In October, sustainability consultant and former federal Green Party leader Jim Harris presented the business case for sustainability to delegates of the CIMA Canada Conference 2012. Mr. Harris put forward the argument that sustainable business practices weren’t just a matter of ethics, but also tools for cost reduction and profitability, citing several studies and examples that proved his thesis. However, he also noted that few organizations have adopted sustainability practices because the issue simply isn’t on their radar. He recently spoke with the Financial Post’s Dan Ovsey about why he believes this to be true and what he sees as the biggest barriers to sustainability. Following is an edited transcript of their conversation.
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.
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).
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?
“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.
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.
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.
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.
Many Canadians are trying to do more with less during this economy of thrift. But we all face essential expenses — those costs associated with “keeping the lights on” — often, literally.
Whether you’re managing a household or a large corporation, energy — that stuff that enables your car to move from one place to another, keeps your beer cold and your shower hot — is generally regarded as an essential expense. Sure, you could drink warm beer and take cold showers; but really? There’s got to be a better way.
During a poor economy, it can be a challenge for a business to increase profitability as competition for the “cautious consumer” intensifies and there is increasing pressure on margins. But a recession offers the perfect opportunity to question the way things have always been done — and drive out waste and inefficiency. One of Jim’s favourite slogans is: “a crisis is a terrible thing to waste.”
While most are cautiously optimistic about the North American economy today, it was a different story in the latter half of 2008 when Canadian Tire launched its Business Sustainability Strategy with an aspiration to profitably grow the business without increasing energy use or contributing to an increase in the carbon footprint of the economy.
And the company has been somewhat successful: energy and fuel used to move product from vendors to stores is nine per cent lower, despite a 22 per cent increase in tonne-km of product shipped. And energy use for buildings and operations has been cut nine per cent despite more than a nine per cent increase in the amount of real estate square footage.
So sustainability cut costs and mitigated risk against rising energy prices. So how did Canadian Tire achieve this?
The first step was insight and political will. Business leaders need to view sustainability as a way of driving out waste and inefficiency — and a strategic tool in engaging employees and suppliers in transforming operations.
Second was measuring the energy and carbon footprint of the business and its supply chain — after all, what gets measured gets managed. This quickly identified two core operational functions responsible for most of the energy use: heating, lighting and cooling over 34-million square feet of retail space, and moving billions of dollars worth of product from over 50 countries from all over the world to a store near you.
The third step was to recognize that innovation is a social process. Employees formed “sustainable innovation networks” around buildings and operations, product transportation, and products and packaging, bringing together people from Corporate Strategy, Marketing, Merchandizing, Packaging, Real Estate, Supply Chain, Strategic Sourcing and Transportation.
These teams broke through their traditional silos to examine and optimize the systems that are Canadian Tire’s extended value chain, identifying inefficiency and waste. They brainstormed what more streamlined, energy efficient operations would look like in three, five and 10 years. And then the teams brainstormed the projects and initiatives that would get them there.
With the path revealed, they began their journey and started reporting progress quarterly and measuring economic and environmental benefits.
Three years and more than 1,350 business sustainability projects later, the energy use of Canadian Tire’s operations have become significantly more efficient. The amount of energy used to transport a tonne of product one kilometre has decreased by more than 26 per cent, and the amount of energy used to heat, light and cool a single square foot of real estate has decreased by 18 per cent.
That’s like having more cold beer at a lower cost while doing your part for the environment — it’s a win-win-win — or, for Canadian Tire, it’s the equivalent of realizing the net profit of three and a half additional stores without actually having to build and operate them.
So sustainability is a strategy that business should be pursuing, especially in a recessionary market.
It is surprising just how big is the “sustainability” opportunity is.
In just the energy efficiency (EE) field McKinsey & Company estimates that $2 trillion can be invested in EE by 2020 with an internal rate of return (IRR) of 17 per cent. To put that into perspective: that rate of return is better than investing in the stock market or in real estate over the long-term — the two investments we’re always told give the best long-term returns.
The net effect would be equivalent to cutting the need for 64 million barrels of oil a day — about one and a half times today’s entire U.S. consumption.
Decades of experience have shown that environmental initiatives pursued in isolation of the economic benefit are largely immaterial. But when environmental objectives are framed as business strategy and tied to business operations and measured in terms of cutting cost and increasing profitability — significant environmental benefits are generated. And so we believe that environmentalism can save business, as the more powerful engagement tool that business has at its disposal to drive innovation.
This is the first of a series of weekly columns to be published on Tuesday by Tyler Elm and Jim Harris on how sustainability as strategy cuts cost, raises revenue and mitigates risk for business.
Ever since Rachel Carson’s groundbreaking Silent Spring was published in 1962, environmentalists have been trying to save the planet. While there has been progress, overall the efforts have clearly failed, because the planet is in worse shape today than 50 years ago. We need not document the litany of damage here.
Decades of experience have shown that environmental initiatives pursued in isolation of the economic benefit are largely immaterial.
But when environmental objectives are framed as business strategy and tied to business operations and measured in terms of cutting cost and increasing profitability — significant environmental benefits are generated. Sustainability then garners executive focus and corporate resources. Companies like General Electric, Interface Carpet and Canadian Tire have realized the profound bottom-line benefit that pursuing sustainability as strategy yields.
In the early 2000’s a number of environmentalists were feeling the futility of the environmental movement’s historic approach to business. In 2004, this led Adam Werbach, then president of the Sierra Club — the largest US environmental group, to proclaim that traditional environmentalism was ineffective, outdated and dead. In a grist.org interview, following his speech called the “Death of Environmentalism” Werbach noted:
“Perhaps during the many battles between environmentalists and business people we have been asking the wrong question all these years. As generally proposed, the question is: ‘How do we save the environment?’ As ridiculous as it may sound to both sides, the question may be ‘how do we save business?’ When you look at the environmental movement, at the great ecological challenges that the planet is faced with, that humanity is faced with, environmentalism has proven utterly incapable of addressing them. The reason we called for environmentalism’s death is so that we could call for a new movement… (one) that can address these challenges.”
And it wasn’t just Werbach that was feeling this — but he captured the zeitgeist of the time. As a result, environmentalists in greater number began working with businesses to prove that going green has incredible bottom-line benefits. This is a fortunate trend for environmentalism and business.
Sustainability as strategy is a rallying cry for driving out waste and inefficiency. It is a powerful tool for engaging employees and suppliers in an innovation strategy drive to both incremental and radical improvements in operations while managing risk. In the two year period of 2010 and 2011, sustainability initiatives saved Canadian Tire approximately $10.7 million in annual avoided costs; 215,000 gigajoules (GJ) of energy (enough to power more than 2,000 homes for a year); 14,000 tonnes of greenhouse gas emissions and more than 6,600 pounds of waste.(LINK)
Just how much potential savings could sustainability generate for corporations and society? Amory Lovins, the founder of the Rocky Mountain Institute, has documented how using best available existing technology we could reduce current energy use in North American by 70 per cent to 90 per cent without changing our current lifestyle!
Like many large, established companies, growing from a single Toronto location in 1922 to the national retailer and brand management company, Canadian Tire, required specialization of business by functions — such as strategic sourcing, merchandizing, marketing, transportation, and the operation of distribution centres and stores.
While enabling the business to scale, the unintended consequence of this organizational structure is that individual functions optimize around an increasingly narrow core purpose, leading to the erosion of a system-wide perspective of the enterprise level. As silos evolve, business decisions in one area may be undertaken without the insight into the unintentional effects on other areas.
Sustainability as strategy forces siloed departments to work cooperatively to both define opportunities and devise solutions. Businesses that are using sustainability as strategy are realizing that it is the most powerful tool for driving cooperation and innovation in the organization.
The result: rethinking business activities, redefining peoples’ roles, responsibilities, measurement and incentives. The experience at Canadian Tire of pursuing sustainability as a strategy has been organizational innovation, while generating millions of dollars cost avoidance, new sources of revenue, and thousands of tonnes of avoided waste and greenhouse gas emissions.
Why CSR is Not the Answer
Today, many companies are focused on Corporate Social Responsibility (CSR). As we often see it practiced, CSR is about reporting the company’s activities. As a reporting function, CSR has little, if any, power to transform the organization. If we were cynical, we might say that many CSR activities are nothing more than a public relations initiative.
What excites us is sustainability as strategy. By dramatically reducing energy use — electricity, natural gas and fuel — companies not only cut costs, but mitigate risk against rising energy prices, and raise revenue from new products and services
Management literature has shown that the majority of change initiatives fail. But sustainability engages the hearts, minds and motivation of employees and suppliers and can become a truly transformative driver. It can drive innovation and create new business value. And tip the balance to ensure success of the change initiative.
When looking at sustainability as strategy you ask fundamentally different questions than looking at sustainability in the framework of CSR. The former focuses business performance, organizational transformation — looking at roles, incentives, re-engineering operational processes, and creating change through the whole supply chain — while the latter focuses on reporting.
And so we believe that environmentalism can save business, as the more powerful engagement tool that business has at its disposal to drive innovation.
Some executives believe the myth that going green is expensive—and I don’t blame them. When Conservative MP John Baird was Environment Minister, he told a 2007 Canadian Senate hearing that meeting our Kyoto goals would manufacture a recession. I ran into John in Toronto shortly thereafter and asked if he’d seen the just-released McKinsey & Company study showing that 40 per cent of the CO2 we have to cut in North America to meet our Kyoto goals would be highly profitable, and if society invested those profits in the next lowest-cost solutions, we’d get all the way to achieving the Kyoto targets at no cost to society.
He hadn’t seen the study and wasn’t interested when I offered to send it to him.
My latest column in Green Building and Sustainable Strategies (Spring 2012) is focused on the plan Sears implemented, as well as the astounding savings they have received, it truly is a plan more stores and companies must take on.
Please find my column at http://bit.ly/JCjDb8 pg 32