The most common characteristic of companies who incorporate sustainability into core strategy is a main board appointment whose focus is sustainability, typically called a Chief Sustainability Officer. This will usually follow on from the board identifying a strategic opportunity in sustainability – be that new markets, growth opportunities from making products and services more environmentally efficient, or major cost savings – and their role will typically involve both strategy and execution. But there is not a one size fits all solution here – and your company needs to work out what works for you. It may be the most important move in terms of strategy execution.
On the 9th May we touched on points such as;
How does the sustainability function best engage the Property and operations departments
This topic referred to the roles within organisations on how to achieve engagement across business silos. For example, how does the person leading sustainability/ CSO most efficiently work with people in the Property/ Real Estate team and other business units. A couple of potential areas to facilitate this engagement include: enforced working together due to legislation milestones (CRC), Board pressure or sponsor overseeing collaboration, focus on big leverage points (e.g. 40% of carbon emissions come from buildings), change management and enablement.
• No need to ‘re-create the wheel’ – use existing business practices and existing tools. For example, use IRR instead of complicating things with something like a MAC curve.
• The sustainability/ CSO should help measure and provide guidance – this should be an enablement role.
• Measurement is key, but setting the right metrics is more vital
• Data management plays a critical role in enabling the business units to work together
• There was a view that the Sustainability teams were not engaging with the Property Teams but instead just engaging on Buildings – not looking at problems holistically
• The CSO should be engaging with the ultimate customer – the employees of the organisation and also thinking about the marketing possibilities to promote their work
• Property and Operations BU’s generally suffer from short term drivers and are very cost conscious - CSO should move the discussion on from ‘cost’ to ‘value’.
• The sustainability person/ CSO should enable the Property and Operations BU’s by being a best practice agent providing the right tools, beyond compliance, for the business. The CSO must give meaning to the targets.
• The CSO should assist the business with a different set of eyes – an overview role – engaging and aligning when appropriate.
• The CSO should provide a toolkit on how best to ‘green’ the business. This should be guidelines (not too ‘dumbed’ down) that are concise and gives the recipients the feeling that sustainability is not being enforced on them.
• The CSO should also be looking at difficult issues like quantifying productivity gains with the Property & Ops business units.
The CSO and the Chief Procurement Officer – How should they work together?
We considered how well established the two roles (CSO / CPO) were, their respective priorities and any conflicts and synergies between these and discussed the implications of these for corporate sustainability strategy and implementation. We used the case study of Siemens who appointed a joint CPO and CSO, and experiences around the table to ground our discussion.
CPO exist in over 160 of top 1000 companies’ Boards: “Boarding Party” Board Level Procurement 2010 via http://www.procurementleaders.com/
In contrast only 12 of top 1000 companies have a CSO role: The Emergence of the Chief Sustainability Officer 02.03.11 Acre Resources www.acre-resources.com/downloads/The_Emergence_of_the_CSO.pdf
Around the table we found:
• No CSO roles
• Generally balanced seniority and power between CSR and procurement
• Synergies in: cost cutting; innovation in supply; security of supply
• Tensions in: priorities; competition for attention and implementation of a finite number of “initiatives” per year
• Perception that consumer goods sector needed marketing emphasis versus engineering needing supply chain focus.
Supply chain and Sustainability agendas do find significant synergy in security of supply; cost savings; innovation; green product revenues.
A combined CSO-CPO role may be right for some (Siemens), but not all, types of company to fully explore these synergies
Other tactics include a life-cycle approach to considering the product value chain
Strategic life-cycle approach links design; procurement; operations; and marketing functions and is not focussed on product labels and claims .
How should the CSO rank carbon management amongst other sustainability issues?
• While carbon management has risen dramatically in importance, it is often one of many issues the CSO/Head of Sustainability must address.
• What are some of the other key thematic challenges on which the CSO and sustainability team must focus?
• Is there a case for prioritising carbon?
• Sustainability teams deal with a range of social and environmental issues, from sourcing components from conflict zones, to the need to maintain water resources, and track supplier labour practices.
• Carbon management is important, though it may be challenging to make that the sole emphasis, especially when the largest emissions are from the product use phase.
• Carbon can serve as a useful proxy for other performance metrics by reflecting cost efficiency and demonstrating ability to track environmental impacts. As one participant noted, “It’s a great universal indicator”.
• No consensus on how carbon management should be ranked. One person noted that it can be “dangerous” for a company to establish a prioritisation that does not reflect societal or stakeholder values. Anecdotally, some sustainability pioneers have later expressed regret about their ambitious statements as economic conditions and consumer attention have shifted.
• The group discussed whether there is a role for government in driving or promoting change where a traditional cost/benefit analysis does not lead to sufficiently ambitious efforts on carbon management or other sustainability issues, but failed to reach consensus.
• There is no universal ranking for the themes on which the CSO or sustainability head should focus.
• Prioritisation will depend on the audience and the company’s relative exposure to different sustainability challenges.
• CSO leadership relies in part on the ability to present the competing issues to the Chief Executive and Board in a way that allows them to make informed decisions about corporate priorities. Without this, the CSO may be pushed to focus on whichever issue of the day other decision makers find interesting.
The merits of the Sustainability and Finance function collaborating through an internal venture fund
A full table and a good and energetic discussion. While the initial premise was “If accounts would only listen, take interest, even respond” – a red flag to half the table who were either accountants or from accountancy!
However, the debate quickly moved from any antagonism. There were clear examples given, from Major corporations, as to attempts at exactly the premise above – sustainability and finance collaborating on internal funds.
What became clear, and was crystallised with the statement “Finance and accountants are not the enemy here “ ....was just that.
The issue, it is clear, is one of corporate culture. It is getting the operational people not only to care, but to have it – sustainability – as part of their responsibility. A couple of perfect examples given where the operational / implementation folk in business just didn’t care – it made no difference to them if they chose the sustainable option or ignored.
Indeed, often, getting the sustainable option through requires the paperwork, the justification, the extra effort ...and in a busy world...
The solution – given to us by a Sloan Fellow – makes sustainability personal to all employees. Make it part of their career path – having to demonstrate what they have achieved in sustainability - and that it must be replicable - and employees then get it!
The five rules for a successful relationship between the sustainability and marketing departments.
To discuss the characteristics of a successful relationship between sustainability and marketing professionals looking at the challenges of working together, the potential pitfalls, some top tips for successful working and the opportunities for closer collaboration.
• Marketing teams tend to be more focussed on short term concerns than their sustainability counterparts
• It is important to build relationships with those individuals within the marketing department that are more concerned with long term strategies and reputational issues
• Problems can occur when marketing departments are brought in too late to a project. Without being engaged properly, they are less likely to “get it” and communicate the aims and objectives in an effective manner
• A “top-down” approach isn’t effective or appropriate. The most effective sustainability communication projects are characterised by both marketing and sustainability departments working together in a collaborative way
• When working collaboratively it is vital that the processes are in place – e.g. a mutually agreed timeline, access to shared documentation, regular meetings, roles and responsibilities agreed
• Mutual respect is vitally important. Sustainability and marketing professionals should recognise each other’s areas of expertise (and not try to do each other’s job)
• Both departments need each other – a marketing department needs content for campaigns and sustainability department needs to communicate its strategy
• Working together in a collaborative way, founded on mutual respect is a must for any business wishing to be a leader in sustainability
What level of technical expertise do you need in-house on environmental technologies
What parts of the business need to be brought together on a large scale energy efficiency project – How do you do it?
What does the Sustainability Function need to do to embed sustainability in core business strategy?
Embedding Sustainability into the core business strategy is the role of the senior Sustainability leader, they have to articulate it and operationalize it. This discussion focused on the key considerations for embedding Sustainability into core business strategy.
Our discussion followed from the plenary theme regarding the role of the CSO, looking specifically at what the Sustainability function needs to do to embed Sustainability into core business strategy. The table identified the following key considerations:
Understand the business drivers and associated material Sustainability impacts. Sustainability leaders need to understand:
• The business drivers, strategic direction and key performance metrics,
• The material impacts e.g., supply chain, operations etc.
• Sustainability drivers – reputational risk, license to operate, cost savings, business growth opportunities defined as (danger and opportunity)
Develop an action plan
• Develop measurable goals
• Clearly articulate and provide a roadmap to deliver benefits
• Provide case study pilot examples to prove the business case
Understand resource allocation priorities. Key strategic decisions may involve compliance with Sustainability either from a regulatory perspective or from a peer company perspective. The Sustainability function needs to:
• Understand business ambition - leading the pack, in the pack, not important which impact the level of resource and attention.
• Be adaptable – change tactics if one tactic does not work, understand the impact of changing tactics on long term strategy.
Understand the changing external environment. Companies operate in a rapidly changing external environment. The Sustainability function needs to understand:
• The changing external environment – what is happening in international, regional or local regulatory markets?
• What is happening with key NGO or stakeholder initiatives – a campaign by either NGOs or investors can rapidly change a company’s sustainability position.
Use communications as a strategic tool. Communications play a strategic role in embedding Sustainability into core business strategy.
• Communications from the company leadership sets the tone from the top – personal inspiration of the leaders was cited as being very important. They can also facilitate an internal culture that is more open to change.
• Communicating the story internally can unleash energy and innovation
o Understand the business drivers and associated material Sustainability impacts
o Develop an action plan
o Understand resource allocation priorities
o Understand the changing external environment
o Use communications as a strategic tool
The carbon floor price deconstructed – what does it mean for UK plc?
The carbon floor price (CFP) is one of the more provocative policy measures introduced as part of the wider the Electricity Market Reform (EMR) consultation. Under the scheme, all businesses that supply fossil fuel to generators of electricity , including power stations and auto-generators plus generators using oil that currently reclaim fuel duty will become liable either to the climate change levy (CCL) or fuel duty; i.e. the exemption from CCL for solid fuels, gas and LPG will be removed. Such supplies will be charged at the relevant carbon price support rate, depending on the type of the fossil fuel used, which will be determined by the average carbon content of each fuel.
The CFP will start in April 2013 at around £16 per tonne of carbon dioxide (tCO2) and follow a linear path to £30 per tonne in 2020 to drive investment in the low-carbon power sector, rising to £70 per tonne by 2030. The target carbon price for 2013 has been set at £16/t in 2009 prices or £19.16 inflation adjusted nominal. The Government has said that the carbon price support rates for 2013-14 will be equivalent to £4.94/t. This tax rate is now set for 2013 and the government expects to raise £740m from this tax in the first year. For 2014 and 2015 the government estimates the tax rates will be £7.28/t and £9.68/t, but these are not yet fixed, but will be re-calculated two years ahead of implementation and then fixed.
Because the CFP is essentially an additional tax on UK emissions, UK power prices will doubtless rise as a result, bringing in windfall profits for renewable and nuclear generators. The market has already seen an 8% increase in long-dated power prices, equivalent to around £2/MWh as traders factor in the additional cost of the CFP. However liquidity has dried up for power contracts beyond 2014 as the tax rates have not yet been set.
The cost impact of the scheme was one the main themes to emerge during the discussions, with suggestions that the higher power price has improved the business case for energy efficiency projects. Some argued that actually the tax rate should be higher if the government really does want to stimulate change as it was felt that at current levels £2 in year one is not going to make a dramatic difference on behaviour, and unlikely to until the target price increases towards 2020 and beyond putting the UK’s climate targets in doubt. However, the prospect of increasing fuel poverty numbers must be weighed up against the benefits of pushing for a higher target. The threat of carbon leakage was also discussed with the CFP expected to distort price signals in the UK verses the rest of Europe; Sweden is following developments in the UK closely with a view to potentially introducing a similar scheme.
The issue of complexity was discussed with the consensus view that paying for carbon essentially through four different policy measures (EU ETS, Climate Change Levy, Carbon Reduction Commitment, CFP) was cumbersome and overly complex and a far simpler way of taxing carbon needs to be introduced. It was suggested that the current system makes it very difficult for businesses to place a value on carbon. It was felt that as a policy measure the CFP was well intentioned by crude in its implementation, with the main criticism that it offered no transparency to end users as to the true cost impact. It was suggested the government follows a similar lead to the landfill tax, which is easy to understand, the cost increases are transparent and is easy to benchmark performance against. It was felt that without change for the CFP to be effective it must deliver long-term investment signals and be open and transparent. The Government must also reassure investors that this policy is there for the long-term and will not subject to change a few years down the line.
As an alternative it was suggested that rather invest the billions in low carbon generation, which may or may not deliver, a better way to achieve part of the decarbonisation targets would be to plough this money into improving energy efficiency across all sectors, beyond what is already in place and investing heavily in public awareness campaigns.
• The CFP is good in principle but there is skepticism about its true benefit other than bringing in windfall profits for renewable and nuclear generators
• Government must simplify its policies towards carbon – businesses want transparency and the current system fails in this regard
• Introduce a single carbon tax which increases yearly (similar to the landfill gas tax), and is payable by all sectors
• Redirect funds to increasing energy efficiency standards and public awareness campaigns.
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