This is not just Sustainability - this is M&S Sustainability. Ok, enough.
We are devoting our September Green Monday to Plan A at M&S. It is a pleasure to announce that 2 of the key people behind Plan A will each speak, before a 30-minute Q&A session. M&S' willingness to share its strategy and the lessons learned from 4 years of Plan A speaks for its commendable collaborative approach. This is a unique opportunity to learn about one of the most successful change management programmes around Sustainability.
M&S recently published its "How We Do Business Report 2011 ", a 50-page document reviewing its own progress against the 180 targets that make up Plan A. The breadth and depth of the programme is remarkable - we can find companies who have greater ambition on any one target, but we are not aware of any company that has put in more effort to engage all stakeholders, from customers to its own pension scheme.
Plan A is an inspiration for many companies because it is a victory for a large number of small initiatives. Other Sustainability leaders such as Siemens, GE and Philips have significant revenue opportunities that drive the agenda internally. In 2010/11 Plan A contributed £70m to profits, around 10% of group pre-tax profit, with energy efficiency being the single biggest contributor.
We expect the evening to focus on the following areas;
What can we learn from eco stores?
Time – Using the fourth dimension to make supply chains sustainable.
The group examined the role and relevance of timelines in the creation and implementation of a sustainable supply chain program. What determines the timeline? What tactics can be used to drive a program in time? What are the limiting factors and the implications for companies choosing to progress at a specific pace?
Those in the construction, and mining sectors operated with very long asset lifetimes measured in decades and struggled with how to connect decisions taken today with impacts over such long time horizons, in some cases beyond the anticipated lifetime of their organisation. The adoption of whole life cycle costing was a relevant tactic but one necessarily based on an understanding limited to current technologies.
Similarly companies involved in IT infrastructure projects had a vision of benefits long term but struggled to find the metrics to connect these to the present.
This opened a general debate as to whether long term targets to 2020 or as far as 2050, which seem to be the norm, can be easily translated into year on year targets for procurement and their suppliers.
The consensus was that it was necessary to measure supply chain progress annually to ensure both internal and external accountability to demonstrate progress (since individuals’ roles might vary in duration). However it was agreed that this should be done in an informed way – that is, to understand that progress may depend on innovation adoption curves and being well informed about when these would become available. The link between social and environmental issues was recognised and that the underlying issues are often long term and intertwined in their root causes and potentially in their solutions: The work of SETAC on Social LCA and its integration with Environmental LCA was mentioned as an example of this thinking.
Another challenge in both mining, construction and IT was reconciling a project based mentality which drives towards milestones and deliverables with an operational set of goals driving towards long term outcomes. There could be value in cross-industry benchmarking on this topic.
In contrast to businesses with long time horizons some retailers asked how to connect with the fast turnover of their fashion lines. It was recognised that while individual lines might have sort shelf life each category often had persistent and long standing issues along its life cycle and addressing these should therefore be effective. This could work either through long term collaborations with core suppliers or with industry associations or knowledge hubs. The key to collaboration was trust and again this meant a commitment over time to work with suppliers to solve common challenges.
It was recognised that although to some extent companies and their suppliers are dependent on the technology cycle for solutions to become available they can choose their adoption behaviour to decide when and to what extent they embrace implementation of that technology. Collaborative initiatives could help speed overall innovation but again companies seeking competitive advantage would have to build on this baseline.
Ensure you connect long term goals with the here and now
Do measure annually to ensure accountability but don’t expect linear progress where innovation is required
Look for synergies between persistent Social and Environmental issues to drive both more rapidly
“Slow down fast product cycles by focussing on underlying issues along the category lifecycle
Build trust to accelerate collaboration with suppliers
Applying the carbon management lessons from Plan A to our businesses
The evening’s topic was intended to explore whether and how the M&S Plan A approach to sustainability and carbon management could be applied in diverse corporate environments. The conversation explored the elements that seemed to make Plan A particularly effective, and their broader applicability. As a result, participants were able to more critically think about the achievements and usefulness of Plan A versus their existing efforts.
Participants gave the M&S Plan A team consistent high marks for the internal communications efforts that helped integrate the initiative throughout the company:
• Making the financial case early on to overcome shareholder or FD scepticism – general agreement that this should be emulated.
• Developing clear targets and devolving responsibility to the lowest practicable levels – being done in some cases but still a stretch for many companies
• Breadth – seeking modest savings across the company instead of relying on a few “big wins”
• Clear governance structure from the CEO downwards, and consistent and transparent reporting – another positive approach, but relies on strong leadership from the top.
Participants noted that the Plan A carbon management targets do not go far beyond those of many other large companies. What is interesting is the approach they took to achieving them. Without detracting from the strenuous efforts of the Plan A team, participants noted that at least some of the positive publicity comes from the company’s existing brand image. Plan A fit well with how customers expected M&S to behave. That said, even companies without a pre-existing halo could rapidly become environmental leaders – WalMart/Asda was presented as an example of what is possible.
How necessary is it to measure the contribution to profit of a Sustainability programme?
A great discussion from a wide ranging group around the table. There was by no means unanimous consensus on the topic which was not unsurprising considering the mix.
In summary the group response would be that measuring the contribution to profit of a sustainability programme is undoubtedly difficult but the rewards can be worth it and in some cases the survival of the sustainability programme can depend on it!!
To illustrate how polarizing the topic is the debate opened with two opposing opinions. One school of thought is that the profit contributor could help justify “one’s existence” on top of other benefits to the organisation. For any programme it was “always healthy to put a number on it” .This was countered by an opposing argument that “we should not be holding ourselves to account” and that finance should not come into it - the KPIs for the sustainability programme should not include financials.
It was time to dig into detail and agreement was reached that the methodology for measurement of contribution to profit from a sustainability programme is key. If the methodology is not credible then the numbers will have no weight, internally or externally.
Everyone agreed that at its simplest the contributor to profit was in cost savings (in energy and minimization of waste) and there was universal agreement that this should be done as a minimum. The effect of a sustainability programme in terms of increased revenue from marketing edge and enhanced brand position is more difficult to quantify. Furthermore, a lack of a sustainability programme may actually exclude companies from a bidding process – this would have a dramatic impact on profitability! Similarly, having a credible sustainability programme in place enabled sales personnel from one company represented to successfully handle specific enquiries. However, who eventually laid claim to profit contribution for increased/retained sales was up for grabs!
The debate then took explored the differences in approach by B2B and B2C companies. B2B providers can range from clients having no interest in sustainability credentials to stipulating them as part of the procurement process. For B2C companies the dilemma is that those products aimed at the younger generation can benefit from “green appeal” but those with an older clientele may struggle to explain the far reaching befits to all from sustainable practice.
As usual, timeframes and paybacks secured their place in the discussion. If a report on profit contribution was to be made it should be on a longer timeframe than normal financial/operational KPIs – perhaps a 3 month horizon rather than monthly reporting. Similarly the importance of capturing full lifecycle impacts (and of course benefits) were seen as essential. Undoubtedly more difficult to implement but providing a better holistic view of the whole programme. There will be no “one size fits all” approach regarding timeframes with companies represented ranging from infrastructure providers to food retailers.
Before the guillotine struck and we had to wind up the discussion we had a brief foray into the future when we considered what would happen when all (competing) companies reported profit contribution from sustainability. Questions were raised such as “Will the savings from energy and waste reduction simply be commoditized and need no specialist input?” “Will the impact from increased sales (brand positioning, marketing, public awareness) override the simpler cost reduction profit?” “Will the profit contribution be such that a company could not risk jeopardizing the sustainability function.? “
It would be enlightening to repeat this exercise once we have more case studies and detail and more companies like M&S and flagging up the profit from a sustainability programme.
Do consumers need to know how sustainable a product is, or are we now at a point where “sustainable” means cheaper?
Participants disagreed immediately with the ‘sustainable means cheap’ presumption and examined the different perspectives of business versus high street customers and their expectations relating to sustainability and cost.
• There’s an increasing requirement from businesses for sustainability information about products and this is becoming an important factor in a business’ purchasing decision. They expect more detailed and complex information and they have the expertise to use it in their decision making.
• However, for high street customers the issues are generally too complex and the ‘cognitive burden’ of additional information is too much. The customer just wants to be able to trust the entire brand rather than to think about individual products.
• With respect to costs, rather than thinking that sustainability means cheaper, the perception is that a low priced product can’t be sustainable and that sustainability increases costs, certainly in the short term. Business and high street customers don’t see sustainability saving them money
• Where companies are delivering sustainability and cost efficiencies in the supply chain, for example through sea rather than air freight, this is not believed to be translated in to lower costs for customers.
• For businesses, there doesn’t seem to be an immediate benefit in telling the high street consumer about sustainability unless it’s a deliberate feature of the brand.
• Some brands may actively avoid communicating points about sustainability because of the association with ‘cheapness’. So luxury fashion brands are concerned that sustainability is associated with bad design and poor quality manufacture so they don’t communicate it. A similar situation is seen with wine buying. Apparently consumers avoid the ‘eco-labelled’ product in favour of an alternative, even when the price is the same, as sustainability is associated with quality issues.
• There is a clear distinction between the business and high street customer in terms of the need and expectation for sustainability-related information.
• Sustainability is perceived to be more expensive rather than cheaper
• Customers won’t pay more for ‘sustainability’ unless it’s an express part of the brand which they actively support and choose.
• There is no immediate benefit in telling the customer about sustainability features unless it supports them saving money, for example through their own use.
• The benefits for a business are in the corporate communications arena and impact on reputation rather than at individual product level.
Does ambitious target setting drive innovation in technologies and business models?
We started by reflecting on the role of targets in stimulating innovation, based on the keynote presentations and personal experiences around the table, and broadened this to a discussion of key drivers and barriers for sustainable innovation.
clear, target-based regulatory/legislative framework is important, but that framework should be flexible and outcome based, rather than prescribing a limited set of technologies or solutions Regulators perceived as being one step behind, limiting the range of solutions that can be employed. Tension between wanting solutions that are new, but also for which the benefits are proven.
• Value of labels obvious for areas such as cars (equivalent to pounds in the consumer profit) but their wider utility was questioned by the group.
• Targets must be bought in to (and seen to be so) at highest level (Board) to get traction within company and gain the attention of the investment community
• RoI is critical – targets must allow tangible benefits, as well as setting a vision. Public sector has a role in providing support which mitigates the risk
• Lots of emerging technologies are available; the challenge lies in integrating and implementing these in real-life situations
• Importance of pioneers - M&S, Google, Ikea etc to show wider industry what is possible, and help set expectation of what should be done (a kind of peer pressure). In many corporate environments, organic growth of sustainability programmes (like M&S Plan A) is difficult – external stakeholders including investors have a key role to play.
• A good sustainability strategy is becoming a key part of the investability of a company. For some businesses – e.g. high energy consumers, this is obvious but more broadly investors are interested in companies that will prosper in the longer term. Good Sustainability strategies are increasingly associated with long-term growth by the investment community.
• Risk of taking a one-dimensional technology-based approach – don’t neglect business models, consumer innovation.
• Importance of systems approaches (perceived as a gap) – importance of localised approaches (important for minimising transport impacts), industrial symbiosis, role of procurement. Where is the support for these kinds of approaches?
Our high level conclusions from a wide ranging discussion were:
• Allow companies freedom to innovate – the regulatory framework should not restrict choices, but be based on outcomes
• Importance of external stakeholders, in particular the investment community, in providing traction for sustainable innovation programmes
• Systems approaches are important, and harder to implement than technology-based innovation
Many third party energy efficiency solution providers can’t understand why the market isn’t taking off, but do they understand the corporate position?
One of the major cost saving initiatives highlight by Mike Barry, Head of Sustainable Business for Marks & Spencer, was reducing energy consumption by 25%. The table discussed why, with the handful of case studies in the market such as Marks & Spencer, why other firms were not towing a similar line with regards to energy efficiency initiatives and some of the ways in which firms are able to overcome internal barriers.
• While the table agreed that over the past 3 years suppliers have been frustrated with the inertia in the market, some suppliers have seen a recent shift in demand for energy efficiency programmes over the past year
• To date, most large corporates in the UK have been too obsessed by legislation that focus on carbon rather than energy. The focus on legislation has led to a large degree of uncertainty in the market especially with regards to energy efficiency investments
• Many firms demand a short pay back of 18 months or even less in some cases, which limit the types of energy efficiency projects that are able to be implemented, because of this, many firms implement low or zero cost initiatives
• The table agreed that many solution providers do not understand the situation or the intricacies of the problems that large corporates face and consultants tend to simplify matters and also address energy efficiency in an issue specific manner rather than in an integrated approach
• Understanding the corporate culture, having accurate data offering an integrated approach to energy management was seen as mostly desirable although depending on the maturity of the firm’s energy or sustainability programme the level of sophistication of technologies implemented will vary.
• Engage relevant stakeholders
• Address behavioural issues
• Collect and centralise accurate data of sufficient quality to inform management decisions
• Develop a strategy around this data that makes operational sense to your business
• Implement those technologies that complement your sustainability strategy
What are the main lessons we learn from M&S in creating and initiating an effective change management programme?
Lessons from M&S's Plan A.
- This is a fantastic achievement around Plan A in terms of environmental position, but also in terms of the money saved and revenue streams generated.
- One member discussed firms that are doing things around Sustainability but left feeling frustrated that things were not happening fast enough. However the return on investment shown by M&S was a powerful argument.
- There was agreement that the branding of M&S was powerful and the very public message of intent understood by a wide audience
- One attendee felt struck by the phrase used by the speaker: that M&S had now understood it had to ‘take away the burden of the customer’ on sustainability and choices.
- They also felt M&S had very clear governance and how it started out with clarity from the very top of the organisation.
- Others said that in their organisation the problems arose as there was no leadership on sustainability or accountability and targets.
- At the heart of the plan, it is a successful change management programme.
- There was then a discussion around the reward and incentive scheme that M&S pursued and how that could be copied in other organisations, with examples given of applications for a reward of supply change improvements.
- Others added that motivation needed to come before financial reward and it is important to get across that it is the right thing to do.
- One member said people needed to be educated to a minimum level about climate change and sustainability.
- The panel discussed the initial risk and costs putting companies off, however the focus should not be on this, otherwise nothing would be done.
- Finally it was discussed that the programme, is shown to help a business to do the basics better, better sustainability, better engagement with stakeholders and better products.
Is energy policy slipping into the shadows as energy price inflation becomes a more real driver?
The focus of this month’s round table was exploring the role of energy policy in driving business investment decisions or whether other factors such as the prospect of higher energy prices are more of a driver.
The discussion opened with a question about the role that energy policy plays. The consensus was that energy policy is perhaps moving too far down the path towards centralisation, rather it should be left to markets to decide. It was agreed that Government’s role was to set a framework within the context of wider global and EU mandates, but domestic policy should be kept at sufficient arm’s length to allow businesses to innovate. The UK’s climate targets were cited as a good example as the Government has a clearly stated long-term vision to reduce emissions by 80% by 2050 which gives business an objective to work towards. However few felt they can say the same about the UK’s energy policy; there was a perception that the long term goal wasn’t clear – what is the Government trying to achieve, is to ensure that the lights stay on or is it to push as much renewables onto the grid as possible? There is also sufficient reason to expect policy measures will be reworked in the coming years which is likely to hinder not help investment as it reduces investor uncertainty.
Policy certainty is regarded as being crucial if the government’s long-term climate change aspirations were to be realised. The government though was urged to be flexible with its approach towards energy policy but to do so in the context of wider transparent framework.
The overriding opinion was that energy prices will increase over the long term and that business must be prepared for that. Recent developments in the Middle East, the Japanese nuclear crisis have added a new level of risk to the future energy landscape. It was felt that businesses need to account for these external risks when planning for the future or looking at projects to invest in. A high priced environment certainly improves the business case for lowering consumption or investing in energy efficiency measures but essentially every decision boils down to the rate of return. It was argued that businesses could be more response to price, i.e. through demand side management although it would need the wide spread role out of smart infrastructure to really ensure that business respond to energy price changes.
- Businesses need to be more pro-active in informing Government what type of policy they want, so as to ensure their needs are addressed by Government policy.
- Government policy should be about setting a framework in which it allows businesses to innovate. It must constrain investment.
- Business need to account for external risks in their investment decisions
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