CHAPTER 7

Where to Start in Your Business

The previous six chapters provided a concise outline of an upgraded mental model, one that includes yet surpasses previous worldviews: a systems approach that recognizes the interdependent nature of commerce with society and the biosphere. Concern for sustainability, a systemic concept ensuring the ability of both current and future generations to meet their needs, has become obvious and serious enough that it has moved beyond the province of tree huggers and radicals. An overview of the background regarding the science behind systems and sustainability was provided, as well as its significance for people on the personal and individual level, organizationally, and on the broader scale of industry.

Sustainability matters; hopefully, by this point your mental framework as well as your enthusiasm for integrating it into your organization has been shifted into high gear. This final chapter concludes with ideas to get readers started with the “how.” This chapter is intended to be a preliminary overview of information to provoke thought, conversation, and planning for further inquiry into sustainability practices in business processes and models.

What You Need to Know to Get Started

Resources You’ll Need:

• A clear grasp of and facility with the business case for sustainability as it applies specifically to your firm
• An ability to connect the integration of sustainability practices with your firm’s strategic objectives
• A small group of sustainability champions within the organization to share the task of planning, networking, coordinating, and nudging the effort forward
• The skill of engaging with those who may initially disagree with you to discover their concerns and needs so that you can address them and tie them into the sustainability plans
• C-suite and board support or, minimally, support from at least one or two influential C-level executives or board members
• A plan to engage stakeholders in your sustainability plans, or at least to get an adequate level of buy-in
• Sufficient funding to engage in low-risk projects to prove the value of further sustainability projects
• A framework and a set of tools (or a consultant who will provide these) to guide your plans
• Persistence
• Emotional resilience
• Mental flexibility
• Patience

Overview of Sustainability Planning Action Steps

In earlier chapters, we established why industry has the potential to be the biggest contributor to sustainability solutions. Those firms approaching the opportunity from a reactive mode in which they are simply addressing regulatory, media, and public pressure, and even those making more substantive incremental changes are likely to see only a marginal payoff for those efforts. In contrast, firms with a more radical approach have reached new markets, developed the products and services in the next generation of enterprise, and are reaping the rewards, while having a larger positive impact. That said, in any organization it will take some time, effort, patience, and support to transition from concept to practice. In their book, The Step by Step Guide to Sustainability Planning, Darcy Hitchcock and Marsha Willard outline a practical set of steps:¹

• First, establish the company-specific business case for integrating sustainability into the organization and, using the company’s mission, develop a vision based on this business case.
• Second, choose or design a framework (discussed in Chapter 6) that fits for the industry, company, and vision.
• Third, conduct an assessment of the organization’s sustainability impacts to baseline them and prioritize the most promising programs.
• Fourth, using the chosen framework, impacts assessment, and long-range plan, devise a set of metrics to track progress, and a set of sustainability strategies.
• Fifth, implement the chosen programs, while also training employees, setting up management systems and structures to ensure actions, as well as ongoing monitoring and reporting.

Diving in

All sustainability initiatives, like many organizational functions, go through a cycle of planning, implementation, monitoring, and review, where adjustment and improvement is ongoing not only within each cycle but also from cycle to cycle. The programs that come out of the planning process may vary in monitoring time scale, and every program review provides an opportunity to tweak plans, implementation, and monitoring for the next cycle.

A bottom-up approach to sustainability efforts can certainly work, but will have the most success when those in top leadership roles champion them. Support at that level will ensure that such efforts are given the human and financial resources and the prioritization that will allow more speed and ease in research, implementation, and continual monitoring and reporting. Building a strong business case for these efforts, as laid out throughout this book, helps create buy-in on the part of boards and executives.

Figure 7.1.  The sustainability process cycle.

Tie the business case for a sustainability initiative into the firm’s mission and create a 10- or 20-year plan with ambitious goals. Some examples of ambitious goals are

• company-wide zero waste;
• carbon neutrality;
• 100% renewable energy sources;
• closed-loop production;
• workforce gender parity;
• complete value chain compliance with geographically adjusted living wages and safe working conditions; and
• humane working conditions.

Backcast from those goals, creating 15-, 10-, 5-, 3-, 2-, and 1-year goals that, if accomplished, will result in the achievement of the long-range goals. This process will determine what will be measured, how it will be measured, how often it will be measured, and how often it will be reported.

As Bob Willard explains in both The Next Sustainability Wave² and The Sustainability Champion’s Guidebook,³ be aware that appealing primarily to moral considerations without addressing payback to the organization can generate more resistance than endorsement.

Even with top-level support, it will take time and patience to

• understand the most salient risks for your business;
• uncover and research approaches to capitalizing on the most promising opportunities;
• gather information from internal and external sources, including stakeholders;
• communicate plans;
• baseline current practices;
• establish metrics and procedures for ongoing monitoring and reporting;
• train and assist employees and value chain partners as they implement programs.

Programs that are led by a purely volunteer force can be successful in the short run but risk losing momentum through attrition, frustration, and lack of time to dedicate sufficient attention. For that reason, committing funding by creating a position to manage the workload or formally assigning the tasks as part of an existing position will offer better traction. One of the roles of such a position is to develop and implement a plan to quantify what may seem to some within the organization as intangible benefits.

Be prepared for pushback, and be willing to listen to and address the concerns of those who are not yet convinced that sustainability warrants organizational priority. Executives may advocate programs, but lower lever management may create roadblocks because of a perceived dictate, conflict of priorities, or lack of urgency. Other stated strategic objectives may appear to be in competition, but just about all of them can be made easier through sustainability planning. It is likely that sustainability initiatives of some kind are already embedded within existing business practices. Existing key performance indicators can serve to identify opportunities into which sustainability initiatives can tie, in ways that may contribute to time savings versus additional work.

If support is low, start with projects that have a faster measurable impact and a quicker return on investment. Internal practices and processes that reduce overhead, such as efficiency and effectiveness improvements, discussed in more detail below, are a good place to identify suitable projects. Unless stakeholders demand a sustainability report, to manage expectations communicate programs and metrics only internally until they are established and measurable results can be documented.

How to Think Systemically About Change

Management experts have plumbed systems science to explore the most productive ways to effect sustainable change in organizations, resulting in a set of leverage points that provide a streamlined set of guidelines for strategizing change.⁴ The most potent leverage points, from greater to lesser strength, are as follows:

• The ability to understand the paradigm through which a problem presents itself, and the capacity to be flexible in adjusting the existing lens to one that better explains the problem sources versus only the symptoms. That has been the primary focus of this book!
• Change the goals (purpose) of the system. As covered in the first three chapters of this book, when the purpose of a subsystem is in conflict with the purpose of the system within which it operates, the larger system endures problems. Increasing shareholder value is, arguably, the primary goal for any for-profit business organization. Due to a human bias toward short-term thinking, that goal has resulted in a take—make— waste industrial model, spawning external costs that damage overarching social and environmental systems. Sustainable enterprise and the benefit corporate structure (discussed in Chapter 5), and moving from a product to a service model are examples of changing the system goals so that they are better aligned with social and environmental system purposes.
• Change the rules of the system. The mounting evidence of the economic, social, and environmental consequences of human resource consumption, which is aided by industrial processes and practices, has begun to usher in a shift in industrial rules. Institutional investors, insurers, governments, and customers have become increasingly aware that a share of those consequences is the result of firms creating an artificial boundary of responsibility and a focus on short term profit making. This realization is causing a shift in rules about what is included and excluded in a firm’s consideration, and delegitimizing the accomplishment of profits when they incur costs to society. Rules include policies and procedures as well as the unwritten cultural rules of the organization (“That’s not the way we do things around here!”).
• Improve access to information—not just any information, but the kind that promotes knowledge that increases both understanding of the business as a system and its wise application. Expanding access to information beyond departmental or team silos results in not only greater accountability, but improves the speed with which problems can be identified, analyzed, and resolved. Doing so also reveals the need for more or better information to assess current performance and design intervention strategies to improve efficiency and effectiveness, reduce negative impacts, innovate new services or products, or develop new markets. Sustainability reporting is an example of this leverage point.

All-Too-Human Pitfalls to Avoid

As with any effort aimed at improvement, plans must address resistance to change. Aside from the tendency to think in the short term instead of planning and considering strategies that serve a more extended span of time, there are other human inclinations that act as barriers or detours to change efforts.

People prefer to maintain their situation rather than change it for something unknown even if the change is likely to result in improvement, a decision bias known as loss aversion or, more colloquially, as “the devil you know is better than the devil you don’t.”

There is also the human inclination to take mental shortcuts using existing knowledge and beliefs, even if they aren’t relevant to the situation, or gut responses that are at odds with empirical evidence. This results in ineffective decision making and metrics that may be too simplified to result in the kind or degree of change sought. Another cognitive error is conflating wants into needs; the latter are non-negotiable, but the former are simply desirable.⁵

In spite of these inclinations, there are ways to sidestep them:

• From the start, devise decision-making criteria that incorporate a longer time frame.
• Incorporate feedback and engagement from a representative set of internal and external stakeholders.
• Set ambitious long-term goals and then backcast them into interim goals.
• Create monitoring and reporting criteria, expectations, and frequency, as well as who will be responsible for gathering these metrics and creating and distributing the reports.
• Communicate the goals and progress widely and often, internally as well as to all stakeholders.
• Make the default (easy, obvious) option the sustainable choice in all policies.

Beyond these psychological and sociological components, which are needed to think more systemically and knowledgeably about intentionally integrating sustainability, are the quantitative nuts and bolts of the frameworks and metrics discussed in the previous chapter. They are explored here through the lens of efficiency and effectiveness.

Efficiency

Efficiency, especially radically increased efficiency, is key to sustainability efforts since many programs will involve the use of resources: material, energy, human, and financial. Industry best practices are one means to establish a comparative standard. Line employees and management may have viable ideas for improvements. Below is basic information aimed at increasing efficiency using some of the standards and metrics discussed in Chapter 6. First discussed are the avenues that address environmental management systems, with less focus on the explicitly social side. The more balanced frameworks which incorporate broader and more focused social aspects are included in the later sections.

The Basics of Measuring Carbon

Carbon is correlated with efficiency in the use of energy, one of the largest impacts for most businesses. Every oil-derived vehicle mile, whether by air, train, truck, or car, freight or passenger vehicle, every kilowatt hour and cubic foot of natural gas is part of an organization’s carbon footprint. Greenhouse gases, including carbon dioxide and the other primary GHGs, such as methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride, can be thought of as a set of efficiency metrics.

In a typical facility, GHG emissions are measured in categories of decreasing direct influence or scope. Scope 1, or direct, emissions are those that are emitted from a pipe or tower that the organization owns. Scope 1 emissions originate from energy sources such as natural gas for heating or creating process steam, diesel or unleaded fuels used to power company-owned trucks or cars, liquid propane for forklifts, and the refrigerants used to run air conditioning units. Certain industry sectors produce additional GHG forms. For example, dairy, beef, and other livestock businesses produce methane. The breakdown of fertilizers on the landscaping of golf courses and on agricultural lands is also considered Scope 1. The Scope 1 category comprises emissions in which there is visible emission, such as from a tailpipe, smokestack, or burning in a boiler.

Scope 2 emissions are often referred to as indirect emissions, implying that the actual emission is happening at a place one level removed from the firm. Electricity is among the most prevalent source of Scope 2 emissions. An electrical or electronic device, when plugged into an outlet, does not result in an emission at that location. The combustion of coal, nuclear reactors, hydropower, or other power production methods occurs at the power production facility. Scope 2 emissions also include heat, steam, or chilled water purchases from an external provider. Emissions from charging electric vehicles are another example of Scope 2 emissions.

Unlike Scope 1 and 2 emissions, Scope 3, known as supply chain emissions, are generally not requested by most reporting schemes like the GRI and CDP. However, Scope 3 emissions still represent emissions for which an organization is responsible, even though they do not have direct control over these emissions.

Employee commutes are included within Scope 3 emissions. As the company requires employee onsite attendance, it is exerting influence over that carbon-intense behavior and is thereby indirectly involved in the generation of those emissions. Incidentally, commuting is also a personal Scope 1 emission of the individual employee, whether the commute is by public transport, a pick-up truck, or a biodiesel vehicle.

Delivery services such as FedEx and UPS fall under Scope 3 emissions. The organization utilizing such services to send packages is responsible for the emission since they create the need for the service, under Scope 3. Both FedEx and UPS offer programs for large users to collect Scope 3 emission data, based on the number of packages sent using a specific account number. UPS has detailed data, tracking every package by plane and vehicle type, total mileage, and annual fuel economy of the actual vehicles employed in the delivery process.

Counting emissions this way may appear to result in double and triple counting. Because the generation of an emission usually involves two or more parties, the three-scope system within GHG accounting allows for these emissions to be allocated to different groups based on scope. This framework also drives collaboration, allowing suppliers and customers to discuss emission reduction strategies including improved delivery methods that drive down emissions, thereby improving efficiency of a product or service.

Greenhouse gas emissions can correlate with the inefficient use of operating expenditures. Lower emissions mean a more efficient use of resources. For example, lighting and heating, lighting, and air conditioning use in unoccupied spaces is a form of wasted resources and unnecessary emissions. Leaving computers, printers, and other devices and equipment on when not in use generates emissions while also wasting kilowatt hours. A pound of waste is a source of emissions at the landfill but also has costs associated with disposal, and is also related to a raw material purchase. Idling a vehicle while not logging miles results in wasted emissions, as well as wasted fuel and a higher operating cost per mile.

Matching emission data to production or operational data serves as a business management tool. Some firms collate data to determine total emissions per product, total emissions per customer, emissions per hour of operation, or emissions per employee. These are useful key performance indicators for monitoring performance normalized to output rather than a simple absolute number. Greenhouse gases are a potent baseline to start a conversation about sustainability with colleagues who may not understand or embrace sustainability as an organizational imperative.

The Basics of Measuring Lifecycle Assessment

Introduced in the previous chapter, LCA is another measure of efficiency across a product or service. The use of this tool as a starting point provides the foundation for how progress in sustainability translates throughout an organization’s value chain, defining efficiency as part of that value chain.

Lifecycle assessments comprise three key stages. The first is “cradle to gate,” which includes all of the raw materials, products, and processes that occur before those items reach a business’s facilities. As an example, the assessment of a traditional button-down dress shirt might include its polyester and cotton fibers, sewing thread, dyes or dying process of the fibers, all of the processing of the natural and synthetic fibers, buttons, and tags. A cradle-to-gate LCA for pet food includes grains, proteins, digestion aids, and other supplements, including water, fertilizer, pesticides, tractor and transportation fuels, and other sourcing impacts for each ingredient. Each element of the value chain comes from the range of processes representing varying levels of impact, data that isn’t visible without a tool like LCA.

The second stage of LCA is “gate to gate,” representing everything that happens within a firm’s physical plant or operations. In the case of the dress shirt, it includes all processes involved in the sewing and finishing of the garment, and its packaging. The gate-to-gate phase represents the electricity usage associated with sewing machines, the trimmings and waste associated with cuts, stitching, packaging, and other processing. Depending on the particular assessment model used, calculations may include economic factors such as time, labor, safety issues, and other fixed or variable costs.

The final phase of LCA is “gate to grave,” which includes all aspects of the product or service once it leaves a manufacturer’s operation. The dress shirt moves in stages: from a plant to a distribution center, from there to a storage facility, onward to a store, purchased and brought into a home, where its use and disposal are also considered. From the first wash to the last, including the water, detergent, phosphates, and electricity to wash, dry, iron, and fold, with varying factors that change if the item is light or dark in color, and beyond, to the landfill, LCA computes all of these impacts.

The LCA has been developed into a standard science and can be applied to any industry from electronics, to dairy, and beer manufacturing, to services such as insurance, banking, or telecommunications. Every step in the value chain comes with its own measurement of efficiency. Process improvement strategies driven by LCA data identify opportunities for adjustments that result in lower impacts while increasing efficiency in product design and development.

Lifecycle assessment data can be utilized to compute metrics such as waste per pound of product produced by process and stage, embodied energy of raw materials per kilogram, water consumption by finished good from cradle to gate or total GHG emissions per pound of product produced or per customer subscribed, visited, or engaged. By establishing a baseline figure, it will be easy to determine whether improvements in efficiency are being realized.

Low-Hanging Fruit

There is a reason that a discussion of the programs that produce easy and quick returns appears so far into the topic of efficiency. Too often, these types of programs are scattershot and are not accompanied by an organizational review and development of strategies that will offer substantial reduction in impact. There is a difference between the business-as-usual approach to being only a bit less unsustainable and taking actions that factually and substantially bring impacts down to a level closer to the planet’s constraints. The point of corporate sustainability is not simply for the corporation to sustain itself, but to effectively reduce industrial impacts so that the planet’s and societal systems can still provide the services vital to human existence.⁶ See our discussion on effectiveness, later in this chapter.

The low-hanging fruit does provide an opportunity to get some low-risk experience, generate some momentum, and build stronger buy-in for other programs. In the arena of sustainability, conversations around such opportunities to improve efficiency are often followed by a discussion of lighting, which starts with an inquiry into current lighting equipment condition and the speed with which a return on investment can be accomplished. Other examples of low-hanging fruit include recycling, such as the monetization of a waste raw material like cardboard, aluminum, or some type of plastic. Office paper and office waste fall into this category as such efforts help contribute to a reduction of material sent to a landfill. Most of these sorts of projects are not accompanied by analysis of data because they simply seem to make sense. Lighting technology improves, waste can be monetized, and office paper should always be recycled if not avoided.

That’s not to say that a firm should ignore these opportunities, only that they will serve best if they are part of a wider organizational assessment that determines the firm’s most significant negative externalities. Once done, the easy and obvious programs are completed in the context of a plan to drive sustainability much deeper into the organization, even if that deeper integration takes years.

Easy programs can yield surprising results, if they are done well, but return on investment may be harder to come by if adequate research is skipped. For instance, one company replaced their bulbs but not their ballasts, leading to a lower-than-expected efficiency. Identifying simple errors in systems makes an excellent starting point for capturing quick wins. This is an area in which a sustainability consultant can be a worthwhile investment. A consumer product goods company brought in a sustainability consultant who identified overpaid utility taxes occurring during a period of 3 years, netting the company over $650,000 in rebates from the state tax commission. Another firm had been paying utility bills for over three-dozen facilities, ranging from 10,000 to 150,000 square feet, that they no longer owned; their savings exceeded $1 million. A firm with an excellent waste recovery and recycling program was being paid below market values for their highly valuable waste stream. Over the last 5 years they have reaped an additional $2 million per year in addition to the $500,000 they had been receiving, an excellent return on their investment in a contract with a sustainability consultant. A municipal project identified over 800 streetlights for which municipal taxes were being paid that were no longer in operation. At the cost of $28.08 per month per light pole, this resulted in overspending of nearly $270,000 per year for the municipality.

Programs that qualify as low-hanging fruit require more than just a good idea; they can become new platforms for broadening and accelerating sustainability enterprise wide, but it all starts with data.

Experimenting with the GRI and CDP

Efficiency and sustainability also have meaning on the social indicators. As tools, the Global Reporting Initiative and CDP offer opportunities to capture data to improve efficiency on the human side. A 2009 study found that employees in green buildings are more productive than those who work in non-green buildings. The study of 154 green buildings and 2,000 tenants found that 45% of respondents reported that they had experienced an average of 2.88 fewer sick days at their new, green office location versus their previous non-green office location.⁷

Healthier employees are more productive and are certainly more engaged. Social performance indicators included in the GRI’s G3 framework relating to labor highlight happiness factors such as employee turnover and benefits for full time employees. Organizations with high turnover almost always experience efficiency problems. The cost of low employee morale can be significant. The Gallup Organization estimates that there are 22 million disengaged employees costing employers $300 billion annually.⁸ Research published in 2010 by Warwick Business School indicated that happy workers performed 12% more productively than the control group.⁹

Attention to some GRI indicators can assist a firm in avoiding future discrimination lawsuits: equal remuneration for women and men requires reporting the ratio of basic salary and remuneration of women to men by employee category and by significant locations of operation. A study by the UCLA-RAND Center for Law and Public Policy reports that the average litigation cost for a discrimination suit at trial is $150,000, which does not include any settlement amount or the loss in productivity of management distracted by such a suit.¹⁰ In addition, discrimination lawsuits affect a company’s culture, employee engagement, and turnover, and present a risk to corporate reputation, brand equity, and sales.

Effectiveness

Carbon accounting, LCAs, and the GRI framework offer a set of possible starting points that organizational sustainability leaders need to drive operational changes. These operational changes include improving efficiency while reducing operating expenses. Both hard and soft costs can be better managed when sustainability analytics are combined with financial analytics. However, the data will require some extra attention to make sure it is effective for making decisions.

To drive effectiveness, each tool has a set of principles that need to be followed to create usable data, with well-designed data inputs generally resulting in useful data output and vice versa. The challenge in using sustainability data is that the process of creating good data is still in its adolescence, uncoordinated, and full of blemishes. To address this, tools in the sustainability toolkit come with protocols that help establish guiding principles that define quality.

Five principles of GHG management were established as part of the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, and they apply well beyond carbon accounting: relevance, completeness, consistency, transparency, and accuracy.

Relevance helps organizations define what is important to include and exclude in a GHG inventory, delimited by a boundary. The boundary can be based on the business goals of the company, financial boundaries, or operational (control) boundaries. Establishing those boundaries delineates exclusions and inclusions so that they can be explained and reported. Relevancy is a key criterion in judging the credibility and intent of an organization. For example, consider the intent of these two companies: one firm wanted to leave a significant source of emissions off their inventory because they didn’t want it to taint their image; another firm, a cable company, wanted to include cable set top boxes at their customers’ homes in their inventory because they “felt responsible for those emissions.”

The principle of completeness defines how comprehensive and representative the compiled information is, in relation to the organization. This principle drives organizations to make informed estimates where actual data is not available rather than just ignoring the emission source (or other impact) because data was not available. It pushes organizations to make their best attempt to provide inclusive, consistent, and accurate data. In the commercial real estate sector, many leases in multiple tenant properties, particularly older ones, include utilities in the rent. This is usually the case with large office buildings or facilities that are not equipped with separate metering for each lessee. Such arrangements present a challenge when attempting to allocate the energy used by each lessee. To solve this, the Greenhouse Gas Protocol provides guidance on how to estimate the energy, water, and waste emissions within the leased spaces, based on building type and total square footage. This method is a more complete method than just ignoring leased properties because utility data are unavailable.

The consistency principle is the ability of an organization to measure emissions in a repeatable and comparable manner over time. The challenge of the consistency principle is that it forces practitioners to spell out their own methods clearly so that any other practitioner could follow those instructions and compute the same result. This includes, using consistent data sources, calculation methods, boundaries, and scopes. Application of the consistency principle can be complicated by changes to systems. Data management practices within organizations are fluid, frequently being upgraded or integrated, bringing both improvement and degradation of data. Changes to businesses also are cases in which the consistency principle is employed. As business units or divisions are purchased or sold, as operations are internalized or outsourced, or as production processes change there are also changes to emission inventories. The ability to identify, isolate, and adjust GHG data is critical to having a consistent inventory that is useful over an extended span of time.

The transparency principle provides an audit trail of the information used to create the inventory. The auditing and verification of emissions is an emerging practice. All four of the Big Four accounting firms have divisions that are focused on providing assurance and verification services on carbon and sustainability reporting data. To provide this service, organizations must be transparent about the processes and procedures used to calculate GHG emissions. All assumptions or limitations identified in the process are clearly spelled out so that they can be evaluated. The transparency principle prompts organizations to be open and clear in how they arrived at a final GHG emission calculation. A failed transparency example would be an organization that justifies not reporting its calculation methods with the reasoning that to do so would be a breach of proprietary information or intellectual property. Some organizations using GHG accounting software omit calculations or descriptions of emission factors, others fail to provide supporting evidence, like organizational charts, financial documents, or other operational information through which business units or business processes were disguised or hidden.

The accuracy principle, inherently linked to the completeness and relevancy principle, describes the precision of the organization’s GHG inventory and describes how the end numbers are true and fair. If all relevant emission sources are accounted for and data for all of those sources are complete, the only remaining issue is accuracy. Accuracy is also a goal as systems have an inherent error built into them. The cost of 100% data accuracy far exceeds the cost of 90% accuracy, but the ability to realize and account for the degree of accuracy of your data actually provides a window into areas for operational enhancement.

For organizations of scale, the accuracy principle is a continuous improvement goal. Few organizations, given their dynamic business environment, are able to capture emission data at 100% accuracy. However, organizations are able to define accuracy in relation to their operations and to design processes for improving that accuracy. Similar to Generally Accepted Accounting Principles like materiality and conservatism, the spirit of GHG accounting provides a representative picture of the organization’s emissions based on emitting sources that its operations were responsible for creating. That picture should be based on a realistic and conservative approach to material sources of emissions.

Global Reporting Initiative Principles

The process of creating a sustainability report using the GRI framework is also guided by a set of principles to ensure effectiveness: content, quality, and boundary.

The content principle, similar to GHG inventory relevancy, helps organizations define what should be included in and excluded from the report. The principle is fairly subjective in that different stakeholders may have differing expectations for sustainability report content. For example, if Starbucks didn’t report on environmental and social issues associated with the growth and harvesting of coffee beans, then it would be viewed as missing significant content in the eyes of some stakeholders. The content principle comprises four subprinciples: materiality, stakeholder inclusiveness, context, and completeness.

Materiality guides reporters to ensure that report topics have been defined systematically and objectively. Many organizations design a materiality matrix that represents issues that are significant according to stakeholder perceptions, as well as significant in terms of quantity. Energy, for instance, is both an issue of stakeholder concern and a significant source of emissions for the organization.

Stakeholder inclusiveness requires that reporters define their stakeholders and explain how their interests and expectations have been addressed in the report. In order to understand the needs of stakeholders, they must first be engaged, either through stakeholder engagement surveys, annual stakeholder meetings, focus groups, community meetings, or one-on-one meetings with key stakeholders.

The principle of sustainability context asks organizations to define how the content fits into the wider view of sustainability. It serves to align the purpose of sustainability reporting as disclosing information about the organization’s comprehensive sustainability profile.

The purpose of the subprinciple of completeness is to ensure that material topics have been defined, the stakeholders have been included, and the context of sustainability is present. This is an important principle for organizations that issue sustainability reports that are heavily focused on environmental issues over social issues, or only financial issues with little focus on environmental or social issues, to attend to.

The GRI framework also has a set of six subprinciples for establishing reporting quality. These include balance, comparability, accuracy, timeliness, clarity, and reliability, of which the first three are arguably the most useful in driving effective reporting.

Balance is a key principle in having an effective sustainability report, ensuring that sustainability is being perceived as a systemic organizational issue. It also ensures that internal and external expectations have been identified and managed through the reporting process.

Comparability serves as a management tool to gauge improvement over time and as a way to benchmark against an industry standard. Most organizations that request sustainability information from suppliers are looking for continuous improvement, over a specific target or objective. The same improvement expectation is true of sustainability reporting; a series of comparable reports over time is required.

The subprinciple of accuracy is similar to that described above for GHG inventorying. All other principles and subprinciples become irrelevant when a report is based on inaccurate data.

The accuracy principle requires data to be sufficiently accurate and detailed for stakeholders to be able to assess performance. Compliance entails being able to explain the degree of accuracy, but does not require reaching a level of 100% accuracy. Accuracy has limits and requires transparency.

The boundary principle delimits what to include and exclude based on a boundary defined by degree of control. For areas in which the organization has high control and influence, reporting on those issues should be included. Correspondingly, issues in which management has little control or little influence should be left outside the boundary.

Collectively these guiding principles help steer organizations toward effective sustainability reporting. The reporting process is an effective tool that helps drive sustainability in organizations by engaging material issues as well as the interests of stakeholders. The report serves as an a la carte menu of sustainability aspects that have been reiteratively defined by the GRI and selected through a systematic process that focused on inclusiveness and transparency.

Driving efficiency and effectiveness in an organization’s sustainability program requires a systematic and systemic examination into an organization’s social, environmental, and financial impacts. The tools introduced in Chapter 6 and discussed in more detail above offer avenues to consider, select, establish, and delineate the quantitative and qualitative data needed to drive effective sustainability decision making. They provide standardized and transparent methods to compare progress over time.

While there are many other tools that will help accelerate sustainability on specific tasks, the frameworks, standards, metrics, and indices introduced above represent those that best lay the foundation for managing sustainability at a systems level perspective. These resources are continually upgraded and updated, evolving with industry, science, and shifting reporting expectations.

The Future of Sustainability in Enterprise

Businesses are beginning to recognize that negative externalities generated by their operations are now becoming a cost of doing business. The world’s largest reinsurance firm, Munich RE estimated natural disasters globally cost $160 billion in 2012.¹¹ Of that total, 67% were suffered in the United States, leading the reinsurance firm to state that the “weather related catastrophes in the U.S.A. showed that greater loss-prevention efforts are needed.” The total losses amounted to more than the annual revenues of GM, Ford, GE, or Apple.¹² If that is not attention grabbing enough, the 2011 cost of natural disasters exceeded $400 billion, more than the annual revenues of every Fortune 500 firm except Exxon Mobil¹³ and Walmart Stores.¹⁴ These incidents may or may not have been related to man-made factors, such as climate change, but firms are being nudged in the direction of greater attention to such risks.

Within its Carbon Disclosure Project Investor Response, UPS highlighted its focus on climate-related risks, even providing an example of how their business was impacted as a result of natural disasters. UPS claims “Risks related to natural disasters (such as hurricanes, tornados, floods, etc.) represent the largest potential climate-related risk category to UPS.” Their report continues, “The hurricane impact on New Orleans, in 2005, is an appropriate example of how this physical and financial risk arises at UPS. UPS operations in New Orleans were promptly restored after the storm, but much of the industrial base was gone. Contingency plans were put in place to bypass the affected areas where needed, minimizing any impact to the network operation as a whole.” The acknowledgment of climate risks impacting business performance is intertwined in UPS’s CDP Response and evident as one of four companies who scored a 99 out of 100 on the CDP’s Global 500 Leadership Index.¹⁵

The need for sustainability and sustainable solutions continues to grow. The United Nations Population Division predicts in its “low-variant scenario” that world population will exceed 9.2 billion by 2050. With this growth come more than 2 billion new consumers of the earth’s finite resources.

The physical demands this planet will endure will require a radically different level of focus and energy devoted to the discipline of sustainable design. The pressures associated with climate risks will force organizations to innovate and adapt. It is simply a matter of time. Organizations that are prepared will incur fewer shocks.

The growth of the pursuit of sustainability as a business focus is one strong indicator. As mentioned in Chapter 6, 81% (405) of corporations representing the Global 500 responded to the Carbon Disclosure Project questionnaire in 2012. In the built environment, the push for more energy efficient buildings can be best seen by the growth in LEED Certified buildings by the U.S. Green Building Council. In 2012, there were more than 12,500 new certified green buildings, a sharp increase from the 2,500 projects in 2006.¹⁶

The GRI has seen an uptick in sustainability reporting with a 46% absolute growth in the number of U.S. companies creating GRI reports from 2010 to 2012.¹⁷ On the local government side, ICLEI Local Governments for Sustainability continues to grow its membership reporting that members of 12 mega-cities; 100 super-cities and urban regions; 450 large cities; and 450 small and medium-sized cities and towns in 84 countries committed themselves to sustainable development.¹⁸

It will take a strong and concerted set of efforts on many different projects, policies, and practices by each person, by their communities and governments, as well as NGOs and businesses, to make a dent. It is very likely that the planet and its most vulnerable populations are already seeing the beginning of the impacts of wide scale systemic change from climate, overuse of resources, and income disparity.

Many local and some state governments have already established policy, legislation, and standards. Future legislation and policies on the national scale such as carbon taxes, cap and trade, or other carbon limiting bills could impact the financial positions of companies while reducing the cost of environmental protection.

Competition amongst communities and states, industries, and individual businesses for resources and services, even for basics such as water, food, and security has the potential to become a limiting factor. Governments may find themselves integrating and dissolving layers of governance structure so as to speed up decision making related to climate adaptation. Protection of headwaters, watersheds, coastal barriers, floodplains, and water tables is already occupying the attention of worried officials.

Non-governmental and academic organizations will continue to be instrumental in conducting targeted research and development, related to the health and status of the planet, and the most promising policies and practices. They have been working with governments and businesses to drive solutions from concept to execution, serving as advisors to balance maximum disruption. Researchers at the Intergovernmental Panel on Climate Change and at other climate research centers will continue to model scenarios based on population growth, resource consumption, and global GHG emissions to determine the pace of climate change.

Within industry the focus may shift from operations to service or product and supply chain. Products that are highly carbon intensive may become cost prohibitive as legislation and availability erode their price advantage. Industry will need to adapt to changes in supply chains, possibly reverting from global to localized economies. Supply chains may shorten, and products may become inherently greener without the emergence of a major green consumer segment. Industry may see a shift in availability of raw materials or regional manufacturing capacity as climate change impacts could drive the cost of electricity, infrastructure, or water to a point where firms struggle to stay competitive.

The longer the delay in integrating a set of systemically designed changes, the more severe the cost, in terms of raw financial capital, interruption of commerce, and in human suffering. As explored in Chapter 2, a growing number of scientists believe it is highly likely that the planet is now beyond the point at which climate change can be avoided, so it is a matter of the degree (no pun intended) of severity and the ability to adapt to those changes that will determine the extent of disruption.

Even if developed nations were to reduce their emissions to zero, which is unlikely to happen in the next century in any case, the output by developing nations is very likely to cause continued emission growth. Those individuals who are nearing retirement may be lucky enough to avoid grave repercussions, but younger generations may not be as fortunate.

The companies that will thrive are very likely to be firms that have used a systems framework and an internal drive to innovate and collaborate with external partners to radically improve the quality and efficiency, and decrease the negative impacts, of their processes, products, and services. By doing so, they decrease their exposure to risk, minimize resource use and costs, enhance their brand trustworthiness, and stay ahead of legislative and regulatory developments. Stakeholder engagement and corporate citizenship are likely to be deeply integrated into business processes and practices.

Beyond Growth and Profit Primacy

At some point in the not-far future, priorities may shift. The recognition that the environment is the single largest attribute that keeps society and economies functioning may move from a third-level priority to front and center along with society and economy. The belief in never-ending growth and prioritization of profit as prime metrics may decline. Sustainability would no longer be a stand-alone concept; it may dissolve into a core function of daily life, prompted by necessity, or perhaps recognition that current models and metrics leave much to be desired.

Gross domestic product (GDP) was intended as an indicator of shortterm economic output, but is instead used as a barometer of economic health and social progress. It was not intended for this broader use, and it tends to rise with household debt, crime, family breakdown, and commuting time and “increases with the depreciation of machinery and the extraction of fine minerals, while failing to reflect the long-term contributions of education, research, and entrepreneurship.”¹⁹

Attention may swing from growth to development, from market share, margins, and short-term profits to a stronger focus on resource conservation and restoration, better access to livelihoods and living wages, healthcare, education, community well-being, civic participation, leisure time, and other metrics, such as those in the Genuine Progress Indicator (GPI),²⁰ an alternative to GDP. The GPI views economic activity as a means to economic welfare, meaning the level of satisfaction and utility derived from consumption and other human pursuits.

Economic welfare is incorporated into the metric as the ends to achieve, versus the economic activity that GDP measures, which is only a means, not an effective measure of ends. The GPI also factors in the costs of common resources and conditions, such as unemployment, crime, commuting, a variety of types of pollution and emissions, loss of resource base such as wetlands, forest cover, and non-renewable resources.

Another index that has been proposed as a GDP alternative is the Social Progress Index (SPI),²¹ a set of 52 indicators divided into three dimensions:

• Basic human needs, such as personal safety, sanitation, shelter, adequate nutrition, basic medical care, potable water, clean air
• Foundations of well-being, including literacy and access to primary and secondary education, ecosystem stability, and health and wellness
• Opportunity, such as personal rights and freedom, equity, inclusion, and access to higher education

Developed jointly by Michael Porter, a well-known Harvard professor, working with the Social Progress Imperative, an organization whose mission is to advance global human well-being, the SPI is based on studies that have found a high correlation between a variety of social indicators and economic growth.

Porter has authored some seminal work on sustainability issues in business management with his coauthor Mark Kramer, including recent work on creating shared value, a concept created to contrast with corporate social responsibility. Shared value is about improving societal issues with a business model, using enterprise opportunity to address those issues, versus the CSR model which focuses more distinctly on the organization itself and reducing its risks. The concept implicitly recognizes the interdependency of the health of both business and society, of corporations and their communities. Shared value is social enterprise, what these authors call “inclusive business strategy.”²²

Other indices positioned as GDP alternatives include Gross National Happiness, the Human Development Index, and Ecological Footprint, all of which integrate a more systemic perspective on measurement. While these indicators may be policy level metrics, through media coverage and consumer pressure they are beginning to influence business policy, models, and strategy.

In Conclusion

A systemic and effective approach to sustainability can be full of carrots without sticks, incentives that change the rules and shift organizational goals. One of them is the incorporation of sustainability performance criteria into executive and management compensation. Inclusion on the DJSI, on Newsweek‘s Green 500 list, or CDP’s Global 500 Leadership Index are other incentives for larger corporations.

Suppliers to retailers like Walmart and Kohl’s can also be rewarded for sustainability performance. Both retailers score suppliers, but Kohl’s includes sustainability within its Certified Vendor program: products from these vendors move through distribution centers unaudited, allowing products to reach the store shelves quicker than those of non-certified vendors.

Clearly, the need for integrating sustainability and a systems mindset into business models, processes, and practices presents some challenges, but each is accompanied by an advantage. Together, they prompt leaders to take the actions necessary to maintain and improve quality of life, rethink current business-as-usual paradigms, and drive innovation. These chapters have presented a convincing set of arguments about the need, urgency, and imminent requirement for these changes, as well as many value propositions and opportunities inherent in these trends.

Sustainability may mean having to address a future where much of what has supported past success is no longer available or dependable, is impacted by radically different patterns of consumption and demand, or is constrained by ever increasing competition. The level and scope of required change will touch every aspect of commerce as a whole, as well as each and every business organization.

It is likely that change will occur gradually and on a scale that no one firm or even industry can tackle individually—yet exist in an environment where no common ground of understanding or priority can be assumed. A systems perspective guides the leadership function as a driver of complex interactions and relationships toward a sustainable organization and delivers great value to shareholders and stakeholders alike.