Businesses Benefit by Adopting Sustainability Strategies

• Widespread reports of reduced costs, more efficiency, new market opportunities. 
• Lack of good information and doubt over value of reporting need to be addressed. 
• Governments urged to speed new regulation

New evidence of widespread moves by companies to seek out and adopt sustainable business practices is emerging from a global research project commissioned by KPMG International and previewed this week at the United Nations Climate Change Conference (COP16/CMP6) in Cancun, Mexico.

 

Early results from a survey of 378 large and medium-sized companies spread across 61 countries show that 62 percent already have an active sustainability program in place, and 11 percent are currently developing one.

 

Carried out by the Economist Intelligence Unit (EIU), A Review of Corporate Sustainability in 2010 reveals a clear increase in the numbers of companies with active programs. A similar survey released in February 2008 showed that at that stage, just over half of respondents had a sustainability strategy in place.

 

Among the reasons for adopting these programs, pressure from regulators and a rising concern over the potential for brand and reputational damage featured strongly in companies’ early thinking.

 

But many respondents reported rising support for sustainability on operational and commercial grounds once the practical benefits were realized.

 

Overall, 61 percent of those with sustainability programs found that, despite some increase in investment, the benefits clearly outweighed the drawbacks.  This rose to 72 percent among the very largest companies, with revenues above US$5 billion.

 

Benefits identified included significant reductions in energy costs, improved relationships with customers and suppliers, and more efficient use of resources, especially water. Some have found that a focus on sustainability has stimulated innovation in their companies, leading to new product lines and opening up new markets.

 

One respondent with a long-running sustainability program reported payback of US$1.50 to US$2.00 for every US$1.00 spent. “The demand and preference for sustainable business processes is becoming part of the business environment,” said Yvo de Boer, formerly Executive Secretary of the United Nations Framework Convention on Climate Change and 

now a special adviser to KPMG’s Climate Change and Sustainability practice.

 

“Businesses may initially react to this in the same way that they will react to any other signal from their markets. But once they begin to look at their operations through the lens of sustainability, most find that the commercial benefits are obvious and the sustainability agenda takes on a life of its own.”

 

But there remain challenges to overcome. A major issue among companies which have adopted sustainable practices is how to measure their effectiveness and report to stakeholders on progress. 

“Companies generally know how to do this stuff,” said Ted Senko, KPMG’s Global Head of Climate Change and Sustainability and a partner in the US firm. “KPMG firms find that where companies need help is in assessment and evaluation of their programs, benchmarking against emerging industry standards, verification of the quality of their information systems and guidance on how to take commercial advantage of the incentives on offer from governments.”

 

On reporting, the study reveals that 38 percent of respondents have no plans to report on their sustainability performance. Reasons given include a lack of good data and benchmarks, combined with skepticism among stakeholders about the worth of these reports.

 

“This skepticism is something we need to change by providing better information,” said Mr. Senko. “Reporting on sustainability is not just showing good corporate citizenship – it is a route to more efficient and better-run corporations.”

 

Asked what action they would like to see from governments, two thirds of respondents said that a successor to the Kyoto Protocol is very important or critical. A majority of those actively involved in lobbying their governments over climate change said that they are pressing for tougher regulation, preferably on an international basis.

 

This might seem counterintuitive, given that 46 percent thought that a global climate accord would add to their regulatory burden, and 41 percent said it would add to their operating costs. But for many companies it is not the fact of regulation that is a problem, it is the uncertainty of not knowing what regulation may appear in future.

 

“Companies believe that more regulation on carbon will come, and they want it sooner rather than later so that they can adapt and comply,” said Mr. Senko. “The clear message from business to governments and officials at COP16 is ‘Give us a solid regulatory framework for sustainable business growth, and we will deliver it’.”