Management magnified sustainability and corporate growth

The business case for this thinking was, and remains, that these three areas do not About the survey In order to assess the importance of sustainability to corporate strategy, the Econom

Management magnifi ed

Sustainability and corporate growth

A report from the Economist Intelligence Unit

Sponsored by SAS

Management magnifi ed: Sustainability and corporate growth is the third in a series of three reports written

by the Economist Intelligence Unit and sponsored by SAS

The fi rst report, Management magnifi ed: Getting ahead in a recession by making better decisions, was

published in August, and the second report, Management magnifi ed: Strategies for revenue growth in an

economic downturn, was published in September.

The quantitative fi ndings presented in this report come from a global online survey of 183

respondents—79 of whom are board members or C-level executives—conducted by the Economist

Intelligence Unit in August and September 2009 The survey asked respondents about the importance of

sustainability to corporate strategy

The fi ndings and views expressed do not necessarily refl ect those of the sponsor The Economist

Intelligence Unit’s editorial team executed the survey and wrote the report Kim Andreasson was the

editor and project manager Dr Paul Kielstra was the author Mike Kenny was responsible for the design of

the report

Our thanks are due to all survey respondents for their time and insight

November 2009

Management magnifi ed

Sustainability and corporate growth

Management magnifi ed: Sustainability and corporate growth

As the link between sustainability and corporate growth is typically indirect and intangible, sceptics often dismiss initiatives in this area as window dressing But in the survey conducted for this report, executives counter the criticism Seventy-eight percent of respondents say sustainability initiatives are very or somewhat important to their current business strategy Eighty-seven percent see them as very or somewhat important to future growth plans and the same number expect them to be very or somewhat important in fi ve years’ time Respondents, who represent a wide variety of industries and a broad range

of functions, say they spend 22% of their working time, on average, integrating sustainability initiatives into business strategy, a sizeable investment

Yet a signifi cant number of organisations do not devote suffi cient resources to sustainability Thirty-three percent of those surveyed say their companies do not do enough to integrate sustainability initiatives into strategy An equal number of respondents (45%) say their organisation does not spend enough of its budget on sustainability initiatives as those who say they do (45%)

Window dressing?

Before the economic downturn of 2008-09, almost every company seemed to stress its credentials as a socially responsible organisation, where environmental and social bottom lines mattered as much as the fi nancial one The business case for this thinking was, and remains, that these three areas do not

About the survey

In order to assess the importance of sustainability

to corporate strategy, the Economist Intelligence Unit conducted a global online survey in August and September 2009

Of the 183 respondents to the survey, 79 describe themselves as board members or C-level executives

Survey takers came from around the world, led by respondents in the Asia-Pacifi c region (31%), Europe

(26%) and North America (26%), with the rest from the Middle East and Africa (10%) and Latin America (8%) Roughly one-half (51%) work for companies with global annual revenue exceeding US$1bn

Respondents represented a wide variety of industries, led by fi nancial services (20%), professional services (13%), energy and natural resources (9%), and healthcare, pharmaceuticals and biotechnology (9%) Respondents also came from a broad range of functions, including strategy and business development (43%), general management (39%) and fi nance (25%)

require trade-offs but are mutually reinforcing As Stan Litow, vice-president for corporate citizenship and

corporate affairs at IBM, has explained: “If corporate citizenship were a frill and had no clear benefi t, it

ought not survive in any economic climate, good or bad But if it is viewed as something tied to business

strategy with a real, measurable and clear return on investment established over time, then it’s not

viewed as something you can or should do less of in a time of economic crises.”1

Yet perhaps as a consequence of the economic downturn, much of the business community remains

unconvinced that sustainability initiatives are more than window dressing In a March 2009 survey

conducted by the Economist Intelligence Unit, 67% of executives agreed that economic conditions would

force environmental issues down on the corporate agenda.2

So which is it? Given the pressure on sustainability, this report looks behind the rhetoric and evaluates

sustainability from a corporate growth perspective

Sustainability and corporate performance

Inconsistent implementation of sustainability initiatives harms businesses Survey respondents say

that over the past year, poor implementation of such projects has decreased their company’s ability to

execute strategy (21%) and to innovate (20%) Companies have also suffered in the past 12 months

from traditional issues associated with sustainability failures, such as damage to brand (cited by 15%

of respondents), increased regulatory risk (14%) and loss of market share (14%) Overall, 58% of

respondents say their company has suffered at least one negative consequence to their ability to operate

in the past 12 months as a result of inconsistent sustainability implementation

Similarly, good performance on sustainability is accompanied by superior results elsewhere

Twenty-seven percent of executives surveyed rate their organisation above average in every sustainability-related

category—ability to integrate initiatives into core strategy, investment in initiatives and reputation

among stakeholders Members of this “sustainability leaders” group of companies report better than

average results in other areas as well [see chart]

1 Economist Intelligence Unit,

Corporate citizenship: Profiting from a sustainable business,

November 2008, quoted on page 5.

2 Economist Intelligence Unit,

Countdown to Copenhagen: Government, business and the battle against climate change,

March 2009.

Financial performance

Revenue growth

Reacting to changing risks and opportunities

Percentage of companies rating themselves much stronger than peers in select areas

(% respondents)

Sustainability leaders All others

Source: Economist Intelligence Unit survey, September 2009.

35 14

33 10

29 13

Management magnifi ed

Sustainability and corporate growth

Sustainability isn’t about being nice, but seeing profi ts

The fundamental difference between sustainability leaders and other companies is a greater conviction that business benefi ts will arise out of sustainability initiatives In particular, leaders believe that sustainability provides a market advantage: 43% say that it is important to customers compared with only 16% of respondents from other fi rms in the survey Similarly, 39% of sustainability leaders believe that sustainability can enhance revenue growth a great deal, compared with 26% from other fi rms

The results can be impressive While many companies were performing poorly in 2008, sales of General Electric’s Ecomagination line of products, for example, rose by 21%, to US$17bn, compared with just 5.8% growth for the company as a whole Ecomagination products now represent more than 9% of total revenue In March 2009, Proctor & Gamble felt confi dent enough to increase its 2012 target for sales from its sustainable innovation products from US$20bn to US$50bn

As a result, internal stakeholder groups at fi rms that are sustainability leaders are more likely to consider the issue signifi cant [see chart] They are also more convinced of the importance of sustainability

to strategy For example, 65% see them as very important to current overall strategy, compared with 34% of all others in the survey Looking ahead, 80% of sustainability leaders see these initiatives as very important to future growth, compared with 40% of all others in the survey These fi ndings fl ow into the practical necessity of better performance, such as an increase in resources: 79% of sustainability leaders say that they spend enough on sustainability, compared with 32% of other companies

This perspective changes the corporate drivers of sustainability According to the survey, leaders in this area most often cite brand enhancement as a leading motivation for sustainability initiatives (47%),

Board of directors

Senior management

Middle management

Employees

Investors

Proportion who say stakeholder groups consider sustainability initiatives “very important”

(% respondents)

Sustainability leaders All others

Source: Economist Intelligence Unit survey, September 2009.

71 34

57 28

33 14

29 17

35 18

followed by revenue growth (35%) and cost savings (31%) Other companies instead point fi rst to a goal

which, although laudable, is not directly related to fi nancial performance—environmental protection

(37%) Overall, matters that relate to the bottom line are more likely to resonate as sustainability drivers

with leaders than with other companies, while the reverse is true of traditional external drivers, such as

regulation or outside pressure [see chart] Simply put: to be good at sustainability, companies must fi nd

the business benefi ts

Leadership counts

Leadership at all levels is essential to effective sustainability programmes at all organisations When

integrating sustainability into strategy, by far the two most important keys to success are clear directives

from policymakers or senior management (cited by 64% of all respondents) and the active involvement

of senior management (60%) Similarly, a lack of clear mandates or objectives is the leading barrier to

Brand enhancement

Revenue growth

Cost savings

Environmental protection

Increasing profit

Opening of new markets

Public relations

External pressure from stakeholders to do good

Regulatory compliance

Leading motivations for sustainability initiatives

(% respondents)

Sustainability leaders All others

Source: Economist Intelligence Unit survey, September 2009.

47 25

35 31

31 28

31

37

29 23

27 14

27 29

22

25

18

23

Management magnifi ed

Sustainability and corporate growth

success (cited by 37%), and a lack of interest by senior management comes in third (29%)

Unsurprisingly, engagement of leadership is seen as crucial everywhere in business When it comes

to sustainability, however, there appears to be a disconnect in the levels of support between various stakeholders Sustainability initiatives are very important to the boards at 44% of companies, and to senior management at 36% But these fi gures are much higher than those of any other stakeholder, whether inside the company—middle management (19%), employees (20%) and investors (23%)—or outside—local communities (28%), customers (23%) and suppliers (9%) This indicates that management needs to do more to educate both internal and external groups on the importance of sustainability to corporate strategy

When it comes to sustainability, many companies talk a good game yet institute isolated policies that

fail to resonate with managers and employees, let alone customers Still, a signifi cant number of

businesses genuinely see market opportunities from sustainability At companies deemed by respondents

to be sustainability leaders, people at all levels of the organisation attach greater importance to the issue

As a result, their businesses are much more likely to provide the fi nancial resources necessary for success

The data suggest that all industries stand to benefi t from integrating sustainability into corporate

strategy More than one-half of all companies surveyed have suffered some negative effect on their

ability to operate from inconsistent implementation of sustainability initiatives And leaders in this area

are more likely to outperform their peers fi nancially The bottom line is that sustainability remains an

important issue for businesses today precisely because companies have discovered that success can lead

to good fi nancial performance, no matter the economic climate

Conclusion

Survey results

Management magnifi ed

Sustainability and corporate growth

Appendix Survey results

Very important Somewhat important Neither important nor unimportant Somewhat unimportant Not at all important Don’t know

In your view, how important are sustainability initiatives to your company’s overall business strategy today?

(% respondents)

43

35

10

3

6

3

Very important Somewhat important Neither important nor unimportant Somewhat unimportant Not at all important Don’t know

In your view, how important are sustainability initiatives to your company’s future growth plans?

(% respondents)

51

36

3

4

3

2

Very important Somewhat important Neither important nor unimportant Somewhat unimportant Not at all important Don’t know

In your view, how important will sustainability initiatives be

to your company 5 years from now?

(% respondents)

59

28

4

2

4

3

63 33 4

Yes No Don’t know

In your view, does your organisation do enough to integrate sustainability initiatives into business strategy?

(% respondents)

45 45 10

Yes No Don’t know

In your view, does your organisation spend enough of its budget on sustainability initiatives?

(% respondents)

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Very important Somewhat important Neither important nor unimportant Somewhat unimportant Not at all important Don’t know

Board of directors

Senior management

Middle management

Employees

Customers

Investors

Suppliers

Local community

How important do you think your organisation’s sustainability initiatives are to the following stakeholder groups?

Select one for each row

(% respondents)

Survey results

Management magnifi ed

Sustainability and corporate growth

What are the biggest barriers to consistent, successful implementation of sustainability initiatives across your organisation? Select up to three.

(% respondents) Lack of clear objectives or mandates The complexity of consistent implementation Lack of interest from/understanding by senior management Difficulty in aligning sustainability goals with financial ones Inability to quantify financial costs and benefits (ROI) Insufficient funding/resources (eg, the organisation does not spend enough of its budget on sustainability)

Cost (eg, the financial cost of implementation is too high relative to perceived benefits (ROI))

Lack of interest/push back from employees Poor planning of implementation Cultural issues

Negative impact on competitive position Inability to set strategy (what initiatives to take on first) Other

Don’t know

37

36

29

27

22

21

20

19

17

15

9

9

4

3

Clear directive from policy-makers or senior management Active involvement of senior management

Alignment with broader company goals Sufficient funding

Establishment of processes Alignment of financial incentives with successful implementation Thorough planning before implementation

Return on investment Use of technology Broad consultation with employees Effective communication with customers Other

Don’t know

In your opinion, which of the following factors are most important to successful integration of sustainability initiatives at your organisation? Select all that apply.

(% respondents)

64

60

43

38

33

33

33

25

24

23

16

2

1

0 20 40 60 80 100

1 We are much stronger 2 3 4 5 We are much weaker Don’t know

Profitability Revenue growth Ability to react to changing risks and opportunities Ability to integrate sustainability initiatives into core strategy Investment in sustainability initiatives

Reputation among stakeholders for sustainability

In your opinion, how does your organisation compare with its closest competitors in the following areas?

Rate on a scale of 1 to 5, where 1=We are much stronger and 5=We are much weaker

(% respondents)