The broadening sweep of “sustainability”

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It’s a mistake not to look at the opportunities that a strategic sustainability program can bring to private equity and businesses of all shapes and sizes. Beyond compliance, ‘environmental sustainability’ affects the entire business spectrum, offering benefits through a strategic, operational, reputational and financial lens.” –Tim Hartnett, PricewaterhouseCoopers

Businesses today – especially those involved in transportation – can no longer afford to roll their eyes when talk turns to “sustainability” initiatives.

Though the word still carries with it the overtones of religious fervor, corporations large and small are coming to realize – if they haven’t done so already – that embarking on “sustainability” initiatives not only can help make their operations “greener” in the environmental-friendly sense, it can help them save a lot of money too; both for them and for customers, too.

[Transportation is in many cases a key piece of corporate sustainability efforts, with Wal-Mart providing a good example of the potential savings to be gained.]

Think on this statistic for a minute: in a survey conducted by global consulting firm KPMG LLP back in April, nearly 55% of U.S. executives said their organization has a formal sustainability strategy in place, with another 12% noting they were currently working on developing a “sustainability” strategy while an additional 19% expecting to eventually develop a formal plan.

John Hickox, who leads KPMG’s Climate Change & Sustainability (CC&S) practice in the Americas, added that the results of this survey – which polled 378 senior executives from around the world, with 86 from the U.S. – showed that U.S. companies are closing the gap with their international, as more than 62% of executives globally say they have implemented a formal sustainability program.

The KPMG study also found that what’s driving most sustainability programs – in the U.S. and elsewhere – are customer influences and the desire for “brand enhancement,” while challenges included how to determine and measure program metrics, obtaining reliable internal sustainability data, and meeting a variety of reporting requirements.

Yet when asked to identify the top three benefits from their sustainability program, the respondents to KPMG’s poll most often chose: better or more efficient business processes and practices; increased profitability or shareholder value; and the ability to attract or retain new or existing customers.

[Wal-Mart again illustrates the kinds of “public relations” benefits that can be gained from focused sustainability efforts, as well as where the company can cut costs through their implementation as well.]

“Leading companies that have embedded sustainability programming and reporting into their processes and culture are finding ways to leverage their investment to cut costs, and meet regulatory and customer expectations,” Hickox said. “It is all about believing in the transformative benefits that thinking differently can bring to a company, its culture and its bottom-line results.”

Global consulting firm PricewaterhouseCoopers (PwC) also unearthed some of the very same feelings among U.S. executives, with a poll conducted during the firm’s Private Equity and Environmental Sustainability webcast discerning that 88% of the 175 participating executives believe sustainability will become a more important factor in business decisions and investments in the next two years.

Several factors were cited by participants as the leading drivers for sustainability at their respective organizations, said PwC, with “profit opportunity” ranking first at 33.5%, followed by risk mitigation at 22%, image enhancement at 19% and complying with regulations at 9.5%.

Of the senior executives identified in PwC’s poll from the private equity community, 72% responded that sustainability is a top of mind priority or important to their firms, which compares to 68% of the executives from corporate organizations.

“It’s a mistake not to look at the opportunities that a strategic sustainability program can bring to private equity and businesses of all shapes and sizes,” said Tim Hartnett, PwC’s private equity leader at its U.S. office. “Beyond compliance, environmental sustainability affects the entire business spectrum, offering benefits through a strategic, operational, reputational and financial lens.”

He added that the poll also shows that private equity firms are increasingly exploring the value that sustainability initiatives can bring to their current portfolio companies and future investments through cost savings, revenue growth, risk mitigation, and reputational benefits.

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“Leading private equity firms are launching widespread sustainability initiatives to capture cost savings at their portfolio companies such as energy and resource efficiency, fuel savings, waste reduction, and other innovative initiatives - resulting in millions saved,” Hartnett pointed out.

Nevertheless, implementing and maintaining sustainability programs is not easy, noted KPMG’s Hickox, noting that 41% of the executives in his form’s survey said determining meaningful benchmarks for peer-to-peer comparisons was a moderate challenge, and 32% indicating it was a major challenge.

In addition, the study found that creating or finding reliable internal data related to sustainability was cited most often by respondents as a challenge, with 59% of respondents saying it was a moderate challenge and 18% saying it was a major challenge.

Meeting the reporting requirements of a variety of stakeholders was the next most challenging aspect of sustainability reporting, with 46% saying it was a moderate challenge and 27% labeling it a major challenge, Hickox added.

Also, more than 43% of the U.S. respondents to KPMG’s poll also said that it was difficult to overcome organizational focus on other programs that provide more readily measureable short-term financial benefits, he pointed out.

[Gareth Kane of British consulting firm Terra Infirma Ltd., produced a nice slide show last year explaining the different levels of “corporate sustainability” how businesses can integrate them into their organization.]

Nevertheless, companies large and small seem to feel – in ever greater numbers – that the potential benefits offered by “sustainability” efforts outweigh the challenges and costs that go with them.

“Environmental sustainability is a long term value creation lever for private equity firms and corporations alike,” noted Lauren Koopman, director of PwC’s U.S. sustainable business solutions division. “As demonstrated by our latest poll, decision makers in these organizations see sustainability as a key issue that will play an even larger role moving forward.”

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