(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.”
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)