February 8, 2017

Is it Time to Add Morality to the Business Case for Sustainability?

(I'm really interested in everyone's opinion on the below. I started this conversation on Sustainable Brands site last week and there are some good comments. But I always re-post here for my subscribers. Please share with the sustainability community and send me your thoughts (or post them here). Thanks.)

Every manager (or consultant) who has pitched an initiative under the banner of “sustainability” has faced the same question nearly every time: what’s the business case?

On the surface, there’s nothing wrong with the question. Business is all about allocating some form of capital, be it financial, human, or organizational. So it’s not unfair to wonder what the return on the investment might be. But usually, when executives pose the question about sustainability initiatives, they’re asking about the business case in the narrowest sense: Does this thing pay back, in cash, within some short payback period (1 or 2 years)?

In response, we’ve all put a lot of effort into making the case in financial terms. And given the common assumption that sustainability somehow equates with philanthropy and saving the polar bears, it’s generally smart to make it all about money. Certainly, that’s a big part of the case I’ve made for a long time. But maybe I’ve been missing something.

Maybe, in trying to answer the business case question narrowly, we’re overlook something critical about what motivates the decision maker. Or we miss how much the world is changing. Perhaps it’s time to inject the moral case into the discussion and say, boldly, “This is the right thing to do.”

Morality%20pic%2C%20%28flickr%2C%20Joel%20Duggan%2C%20460666225_01ac6eb7e1_z%29.jpg

Let’s face it: given the constant attack on our rights and democratic ideals happening right now, companies – some of society’s largest institutions – are finding themselves in uncomfortable territory. The moral position of a company and its leaders individually are facing more scrutiny. The conversation in executive meeting rooms is not just about shareholder value anymore. Will we defend LGBT rights or protect immigrant employees? Will we continue to tackle climate change, the human and planetary crisis of our time? These are not idle questions anymore.

I will write much more about the macro-level question of the role of business in society over the coming months and years. But for this discussion I want to rethink the specific question about how sustainability professionals and managers make the case for social and environmental action.

So, back to the nitty gritty. Do we have the right arguments for why we should invest in sustainability projects? Let’s consider four broad buckets of initiatives – three that create value for the business and one that’s more about value for society – and explore how (and when) they create value:

(1) short-term financial wins that meet all hurdle rates;

(2) clear financial wins, but with longer paybacks;

(3) investments that have less certain paybacks in cash, but create indirect (yet real) and internalized value, such as improved employee engagement, increased customer loyalty, greater license to operate, brand building, or risk reduction;

(4) projects that create externalized value for stakeholders and improve the shared commons

Of course these categories are not mutually exclusive – any of the first three will create externalized value as well. But for most projects there’s a core bucket of value. A simple lighting retrofit would fall mainly in group 1, for example, while employee volunteering, or providing water infrastructure for the community around a factory, would be mainly group 4 activities. Something like auditing and raising environmental or social standards in the supply chain, or investing in circular models, could hit all four areas, but would hit bucket 3 hard.

For each bucket, the business case we make should vary.

Category 1 is trivial, and the cash benefits of, say, eco-efficiency projects are now broadly accepted. Of course there’s always competition for capital, even between projects with quick paybacks, but it’s not hard to make the case that these things save money.

Category 2 requires more finesse. You can make the case for bending the rules on the hurdle rate for strategic reasons at times. Or, more frequently with sustainability projects, we get these through the system by shifting the conversation to category 3 value and point out that, by the way, it will also save cash, but later.

So category 3 is where so much of the effort lies. I’ve sacrificed many trees (and digital bits) writing about the importance of recognizing internalized value, even if comes in ways we can’t measure it perfectly. We all make the case that environmental and social initiatives can reduce risk, drive innovation, create employee engagement and loyalty, build the brand, and much more. That case is strong. Most large companies have realized that just considering the attraction, retention, and engagement of talent (especially socially-minded Millennials) can justify many investments in social and environmental progress.

But let’s look at category 4, the “save the world” value bucket that I’ve mostly avoided during my career. A new, challenging political environment is making me even more philosophical about why business should act, or even why a business exists.

Here’s the nub of it. Consider the following benefits a company might create: employee happiness, being a good member of the community, solving a customer need (the original, and some would say only, reason a company exists), and, yes, making sure the polar bears survive. Aren’t these things good in their own right, regardless of how or when they create business value? Maybe this kind of query falls in value bucket three-and-a-half, between the cracks because it begs the question of what value is.

My mini existential question was partly spurred by an interesting article I read recently in the Guardian. Focused on “why time management is ruining our lives,” the essay laments our obsession with personal productivity and talks about creating life balance and having more free time. In the article, John de Graaf, a founder of a group called “Take Back Your Time” challenges what I would describe as the business case for life balance: “People argue that more time off might be good for the economy, but why should we have to justify life in terms of the economy?”

It’s a great point. And it’s a good question to ask about all our efforts to improve employee engagement, connect to purpose and meaning at work, or drive sustainability in business. Why should everything that supports general well-being for people touched by a company – its employees, customers, supply chain workers, community members, future generations, and so on – have to be put only in economic terms?

The time may be ripe to broaden how we talk about sustainability and bring in a moral dimension. Consider one of my favorite sustainable business stories from 2016. After North Carolina passed the absurd “bathroom bill,” some big company CEOs sent an open letter to the Governor saying the law didn’t reflect their values. Companies are increasingly standing up for LGBT rights, and in the last week, for immigrants (bravo Starbucks for pledging to hire 10,000 refugees). A somewhat cynical interpretation would say that companies just want to stay in the good graces of a segment of their customer base. True, so there is some business logic. But it’s also clear that many of these companies and their executives just felt it was the moral thing to do.

I’ve talked to senior executives for many years about why they care about sustainability. And very often it stems from a personal journey. They went to the rain forest, or their children asked them about their work and their legacy.

So am I saying we should abandon the normal business case and stop focusing on how much value sustainability creates for business? Of course not. We should absolutely talk about the cash payback and all the indirect and hard-to-measure internalized value. But perhaps we (or at least I) have gone too far to counteract the “green equals polar bears” view of the world. Depending on the audience or particular executive, it may be time to throw in an element of “hey, this really is the right thing to do and your kids will be proud.”

Yes, the traditional business case will still be critical, particularly in public companies. But it might play the role of justifying something a leader wants to do in her heart anyway. Given what behavioral psychology tells us about the “confirmation bias,” this is how many decisions are made anyway.

My bottom line is this: how we make the case for sustainability needs to vary depending on the category of initiative (from slam dunk in cash terms to indirect value to “other” and societal value), the situation (a CFO presentation meeting vs. drinks with your boss), and a reading of the people involved.

But more and more, I’m wondering if a combined logic of “good for business” and “good for the soul” will work best. I welcome your thoughts.

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(Andrew's book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew's TED talk on The Big Pivot.

(Photo credit: Flickr, Joel Duggan)


Comments

On February 9, 2017 4:13 PM, William G. Russell said:

Hi Andrew. I like your general framing for making the business case for sustainability-aligned investments by corporate leaders. I have been advocating and practicing essentially this same framing for years.

For the type 1 and 2 cases the choices are financially and morally (the right thing to do) reinforcing. For these cases I need to do more to remind them of the moral benefits so that these benefits become more explicit when the financial indicators are less obvious.

For opportunities with intangible and social value returns, I attempt to present the best "current economy" financial arguments and add that the actual long term financial returns will be better. Eventually, a new "green economy" system will shift stakeholder values and give the company a more appropriate cash flow risk and/or profitability performance return. Leaders that can afford to take some risk and who also want to be morally responsible are aligning and their choices should be supported by customers and shareholders.

One big presumption that I make is that our methods for valuing social, ecosystem service or natural capital alternatives are, or will be, sufficiently good enough and transparent enough to stakeholders to allow markets and capitalism to work. At the moment, I don't think markets or capitalism are working well enough. I think some improvements that correct unintended outcomes like product burden shifting or greenwashing and social justice and or wealth inequity need to be made.

I can see the point that some things should not or can not be financially quantified. People who strongly believe this way, may also believe that the moral aspect of any company's operations and purpose should be its primary strategic guide above financial performance. I can agree with this logic, but think it is even more idealistic than my economically integrated approach. The tricky parts to a morals-based approach is first to present such complex choices clearly without the ability to draw upon imperfect, but best estimated financial analysis and second to get others to agree with their own moral positions and associated investment priorities across too many competing and likely conflicting outcomes.

I worry that my own idealistic financial perspectives will never have the chance to prove themselves. Fear and misguided self interest is rampant. Your vision and optimism is most welcome during this period of diverse perspectives of morality and reality.

On February 9, 2017 9:25 PM, Mary Gorham said:

Hi Andrew,
I think a business leader’s resonance with your point here is going to depend on the degree they are defined “from the outside in” as opposed to “from the inside out”. Lower consciousness leaders pay a lot more attention to external markers like personal and organizational wealth and status. Higher consciousness leaders are driven more by internal values and a vision of what they want to create. What we need is for business leaders’ consciousness to be raised in order for them to care more for the moral case. It’s like an operating system upgrade. And the beautiful and ironic thing is, by operating from a place of higher consciousness, they will often make more money, so that can be a good bridging motivator.

By the way, there’s a really good leadership assessment that I’ve used with a bunch of people that uses this theory. If you’re interested, take a look at this 30 minute video about it: https://leadershipcircle.com/assessment-tools/profile/ .

Another super resource is Moral Ground: Ethical Action for a Planet in Peril , edited by Kathleen Dean Moore and Michael Nelson with a forward by Desmond Tutu. The number of great essays in it by famous people is dazzling.

So glad you’re exploring this. As our country’s values are getting pummeled, I think the time is ripe.

Mary

Mary Gorham
Professional Certified Coach
mary@marygorham.com
www.marygorham.com
Tel. (203) 389-7343

Supporting leaders, teams, and organizations to flourish through
executive coaching, leadership development, and organizational consulting

On February 10, 2017 10:52 AM, Phil Dahlin said:

I guess what is “moral” depends on your moral framework – this would require the creation of a universal moral (or ethical) framework that all (or a majority) could agree to. I’m sure an analysis of the world’s major religions would show quite a bit of overlap so there must be a lot of common ground to start from. I came across an interesting paper that describes the need for developing a universal set of ethics and takes a stab at defining them. http://ethics.ubc.ca/papers/invited/colero-html/
Thanks for kickstarting the discussion.

On February 10, 2017 12:15 PM, Mi said:

Andrew,

I always read your posts with great interest, and I regularly recommend and cite The Big Pivot. I find your question about morality exciting and invigorating and my answer to your question is an unequivocal “YES!!”

In my work as sustainability director at Auburn University I am always doing my best to explain to folks what sustainability is, why it matters, and what they can do to contribute to a flourishing future. I always strive to create relevance for people and I find an effective way to do that (except for the unreachable cynics) is to make the case that the sustainability movement is impelled and driven by core human values. Values, ethics, morals underlie the whole movement. I think there are four questions that almost all of us were taught to ask ourselves when we were children that reveal those values.
1. How am I showing up today? Am I nurturing myself and bringing my best self to the world today?
2. How do I treat others? Do I see and speak to the best in others, to their “better angels?” Do my interactions with others leave them feeling more whole, seen, valued, nourished?
3. How do I treat the world around me, the natural and built environment? Do I give it the respect and care it deserves?
4. What am I leaving for those who come after me?

If we can individually and collectively answer those questions in the affirmative on a regular basis, I think we are on our way to a more sustainable future environmentally, economically, socially and in terms of human wellbeing. But if we never ask them or reflect on them, if they are never placed before us to consider….

I am sure you know Ray Anderson’s book Business Lessons of a Radical Industrialist. A truly great work. While explaining what is possible and having the metrics at Interface to back up the “business case” for sustainability, Ray’s argument is fundamentally a moral one. One way he does that is by contrasting Milton Friedman’s view that “the business of business is to make money” with his own perspective: “At the end of the day, the role of business is to generate prosperity and a better quality of life for everyone… we should never operate at the expense of the earth or societies or future generations.” That is a moral stance, and Ray’s business ethics reflected that stance.

Of course one huge reason why we have a planetary crisis and are shredding environmental, social, and human capital in the name of economic “growth” is because business has been operating at the expense of the earth, societies and future generations. I think we should make no apologies for raising the moral question. I have heard – and I am sure you have as well – some business professors argue that morals or values have no place in economics or business thinking. Which is why when I was in grad school at the School of Natural Resources at the University of Michigan I heard 80-year-old David Brower in a rant sputter angrily “Economics is a form of brain damage!!!” As a slight aside, my other favorite quote about the denseness of traditional economic thinking is something Paul Ehrlich said in his frustration from debating Julian Simon: “Trying to explain ecology to an economist is like trying to explain a tax form to a cranberry.”

But I digress.

The B-corp movement is certainly a hopeful sign, and if I was king for a day one of the highest leverage things I’d do is rewrite corporate charters to require a triple bottom line for all corporations.

Perhaps I have the luxury of making the case for morality more easily working in an academic institution rather than a business. But as you note, it appears more businesses are joining this chorus.

I think the sustainability movement is framed by two perspectives: current reality, and the future we hope to create. Peter Senge calls this a “creative gap” that generates creative tension, and Parker Palmer says the same thing while calling it a “tragic gap” between the way things are and the way we want them to be. He goes on to say “Those do the most good who have the greatest capacity to stand in the tragic gap.” What gives us the capacity to stand in that gap until it closes? Values, ethics, morality; higher purpose; a sense of mission.

I like a few quotes to explain these two perspectives.
• Current reality: “Sustainability is a response to a planetary emergency,” by Mitch Thomashow, former president of Unity College. Another that works well comes from folks at Booz Allen and is the title to the first chapter of their book Megacommunities: “We live in an interdependent world in crisis.” Like Jim Collins says in Good to Great, one of the signature characteristics of great organizations, teams, and societies is their willingness to confront the brutal facts of current reality (while still remaining hopeful).
• The future we hope to create. I stress that the real power and energy of the sustainability movement lies here, in this stance. Having acknowledged a world of crises we can create the world we want. Amory Lovins says it well: “The many crises facing us should be seen … not as threats, but as chances to remake the future so it serves all beings.” That is a moral and ethical statement. It is an aspiration. What is going to spark people to engage over the long term? Not desperation. Aspiration. Aspiration is fed by deeper meaning, contributing to something larger than ourselves, doing something that matters; morals, values, ethics. I’ve toured the Interface facility nearby in LaGrange GA and everyone I spoke with is energized by the sense of mission that they are doing something great. BTW, Dr. Spock has a good quote too, from The Lorax: “It’s not about what it is. It’s about what it can become.”

Perhaps to some it may seem like tilting at windmills, but I always try to connect with the heart first, and then the head. If that is possible, it creates a common bond, an awakening even, that changes the context of the conversation. I don’t always start that way, but whenever possible making a connection with the heart is what creates space for movement. That goes directly to core human values, ethics, morality that we all share in common.

Anyway, I think about this stuff a lot, and have more to say, but I have work to do and wanted to at least offer my encouragement for making the moral argument. I don’t think we will get to a flourishing future without it.

On February 10, 2017 3:41 PM, Jeff Wilson said:

Hi Andrew.... one of your best pieces and an important conversation to start more deeply. I mentioned to you before: create purpose and meaning with joy and love. That sums up a lot of very high level human needs and spirit. Soft, squishy, but I believe becoming more real.

Translating to business,especially where so much of the opportunity lies here. The very basic truth is no CEO in his/her right mind wants to hurt people or destroy a river's ecoystem making their products, they just don't. But they do. It's what our current production system and economic model have created... so he/she turns a blind eye, or says something like "it's a nice to have but we can't afford it' or "our customers won't pay for it." Those responses simply aren't acceptable any more. It's about transforming industrial production and knowing and believing why that's important. Do no harm at the very least... and even better, make it regenerative.

Our industry can do better, and we have to own that. It's time our entire value network in this industry stops making excuses for the damage it causes. It's about continuous improvement, it's about quality, it's about simply and clearly creating safer, cleaner and healthier communities. We make too many excuses...

Thanks for the inspiration... Jeff

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