The Elusive Concept of Corporate Sustainability

The corporate world is changing fast. With a carbon cap and trade program on the horizon and consumers demanding more environmentally and socially-responsible products, business leaders in every sector are being forced to integrate sustainable business practices in order to stay competitive.

A report just released by the National Research Council for the U.S. congress makes the need to shift business strategy even more urgent. According to the report, the dirty American energy sector creates $120 billion worth of damage to public health and the environment that is not accounted for on the books of the companies creating the problem. That's the conservative estimate.

It's not all the energy sector, however. Most companies use dirty energy to run their operations, which makes those companies partly responsible for the problem. That means any regulatory changes will impact all kinds of businesses, big and small. Because of this, business leaders are turning to the concept of sustainability to drive business decisions moving forward.

The problem is, there is still a big gap between rhetoric and action when it comes to integrating this difficult-to-define concept into a long-term business plan.

When big companies throw around the term “sustainability,” it can be a enough to make one shudder. Like the word “green,” it's a slippery term that can be difficult to grasp (and also hide behind). Perhaps that's why many corporate leaders have trouble developing business strategies around the concept of sustainability.

In order to get a picture of how the corporate world is acting upon sustainable business practices, the MIT Sloan Management Review and the Boston Consulting Group (BCG) surveyed 1,500 executives and extensively interviewed 50 experts on the topic. The researchers surveyed companies like GE, Wal-Mart, Nike and IBM. Their findings are probably not surprising to anyone who pays attention to this area.

“There was a lot of noise on sustainability topics,” said Balu Balagopal, a senior partner with BCG. “There's certainly a wide divergence of views. No one can agree on what sustainability means.”

A wide divergence indeed. According to these executives, sustainability can mean reducing carbon emissions, improving operational efficiencies, recycling materials, paying fair wages or encouraging community action on environmental issues. In the past, companies could approach one of these issues and brand themselves as “sustainable.” Today, says Balagopal, consumers are much more savvy and are demanding wider action from companies.

“Now these issues are increasingly seen as linked and sustainability needs to be framed with a broader lens,” he says. “Society is paying more attention and there will be increased scrutiny.”

According to the study, there are two types of sustainability advocates in the corporate world: Those who are experienced and those who are just getting used to the idea. The experienced professionals tend to look at these issues as a way to increase competitive advantage. The novices are generally looking at them as a way to comply with new regulations, like a carbon cap and trade program.

The problem for both types of corporate leaders is that they don't often know how to turn the nebulous concept of sustainability into concrete action. Thus, only one third of the executives surveyed said that their business had a clear plan to implement a sustainability strategy.

There are a number of internal barriers that are preventing companies from taking real action, says Balagopal. Firstly, the inability to define sustainability often means there is a lack of strategic clarity within the company. Secondly, if sustainability efforts are approached in scattered ways, it can be difficult to prove the broad financial case for undertaking them. And finally, executives who fail to create a “culture of sustainability” may find the company unable or unwilling to take action.

But despite all these barriers, Balagopal is hopeful about the survey's findings. Over 90% of the respondents said their companies were planning on taking action. And only 25% of executives said their companies were scaling back efforts because of the recession.

“The study clearly illustrates that there is not much of a divergence in terms of the importance of sustainability...What you find is people are not questioning the need to do it,” says Balagopal.

As we get more experience with this difficult concept of sustainability, companies will continue to figure out ways to take meaningful action — or their competitors will simply force them. So even though there isn't much agreement on what sustainability means for companies, at least there is agreement that it's important for the future of healthy business. That's a start.