Deriving real benefit from sustainability strategies

Carried out by the Economist Intelligence Unit (EIU), A Review of Corporate Sustainability in 2010 reveals a clear increase in the numbers of companies with active programs. A similar survey released in February 2008, showed that at that stage, just over half of respondents had a sustainability strategy in place. Early results from the survey of 378 large and medium-sized companies spread across 61 countries show that 62% already have an active sustainability program in place, and 11% are currently developing one.

Reasons for adoption

Among the reasons for adopting these programs, pressure from regulators and a rising concern over the potential for brand and reputational damage featured strongly in companies' early thinking. But many respondents reported rising support for sustainability on operational and commercial grounds once the practical benefits were realised.

The findings reflect developments in sustainability in South Africa. "These findings are in keeping with a trend that is emerging here," says Shireen Naidoo, director of KPMG's Climate Change and Sustainability practice. "The firm has seen an increasing number of requests from companies in recent months to have their carbon emissions independently assured. These requests point to the need for companies to have accurate information out in the public domain, as well as to use as a baseline for setting reduction targets. They are also an indicator that companies are embracing sustainability issues largely because it makes business sense."

Benefits in bottom line

Overall, 61% of those with sustainability programs found that, despite an initial increase in investment, the benefits clearly outweighed the drawbacks. This rose to 72% among the very largest companies, with revenues above US$5 billion.

Benefits identified included significant reductions in energy costs, improved relationships with customers and suppliers, and more efficient use of resources, especially water. Some have found that a focus on sustainability has stimulated innovation in their companies, leading to new product lines and opening up new markets.

One respondent with a long-running sustainability program reported payback of US$1.50 to $2.00 for every $1.00 spent.

"The demand and preference for sustainable business processes is becoming part of the business environment," said Yvo de Boer, former executive secretary of the United Nations Framework Convention on Climate Change and now a special adviser to KPMG's Climate Change and Sustainability practice.

Businesses may initially react to this in the same way that they will react to any other signal from their markets. But once they begin to look at their operations through the lens of sustainability, most find that the commercial benefits are obvious and the sustainability agenda takes on a life of its own."

Challenge in measuring

However, there remain challenges to overcome. A major issue among companies which have adopted sustainable practices is how to measure their effectiveness and report to stakeholders on progress.

In the South African case, "Investors have emerged as a key group in motivating change in the businesses within which they have an interest, says Naidoo. The CDP (Carbon Disclosure Project) process helps deliver on these changes. The CDP report is an excellent resource about entities and their progress on climate change matters. The progress that a number of these entities have made will challenge and inspire others. Investors may also obtain insight into entities that are today already addressing how they manage their sustainability pressures."

Despite this encouraging development, companies "need help in assessment and evaluation of their programs, benchmarking against emerging industry standards, verification of the quality of their information systems and guidance on how to take commercial advantage of the incentives on offer from governments," Naidoo says.

On reporting, the study reveals that 38% of respondents have no plans to report on their sustainability performance. Reasons given include a lack of good data and benchmarks, combined with scepticism among stakeholders about the worth of these reports.

Call for government regulation

Asked what action they would like to see from governments, two thirds of respondents said that a successor to the Kyoto Protocol is 'very important' or 'critical'. A majority of those actively involved in lobbying their governments over climate change said that they are pressing for tougher regulation, preferably on an international basis.

This might seem counterintuitive, given that 46% thought that a global climate accord would add to their regulatory burden, and 41% said it would add to their operating costs. But for many companies it is not the fact of regulation that is a problem, it is the uncertainty of not knowing what regulation may appear in future.

"Companies believe that more regulation on carbon will come, and they want it sooner rather than later so that they can adapt and comply," said Naidoo. "The clear message from business to governments and officials at COP16 is 'Give us a solid regulatory framework for sustainable business growth, and we will deliver it'."