations and new business models emerge in an effort to get scale on tackling sustainability issues
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Strategy + Implementation
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Resources For a discussion on goal-setting in sustainability, visit: http://www.usc.edu/programs/ceo/Epstein_and_Buhovac.pdf
For a discussion of strategic pillars in a triple-bottom-line sustainability contest, visit: http://www.thwink.org/sustain/glossary/ThreePillarsofSustainability.htm
The Institute for Supply Management has developed guidance around metrics and performance criteria for supply-chain-focused sustainability and social responsibility initiatives. Visit https://www.instituteforsupplymanagement.org/SR/content.cfm?ItemNumber=16738
The Global Reporting Initiative’s G4 framework covers what’s generally understood as potentially “reportable” in sustainability: https://www.globalreporting.org/standards/Pages/default.aspx
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PREPARED BY:
WITH CONTRIBUTIONS FROM U-M FACULTY AND STAFF
Robert W. Kuhn, Kuhn Associates Sustainability Advisors LLC
Dr. Joe Ă rvai Faculty Director, Erb Institute for Global Sustainable Enterprise
March 2016
Dr. Ravi Anupindi Professor of Operations Management and Research, Stephen M. Ross School of Business Terry Nelidov Managing Director, Erb Institute for Global Sustainable Enterprise