Humanizing Profits: A Green Guide for Business Strategy Professionals

Greenwashing or a Turning Point: The Rise of Sustainable Business Practices

Year after year, the commitment to sustainable business practices increases. An introduction to the role of business professionals in creating a win-win world where what’s good for the planet is also good for business.

Maximizing shareholder value has always been the top priority in business. But lately, the world has been looking different. We are seeing a shift in the way companies are run.

Last year, more than 8,000 Amazon employees demanded an aggressive climate action plan in an open letter to CEO Jeff Bezos.

In September 2019, Microsoft employees staged a global walkout to protest the company’s complicity in climate change.

The call for “green” and “sustainable” business practices is growing louder and attracting the attention of leadership. The new generation’s awareness of shared value between society and business, and extreme weather conditions, are causing companies to rewrite their long-term survival strategies.

An overview of the business strategy architectures that make resource efficiency and social inclusion a source of their competitive advantage.

What Every Company Does Wrong When it Comes to Sustainability?

Doing good and making money are considered contradictory. In reality, adopting responsible practices can make companies stronger and more sustainable.

McKinsey states that brands with higher ESG metrics prove more financially successful and receive more public support.

The reasons are simple:

• The costs of unsustainable practices are no longer theoretical: floods causing bank failures, storms destroying infrastructure, and water shortages making life difficult for beverage companies. A move towards sustainability is long overdue for companies, with life and death consequences and enormous costs associated with climate change.
• A third of the world’s largest companies admit they are experiencing the dire impact of climate change on their operations (Carbon Disclosure Project).

• Investors and governments are pushing for more sustainable practices and rewarding environmentally friendly companies that can save both money and energy.
• Societies as a whole respond to the priorities and beliefs of corporations.
• Eco-friendly companies are in vogue among new customers who are willing to pay more for greener options.
• Brands that support an inclusive culture and sustainable practices retain the best talent.

The results are an accelerating pace of corporate commitments to low-carbon options, renewable energy, and the voluntary setting of science-based targets.

On a Green Mission: 5 Examples from the Sector

Sustainable business architectures are not anti-growth but rather represent serious growth. A few examples from the business world on ways to achieve economic vitality while helping the planet reduce its carbon footprint and social power.

1. Absolute Discounts from IKEA

As an example of the absolute reduction of CO2 emissions, IKEA has pledged to become ‘climate positive’ by 2030. The retail giant is often cited for its sustainability plans. The goal is to spend more than $221 million on green initiatives, including:

• A step towards sustainable energy
• Halving emissions from travel
• Investing in reforestation

Business case: Sustainable practices have allowed IKEA to benefit the environment and ensure long-term innovation in products, lower energy costs, and a positive public image.

Challenge: Getting everyone to agree on what counts as climate positive is a difficult challenge. While many, including IKEA, believe that it should be about absolute CO2 reductions and not carbon offsets, for others absolute reductions are ideal targets that are only affordable for Goliath companies, and not intended for David companies.

2. Sustainable Packaging from McDonald’s

The fast-food giant aims to source 100% of its customers’ packaging from renewable and recyclable materials and make recycling available at all its locations. The target is the result of popular customer demand. Francesca Debiase, McDonald’s Chief Supply Chain and Sustainability Officer, says packaging waste is the biggest environmental challenge their customers want the company to address. It recently launched fiberglass McFlurry cups in the European market, without the need for plastic lids.

Business case: Reduced and sustainable packaging has helped McDonald’s reduce its carbon footprint, make an impact on the community while reducing material and disposal costs.

Challenge: Transferring environmental strategies developed in company headquarters to individual franchises is proving difficult.

3. GE’s Six Sigma

The famous former CEO of General Electric, Jack Welch, is often referred to as the ‘King of Green’ for his Six Sigma management style. It’s all about getting slimmer. Given the benefits for both profits and the planet, it quickly became a corporate religion for manufacturing. In addition to improving accuracy by 99.99966%, it also reduces the number of steps, costs, and material usage. Today it is used in some variants in all sectors and industries.

Business case: With its focus on reducing waste and improving efficiency, six sigma has become a household name among business leaders and environmentalists alike.

Challenge: Leadership commitment, poor concept understanding, and suboptimal execution are some of the most common obstacles to the six sigma sustainable business development strategy.

4. Toyota’s Nenrin or Tree Ring Approach

The Japanese car manufacturer Toyota has performed well despite many crises. Not only in turnover but also on the sustainability meter. The company has undoubtedly paid attention to environmental factors when developing new products.

Toyota founder Kiichiro Toyoda took a long-term view of growth when faced with a sharp decline in car sales and profitability. The strategy is inspired by a traditional ‘nenrin or tree ring’ philosophy, which holds that, just as tree rings vary in width depending on each year’s weather, but the tree grows taller anyway, a slow and steady growth of management proves virtuous.

Business case: Sustainable growth has been a source of competitive advantage for Toyota, allowing the company to weather slowdowns, increase sales and profits, and become one of the largest companies in the world.

Challenge: From a long-term perspective, it may be necessary to let go of immediate gains for future benefits.

5. HP’s Sustainability Metrics

HP printer cartridges are recycled more than seven times, which is remarkable considering the stringent performance requirements in the hardware industry. HP was ranked in the top 20 of the world’s most sustainable companies on the 2020 Corporate Knight’s Index. The Chief Sustainability and Social Impact Officer at HP, Nate Hurst, says:

Business case: Sustainability is a key differentiator in the purchasing decisions of both HP’s enterprises and end customers. According to the 2017 estimates, there was at least $700 million in new revenue related to the contracts or sales, taking into account sustainability factors.

Challenge: Rethinking the materials strategy and supply chain to use recyclables while meeting technical requirements is an uphill battle.

Lessons for Business Strategy Professionals

A company that contributes to sustainability needs managers who can break with the long-held orthodoxy around sales and profits, and take a broader perspective on the impact of business on the environment and society, and vice versa.

It requires asking tough questions and understanding the complexities of becoming sustainable. Let’s say the debate between absolute and relative reductions that emerged in the case of IKEA; the concerns surrounding theoretical versus actual recyclability; make agreements about recycling percentages; setting science-based targets; etc.

For managers, Michael Porter, a leading management thinker on strategy and competitiveness, suggests the following three steps:

• Identify your company’s environmental impact (carbon emissions, etc.).
• Determine by addressing which impact you would achieve the most.
• Find the most effective ways to go about it.

Unlocking the full potential of responsible business requires a strategic focus and an approach that best suits an organization. Be the strategist companies need to make sustainable development more than a cost or an act of kindness, but a competitive advantage.