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Introduction to Sustainable Development for Engineering and Built Environment Professionals
Unit 3 - Preparing to Walk the Talk
Lecture 10: Creating
Value from Sustianable Development
To
provide the argument to present to a CEO or company
board convincing them that efficiency and sustainable
development, as well as being the right thing to
do, can also be highly profitable. While many business
people now understand the basic business case for
improved efficiency what is provided here is an
overview of some of the most important studies proving
that what is good for the environment can be good
for the bottom line too.
Brief Background Information (6 pages)
1. As shown in Section Two of The Natural Advantage
of Nations, efficiencies and strategies for
sustainable development offer business new ways
to improve shareholder value through reducing costs,
improving product differentiation and market share,
unleashing the creativity of staff, and reducing
multiple risks.
The
Business Council of Australia believes that the
pursuit of sustainable development – development
that meets the needs of the present without compromising
the ability of future generations to meet their
own needs – is necessary for the future
prosperity and well being of the world.
The Business Council of Australia, 2000[1]
 2.
Companies like Interface Inc., that have genuinely
adopted sustainable development as their core strategy,
have created a virtuous cycle whereby they have:
3. Ray Anderson CEO of Interface Inc. sums up the
multiple positive benefits for Interface of pursuing
a comprehensive strategy to achieve sustainable
development:
Customers are inclined to support us, which
helps the top line, efficiency helps the bottom
line. It’s a positive feedback loop (of
doing well by doing good): the more good you do,
the more well you can do, the more you attract
attention, which helps the top line…
Ray Anderson, CEO Interface Inc[3]
4. There are numerous examples of businesses in
Queensland that are doing well by doing good. Take
the example of Caroma, a wholly-Australian owned
subsidiary of GWA International Limited. Caroma
is based in Brisbane and regarded as the leader
of the Australasian sanitaryware industry, and its
products, including the 6/3 litre dual flush system,
are shipped to over 30 countries worldwide.
5. Previously there were just
a few good case studies of businesses like Interface,
but now studies by investment analysts (i.e. Innovest)
in the US and European markets show that sector
by sector environmental leading firms are financially
outperforming those not adopting a sustainable development
policy. Over 85 percent of the literature surveys
of business performance and environmental sustainability
performance show a positive correlation between
a business pursuing good environmental stewardship
and their financial bottom line.[4]
6. The four stock-market measures
of ethical business performance such as the Dow
Jones Sustainability Index all show that those businesses
listed on these stock-market indexes have strongly
performed against the market average.[5]
A survey by the World Business Council for Sustainable
Development of its members showed that they have
actually outperformed the market average.[6]
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Brief
Background Information |
As
an engineer you may deal with clients who are sceptical
that you can offer anything new through a focus
on sustainable development. Your audience may believe
that their company is already as efficient as possible,
or that their firm has already undergone significant
change and could not cope with anymore.
In your response to such concerns you may consider
the following:
One of the first companies to really make progress
into achieving sustainable development was the carpet
company, Interface Inc. The company found new areas
where highly cost effective gains were possible.
The original gains, or low hanging fruits, were
quick and effective, and Interface concentrated
initially on those areas where cost effective gains
could be easily made. Interface is now saving over
$260 million per annum with their eco-efficiency
initiatives, and investing these savings into a
range of additional initiatives to further improve
efficiency. Improvements have also started affecting
the company on a much more fundamental level.
Interface has now replaced petrochemical based carpets
with carpets made from renewable biomass such as
corn waste that can be recycled with little loss
of quality. The new carpet is the first certified
climate-neutral product in the world; that is, the
climate impact of making and delivering the carpet
has been offset before it gets to the customer.
The carpet is so non-toxic it could be edible, thus
eliminating OH&S concerns. Rather than owning
the carpet the public will lease it from Interface
who then collects the worn out squares for recycling.
In the first four years of this business model and
wringing out waste in its own operation, Interface
more than doubled its revenue, more than tripled
its operating profit, and nearly doubled its employment,
all at the same time. Overall they have achieved
a 97 percent total reduction in materials used while
providing a better service in every respect. Interface
has gone further than Factor four (the factor most
sustainability experts estimate to be required to
achieve ‘sustainability’). Interface
is on the way to achieving Factor ten and becoming
the first genuinely ‘Sustainable Corporation’
on the planet.[7]
In being the first company to significantly progress
to becoming a sustainable corporation Interface
has demonstrated an example of the significant competitive
advantage to be gained through applying Porter's
ideas of ‘Complementary Activity Systems’
with sustainable development as the goal. Interface
has integrated hundreds of eco-efficiency initiatives
and other new forms of innovation in accounting
and product delivery, and in so doing are now far
ahead of their competitors.
| Michael
Porter's Theory of Complementary Activity
Systems.[8]
Rarely does sustainable advantage grow out
of a single activity in a business. A company
doesn't get sustainable advantage simply
because it has some unique product design
or a unique sales force. Sustainable advantage
comes from systems of activities that work
together and are complementary.
These complementarities occur when performing
one activity and gives a company not only
an advantage in that activity, but it also
provides benefits in other activities.
Companies with sustainable competitive advantage
integrate lots of activities within their
business: their marketing, service, designs,
customer support.
As a result, competitors don't have to match
just one thing, they have to match the whole
system. And until rivals achieve the whole
system, they don't get much of the benefits.
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As
Amory Lovins, from the Rocky Mountain Institute,
states,[9]
I think you will have to conclude that the
earlier adopters of the next industrial revolution’s
Natural Capitalist [Sustainable Development]
principles are finding they’ve not only
got greater short-term profitability, but stunning
competitive advantage. Think of the carpet example
with Interface: how can you compete with a company
that’s using 3% as much raw materials as
you are, a tenth the capital, to produce a service
that’s better in every way, costs less and
has a higher margin? I don’t think that’s
possible to compete with. That’s the kind
of leapfrog that the next industrial revolutionaries
are now achieving.
In
addition, by innovating on the sustainable development
front Interface has solved many problems regarding
marketing. Companies like Interface barely have
to advertise. This cannot be emphasised enough.
Multinational companies spend vast amounts on marketing,
however a significant amount of new products fail,
suggesting that even the best short and long term
marketing campaigns do not always lead to sales.
Fundamental innovation to create more environmentally
sound products, while seeming at times a significant
investment, can pay off in many unseen ways.
By ‘doing the right thing’, the worldwide
environment movement provides international advertising
for these companies more effectively than any PR
firm. Interface is invited to speak at hundreds
of conferences and the media cannot report their
progress enough. They are reported in every book
on new business models and studied by University
graduates who then wish to work for them. Interface
will never have any trouble recruiting the best
most innovative people. These are not isolated case
studies either, nor is this just for billion dollar
companies. As we will show, numerous actual experiences
reported in many studies and reports have consistently
proved that eco-efficiency and cleaner production
provide various ways to save and thereby begin the
road to genuine sustainable development. Many companies
in Australia are at least starting.
A wide range of studies in the last ten years have
shown that companies that perform better than the
market average, both environmentally and socially,
actually can perform as well or outperform the market
even with its current short term profit focus. The
research literature shows clear links between improved
sustainability performance on the environmental
and social dimensions, and a company’s financial
results.
As Innovest’s 2004 report, Corporate Environmental
Governance: a Study into the Influence of Environmental
Governance and Financial Performance, stated:
The literature review found strong evidence
for the existence of a positive relationship between
environmental governance and financial performance.
In 51 of the 60 studies reviewed, a positive correlation
was found between environmental governance and
financial performance… results from fund,
sector and company analysts are all generally
positive.
Innovest Strategic Value Advisors, 2004[10]
As of 2004, Innovest’s most recent reports
clearly show that, sector by sector, companies that
are environmental leaders are financially outperforming
the laggards, providing further evidence to support
Porter’s Theory of Complementary Activity
Systems. Companies with good corporate environmental
governance and proactive stances on greenhouse gas
reductions generally out-perform the rest of the
sector, according to data across numerous sectors.
There is also evidence that the average share price
movement of firms with strong environmental governance
responses outperform the lagging companies (i.e.
those with a below average carbon rating). In the
forest and paper products sector, for example, analysing
the performance of the environmental leaders versus
the laggards resulted in a 43 percent difference
over a four-year period.[11]
(See Figure 10.1)
Figure
10.1. Percentage change in total return
of environmental leaders vs. laggards in the forest
and paper products sector 1999-2003.
Source: Innovest Strategic Value Advisors
(2004)[12]
The same is true in the oil and gas industry, where
companies with a pro-active climate/carbon management
strategy (plotted in light green in Figure 10.2)
outperformed their peers (plotted in light blue)
by 11.8 percent over a three-year period.[13]
Figure
10.2. Percentage change in total return
of environmental leaders vs. laggards in the oil
and gas sector 1999-2003.
Source: Innovest Strategic Value Advisors
(2004)[14]
Sectors such as pulp/paper and oil/gas both have
significant greenhouse gas emissions, but it is
the energy supply sector (electric utilities) that
is the largest single source of global greenhouse
gases. In this sector, over three of the last four
years for which there are figures available, the
percentage change in total return of environmentally
leading electric utilities was 39 percent above
that of the below average environmental energy utility
performers. (See Figure 10.3)
Figure
10.3. Percentage change in total return
of environmental leaders vs. laggards in the EU
electric utilities sector 2000-2003
Source: Innovest Strategic Value Advisors
(2004)[15]
Electric
utilities in the United States exhibited the same
pattern. (See Figure 10.4).
Figure
10.4. Percentage change in total return
of environmental leaders vs. laggards in the USA
electric utilities sector 2000-2003.
Source: Innovest Strategic Value Advisors
(2004)[16]
In addition, recent research is showing clear links
between improved sustainability performance on the
environmental and social dimensions, and a company’s
financial results within companies in the emerging
economies of the world.[17]
For an overview of this literature and the latest
evidence to support the argument that there is a
business case for sustainable development/corporate
social responsibility, see chapters 1, and 6-10
of The Natural Advantage of Nations.[18]
According to Dr John Cole, Queensland EPA, Sustainable
Industries Division Executive Director, the wide
variety of good news stories in Queensland demonstrate
that, ‘the means of improving environmental
sustainability is often remarkably obvious, remarkably
simple and remarkably beneficial to the bottom line
of businesses that embrace them.’
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Case
Study
|
Description
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Industry
Partnership - Sustainable Urban Development
Program[19] |
Through
a partnership with the EPA, the Urban Development
Institute of Australia – Queensland
(UDIA) has established the Sustainable Urban
Development Program (SUDP) to encourage
continued improvements in development projects.
The program advocates a collaborative approach
to identify issues and find solutions in
a positive, proactive and timely manner,
benefiting all stakeholders.
Launched in 2002, 25 projects were submitted
by the development industry for consideration
and champion projects were then chosen on
the basis of the range of initiatives they
incorporated to deliver triple-bottom-line
outcomes. The partnership considers that
the selected projects will provide practical
demonstrations of the viability of sustainable
development and set a high benchmark for
future development.
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Australian
Country Choice (ACC)
Paddock to Plate – Sustainability
in Meat Production |
Australian
Country Choice (ACC) an integrated livestock
producer and meat processor, and one of
Queensland’s largest privately owned
companies. The Queensland EPA, Meat and
Livestock Australia and the United Nations
Environment Program are assisting ACC to
implement an industry best practice environmental
strategy over a ten year period.
Winning the 2002 Queensland Primary Industry
Achievement Award for its environmental
stewardship, ACC has developed an eco-efficiency
program that aims to decrease operating
costs while also reducing environmental
impacts. Paul Gibson, ACC Manager for Research
and Development, explains that, ‘this
strategic program will eventually measure
and monitor environmental impacts over the
whole product life cycle, making a direct
connection between eco-sustainability and
long-term profitability’.
ACC is keen to communicate what it has learned
with other agribusinesses, so that they
can share the benefits and help Australian
industry to lead the world in moving toward
sustainable meat production. According to
Gibson, ‘we anticipate others
will take what we’ve done and improve
it further still – the benefits are
tangible for anyone wishing to implement
an environmental management program’.
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Eco-Efficiency
in the Food Industry |
The
EPA joined with the UNEP Working Group for
Cleaner Production, the Australian Water
Association and eight local governments
to produce a booklet called Eco-Efficient
Food! Save Money While Saving the Environment.
This guide shows restaurants, cafes, hotels,
clubs and fast food outlets how businesses
can become more eco-efficient and save money;
providing an efficient service to customers
while using less energy, less water and
producing less waste. With one of the key
resources for food-related business being
water, the publication provides readers
with facts and simple calculations on what
savings can be achieved.
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Table
10.1. Sample of projects underway in Queensland
supported by the EPA, Sustainable Industries Division.
Source: QLD EPA (n.d.)[20]
-
Halliday, C., Schmidheiny, S. and Watts, P. (2002)
Walking the Talk, The Business Case for Sustainable
Development, World Business Council for Sustainable
Development, Greenleaf Publishing, London.
- Hargroves, K. and Smith, M.H. (2005) The Natural
Advantage of Nations, Earthscan, London. Chapter
1: Natural Advantage of Nations; Chapter 6: Natural
Advantage and the Firm; Chapter 10: Operationalising
Natural Advantage through the Sustainability Helix.
- Hawken, P., Lovins, A. and Lovins, L.H. (1999)
Natural Capitalism: the Next Industrial Revolution,
Earthscan, London. Chapters of the publication are
freely downloadable from www.natcap.org.
- Innovest
Strategic Value Advisors (2004) Corporate Environmental
Governance: A study into the influence of Environmental
Governance and Financial Performance, Innovest,
New York.
-
Pfeffer, J. (1998) The Human Equation: Building
Profits by Putting People First, Harvard Business
School Press, Boston.
- Porter, M. and van der Linde, C. (1995a) ‘Green
and Competitive: Ending the Stalemate’, Harvard
Business Review, Sept-Oct.
- Porter, M. and van der Linde, C. (1995b) ‘Toward
a New Conception of the Environment-Competitiveness
Relationship’, Journal of Economic Perspectives,
(IX- 4) Fall, pp. 97-118.
- Schaltegger, S. and Figge, F. (1997) ‘Environmental
Shareholder Value’, WWZ/Sarasin Basic
Research Study, no. 54, Basel, WWZ.
- Schaltegger, S. and Synnestvedt, T. (2002) ‘The
Link between “Green” and Economic Success:
Environmental Management as the Crucial Trigger
between Environmental and Economic Performance’,
Journal of Environmental Management 65,
pp 339-46.
- Schmidheiny, S. (1992) Changing Course: A
global business perspective on development and the
environment, MIT Press, Boston.
- von Weizsäcker, E., Lovins, A. and Lovins,
L.H. (1997) Factor Four: Doubling Wealth, Halving
Resource Use, Earthscan, London.
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Key
Words for Searching Online |
World
Business Council for Sustainable Development (WBCSD),
Innovest, Deni Greene Ethical Investment Services,
Rocky Mountain Institute, Environment Business Australia,
National Business Leaders Forum on Sustainable Development
[1]
Business Council of Australia (2000) Statement
on Principles for Sustainable Development. Available
at http://www.csp.uts.edu.au/resources/bca.html.
Accessed 3 January 2007. (Back)
[2]
Additional Information at Interface, Inc (n.d.) Interface,
Inc Awards. Available at http://www.interfaceinc.com/results/Awards/Awards.asp.
Accessed 26 November 2006. (Back)
[3]
Natural Logic (1997) ‘Strategic Sustainability
(5): Facing the Facts at Interface’, The
New Bottom Line, September 24. Available at http://www.natlogic.com/resources/nbl/v06/n20.html.
Accessed 3 January 2007. (Back)
[4]
Innovest Strategic Value Advisors (2004) Corporate
Environmental Governance: A study into the influence
of Environmental Governance and Financial Performance,
Innovest, New York, p 10. Available at http://www.cdproject.net/download.asp?file=cdp_report3.pdf.
Accessed 26 November 2006. (Back)
[5]
ACF (2000) Natural Advantage: Blueprint for a
Sustainable Australia, Australian Conservation
Foundation, Melbourne, Australia. (Back)
[6]
Kommunalkredit Dexia Asset Management (2004) Sustainability
Pays Off, World Business Council for Sustainable
Development, WBCSD. Available at www.wbcd.org.
Accessed 26 November 2006. (Back)
[7]
Additional information at Interface, Inc. (n.d.) Interface
Sustainability. Available at www.Interfacesustainability.com.
Accessed 26 November 2006. (Back)
[8]
Porter, M. (1995) Magazine interview, CIO,
1 October. Available at www.cio.com.
Accessed 26 November 2006. (Back)
[9]
Lovins, A.B. (n.d.) ‘Natural Capitalism’,
In the News, ABC Australia., Available at, http://www.abc.net.au/science/slab/natcap/default.htm.
Accessed 3 January 2007. (Back)
[10]
Innovest Strategic Value Advisors (2004) Corporate
Environmental Governance: A study into the influence
of Environmental Governance and Financial Performance,
Innovest, New York, p 10. (Back)
[11]
Ibid, p12. (Back)
[12]
Ibid, p13. (Back)
[13]
Ibid, p13. (Back)
[14]
Ibid, p43. (Back)
[15]
Ibid, p50. (Back)
[16]
Ibid, p51. (Back)
[17]
SustainAbility, International Finance Corporation
and Ethos Institute (2002) Developing Value: The
Business Case for Sustainability in Emerging Markets,
SustainAbility, London; and UNEP (United Nations
Environment Programme) (2001) Buried Treasure:
Uncovering the Business Case for Corporate Sustainability,
SustainAbility, London. (Back)
[18]
Hargroves, K. and Smith, M.H. (eds) (2005) The
Natural Advantage of Nations, Earthscan, London.
The publication’s online companion is available
at www.thenaturaladvantage.info.
Accessed 3 January 2007. (Back)
[19]
Additional information at QLD EPA (n.d) Sustainable
Urban Development Program, EPA QLD Sustainable
Industries Division. Available at http://www.epa.qld.gov.au/publications?id=1350.
Accessed 26 November 2006. (Back)
[20]
Ibid. (Back)
The
Natural Edge Project Engineering Sustainable Solutions
Program is supported by the Australian National Commission
for UNESCO through the International Relations Grants
Program of the Department of Foreign Affairs and Trade.
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