Jim Harris

Canadian Tire

How Much Can Business Influence the Environment?

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Our first blog, How Sustainability Can Save Business, reframes the common purpose of traditional Corporate Social Responsibility (CSR) practitioners — that of “saving the environment.” Our premise: Given the social and economic frameworks and institutions of our society, more can be accomplished (and faster) by viewing sustainability as an economic opportunity relevant to business, compared to viewing it as an environmental initiative in isolation of business. Therefore the goal of “saving the environment” may be more appropriately framed as “saving business.”

Our perspective is pragmatic; that the worthy purpose of “saving the environment” is destined to be ineffectual, and at best immaterial, if environmental initiatives are pursued in isolation of the economic engines and structures of our society — that is, capitalism, business, government and the active participation of other organizations and individuals within this framework. It is within this framework that companies are applying a central guiding principle to their business sustainability strategies — “derive economic benefits from improved environmental and social outcomes.” Why? Because it delivers results.

We do not argue the desired outcome of healthy people and a healthy planet, and an economic framework that includes a broader social purpose. Indeed, we align on these values. After all, Jim was leader of the Green Party of Canada and Tyler used to earn his living as a conservation biologist in the forests of British Columbia, Alaska and the Northwest Territories.

It’s just that we don’t really think we have time to wait for traditional approaches to environmentalism to be successful. Similarly, we do not argue the value of traditional environmentalism and the vital role it continues to play within our society; rather, we simply note that traditional approaches to environmental objectives have failed to deliver results at the scale that’s required and in the time frame that’s required. In short, traditional environmental methods have not been successful enough, fast enough.

During the interim, some businesses have demonstrated that they can implement and scale the environmental benefits far better traditional approaches to “saving the environment” while also delivering shareholder value. For example, Canadian Tire estimates that they have accumulated an annual benefit stream of approximately $25 million in cost avoidance since launching its Business Sustainability Strategy in 2008 and reduced its transportation and real estate greenhouse gas footprint by 9 per cent while actually growing — increasing their tonne-km of product shipped by 22.5 per cent and the amount of real estate area by 9 per cent!

This applied eco-capitalism favours free market principles to achieve environmental objectives. Which is convenient, since business will find itself in an economic context in which sustainability issues will increasingly influence financial performance and global trade.

As such, our observation is this — for profit seeking companies, sustainability is most successfully employed as a strategic framework for innovation, value creation, employee engagement and organizational improvement — while generating environmental benefits. What’s excites us most about this approach, is that it would appear that Canadian business also shares this view.

Companies are informed and engaged; some even track, manage and mitigate their GHG emissions with internal rates of return (IRRs) at multiples of the cost of capital. And some incorporate internal carbon pricing into management discussions and decision-making. Many have discovered that business sustainability issues are production issues, supply chain issues, marketing, sales and customer issues, and post-consumer use issues. In short, they are economic issues in addition to being environmental issues, and we say, engage them as such.

As we noted previously, the Canadian Council of Chief Executives (CCCE) has urged Canada for a “national approach to climate policy and carbon pricing” in a policy paper — Clean Growth 2.0: How Canada can be a Leader in Energy and Environmental Innovation — highlighting how Canada can build a more competitive economy and a more sustainable society while ensuring adequate public finances to fund Canadian’s way of life.

Most recently, Perrin Beatty, the president of the Canadian Chamber of Commerce, has echoed this opportunity in a policy paper on strategic partnerships among Canada and Mexico, noting that carbon pricing is an area that may be ripe for bilateral Canada-Mexico collaboration. It is interesting to note that Beatty served as a Member of Parliament for the Progressive Conservative Party of Canada for 20 years (1972-1993) and served as a Cabinet Minister.

Change is afoot. The environmental community knows it; the business community knows it. All we need is for Canada’s government to know it — to recognize the opportunity and collaborate with business and the rest of society to build the policy framework that will enable us to participate in the greatest entrepreneurial imperative of our time, the creation of economic benefits from social and environmental leadership.

Which brings us to the original question: Will business influence Canada’s approach to environmental issues? We think they already are. And perhaps the question should be: How successful will business be in influencing Canada’s approach to environmental issues?

We are going to take some time over the holidays. So all the best for the holidays and Happy New Year to all our readers. Thank you so much for your support, feedback, and getting the word out about this blog! So this will be our last blog for 2012. When we return in 2013, we’ll continue to highlight how Canadian business is innovating from the inside out to begin to address many social and environmental issues.

Original Article

Why CFO’s Need to Care About Sustainability Now

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Chief Financial Officers (CFOs) and Chief Operating Officers (COOs) are increasingly accountable for sustainability. A study by Deloitte — Sustainability: CFOs are coming to the table — found their accountability for sustainability had jumped sharply during the last year. In 2012, 26 per cent of CFOs were responsible to the board for their firm’s sustainability strategy, up from 17 per cent in 2011. Similarly, for COOs it was 10 per cent in 2012, up from 3 per cent in 2011. Further, 53 per cent of CFOs said their involvement had increased in the last year, with 61 per cent noting they expected it to increase over the next two years.

The increasing relevance of business sustainability to financial performance and shareholder value was also highlighted in a recent study by the Chartered Accountants of Canada (CAC) — Sustainability: Environmental and Social Issues Briefing, which noted that “key environmental issues, stakeholder trust and relationships and an evolving environmental and social legal and regulatory landscape are interconnected and impact strategy for competitiveness, risk and resilience.”

The report draws attention to the many environmental and social issues of relevance to directors in discharging their oversight responsibilities, including strategy, risk and risk oversight, financial performance, external reporting, and the reliability of reported information.

When Canadian Tire began reporting its environmental footprint and the results of its business sustainability strategy in its core financial documents in Q3 2010, Marco Marrone was the Corporation’s CFO. (He is now COO of Canadian Tire Retail.) Rather than issue a separate corporate social responsibility report communicating its environmental footprint, annual productivity gains and reductions in GHG emissions and waste, Marrone oversaw the transfer of business sustainability measurement and accounting from the Business Sustainability function to the Finance and Accounting function, along with adding the associated due diligence of the Corporation’s CEO-CFO Certification Process. This enabled the Corporation to build upon the measurement of business sustainability performance in its operating plans, and integrate sustainability into its public quarterly financial reporting. There are a number of reasons:

“When you report measures, you don’t want people to question the measures,” says Marrone. “So we embedded sustainability measures into our external reporting for two reasons: it is great to provide the external world with updates on our sustainability programs; but putting the numbers through the rigor of our certifications process for external reporting is extremely important. Those numbers have to go before our audit committee.”

This is becoming increasingly more important as some academics are questioning the validity of sustainability reporting that is not put through the rigor of the audit process.

Embedding sustainability in a company’s financial DNA enables executives to communicate business sustainability issues, strategy and results with confidence to the board, while also signaling to every manager that sustainability is measured on the profit and loss statements of the organization. And as the saying goes, what is measured is managed.

An Ernst & Young study — Bottom-line benefits of sustainable business practices— looked at some of the drivers for the CFO’s involvement in sustainability. First was managing risks (56.9 per cent); second was cost reduction (52.3 per cent); then stakeholder expectations (47.4 per cent), revenue generation (38.3 per cent) and finally government regulation (33.5 per cent).

Managing Risk

As Marrone notes: “We’ve looked at what would happen in a carbon-constrained economy. At a cost of $30 per tonne, in many cases, the impact to the cost of goods sold could be in the low single-digit percentages. However in some product categories, the cost of goods sold could be 30 per cent or 40 per cent higher. The modeling has allowed us to quantify carbon price-risk in these categories and identify how we can take energy and carbon out of the equation. That’s how we are working to manage risk.”

Indeed, there are numerous benefits to placing a shadow price on carbon and examining the impacts on your business competitiveness.

Managing Costs & Regulatory Change

Sustainability is a powerful lens through which to look at your business and supply chain, drive out waste and inefficiency, and address the changing environmental and social regulatory landscape. It is also a powerful tool to engage employees and suppliers in that effort. For instance, package rightsizing initiatives have saved Canadian Tire millions of dollars in operational costs while mitigating the increasing regulatory costs of extended producer responsibility legislation across Canada.

Meeting Stakeholder Expectations

The CAC report noted above also emphasizes that understanding how business sustainability issues affect stakeholders and their expectations can be an important source of insight for management, helping to identify opportunity and risk, with positive relationships contributing to trust, which is essential for competitiveness and resilience.

For example, a staggering 92 per cent of graduating MBAs want to work for a socially responsible company, according to a 2007 MonsterTRAK.com survey. This is becoming increasingly important to Canadian retailers as more and more foreign retailers enter Canada and compete for talent and market share.

Friedman’s edict — that “the business of business is business,” and the creation of shareholder profit, its fundamental mandate — is just as true now as it ever was. Yet what has changed is the context within which business operates, and thus how one interprets and applies this edict.

In 2022, Canadian Tire will celebrate its 100th year in business. The competitive forces acting upon it continue to change; they are fundamentally different today compared to 1922, and they will be different yet again in 2022. And so, executives and directors should not be surprised by shifts in business criteria, scope of considerations and sources of value, or changes in the business activities required to deliver a winning value proposition. After all, in the broadest sense, is not the management of such considerations at the root of a business’s sustainability?

Original Article

Why Culture Eats Strategy for Breakfast

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“Culture eats strategy for breakfast, every day.” This was Tyler’s response to a question during a panel session at a recent conference. The panel was discussing the challenges faced by professional managers in their efforts to implement sustainability into business.

The other challenge under discussion was about finding the appropriate balance between sharing insights and strategy with others, versus holding some things back for the competitive reasons.

Tyler’s comment was relevant to both. His point: having a strategy is one thing, but being able to implement it is entirely another. After all, the value of a strategy is not what is written on the whiteboard or the back of napkin, it is the value unleashed by engaging the minds and hearts of motivated employees and suppliers.

The key to unlocking this value is to understand and harness the corporate culture, work within its bounds and value system, while making room for new ideas. Enterprise Risk Management colleagues refer to the ability to implement a strategy (or not) as “execution risk.”

Tyler has been fortunate to have had the experience of developing and implementing business sustainability strategies over the past decade in three different, very large corporations: a $14 billion company, a $400 billion company and Canadian Tire, a $12 billion company. In every instance he had to tailor his approach to the culture’s unique value system and the process by which ideas are accepted into the community.

Making Room for New Ideas

New ideas may not easily find room to coexist with pre-existing ones: There is a natural institutional and cultural inertia that opposes new concepts that compete for acceptance within an established corporate culture. It’s like a new group of people joining a cocktail party that is already well underway. They are either accepted, adding to and changing the pre-existing dynamic — tolerated as a fringe element, talking amongst themselves in the corner of the room — or totally rejected and asked to leave.

In short, one must tailor how the building blocks of the strategy are applied so that they are accepted. This is a very difficult to achieve, particularly for new employees, or “outsiders” tasked with this agenda. And believe us, we’ve both made a few mistakes; but, we’ve also learned that it is important to push the boundaries as well. The trick is knowing when and how to do it.

During the launch of the sustainability strategy for Tyler’s previous employer (a global retailer headquartered in a “dry county” of a US state in the buckle of the Bible belt) business sustainability “milestone meetings” were held every four months for employees and key suppliers to listen and learn from external sustainability leaders, and to share employee progress and success stories.

At one meeting, Ray Anderson, the Founder of Interface carpet, was the guest speaker. [As an aside: Interface’s 15 year sustainability effort has driven $450 million to the bottom line in savings — equal to 28 per cent of the cumulative operating profit over that period.] When Ray was part way through his talk people began to walk out — right in front of the CEO, Board members, senior executives and several hundred employees and guests. Tyler was astonished and had no idea why, or how people could be so rude or have such disregard for a guest speaker.

Later, as he found out via a few blunt e-mails from some of those who had left, he learned that Ray’s use of the geological time scale and comparing it to a 24-hour clock to demonstrate how relatively little time humans had been on the planet — a few seconds on Ray’s clock — and yet had how much we had changed it, was offensive to their fundamental religious beliefs

Being Canadian and new to the US south, being an atheist and someone who had studied geology, Tyler had no idea that such ideas could be a source of friction — that there were still people who believed that the world was only several thousand years old. Who knew?

Debriefing with the CEO after the meeting, Tyler apologized for the cultural oversight. The CEO waved off Tyler’s apology and expressed his disappointment at those who had left the meeting because, as he saw it, part of the value of the business sustainability strategy was opening up one’s perspective to those of others, to listen and learn about what matters to other people and their value systems. To this very day, one of the core competencies Tyler stress’s and includes in job requirements is the ability and wiliness to:

• Raise potentially controversial issues in a manner that encourages dialogue;

• Listen to others while maintaining a wide perspective on issues; and

• Incorporate diverse views and constructive criticism, leading to improved outcomes and understanding.

You Gotta have Faith

Reflecting upon his first few months in his new context, Tyler began to see a pattern of behaviour and expression of acceptance of sustainability into the culture by employees as almost evangelical in nature. People expressed acceptance of business sustainability as they would a faith-based belief system.

It hit Tyler smack in the face when, during one of the regular Saturday morning meetings, a senior vice president stood up and declared that he was now “a believer” in sustainability and its value to business because, if it was not for the business sustainability initiative, he would not have been able to sign the deal with “The Eagles” for the retailer to be the sole distributor of their retrospective CD box set. As it turned out, it was the underlying value system of sustainability that helped the west-coast musicians relate to the executive from rural middle-America. That deal alone probably paid for the entire sustainability team’s payroll and consulting budget for the next decade.

A beer-drinking Canadian atheist in the Republican dominated dry-county in the US Bible belt, Tyler had his work cut out for him for the next business sustainability Milestone Meeting. The featured guest speaker was non-other than the former Vice President Al Gore, who was going to give his now famous An Inconvenient Truth talk and promote his movie. If some people didn’t believe the world was more than a few thousand years old, how the hell would they ever “believe in climate change” — from a democrat politician?

Remember, culture trumps strategy every time: As it turned out, the answer was to open up with a preacher as the Vice President’s warm-up act. Jim Ball, the Executive Director of the Evangelical Environmental Network, kicked off the meeting’s discussion on climate change playing to the home-town audience — talking about how climate change has repercussions for “the health of our children” and “global and domestic poverty” because it is the world’s poor that will be most affected by it.

Jim’s message was that climate change was not a political issue; rather, it is an issue of moral duty. “How we care for God’s creation is one of the greatest moral challenges of our time. And as Christians, we also know it is a challenge that cuts to the heart of how we promote and cherish life.”

After this meeting, “belief” in climate change was never an issue, and Al Gore received a standing ovation.

In closing we offer you this observation: Implementing a business sustainability strategy into any business is equal parts strategy and change management. They are intertwined and dependent. To be successful, one should use the momentum of the force that oppose change — the cultural values, practices and inertia of the business — as the conduit into the business and its operations. It’s like using a sort of cultural Judo to embed sustainability values into the business operations and its culture.

 

Original Article

A Little Less Cardboard Can Save You Millions

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Using sustainability as strategy can drive change within a company’s supply chain by engaging suppliers and service providers with the resulting savings running into the millions of dollars a year.

A case in point: one of Canadian Tire’s most popular products is a six-foot folding utility table, selling many tens-of-thousands a year. The company collaborated with its supplier on product redesign and packaging to use less raw materials to make and package the product. Now, the tables use 11 per cent less plastic in their construction and occupy 15 per cent less volume for shipping. The annual savings for Canadian Tire: more than $375,000 a year as a result of reduced material, packaging and shipping costs.

Employee Engagement

Sustainability as strategy can also engage employees. In 2010, Canadian Tire’s Senior Vice President of Merchandizing invited all the company’s buyers to the conference centre for an afternoon departmental meeting. Employees thought it was to discuss organizational restructuring. Before the start of the meeting, the conference centre was very quiet.

The goal, it turned out, was to engage buyers in a creative way — to shake things up — to facilitate some disruptive innovation on something that should have been a core element of their business activities, but at the time wasn’t.

Corporate thinking is often to execute on a perfect plan — in this case, we wanted to take buyers out of their usual, comfortable environment and see what insights could be developed by briefing them on a subject and then turning them loose in a store to see how they could apply it. We wanted our buyers to see things with new eyes.

At the conference centre the buyers learned the real purpose of the event: to gain new insight into how packaging sustainability can affect profitability and the environment. After a couple of presentations, the group boarded buses to a local Canadian Tire store where the goal was to discover examples of “stupid packaging” — examples of too much packaging, improper packaging, or even too little packaging resulting in damaged product, waste, squandered energy use, and excessive greenhouse gas emissions from shipping damaged product that can’t be sold.

The buyers identified over 3,000 examples and calculated the potential savings to the company of improving the packaging into the millions annually in cost avoidance. One of the best finds: the company sold a tool for opening plastic clamshell packaging. And guess what? The tool came in a thick plastic clamshell.

Prior to the session buyers really hadn’t seen the relevance or value of packaging to profitability. The session kicked off a disciplined, systematic focus on package right-sizing that each year results in hundreds of packaging changes and is generating more than $3 million annually in avoided costs.

In 2011 and 2010, Canadian Tire completed 320 packaging changes that saved the company $6.3 million in costs, while reducing greenhouse gas emissions by more than 4,300 tonnes each and every year the products are stocked.

Of course to sustain such an initiative requires more than just a bus trip, it also requires the systems and structures to support and foster the ongoing effort, such as good measurement, reporting — and aligned incentives — now going into a third year.

Mitigating Risk

There’s another reason for companies to focus on cutting unnecessary packaging. Extended Producer Responsibility (EPR) costs are rising dramatically. Since 2004 stewardship fees charged to companies and the associated cost of managing dozens of different EPR programs across Canada have grown at a cumulative average rate of 38 per cent.

This dramatic rise has been driven by four factors: 1) implementation of EPR legislation in provincial jurisdictions across Canada; 2) increasing rates being charged for products and packaging under EPR programs; 3) a shift of those costs from government to business, and 4) the data management, point of sale and other systems and resources required to manage them.

The cost of the Blue Box program used to be shared equally between companies and the government. But today, corporations are paying all the blue box fees. For Canadian Tire in 2008, fees alone were $8.9 million and these basically have doubled to $18.5 million in 2011. In 2008 only 4,000 products had environmental fees and this has grown almost six-fold to 23,541 at the end of 2011 with many products being attached to multiple programs in different provinces.

Fees are based on the type of material used and the weight and volume of packaging. Having a disciplined focus on packaging materials and right-sizing can decrease the fee rates applied and the volume and weight of packaging, dramatically mitigating costs and the risk of increasing EPR fees.

Of course there is a balance that needs to be achieved: packaging can’t be reduced so much that it results in higher damage rates to the goods being sold.

Rightsizing packaging also resonates with customers, as the number one complaint re sustainability from customer is excessive packaging

So using sustainability as strategy is a way of engaging employees, suppliers and service providers in a concerted effort to drive innovation within retail, to drive out waste and inefficiency, and to lower the corporate footprint and reduce the liability to extended producer fees. We believe all retailers should be aggressively pursuing sustainability as strategy.

Original Article