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Business Trends: Sustainability costs

No hard and fast rules on achieving or measuring sustainability success

Darden Restaurants aims to reduce per-restaurant
    energy and water use by 15 percent. - Photo courtesy of Red Lobster/Darden
    Restaurants
By Joanne Friedrick
June 01, 2010

Sustainability has become big business worldwide in the past decade. Companies looking for a roadmap on becoming a sustainable entity aren't likely to find one - yet. The path to creating a sustainable business revolves around creating social, environmental and economic pillars on which to operate, but how to negotiate the road toward achieving that goal isn't laid out in a straight line.

As the sustainability movement for all companies, not just seafood, continues to gain ground and organizations emerge to track the progress, there are few rules in place and not a lot of benchmarks by which to measure results.

The Seal of Sustainability, awarded by the Sustainable Business Institute, a 
California nonprofit that encourages business leaders to adopt sustainable business practices, is one of the few markers within the movement. While the seal isn't a mandatory certification, Jessica Fullmer, SBI founder and CEO of Mobile Digital Video, says third-party certification shows a commitment to sustainability and gives companies something to share with the public.

"We wanted [the seal] to be in the spirit of serving two groups," she says. The public, upon knowing of the seal, "could vote with their dollars and buy from these companies." On the corporate side, she says, businesses can use the seal and the requirements for achieving it "as a template to drive [sustainability] down through their supply chain."

Sixteen companies have been given the SBI seal, including defense and security company BAE Systems and Kleinpeter Farms Dairy in Baton Rouge, La.

In Fullmer's estimation, becoming a sustainable business isn't a static process. "This is an ongoing journey," she says, and one being taken by more and more companies.

While each company will set its own priorities for achieving sustainability benchmarks, Fullmer says the process should begin with top executive buy-in, followed by creation of a sustainability team.

In turn, she says, "the team will put together a strategy for integrating sustainable practices into the company." It might begin with a specific division or center around a particular issue that is of importance to the company and its employees.

Many large companies 
already have health and safety experts on board who can spearhead sustainability efforts. Jonathan Johnson, director of the Sustainability Consortium and professor of sustainability at the Walton College of Business at the University of Arkansas, says linking the health and safety people with those from other operating areas of the company is a great first step.

Like Fullmer, he says top executive support is necessary. "But it doesn't have to be cheerleading," he says. "It should be an orderly, but not overly hasty, investigation."

He also encourages companies to bring in others, including those with differing points of view, such as environmental groups, to be part of the conversation.

The Sustainability Consortium, which is based at both Arkansas and Arizona State University, is working with Walmart, Safeway and Darden Restaurants, operator of the seafood chain Red Lobster, to improve consumer product sustainability.

Darden, the Orlando-based restaurant group, is taking a resource-focused approach to its sustainability strategy to reduce risks and harness opportunities related to energy and climate change. Darden is setting goals to reduce per-restaurant energy and water use by 15 percent by 2015 and, in the long term, to send zero waste to landfills.

The company is also collaborating with other companies in the value chain that are committed to finding energy-, water- and waste-reduction opportunities "while maintaining an unwavering focus on food safety."

Many companies are interested in supply-chain impacts, says Johnson, and they use lifecycle analysis (commonly referred to as LCA) to investigate and evaluate the environmental impacts. In the food supply chain, says Johnson, this is often focused on "farm to fork," looking at factors such as water use and water quality and ecosystem health. The analysis can also be done for social issues involved, such as labor practices and wages.

While there are some basic tenets to follow, both Johnson and Fullmer say measuring the success of achieving sustainability can be hard to quantify, except for individual results.

While some are quick to try to link sustainability efforts with cost savings, that's not always the case.

Johnson estimates there is a modest relationship between sustainability and financial return.

"It's good for business, both directly and indirectly," he says. But there is no magic number for what a company can expect to see in ROI. Each company will have its own internal rate of return based on what kinds of projects they've chosen to undertake, he says.

One company with which the consortium has worked, Johnson says, reports achieving an internal rate of return of about 30 percent, although some specific projects have garnered much higher numbers.

The key, notes Johnson, is that where once the CFO wasn't interested in hearing what the sustainability 
manager had to propose, now, after seeing the returns, he welcomes that person into his office.

Fullmer says returns can be measured in less tangible ways, such as goodwill with the public and reduced absenteeism. Larger companies may view sustainable practices as part of a risk-mitigation strategy, says Johnson, who sees increased government regulation related to sustainability.

"As environmental and social issues manifest more, we should expect increased regulation," he says. Johnson would like to see companies rewarded for taking a proactive approach, rather than being taxed or fined for not doing something.

What also remains to be seen, says Johnson, is the extent to which the public will pay for products that are the outgrowth of sustainable business practices.

Consumer demand for sustainable products is all over the place, says Johnson. Some demographics, millennials and young mothers, for example, have shown they will pay more for sustainable products. But for now, the majority of consumers say they want sustainable products, but are reluctant to pay more for it, he points out.

 

Contributing Editor Joanne Friedrick lives in Portland, Maine

 

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