I think of Dana Carvey impersonating George Bush Sr. when I say: the state of green business looks good. It’s probably more accurate to say that the State of Green Business is maturing.
This fifth and semi-final in the mini-series Business + Sustainability 101 focuses on the emerging standards and improved tools. The first two posts, Green Leaders and Industry Titans, highlighted early pioneers in the field. The Ecological Challenges and Economic Reality touched on rapidly changing ecosystems that impose new costs to our economy. Today, I write about the convergence of process and technology that help companies adapt to our changing planet and marketplace.
Standards and Tools of Sustainability
Global business craves repeatable and scalable processes. The field of sustainability is a market innovation, but its evolution tracks many previous economic changes such as Quality and Information Technology. Like standardized language in IT systems or Lean Six Sigma in Quality, sustainability has developed its own standards.
The Global Reporting Initiative (GRI) and Carbon Disclosure Project (CDP) are quickly becoming sustainability’s tracking and reporting standards for business. Now in its third generation, the GRI offers guidelines to collect and disclose material environmental impacts such as enterprise energy and water emissions, labor and human rights. It describes a set of core and optional indicators for each of these categories and provides additional industry-specific guidance for numerous industries.
The CDP takes a financial performance perspective to reporting. It represents 551 investors with assets of $71 trillion and sends an annual questionnaire to companies asking them to measure and report carbon emissions and climate risk as it relates to business risk for the company. It recently added scope 3 carbon emissions and a CDP Water Disclosure program to its reporting. In 2011, 81% of Global 500 companies that received the questionnaire responded and CDP claims companies in its Carbon Performance Leadership Index perform better in both carbon management and financial performance.
Performance also matters at the product level, and Life Cycle Assessment (LCA) is the current standard to measure environmental performance of products. LCA is a scientific process that measures energy, waste, water, carbon, toxins and other impacts from natural resource extraction through disposal of a product’s life. An LCA certified by a third party is the highest standard for product accountability, though it is a lengthy process. The Sustainability Consortium plans to release more efficient measurement and reporting standards for material impacts at the category level.
Tracking down all this data can be exhausting, which is where sustainability Enterprise Management Software (EMS) comes into play. The tools of EMS recently reached a tipping point where a slew of companies, from SAP to small software companies like Hara and Credit360, are competing for dominance of a rapidly exploding market. Software solutions can be broken into five categories according to Groom Energy, all with some level of data collection, management, analysis and reporting.
These better standards and tools are facilitating widespread adoption of sustainability in business. Reports by KPMG, BCG, and Accenture show that more than 2/3 of mainstream companies are adopting sustainability practices. Most Fortune 500 companies now have at least one person Manager or above tasked full time with sustainability. A select few, 20% of the market according to McKinsey, lead the field integrating sustainability into the business unit, functional, and business process level.
These early adopters are reaping rewards. Last year, three Harvard Business School researchers published a study of 180 companies for 18 years and found that environmentally and socially responsible businesses outperformed their peers. Even more recently, another analysis suggests that greenhouse gas disclosures produce positive shareholder returns when announced, as much as an additional $10 billion for the 84 companies reviewed. AT Kearney and Goldman Sachs show similar performance results related to sustainability management.
Reading the Tea Leaves
The field of sustainability in business now has many standards, tools, and results to continue to mature. Despite these gains, many companies continue to struggle with understanding how ecological changes affect their business, let alone manage those business risks and opportunities. Internal financial, cultural, misaligned incentive, and process barriers continue to create hurdles. The integration of sustainability into business and the economy is facing growing pains.
Final Blog in Series: Reading the Tea Leaves