It Ain’t Easy Being Green
Author: Lindsay Conley
What exactly is sustainability?
According to the World Commission on Environment and Development, “Sustainability is meeting the needs of the present without compromising the ability of future generations to meet their own needs.” At the annual Smart Business Series Seminar, hosted by BKD’s Cincinnati office in May, sustainability discussions indicated that the topic is more than just going green—it’s a tool that can help a company prepare for future challenges and risks. For organizations that work with big-box retailers and other Fortune 500 companies, sustainability increasingly is part of the conversation, and while we may not have reached the point where a middle-market company loses out on opportunities, those days may be near. As a result, companies face the challenge of remaining competitive and achieving short-term profit margins while keeping up with the expectations of society, vendors and consumers.
So what exactly are we talking about? Who is affected? How does this issue play into the marketplace and business community? How can strategic leaders embrace this concept? Are there opportunities to be sustainable and still experience cost savings, healthy margins and growth? If companies tie financial success to protecting and nurturing their environment, they should be able to remain competitive while fostering a culture that will result in a long-term, sustainable business model. There are three widely discussed aspects of sustainability: environmental, social and governance.
The environmental perspective is where companies are seeing the most cost savings. Companies have taken different approaches to sustainability, from the simple idea of placing a recycling bin in the break room to building a net-zero energy facility that obtains half or more of its energy from the energy grid. Other common practices include leasing energy-efficient vehicles for employees, installing natural skylights or fluorescent lighting mechanisms, implementing passive infrared or motion detected lighting systems or reducing water usage and product packaging materials. Companies also have implemented processes to reduce waste.
This lean movement focuses on reducing wasted materials or effort during production—in some cases, companies already are moving to reduce costs on the plant floor or in their supply chain. This could spill over to companies moving away from subtractive manufacturing—starting with pieces of raw material and peeling away until the desired product is achieved—and toward additive manufacturing—using only the amount of material needed to make the product.
A common theme heard from those in sustainability roles is that these initiatives should make business sense—they should not be implemented just so a company can claim it did something good for the environment. Companies that have found the right way to implement some of these practices have experienced cost savings and a boost in employee morale, which leads into the social aspect of sustainability.
The social aspect relates to the overall standard of living and valuing of community—taking care of the community so that future generations can benefit. Companies are responsible for considering how their actions impact the overall health of society. Are employees actively engaged and supportive of the company’s goals and plans? How do employees perceive the company? How does the public perceive the company? If employees and the public are involved and respect the company, the morale of the overall workforce should help the company experience increased production and efficiencies. To some extent, younger generations tend to focus more on sustainability issues, and as these generations continue to make up more of the workforce, companies need to adapt by factoring sustainability into decision making.
Companies are implementing social sustainability by providing training and growth opportunities to employees, supporting employees who are involved in volunteer and community activities and ensuring safe work environments and fair labor practices. Even simpler ideas include providing bicycles at work for employees to use during lunch breaks or placing more windows in the workspace to allow for natural lighting. These practices show companies are investing in the future of their employees and their society.
The final area to consider is governance. A key factor in implementing a successful sustainability policy is to have those charged with governance—including management, outside advisors and owners—on board. The individuals responsible for the company's long-term goals and strategies should consider managing the business with a long-term view. As tough as it may be in some situations, management’s budgeting process should look well beyond the typical 12-month forecast to factor long-term impacts into the strategic decision-making process. This also could come into play if the company is for sale or will consider selling in the future. A potential buyer may place more value on a company that has a strong culture of surviving, has processes in place to reduce waste and environmental impact and has a governance process that analyzes potential risks to the company and formulates a plan to mitigate those risks.
Sustainability is not just about being green. It’s being aware of your surroundings and the effect your decisions have not only on the company and its shareholders but also on the community and future generations. Take a step back and think about what you're doing in your space and where you have opportunities to do more. To preserve a company and maintain a viable business for the foreseeable future, leaders need to start looking ahead and planning for the long term. It is important to be realistic and remember that sustainability is a process that will need long-term thinking but can produce major results.
To learn more, contact your BKD advisor.