Nearly
a third of companies now say that the adoption of sustainable practices has
added to their profitability, according to a new Massachusetts Institute of
Technology (MIT) study—and manufacturing firms are in the vanguard.
Two-thirds
of more than 2,800 companies surveyed by MIT Sloan Management Review say
they have made sustainability a permanent agenda topic within their companies,
up from 55% a year ago. And most respondents—based in 113 countries, and spanning
a wide variety of sizes and industries—now see sustainability as “necessary to
be competitive” in today’s economy. The study was conducted with the help of
the Boston Consulting Group.
“The
purpose of the report was to get a high-level view of how organizations are
thinking about sustainability, and what they are doing about it,” says David
Kiron, executive editor of MIT Sloan Management Review and a co-author
of the report. “The attention and investment we see indicate the here-to-stay
nature of sustainability for organizations everywhere.”
Manufacturing
companies seem to be leading the way in this new approach: The survey found a
particularly strong commitment to sustainability among “resource-intensive”
producers of consumer products, commodities, chemicals, and automobiles, as
well as in energy-related companies. Respondents said product development was
enhanced by a focus on sustainability, with 25% of companies citing “improved
innovation in products and services” as among the top benefits they derived
through sustainability.
Sustainable
practices help cut energy and commodity prices by reducing waste, and in some
cases have transformed companies from pariahs to paragons in the eyes of environmentally
aware groups.
For
example, paper-products manufacturer Kimberly-Clark has moved from criticism
over its cutting of old-growth forests to a top Dow Jones Sustainability World
Index ranking among makers of personal products, thanks to a concerted
company-wide effort to make sustainability a priority. In addition to curbing
former unsustainable practices, Kimberly-Clark now aims to reach 25% of sales
by 2015 from “environmentally innovative products”—such as a new kind of toilet
paper without a cardboard tube at the center.
In
this study, Kiron says, sustainability encompassed not just reductions in
energy use and emissions, but also more efficient use of water and natural
resources; recycling of materials and careful attention to the full lifecycle
impact of products, including their ultimate disposal; and attention to human
rights in the treatment of employees and suppliers.
Kiron
cites Starbucks’ focus on improving the sustainability of its coffee cups—of
which the chain uses billions every year. To find innovative ways of reducing
the waste associated with disposable cups, the company has convened conferences
at MIT in an effort to come up with more environmentally friendly approaches. “There isn’t a hard line for them between environmental and social issues,”
Kiron says. “It’s all part of being socially responsible.”
The
study makes clear that the more deeply ingrained sustainability is within a
company’s organizational structure, the more likely it is that these practices
add to the company’s bottom line. For example, companies that say they have
profited from their sustainability initiatives are 50% more likely to have a
CEO strongly committed to the programs, are twice as likely to have a separate
reporting process for sustainability, and are more than twice as likely to have
a chief sustainability officer.
Sometimes,
internal efforts to improve sustainability can lead to new product offerings.
For example, UPS improved efficiency by designing the shipping industry’s most
comprehensive tracking system. That made it possible to determine the exact
carbon-emissions impact of each of the millions of parcels transported every
day; the company now offers customers the option of paying a bit extra for a “carbon neutral” delivery, providing carbon offsets based on the actual path
and types of vehicles by which a parcel travels to its destination. The service
adds about a nickel to the shipping cost per parcel.
Another
example of product innovation comes from automaker BMW, which set up a
sustainability team that quickly attracted some of the company’s leading
engineers. They ended up designing what they say is the world’s first electric
car designed for mass production from the ground up. While it may be years
before the new division—dubbed “Project i”—actually contributes to the
company’s profits, BMW sees it as laying the groundwork for a leadership role
in new automotive technology.
Sustainability
turns out to have benefits for a company’s relations with its own employees as
well, the study found. “In terms of retention and recruitment, having
sustainability present on your agenda really has some cachet,” Kiron says,
making it easier to attract and keep some of the most talented people.
Robert
Eccles, a professor of management practice at Harvard Business
School who was not
involved in this study, says the MIT study “is one that executives in companies
in every industry all over the world should read, and it identifies many of the
key issues that need to be addressed.”
Eccles
also says the report’s findings are congruent with those of research he has
conducted with colleagues at Harvard and at London Business
School.
“The
research I am doing with a number of collaborators strongly supports the
findings of this survey,” he says. “We get similar results in contrasting 90 ‘high
sustainability’ companies with a matched set of 90 ‘low sustainability’ ones.
The high sustainability companies also have distinctly better financial
performance over an 18-year period of time.”
But
Eccles adds that in order to benefit corporate performance, sustainability must
be paired with innovation. “Without innovation, simply committing to improve
sustainability performance will likely detract from financial performance,” he
notes.
Eccles
cautions that challenges remain in interpreting these findings: While savings
in energy, water and resource use provide obvious benefits, he says, “these are
easier to demonstrate and quantify than reputational and brand benefits.” He
adds, “While the article rightly notes that mainstream investors are becoming
interested in sustainability, this is not yet a trend and the markets still
have their traditional short-term view.”