Investor engagement

Which way to sustainable value?

At a recent roundtable think-tank, Luminous clients gathered to discuss the meaning of sustainability, and how to define and measure the social, environmental and economic value it creates. The variety of sectors in the room brought diverse perceptions of sustainability.

Some companies focus on the direct effects their activities can have on local communities and the environment. Others have less tangible impacts several steps removed from their daily activities, perhaps in their upstream supply chains or as consequences of the services they provide. The companies present were also at different stages of incorporating sustainable practices into their business strategies: some don’t yet have anything formal in place, while one attendee had recruited board-level champions for each pillar of their strategy. Most occupy the ground in between.

The range of views and experience in the room meant there was much to share. Attendees found as many commonalities as differences as they discussed how to build a business case for sustainability, create internal commitment and ownership, and measure and report on their impact.

Motivations for sustainability

While not all companies use the word sustainability when describing their strategies and activities, as the discussion progressed it became clear that all are taking action in some areas. Safety and fuel efficiency are part and parcel of running a transport company, for example, just as waste and resources are a focus for manufacturers. It’s encouraging that aspects such as these can become inherent to core business, even when companies haven’t yet taken a conscious or strategic approach to sustainability. Companies with a more mature approach noted that what usually begins as risk management often develops into an opportunity, such as efficiency-based cost savings or reputational gains. Similarly, while more than one contributor saw regulation as an important incentive for companies to take action, others appreciate that being seen as a sustainable operator can also help build trust with local authorities, regulators and other stakeholders.

Regardless of the language used and impacts prioritised, a sustainable business strategy is essentially one for ensuring a company remains in business in the long term. That means aligning sustainability goals with business purpose and commercial strategy. Taking corporate culture into account is also key – visionary leadership drives changes in some businesses, while others respond better to a bottom-up approach. Equally, mature, well-integrated strategies can take years to refine and embed – sustainability isn’t an end point or a box to tick, but a part of daily business just like any other.

Building the business case

It can be hard to quantify the motivations outlined above and convince leaders that the long-term gains will be worth the investment. Demonstrating the commercial value generated through sustainable practices is key. But contributors struggled to agree a single definition of sustainable value, as it is generated in multiple ways for many different stakeholders. Is it linked to share price? Is it possible to calculate the total cost of ownership, including hidden social and environmental costs? Is sustainable value monetary at all? Attendees found defining and measuring social value particularly tricky. The difficulties of proving cause and effect when many factors are at work, or when the people affected are several steps removed from your business, make it hard to quantify the difference made. Case studies can certainly illustrate the qualitative value that sustainable business adds and add colour to the data. But while gathering anecdotes is quite straightforward, being sure of capturing the best examples can be hard in a large, diverse company.

Using social platforms to generate interest and incentivising employees to share case studies via award schemes were some suggested ways to get around this. External benchmarks and ratings also have their place when building the business case internally – leaders rarely like to compare poorly with their peers – and the results can help identify areas of strength and weakness. But such exercises are time-consuming, and sometimes take a ‘one size fits all’ approach that doesn’t account for different industries and corporate cultures. Beware the temptation to set strategy and policy based on ticking boxes and scoring points, rather than meeting business objectives.

Finally, employee participation is critical. No strategy, sustainable or otherwise, will succeed if employees do not understand it, or their role in achieving it. And as people increasingly seek employment that supports their personal values, there’s a huge opportunity to boost recruitment, retention and engagement by showing current and future employees how their work can help change things for the better.

The Luminous view

We recognise the compelling business case for sustainability in improving corporate culture, increasing employee wellbeing, producing better products and enhancing reputation. We have been working with UK-listed companies on their corporate and sustainability reporting for over 14 years and have learned that shareholders find good quality sustainability information incredibly beneficial. They base investment decisions on it, and other stakeholders, such as customers, employees, suppliers and governments, find that it engenders trust.

A good sustainability strategy includes two core areas: programmes – the activities that make up the strategy; and ambitions – a combination of the key priorities facilitating real business impact and bold targets that focus on the most material issues. Combined, these areas act as the critical catalyst for long-term thinking and value creation.

 

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