August 19th, 2011 | Ted Dhillon
The reasons for putting in place sustainability strategies are clear, and are usually dependent on the environment that an organization functions in. This can be a combination of the organization’s inherent culture, regulations that impact the vertical that it functions in, brand issues, competitive drivers, and the need to engage employees, amongst others. As sustainability increasingly becomes an important part of mainstream business, more companies are introducing sustainability principles and practices to the way they do business. Large companies are spending millions on sustainability programs, several of them without being able to effectively track the returns on these investments and efforts.
The challenge with sustainability has always been its breadth – the term “sustainability” really is an abstract for several different pieces that need to come together in a process-driven fashion for it to work. To that end, measuring and tracking sustainability program and their impacts in terms of a clear return to the organization has been challenging. That said, it is not impossible to do. However, companies must realize that there is no silver bullet to achieving sustainability, and they are well advised not to go looking for one. I have seen too many companies with great sustainability policies that run into a few hundred pages, but precious little to show in terms of execution and results.
To start with, organizations should pick one or two initiatives that best align with their vision, culture, strategic objectives, and market needs. Starting small, getting some wins under the belt, and then building out from there is the way an organizational sustainability strategy should be planned. The tracking mechanisms and quantitative performance metrics should invariably be worked into the plan from the very beginning. Different organizations will measure sustainability projects differently depending on their specific needs. For example, for a university, a metric on student engagement may be important if they are trying to position themselves as a green university for youth. Similarly, for a leather tannery, it may well be a percentage reduction in waste water that it generates and/recycles. More often than not, there will be more than a few metrics that will need to be tracked to build a comprehensive return on sustainability picture.
Commonly, investments in sustainability initiatives show up as cost positions on financial statements or are hidden in operating expenses. Investors and stakeholders are and will continue to increasingly demand justification for these investments. Therefore, accurate and transparent measurement that can provide a quantifiable cost/benefit accounting for investments in sustainability programs is imperative – this positive or negative number and/or percentage margin is termed as the “Return on Sustainability.” Essentially, this number represents the difference between the cumulative investments and yields/results from all investments (this can include financial and non-financial inputs) in sustainability initiatives for an entire organization or reporting unit.
There can be several advantages for organizations taking a return on sustainability approach. These can include, but not limited to:
As compared with return on investment (ROI), which follows the returns from single projects over time, return on sustainability will usually be a composite metric from several different sustainability investments/initiatives. Organizations that are just starting to invest in sustainability will have to wait to see results in the future, while their costs are incurred now. Hence, on a period reporting basis, such companies will possibly even show a negative performance. Whereas, organizations that have invested in sustainability programs on an ongoing basis, and which are currently seeing results from those investments, will reflect the best performance on a period reporting basis. This lag should always be factored into any return on sustainability planning.