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The Time Has Come to Embrace Sustainability

By Louis M. Thompson, Jr., Compliance Week Columnist — June 16, 2009

Corporate sustainability is here to stay. The real question is how long will it take for the C-suite and boards of directors to adopt a business approach that goes well beyond traditional means of creating and developing corporate value.

My last column addressed the issue of shareholder value in terms of how the long-held focus on short-term financial results has inhibited corporate leaders from concentrating on initiatives that develop the long-term value of the company as a socially responsible business entity.

Corporate sustainability is a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental, and social developments. As a concept, it is more expansive than corporate social responsibility and it springs from two key sources: The Brundtland Commission Report “Our Common Future,” and The Triple Bottom Line by Andrew Savitz and Karl Weber. Both essentially say that business goals are inseparable from the societies and the environment in which they operate.

The increasing calls from investors and society for companies to engage in corporate sustainability goals and practices comes at a time when increasing scarcity of natural resources, rising energy costs, climate change, quality of life, and competition from emerging economies are issues related to corporate survivability. And it comes at a time when a commitment to sustainability is a cost factor whose short-term benefits, weighed against other pressing bottom-line factors, can cause corporate leaders to say, “Not now. Later.”

A 2008 study by the Vandiver Group, a strategic communications firm, shows that CEOs are the primary drivers of sustainability decisions, yet their communications and public affairs managers are rarely involved in those decisions. Other survey results showed:

  • More than 65 percent of companies did not have staff dedicated to sustainability;
  • Of those, fewer than half had more than five employees working more than half-time on sustainability;
  • ·mproving perception of the company was rated higher than increasing revenue from sustainability programs; and
  • Half had less than $50,000 allocated annually to sustainability programs; only 10 percent allocated more than that.

A recent report from the Grocery Manufacturers Association and PricewaterhouseCoopers, however, shows that companies employing sustainability practices generally experience higher gross margins and return on sales, higher return on assets, and stronger cash flow and rising shareholder return compared to their peers. A Natural Marketing Institute study cites General Electric’s Ecomagination campaign as an example of where selling green products can produce substantial bottom-line results.

Obviously, a few corporate leaders and their boards have made a staffing and financial commitment to execute sustainability efforts. Let’s look at one example that sustainability supporters say is a good model to follow.

SAP is one of the largest business-software makers in the world. It operates in more than 120 countries and has 75,000 customers worldwide, so it has the reach and resources to implement sustainable practices thoughtfully. And it does.

SAP employs online social-media tools to encourage collaboration between its stakeholders—a process requiring both transparency and engagement. The company has a long history of taking initiatives in education, transparency, and governance when working with customers, governments, and non-governmental organizations, around the world. It has been recognized by the FTSE4Good and the Dow Jones Sustainability Index, and is included in the Global 100 Most Sustainable companies that rates companies for their social, environmental, and strategic governance issues.

The 2008 sustainability report, published in May, includes a letter to stakeholders from CEO Leo Apotheker. He describes SAP’s long-term strategic commitment to sustainability and calls for a “reset world” where “enlightened businesses optimize resources at every stage of the lifecycle, manage (and not just account for) carbon emissions, customers, and partners in these efforts. We are truly excited about the challenges posed by this new world, both meeting them ourselves and giving our customers the tools and the technologies they need to do the same.”

Clearly, this requires a major commitment of resources, well beyond the $50,000 cited in one of the previous surveys. Moreover, it requires a new way of thinking on the part of top managers and boards. It would be interesting to look at our business schools to see to what extent corporate sustainability is part of today’s curriculum. My guess is not much. There is an educational need to change the way our future corporate leaders think in this regard.

Talking It Up

What I find disconcerting are the surveys that note how much corporate communications and investor relations executives are out of the loop in developing and communicating their company’s sustainability efforts. Apotheker notes in his stakeholder letter the impact of sustainability on brand and reputation. Aren’t corporate communications executives keepers of their companies’ brand and reputation? What’s the disconnect?

I have a hunch that corporate communications and investor relations officers are merely responding to what they sense their audiences want, as opposed to taking the initiative to help build a sustainability program for the long-term benefit of their business enterprise operating in a global environment. One can see, for example, more and more mining companies are initiating sustainability programs because they recognize that resources are becoming increasingly difficult to find and they are operating in countries where they have to have permission to extract those resources.

What can CEOs, boards of directors, and their corporate and investor communications people do to learn what sustainability is about and how it impacts the long-term value of their companies?

  1. Start with self-study. Go to corporate Websites that produce a sustainability report. The 2008 SAP report http://sapsustainabilityreport.com/solutions is a good place to start. The report begins with SAP’s sustainability priorities followed by the “sustainability map” that takes you through the sustainability solutions, a discussion of the company’s performance, the Governance Reporting Index, the CEO’s letter to stakeholders, KPMG Sustainability’s assurance stating that the information in the report is fairly stated and the recognition for its sustainability performance by the FTSE4Good, Dow Jones Sustainability Index, Global Challenges Index, and the Global 100.
  2. Other good examples of corporate sustainability reports are out there too. The Ford Motor Co. report is a good read, especially for a company that is moving forward on this front while undergoing severe financial stress.
  3. Trade organizations, particularly those representing industry sectors where sustainability programs are much needed, should pursue educational and advocacy efforts urging their member CEOs to adopt such programs.
  4. Read the Business Roundtable’s 2009 Progress Report on Sustainability, “Enhancing Our Commitment to a Sustainable Future.”
  5. Professional associations representing corporate communications and investor relations should address their role in educating their members on their roles in sustainability programs.
  6. Compliance Week’s own coverage of sustainability is expanding from the high-level conceptual questions to nuts-and-bolts matters like how to comply with the numerous tax credits available for sustainable business efforts.

There is much to learn about sustainability and much to benefit from it. Smart companies are going there with a high level of commitment. Others will surely follow if they want to be successful business enterprises operating in a global environment where competitors are pursuing sustainability programs.

About the Author

Louis Thompson Jr., a partner with Beacon Advisors, Inc., is an internationally recognized expert on corporate governance and disclosure, having served for more than two decades as president and chief executive officer of the National Investor Relations Institute until his retirement in 2007. An adviser to the Securities and Exchange Commission and the New York Stock Exchange, Thompson is currently serving a second term on the NYSE Individual Investor Advisory Committee.

Prior to joining NIRI, Thompson was assistant White House press secretary to President Gerald Ford.

A veteran of the U.S. Command in Vietnam and the Office of the Secretary of Defense, Thompson has held executive communications positions for a number of organizations, including the American Enterprise Institute for Public Policy Research, and he served on the board of directors for the National Council for Economic Education.

A former journalist and news anchor, Thompson remains chairman of the advisory council for the Greenlee School of Journalism and Communication at Iowa State University, where he was the 2001 recipient of the James W. Schwartz Award for Distinguished Service in Journalism and Communication conferred by the Greenlee School.

Thompson is a former member of the Harvard University New Foundations Working Group on corporate governance.

Now a member of the board of directors at Hanley & Associates, a consulting firm that provides management access to institutions through non-deal roadshows, Thompson can be reached at lthompson@complianceweek.com.

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