Management magnified sustainability and corporate growth

Management magnified Sustainability and corporate growth A report from the Economist Intelligence Unit Sponsored by SAS Management magnified Sustainability and corporate growth Preface Management magnified: Sustainability and corporate growth is the third in a series of three reports written by the Economist Intelligence Unit and sponsored by SAS The first report, Management magnified: Getting ahead in a recession by making better decisions, was published in August, and the second report, Management magnified: Strategies for revenue growth in an economic downturn, was published in September The quantitative findings presented in this report come from a global online survey of 183 respondents—79 of whom are board members or C-level executives—conducted by the Economist Intelligence Unit in August and September 2009 The survey asked respondents about the importance of sustainability to corporate strategy The findings and views expressed not necessarily reflect those of the sponsor The Economist Intelligence Unit’s editorial team executed the survey and wrote the report Kim Andreasson was the editor and project manager Dr Paul Kielstra was the author Mike Kenny was responsible for the design of the report Our thanks are due to all survey respondents for their time and insight November 2009 © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Management magnified: Sustainability and corporate growth A s the link between sustainability and corporate growth is typically indirect and intangible, sceptics often dismiss initiatives in this area as window dressing But in the survey conducted for this report, executives counter the criticism Seventy-eight percent of respondents say sustainability initiatives are very or somewhat important to their current business strategy Eighty-seven percent see them as very or somewhat important to future growth plans and the same number expect them to be very or somewhat important in five years’ time Respondents, who represent a wide variety of industries and a broad range of functions, say they spend 22% of their working time, on average, integrating sustainability initiatives into business strategy, a sizeable investment Yet a significant number of organisations not devote sufficient resources to sustainability Thirtythree percent of those surveyed say their companies not enough to integrate sustainability initiatives into strategy An equal number of respondents (45%) say their organisation does not spend enough of its budget on sustainability initiatives as those who say they (45%) Window dressing? Before the economic downturn of 2008-09, almost every company seemed to stress its credentials as a socially responsible organisation, where environmental and social bottom lines mattered as much as the financial one The business case for this thinking was, and remains, that these three areas not About the survey In order to assess the importance of sustainability to corporate strategy, the Economist Intelligence Unit conducted a global online survey in August and September 2009 Of the 183 respondents to the survey, 79 describe themselves as board members or C-level executives Survey takers came from around the world, led by respondents in the Asia-Pacific region (31%), Europe (26%) and North America (26%), with the rest from the Middle East and Africa (10%) and Latin America (8%) Roughly one-half (51%) work for companies with global annual revenue exceeding US$1bn Respondents represented a wide variety of industries, led by financial services (20%), professional services (13%), energy and natural resources (9%), and healthcare, pharmaceuticals and biotechnology (9%) Respondents also came from a broad range of functions, including strategy and business development (43%), general management (39%) and finance (25%) © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth require trade-offs but are mutually reinforcing As Stan Litow, vice-president for corporate citizenship and corporate affairs at IBM, has explained: “If corporate citizenship were a frill and had no clear benefit, it ought not survive in any economic climate, good or bad But if it is viewed as something tied to business strategy with a real, measurable and clear return on investment established over time, then it’s not viewed as something you can or should less of in a time of economic crises.”1 Yet perhaps as a consequence of the economic downturn, much of the business community remains unconvinced that sustainability initiatives are more than window dressing In a March 2009 survey conducted by the Economist Intelligence Unit, 67% of executives agreed that economic conditions would force environmental issues down on the corporate agenda.2 So which is it? Given the pressure on sustainability, this report looks behind the rhetoric and evaluates sustainability from a corporate growth perspective Sustainability and corporate performance Inconsistent implementation of sustainability initiatives harms businesses Survey respondents say that over the past year, poor implementation of such projects has decreased their company’s ability to execute strategy (21%) and to innovate (20%) Companies have also suffered in the past 12 months from traditional issues associated with sustainability failures, such as damage to brand (cited by 15% of respondents), increased regulatory risk (14%) and loss of market share (14%) Overall, 58% of respondents say their company has suffered at least one negative consequence to their ability to operate in the past 12 months as a result of inconsistent sustainability implementation Similarly, good performance on sustainability is accompanied by superior results elsewhere Twentyseven percent of executives surveyed rate their organisation above average in every sustainability-related category—ability to integrate initiatives into core strategy, investment in initiatives and reputation among stakeholders Members of this “sustainability leaders” group of companies report better than average results in other areas as well [see chart] Percentage of companies rating themselves much stronger than peers in select areas (% respondents) Sustainability leaders All others Financial performance 35 14 Revenue growth 33 10 Reacting to changing risks and opportunities 29 13 Source: Economist Intelligence Unit survey, September 2009 © Economist Intelligence Unit Limited 2009 Economist Intelligence Unit, Corporate citizenship: Profiting from a sustainable business, November 2008, quoted on page Economist Intelligence Unit, Countdown to Copenhagen: Government, business and the battle against climate change, March 2009 Management magnified Sustainability and corporate growth Sustainability isn’t about being nice, but seeing profits The fundamental difference between sustainability leaders and other companies is a greater conviction that business benefits will arise out of sustainability initiatives In particular, leaders believe that sustainability provides a market advantage: 43% say that it is important to customers compared with only 16% of respondents from other firms in the survey Similarly, 39% of sustainability leaders believe that sustainability can enhance revenue growth a great deal, compared with 26% from other firms The results can be impressive While many companies were performing poorly in 2008, sales of General Electric’s Ecomagination line of products, for example, rose by 21%, to US$17bn, compared with just 5.8% growth for the company as a whole Ecomagination products now represent more than 9% of total revenue In March 2009, Proctor & Gamble felt confident enough to increase its 2012 target for sales from its sustainable innovation products from US$20bn to US$50bn As a result, internal stakeholder groups at firms that are sustainability leaders are more likely to consider the issue significant [see chart] They are also more convinced of the importance of sustainability to strategy For example, 65% see them as very important to current overall strategy, compared with 34% of all others in the survey Looking ahead, 80% of sustainability leaders see these initiatives as very important to future growth, compared with 40% of all others in the survey These findings flow into the practical necessity of better performance, such as an increase in resources: 79% of sustainability leaders say that they spend enough on sustainability, compared with 32% of other companies This perspective changes the corporate drivers of sustainability According to the survey, leaders in this area most often cite brand enhancement as a leading motivation for sustainability initiatives (47%), Proportion who say stakeholder groups consider sustainability initiatives “very important” (% respondents) Sustainability leaders All others Board of directors 71 34 Senior management 57 28 Middle management 33 14 Employees 29 17 Investors 35 18 Source: Economist Intelligence Unit survey, September 2009 © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Leading motivations for sustainability initiatives (% respondents) Sustainability leaders All others Brand enhancement 47 25 Revenue growth 35 31 Cost savings 31 28 Environmental protection 31 37 Increasing profit 29 23 Opening of new markets 27 14 Public relations 27 29 External pressure from stakeholders to good 22 25 Regulatory compliance 18 23 Source: Economist Intelligence Unit survey, September 2009 followed by revenue growth (35%) and cost savings (31%) Other companies instead point first to a goal which, although laudable, is not directly related to financial performance—environmental protection (37%) Overall, matters that relate to the bottom line are more likely to resonate as sustainability drivers with leaders than with other companies, while the reverse is true of traditional external drivers, such as regulation or outside pressure [see chart] Simply put: to be good at sustainability, companies must find the business benefits Leadership counts Leadership at all levels is essential to effective sustainability programmes at all organisations When integrating sustainability into strategy, by far the two most important keys to success are clear directives from policymakers or senior management (cited by 64% of all respondents) and the active involvement of senior management (60%) Similarly, a lack of clear mandates or objectives is the leading barrier to © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth success (cited by 37%), and a lack of interest by senior management comes in third (29%) Unsurprisingly, engagement of leadership is seen as crucial everywhere in business When it comes to sustainability, however, there appears to be a disconnect in the levels of support between various stakeholders Sustainability initiatives are very important to the boards at 44% of companies, and to senior management at 36% But these figures are much higher than those of any other stakeholder, whether inside the company—middle management (19%), employees (20%) and investors (23%)—or outside—local communities (28%), customers (23%) and suppliers (9%) This indicates that management needs to more to educate both internal and external groups on the importance of sustainability to corporate strategy © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Conclusion W hen it comes to sustainability, many companies talk a good game yet institute isolated policies that fail to resonate with managers and employees, let alone customers Still, a significant number of businesses genuinely see market opportunities from sustainability At companies deemed by respondents to be sustainability leaders, people at all levels of the organisation attach greater importance to the issue As a result, their businesses are much more likely to provide the financial resources necessary for success The data suggest that all industries stand to benefit from integrating sustainability into corporate strategy More than one-half of all companies surveyed have suffered some negative effect on their ability to operate from inconsistent implementation of sustainability initiatives And leaders in this area are more likely to outperform their peers financially The bottom line is that sustainability remains an important issue for businesses today precisely because companies have discovered that success can lead to good financial performance, no matter the economic climate © Economist Intelligence Unit Limited 2009 Appendix Survey results Management magnified Sustainability and corporate growth Appendix Survey results In your view, how important are sustainability initiatives to your company’s overall business strategy today? In your view, does your organisation enough to integrate sustainability initiatives into business strategy? (% respondents) (% respondents) Very important 43 Somewhat important 35 Neither important nor unimportant Yes 63 No 33 Don’t know 10 Somewhat unimportant Not at all important Don’t know In your view, how important are sustainability initiatives to your company’s future growth plans? In your view, does your organisation spend enough of its budget on sustainability initiatives? (% respondents) (% respondents) Very important 51 Somewhat important 36 Neither important nor unimportant Yes 45 No 45 Don’t know 10 Somewhat unimportant Not at all important Don’t know In your view, how important will sustainability initiatives be to your company years from now? (% respondents) Very important 59 Somewhat important 28 Neither important nor unimportant Somewhat unimportant Not at all important Don’t know © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Appendix Survey results What percentage of your working time is spent on integrating sustainability initiatives into business strategy? (% respondents) 22 14 13 11 3 1 1 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 How important you think your organisation’s sustainability initiatives are to the following stakeholder groups? Select one for each row (% respondents) Very important Somewhat important Neither important nor unimportant Somewhat unimportant Not at all important Don’t know Board of directors 44 35 10 Senior management 36 46 71 Middle management 19 43 24 6 Employees 20 34 27 12 Customers 23 34 29 Investors 23 36 24 7 Suppliers 29 35 11 8 Local community 28 20 © Economist Intelligence Unit Limited 2009 39 40 60 18 80 100 Appendix Survey results Management magnified Sustainability and corporate growth In your opinion, how does your organisation compare with its closest competitors in the following areas? Rate on a scale of to 5, where 1=We are much stronger and 5=We are much weaker (% respondents) We are much stronger We are much weaker Don’t know Profitability 20 35 29 Revenue growth 16 37 30 10 23 10 Ability to react to changing risks and opportunities 17 44 3 Ability to integrate sustainability initiatives into core strategy 14 33 30 12 Investment in sustainability initiatives 10 28 33 12 8 Reputation among stakeholders for sustainability 14 31 20 31 40 60 10 80 What are the biggest barriers to consistent, successful implementation of sustainability initiatives across your organisation? Select up to three In your opinion, which of the following factors are most important to successful integration of sustainability initiatives at your organisation? Select all that apply (% respondents) (% respondents) 100 Clear directive from policy-makers or senior management Lack of clear objectives or mandates 64 37 Active involvement of senior management The complexity of consistent implementation 60 36 Lack of interest from/understanding by senior management Alignment with broader company goals 43 29 Difficulty in aligning sustainability goals with financial ones Sufficient funding 38 27 Inability to quantify financial costs and benefits (ROI) Establishment of processes 33 22 Insufficient funding/resources (eg, the organisation does not spend enough of its budget on sustainability) 21 Cost (eg, the financial cost of implementation is too high relative to perceived benefits (ROI)) Alignment of financial incentives with successful implementation 33 Thorough planning before implementation 33 Return on investment 20 Lack of interest/push back from employees 25 Use of technology 19 Poor planning of implementation 24 Broad consultation with employees 17 Cultural issues 23 Effective communication with customers 15 Negative impact on competitive position Inability to set strategy (what initiatives to take on first) 16 Other Don’t know Other Don’t know 10 © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Appendix Survey results What are your company’s primary motivations for new sustainability initiatives? Select up to three Has inconsistent implementation of sustainability initiatives across your organisation caused any of the following in the past year? Select all that apply (% respondents) (% respondents) Environmental protection Decreased ability to execute strategy 35 Revenue growth 21 Decreased innovation 32 Brand enhancement 20 Slower time to market with new products 31 Cost savings 18 Reduced collaboration across teams 28 Public relations 16 Loss of brand reputation 28 Increasing profit 15 Loss of market share 25 14 External pressure from stakeholders to good 14 Regulatory compliance Increased regulatory risk 24 Reduced customer satisfaction 22 Opening of new markets 11 Other 17 Internal pressure to good Don’t know 17 Recruitment and retention 29 Worker rights In your view, to what extent can sustainability enhance company revenue growth? (% respondents) © Economist Intelligence Unit Limited 2009 To great extent 29 To some extent 57 Not at all Don’t know 11 Appendix Survey results Management magnified Sustainability and corporate growth In which country are you personally located? Which of the following best describes your job title? (% respondents) (% respondents) US Board member 21 India CEO/President/Managing director 15 27 Brazil CFO/Treasurer/Comptroller Canada, Australia, Spain CIO/Technology director China, UK, Nigeria, UAE Other C-level executive Germany, Hong Kong, Japan, Russia, Austria, Denmark, Poland, Singapore SVP/VP/Director 21 Argentina, Greece, Iceland, Indonesia, Mexico, Portugal, Romania, South Africa, Sweden, Uganda, Ukraine, Egypt, Finland, Hungary, Jordan, Kenya, Lithuania, New Zealand, Philippines, Slovenia, South Korea, Switzerland, Taiwan, Trinidad and Tobago, Zambia Head of business unit Head of department Manager 19 Other In which region are you personally based? (% respondents) Asia-Pacific 31 North America 26 What is your primary industry? (% respondents) Financial services Western Europe 20 21 Professional services Middle East and Africa 13 10 Energy and natural resources Latin America Healthcare, pharmaceuticals and biotechnology Eastern Europe IT and technology Manufacturing What is your organisation’s global annual revenues in US dollars? Government/Public sector (% respondents) Telecommunications Consumer goods $500m or less $500m to $1bn 41 $1bn to $5bn 17 $5bn to $10bn $10bn or more 26 Transportation, travel and tourism Construction and real estate Retailing Chemicals Entertainment, media and publishing Education Aerospace/Defence Logistics and distribution Agriculture and agribusiness 12 © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Appendix Survey results What are your main functional roles? Please choose no more than three functions (% respondents) Strategy and business development 43 General management 39 Finance 25 Marketing and sales 20 Operations and production 16 Risk 13 IT 11 Information and research R&D Customer service Human resources Supply-chain management Procurement Legal Other © Economist Intelligence Unit Limited 2009 13 Cover image: iStockphoto.com Whilst every effort has been made to verify the accuracy of this information, neither the Economist Intelligence Unit Ltd nor the sponsors of this report can accept any responsibility for liability for reliance by any person on this report or any other information, opinions or conclusions set out herein LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8476 E-mail: london@eiu.com NEW YORK 111 West 57th Street New York NY 10019 United States Tel: (1.212) 554 0600 Fax: (1.212) 586 1181/2 E-mail: newyork@eiu.com HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com [...]... $5bn to $10bn 7 $10bn or more 26 Transportation, travel and tourism 4 Construction and real estate 3 Retailing 3 Chemicals 3 Entertainment, media and publishing 3 Education 2 Aerospace/Defence 1 Logistics and distribution 1 Agriculture and agribusiness 1 12 © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Appendix Survey results What are your main functional... pressure to do good 6 Don’t know 17 Recruitment and retention 29 7 Worker rights 3 In your view, to what extent can sustainability enhance company revenue growth? (% respondents) © Economist Intelligence Unit Limited 2009 To great extent 29 To some extent 57 Not at all 9 Don’t know 4 11 Appendix Survey results Management magnified Sustainability and corporate growth In which country are you personally located?...Appendix Survey results Management magnified Sustainability and corporate growth In your opinion, how does your organisation compare with its closest competitors in the following areas? Rate on a scale of 1 to 5, where 1=We are much stronger and 5=We are much weaker (% respondents) 1 We are much stronger 2 3 4 5 We are much weaker Don’t know Profitability 20 35 29 8 5 4 Revenue growth 16 37 30 10 23 10... executive 3 6 Germany, Hong Kong, Japan, Russia, Austria, Denmark, Poland, Singapore SVP/VP/Director 2 21 Argentina, Greece, Iceland, Indonesia, Mexico, Portugal, Romania, South Africa, Sweden, Uganda, Ukraine, Egypt, Finland, Hungary, Jordan, Kenya, Lithuania, New Zealand, Philippines, Slovenia, South Korea, Switzerland, Taiwan, Trinidad and Tobago, Zambia Head of business unit 3 Head of department 9 1... 9 16 Other 2 Don’t know 1 Other 4 Don’t know 3 10 © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Appendix Survey results What are your company’s primary motivations for new sustainability initiatives? Select up to three Has inconsistent implementation of sustainability initiatives across your organisation caused any of the following in the past year?... to successful integration of sustainability initiatives at your organisation? Select all that apply (% respondents) (% respondents) 100 Clear directive from policy-makers or senior management Lack of clear objectives or mandates 64 37 Active involvement of senior management The complexity of consistent implementation 60 36 Lack of interest from/understanding by senior management Alignment with broader... your main functional roles? Please choose no more than three functions (% respondents) Strategy and business development 43 General management 39 Finance 25 Marketing and sales 20 Operations and production 16 Risk 13 IT 11 Information and research 8 R&D 8 Customer service 7 Human resources 6 Supply-chain management 4 Procurement 3 Legal 2 Other 3 © Economist Intelligence Unit Limited 2009 13 Cover image:... 10 4 2 Ability to react to changing risks and opportunities 17 44 3 3 Ability to integrate sustainability initiatives into core strategy 14 33 30 12 4 7 Investment in sustainability initiatives 10 28 33 12 9 8 6 8 Reputation among stakeholders for sustainability 14 0 31 20 31 40 60 10 80 What are the biggest barriers to consistent, successful implementation of sustainability initiatives across your organisation?... North America 26 What is your primary industry? (% respondents) Financial services Western Europe 20 21 Professional services Middle East and Africa 13 10 Energy and natural resources Latin America 9 8 Healthcare, pharmaceuticals and biotechnology Eastern Europe 9 5 IT and technology 7 Manufacturing 7 What is your organisation’s global annual revenues in US dollars? Government/Public sector (% respondents)... apply (% respondents) (% respondents) Environmental protection Decreased ability to execute strategy 35 Revenue growth 21 Decreased innovation 32 Brand enhancement 20 Slower time to market with new products 31 Cost savings 18 Reduced collaboration across teams 28 Public relations 16 Loss of brand reputation 28 Increasing profit 15 Loss of market share 25 14 External pressure from stakeholders to do good ... their time and insight November 2009 © Economist Intelligence Unit Limited 2009 Management magnified Sustainability and corporate growth Management magnified: Sustainability and corporate growth A.. .Management magnified Sustainability and corporate growth Preface Management magnified: Sustainability and corporate growth is the third in a series of three... March 2009 Management magnified Sustainability and corporate growth Sustainability isn’t about being nice, but seeing profits The fundamental difference between sustainability leaders and other