Integrated Thinking

Monday, October 06, 2014

18:00 - 20:30

Whilst many companies recognise the value in becoming more sustainable, the art lies in the mechanisms that take sustainability into core business decision-making. Without these, sustainability is left in a silo, and the end of that story is already well documented. Success matters, both to value creators and society as a whole.

Our October panellists were invited for the progress they’re involved in. They discussed the initiatives that work, including integrated reporting, performance management, new reporting structures, external advisory boards, natural capital accounting and the circular economy.

We heard their stories.

  • John Lelliott, FD of The Crown Estate, explained its Total Contributions formula for calculating the impact it is having on the UK, and how it shapes decision-making

  • Catherine May is Group Corporate Affairs Director as SABMiller, which was recently singled out by The Economist for having a “deep” green strategy – how has it achieved it?

  • Steve Lang, Partner at EY, on the value of sustainability to organisations.

The introductions of these initiatives are not without tensions. Many of the benefits are hard to measure and / or appear only in the medium or long term, which may be beyond the horizons of some stakeholders. How are the pioneers overcoming these obstacles?

We built a crowd of the different actors who are working on sustainability-led change management programmes, who shared experiences through the debate and roundtables.

Speakers

Anette Timmer-Larsen Desso

See bio

Catherine May SABMiller

See bio

Emma Howard-Boyd Jupiter Asset Management

See bio

John Lelliott The Crown Estate

See bio

Steven Lang EY

See bio
Round Tables

Integrated thinking

This table will digest the panel discussion, and consider the different mechanisms available to companies that want to take sustainability out of a silo and into mainstream decisions. Should the “CSR Department” be closed down, and which companies are leading the way?

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This is agreed by everyone at the table that although sustainability should be embedded across organisations, there is still a role for a sustainability team, including:
● Coordination: embedding sustainability across business and producing/championing ideas
● Advocacy role: to the board, e.g. Kier with CEO, or BT communications with investors
● Articulators: of values (Tesco), or to translate between different sets of terminology (BAE)
● Illuminate the darkness: sustainability departments get into the cracks of the organisation to develop resilient businesses by breaking silos across the business

Guises and language
Sustainability is often rebadged, for instance referred to as “capability” and “resilience” at BAE and in these terms sustainability-related thinking is integrated through the business.
At Tesco and Canon, the terminology is around meeting customer expectations, hence “trust” and “value” for Canon, and “quality”, “ethical trading” “customer loyalty” for Tesco are the language linking sustainability and marketing teams. Canon have matrix reporting in the sustainability team (procurement etc.) so there is diversity of representation and opportunity to try many different languages and they become a conduit to communicate.

Drivers
Drivers are not always expressed in sustainability terms, but may have sustainability outcomes. E.g. at BAE, impacts of operational efficiencies, energy efficiency, advantages of renewables / grid energy and financial sustainability of suppliers are considered across the business and these considerations may result in sustainable solutions though “sustainability” is not a priority. For Arqiva, if this is not integrated throughout, an individual or team such as an energy manager could become a silo or a bottleneck within the business.
At Canon and Tesco, the customer drives changes and the terminology above is used to communicate this through the business. Expression of sustainability values is a key to attract the right new recruits at Canon, hence a need for sustainability and HR team collaboration.
At BT, risk and assessment have moved to a growth target. BT must help customer save 3X the amount of carbon as BT is responsible by 2020 (currently the ratio is 1:1). The sustainability team must communicate this throughout the business to meet the target.
Many agreed that investors are not asking sustainability questions. For Kier, CR is a key element of communications and clients want to see statistics. For Kier projects, all social and environmental impacts must be considered and hence a CR department is needed to gather all the information. As analysts don’t ask questions about CR, the COO must understand how important CR is to customers. BT consciously engages investors to communicate sustainability through dedicated meetings. For Southern Rail, the government is not setting sustainability targets, hence internal mavericks and drivers are needed to make sustainable changes.

Show me the money

For the past two decades we have been trying – largely unsuccessfully – to devise metrics to support the business case for sustainability.  Is it time to abandon this journey and, like Unilever, accept that managing sustainability is integral to running a successful business?

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Question posed by Peter Knight: What issues have you encountered when trying to make the ‘Business Case’ for sustainability?

Obstacles

• Short termism (in the renewables sector) is a real problem because ROI is long term
• Finding the business case for the contractor is harder than the client
• The lack of ecological literacy means it is hard translating issues into what that means for your business
• It is difficult to make the business case to react to perceived or future potential risks
• Having huge and complex supply chains that interact with many different areas means there are only so many issues you can focus on
• It is hard to convince people to be transparent/collaborate in design industries which rely upon intellectual property and having a competitive edge

Warnings

• In very visible industries such as clothing and apparel compliance isn’t enough otherwise you will be caught out by the press

Solutions and Advice

• Companies learning from each other - a few pioneers lead and then the rest will follow
• All externalities have to be internalised, putting the triple bottom line at the core is essential. If the value of the ecological/environmental systems were added into past businesses their profits would have been wiped out
• As a sustainability manager you need to connect with your fellow colleagues, engage with them and create passion around the subject
• Engage with and get inside the head of the current and future key influencers/decision makers within the company. Show them how the sustainability agenda can resolve the issues and capitalise on the opportunities their particular department faces and get a bit of competition going to start reaching various sustainability metrics. However, there is no golden rule, it depends on individual company find the levers and buttons persist
• Focus on it from an ‘identifying commercial opportunities’ point of view rather than ‘avoiding financial risk’ point of view
• Companies should be transparent about the factors that affect their business sector and then collaborate on common goals in a non-competitive space by sharing ideas, tools and resources
• If you present sustainability issues as risk/self-preservation it is far easier to make the business case
• A sustainability mind-set needs to be integrated throughout the company because one person cannot force it through

Examples, Success Stories and Future Ideas

• Solar Century’s Solar Aid Charity– Not reporting on ROI when building and designing multipurpose ecological habitats around solar farms enabled us to innovate and take more ‘business risks’ than we would have in a typical business model
• Skanska- We are working with the finance department to value or values, until now we’ve never wrapped it up and sold it externally. For example, we could show out total impact- highlight how we could have doubled profits but instead spent it on sustainable initiatives
• Vodafone- It’s important to know when to let go within the CR department. For example, at Vodafone the CR department developed a mobile payment system which is now being used across Africa. However, we had to let it out of the CR department and let Business Development take it so it could take off
• British Gas- We have a separate entity innovation lab which isn’t about making a business case, its role is to undermine the main business, saving the customers money and using less energy. It’s about doing the right thing for the customer. That’s what gets our staff motivated because they’re not trying to sell a product for the sake of selling but because it will actually benefit the customer and the planet

Setting priorities – broad or narrow?

Most sustainability programmes have 10 or more focus areas, some have over 30. Are narrow focused programmes more likely to get internal buy in than broad ones? How should focus areas be determined, and should they be included in management remuneration?

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How should focus areas be determined?

• For Pret a Manger, the breadth of the focus areas depends on their depth. For example, they have 5 key priority areas that they decide in hierarchical terms where they want to be in terms of pioneering or performing. As a food company it makes most sense for them to pioneer around food sourcing. Many focus areas do not generate direct financial returns but constitute an important part of their brand value e.g. their giving away food differentiates them from other brands. Selling high welfare chicken on the other hand is linked to traceability and their license to operate.
• Measuring value from sustainability programmes doesn’t always have to happen in financial terms; it should be focused around the purpose of the business. What does the brand stand for/what is its purpose beyond generating a return? If it important to business to be supportive to society in a certain way then measurement can happen around a number of people supported and other social metrics.
• Broad and narrow are subjective terms inherently dependent on the context e.g. what is narrow for Unilever might be too broad for many other companies.
• ‘Sustainability programmes’ as a term should be a thing of the past; businesses should be sustainable and these should be business programmes.
• Setting priority areas extends as far as deciding which customers to work with, for example the recent case of some of the world’s top PR companies ruling out working with climate change deniers.
• Ultimately, setting sustainability targets should be about the ‘that makes sense’ moment, e.g. Kingfisher has many Focus areas but what really stands out is their commitment to timber, as a business heavily reliant on timber.

What are the most challenging areas to generate internal buy in for and what are some of the ways to overcome this?

• Some sustainability areas are naturally more ‘glamorous’ than others; e.g. apprenticeships vs. energy efficiency. Employees need to be better incentivised.
• Marketing can be used as an example of how sustainability should be integrated within the business. Marketing is a process but also a function; sustainability also needs to have its plan and budget driven by a team, but then also incorporated into core strategy.
• Who the sustainability team reports to matters – Pret’s reports to the COO and the function is embedded within the strategy team which shortens the communication to the CEO and ensures that their voice is heard when it comes to more marginal less attractive headline areas.
• Naturally it is about communication and awareness – which is increasingly common. Whilst the previous generation grew up in a world of plenty, today’s generation is far more aware and selective in terms of their choices.

Should sustainability priorities be incorporated into remuneration packages?

• Procurement is a good example of a function within a business typically incentivised to obtain the lowest price, which creates tension with other teams with different sets of KPIs. Remuneration needs to be streamlined as clearly the most socially natured individual would be tempted to look the other way. There must be a way that ‘people don’t chuck their humanity at the door’, one way to do that is through top down remuneration packages and KPIs that ensure these values are integrated in the company. Procurement teams need to be rewarded for obtaining the best price without breaking human rights, i.e. Remuneration needs to be placed within the parameters of sustainability.

The organisational structure

Where does sustainability best report into – finance, marketing, risk or the CEO? Should there be a variation by sector? And what other structural options are effective at integrating sustainability into decision-making - external advisory boards, performance rewards etc.

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Obstacles:

There can be a gap between what different teams want when departments interact. Is this gap only a perceived gap or is it real? We need far more integrated thinking at a corporate level.

The goal is to upgrade sustainability from a compliance issue to a business opportunity integrated in the operational side of business, a value drive. This shift depends on the degree of maturity of your company and the sector in which you operate. Competition can also be a driver, i.e. Interface for Desso. It also depends on customers, and whether they’re consumers or other businesses. For HSBC, there is value generation through compliance.
How important are dedicated sustainability structures? These can work if they are i) integrated to the money making progress and not seen as a hindrance; ii) if they have strong leadership support; iii) if the governance structure is stable to keep sustainability objectives going.
Advisory committees can contribute to the sustainability policies of companies. Panels and committees are also set up to listen to their employees and external stakeholders requests. It is vital to clearly define expectations upfront, however. External input from community investors, NGOs and customer expectations can also contribute input to corporate sustainability strategies.

Red Flags:

Before you communicate on sustainability you need to look at what you’re producing and how you’re producing it. For example, on the operational side of things, one of the biggest challenges is to get suppliers involved.
The problem is the notion of sustainability is often too broad and is turning people off. One size does not fit all and the definition varies depending on the organisation and type of business, but it also changes with time. For example, environmental considerations were the priority a few years ago, now the focus seems to have shifted towards social impact.

Takeaway points:
- Leadership, more than structure, is important to promote a sustainability-focused culture
- Executive / board level committees are an important but not necessary element
- Governance is key for a resilient sustainability policy
- Different levels of maturity impact the sustainability structure of a company: one size does not fit all.

Integrated water

What are the different ways that companies can effectively factor water into mainstream business decisions? We’ll explore an array of solutions, from the use of shadow pricing to water footprinting, and putting water on the risk agenda. Who are the leaders?

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Obstacles

• It is hard for some businesses, especially breweries, to move operations once you've set up shop so you need to make sure you identify and analyse your risks correctly before moving there
• Knowing the key questions to ask when starting to buy from companies, or making capital investment decisions, is tough. Where to look and what to analyse are areas that businesses need guidance on
• If major capital investment is needed to mitigate water risks, the company needs to somehow demonstrate payback, even if they are very far off in the future

Warnings

• Companies don't have to pay for water in Bangladesh. Very few people care about water efficiency as there is no permit needed to abstract water and there is no price attached to it. More interested in energy efficiency for the opposite reasons.
• Differential pricing of water (domestic vs. industrial) can lead to conflicts and companies using water earmarked for domestic use.
• A lot of the risk around water quality – as important or more so than water scarcity in some instances

Solutions

• The WWF ‘Water Risk Filter’ and the WRI ‘Aqueduct’ tools gives companies a good place to start analysing water risks
• SABMiller – In the process of publishing the processes used for identifying risk and making the business case for managing water
• Water footprinting good for engaging suppliers but not for engaging customers. Good educational tool. (AS) Looking at where there's risk is more important for driving the agenda forward
• Working with companies and suppliers to understand the impact of their water use is important. Educating people on understanding impacts such as "Where does your water go"
• Bring someone with you who is a sceptic to the next Crowd event – break down barriers

Examples

• SABMiller - Identifying stakeholders who share the same water risks. Supply chain is a lot more visible to breweries as it is simpler because of buying directly from growers
• Collaboration work with farmers in East Anglia on better managing water risks
• Moving towards drip irrigation in East Anglia resulted in a 60% improvement in water efficiency.
• Companies starting to work with the same growers. Identifying people that buy from the same suppliers is a challenge but needed for effective collaboration.
• Created an efficiency competition in breweries which is driving and delivering improvements.
• Zambia watershed management - water pollution and scarcity. Mapping stakeholders.

Opportunities

• Supply chain risks and management. Collaboration is something that isn't done enough.
• Local teams engaging stakeholders around the world on identifying major water users. Understanding who else shares the same risk.
• Being able to identify sites based on water availability/water quality will be extremely helpful

Data & decision-making

Surveys show that 36% of organisations are integrating sustainability into their data and analytics work (McKinsey 2014). How can organisation use technology to collect sustainability data, and use that data in a way that improves decision-making?

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Data collection

• Materiality assessments to understand priorities
• Need to set a scope – harder when sustainability is integrated into ‘normal’ practice
• Targets help to focus the data collection (but need data to set targets)
• Delegate responsibility for collecting & reporting the data to the relevant teams
• Collating data from across a business & collecting different types of data so that it can be analysed together is challenging - Verdantix has information on the software available

Types of data

• Comparisons between financial spend e.g. on energy (Quality Assessed) instead of raw data?
• Engaging beyond carbon e.g. chain of custody for timber
• Data from the supply chain is very difficult - imagine a time when no individual audits are required but can just access the information
• How do you measure social impact (have less of a financial equivalent)? e.g. apprenticeships & London minimum wage - need industry standards
• Big data – can start to merge these different data sets together

Quality of data

• Receiving good quality data can be difficult e.g. may have lots of different meters to read and may rely on the freeholder for the types of meters
• Employees need to clearly understand the rationale for collecting the data
 ensure that the data collection is locally relevant & material
 don’t frame as sustainability data but e.g. business efficiency data
• Difficult in other countries where standards are not recognised in the same way - set a standard for them?
• In some instances have to make estimations – need to be based on equivalent sites/projects
• This is not a technological issue – logistical & human issue
 Automation; Training; Auditing

Data for behavioural change

• Collecting data regularly embeds the behaviour in the organisation
• Live data provision for comparisons & benchmarking?
• Ranking system between different sites/projects - data can be presented to management
• Connection to monetary reward of employees
• Effective communications on financial savings etc.
• Incentivise innovation at a site level to empower employees & to generate novel solutions
• Use your own examples to catalyse change in others

Data for decision making

• Data provides a connection from the ground to head office
• Need to provide relevant data not just ‘all’ the data
• Reporting can be selective
• Investment community needs less data but relevant and material data for indices and individual company engagement (platforms exist for this e.g. CDP)

The road to Paris 2015

With a real prospect of a meaningful global climate agreement in Paris in 2015, we will digest the September 2014 Climate Summit in New York. With many world leaders attending, many believe that this is where the real progress will be made... what actually happened?

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Key Points during discussion

1. Mark Kenber – (Attended the New York Summit) gave a brief summary on the New York Climate Summit. There were many marches not only in New York but around the World. These could have been better directed, although they did raise the profile of the climate summit.
a. ‘Climate Week’ - a week of events leading up to the main conference
b. More awareness and buy in from CEOs
c. The annual platform is gaining strength leading up to Paris 2015
d. Example of Mexico who have successfully attracted foreign investment
e. China has started talking about ‘peaking emissions’
f. Organisations divesting from fossil fuel related investments and holdings

2. Are there too many commitments for Paris 2015 – should the policy and action landscape be clearer and simplified?

3. 83 million tweets about the climate conference in New York – shows the increasing importance of the talks and a wider awareness by civil society

4. The Price of Carbon is essential for Paris 2015 – will corporates sign up to carbon pricing?

5. Example from Transport for London, Accounting for Sustainability, Blackberry, Mainstream Renewable Power, GE Real Estate,

6. Important themes identified for future CROWD events:

a. Carbon Pricing
b. How are corporates engaging in the above process
c. Risks and resilience of organisations
d. Supply Chains & sustainability

The EP&L & decision-making

Environmental Profit & Loss accounting is evolving as a flexible decision-making tool that can be used for an organisation, a project or a product.  We are inviting existing and prospective users of EP&Ls to discuss their merits and explore its role in an era of integrated thinking.

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Main discussion points:

- Is EP&L a useful tool? = Companies have to look deep into their supply chain. Businesses need to be able to afford the investment/handle the range of environmental impacts.
- What does the analysis involve? = Looking at hotspots. For example start with the beginning of the production process (choice of raw materials)
- At what point do investors see resource scarcity and see companies using resources unsustainably and put pressure on them to change – to what extent are investors doing this? E.g. divestment by Rockefeller Brothers Fund.
- Supply chains and ecosystems are shared, thus leading companies will inevitably come together/be pushed together to take a more coordinated approach.
- If a whole sector looks at environmental impacts together it gives a different picture to companies who view it on their own.
- EP&L is not necessarily used as a criterion for sustainability by partners or companies, other practices such as social change can be used instead.

Obstacles/warnings:

- Hard to bed in EP&L, hard to get the tone right. Companies are wary of the response to data publishing + shouting about being sustainable and getting dragged down by one infringement. They are hugely cautious of the impact on consumer behaviour/brand image, but it is hard to measure effectively how many customers you are influencing.
- Uncomfortable truths, lack of social data (putting a face to the environmental impacts)
- Companies must be happy for their customer/investors to know where they’re operating and what the conditions/impacts are e.g. factories in developing countries.

Solutions:

- Bringing people on board who understand the EP&L data and how to convey it to decision makers.
- Quantifying co-benefits to a company or within a community.
- Collaboration within industries, pooling audits – data sharing to create economies of scale.

Examples:

- Sustainable Apparel Coalition + Natural Capital Coalition– introducing pilots with different companies/organisations around the world to agree on a standard universal environmental evaluation + SABMiller looking at water as a commodity rather than a resource.

Interesting points on the side:

- Fashion industry: hard to generalise, difficult to get transparency, big luxury brands not making an impact on sustainability.
- China is set to lose 2% of GDP on cleaning up pollution.
- If the planet is to prevent a two degrees temperature rise, governments will have to put a price on carbon.
- Ronald Reagan’s 9 most terrifying words in the English language: “I’m from the government and I’m here to help”
- Role of government: MPs and government officials need to think about their legacy, not immediate solutions – what their impact will be on the future.

The social impact of products

How can organisations develop products that measurably improve people’s lives? How can society be a lens for product development? Jacobine Das Gupta of DSM, one of the key people behind the recently-launched Handbook ‘Product Social Impact Assessment’, is coming to the UK to share an exciting new framework.

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The social angle is currently lacking when talking of measurable impact. The handbook focuses on three stakeholder groups – consumers, employees and local communities (all those that come into contact with the product). It provides a framework based on a 5 point scale to measure impact upon these groups.

Points of interest:

Wellbeing

- An important focus of social impact. Involved a wide range of areas from working conditions to community development. Are there different standards for each area or an overall framework?
- The most intangible thing measured – currently, measurement is related to the senses. DSM is currently working with universities and scientists to develop a more advanced method of measurement; will need to work with companies to develop the same measurement scales
- Needs to relate to health, social relationships – move beyond production. Wellbeing measurement is hard to drill down to the product.
Common language a solution
- The hope is to develop a common language when talking about social impact, to have certain categories each industry, NGO, etc. shares and understands.
Trust and transparency in the supply chain
- Interest of end users in the supply chain? Users who want to feel guilt free but without information overload.
- Sophistication of consumers - a new generation of consumers will be more demanding of the product information they receive. This may not be directly on the packaging but, should be available online etc. – connectedness and openness.
- How do you organise which information is meaningful to the consumer?

Challenges:

Value – what is value? Impact vs value

- Monetary value – the value of money to the company and beneficiary might be different. Monetary value can be harmful to communication
- Social investments - seen on a case by case basis.

Global scale and cultural sensitivities

- How do you face the challenges of different global standards? Although there may be some consensus, for example on acceptance of a living wage, there is no level playing field across different cultures. National law and government standards could act as a guideline but may not cover the topic (e.g. safety, accommodation). Judgement call on basic standard?

Output and impact – community impact

- Impact is hard to measure – supply chain impact easier to find than impact on the community (e.g. how do you measure the impact of education? Indirectly through literacy etc.)
- How do you balance a product with a positive supply chain and negative product? In the case of food – a product with high sugar/fat content would negatively impact the community, but only if consumed all the time
- How do you connect the social impact of a product to wider social impact?

The B Corp movement

There is powerful momentum behind the B Corp movement, with over 1,000 certified companies across 80 industries and 35 countries, including Ben & Jerry’s and Patagonia. What does B Corp mean, and what is the relevance to big business?

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WHAT IS B CORP?

Backed by B Lab, a 501(c)3 nonprofit based in the US, B Corp is a voluntary certification body that invites companies to become a “B Corp” upon meeting their minimum Impact Assessment performance requirement. Members can compare their performance against others, receive support to improve practices, and publish their “B Impact Report”.

SUMMARY:

B Corp is an engaging framework and certification scheme with an active community and a strong consumer-facing brand. There are over 1000 certified B corps in the world mostly in the US. So far, in the UK there are just 6 certified companies and there of them were at our roundtables. , They are keen to develop a strong movement in the UK. Time will tell how successful the B Corp movement will be in setting itself apart from other similar organisations, such as the BITC CR Index and FTSE4Good in the UK.

DISCUSSION:

What are the benefits of B Corp?

- Impact Assessment offers hard-nosed assessment criteria with a heart – inspires taking learnings through to actions and promotes transparency by asking the right questions
- “B Corp Community” is valuable – B Corp summits are fun and engaging, and the virtual community online is active with social media campaigns.
- The founders of B Corp’s aim was to create value for benefit to employees, consumer and the environment as well as pure value for shareholders.
- Rather than just box-ticking, the B Corp Impact Assessment has resulted in specific, tangible changes For the three companies at the table. Some very simple stuff such as: Setting visible, clear policies about whistle-blowing, charitable giving – obvious things that until you get to a certain size, you don’t do.
- Bi-annual certification and rising targets make certification a constant challenge.
- Consumer facing brand – business to consumer model, rather than business to business, supports customer engagement and prompts discussion and employee awareness.
- Templates available online help B Corp companies develop policies and save time. These templates are used, shared, and developed by B Corp members.
- Impact Assessment questions and difficulty vary by industry and company size, customisation means they are always relevant
- Site visits and fact-checking maintain integrity of assessment and make members accountable
- Inclusive - not just an environmental badge, people and community are really important.

How does B Corp compare to other organisations, such as BITC?

- Consumer-facing brand promotes awareness, can be used as a marketing tool
- “Community” feel
- Adaptable to any size company
- The table questioned whether the standards were as high as the recently re-launched BiTC index.

What challenges to B Corp companies in the UK face?

- A cold start with the first UK companies having to adapt the certification for the UK market I.e. Employee health insurance is not necessary in the UK
- B Corp events only in the US to date – want this to change
- A UK board has been established to lead the movement in the UK
- Where does the rating fit in a CR-saturated UK market, with BITC, FTSE4Good, and other organisations promoting similar benefits?

What is the relevance to big business?

The table recognised the value of B Corps for smaller entrepreneurial companies that need to introduce good management practices for employees, whistleblowing and charitable giving. But for large companies for whom such policies are business as usual the attractions of B Corps might centre more on the potential strength and value of the consumer facing brand In the UK market.

Venue Detail

Bank of America Merrill Lynch: King Edward Hall

King Edward Hall | 2 King Edward Street | London | EC1A 1HQ

Directions

Bank of America's offices are a very short walk from St Paul's tube station (Central Line). Exit the station at Cheapside/Newgate Street. Go past the BT centre, with it on your right-hand side and take the first available right down Edward Street. Continue down this road for 80m and the entrance to the venue is on your left-hand side.

Do not go to the main reception desk at their offices when you arrive. You are looking for an entrance that leads you directly into the King Edward Hall.
Who's Attending