Organisations today are increasingly recognising the benefit of focusing on environmental and social responsibility as a strategic objective. IBM's 2009 survey of 224 business leaders worldwide shows that three quarters of respondents in Western Europe believe corporate social responsibility (CSR) has increased in importance over the past year. In fact, many major UK companies are investing in campaigns to drive ethical brands and business practices into the mainstream; some have been more vocal about their commitment to CSR, and particularly, how going greener makes good financial sense.
To be sustainable, businesses are now embracing a relatively new objective: optimising their operations to minimise environmental impact and improve social outcomes in a manner that also maximises performance. This approach is gaining momentum, especially in Western Europe where more than two-thirds of organisations we surveyed focus on CSR as part of an integrated business strategy to grow new revenue streams and control costs.
As a result, they face an entirely new set of decisions. Can they cut down on waste without increasing the price of products? Do they need to rethink distribution options to reduce carbon dioxide emissions and the impact of volatile energy prices? Should they segment products and services to meet a growing number of consumer sustainability concerns?
Challenges abound in addressing these issues, especially in accessing the information needed to meet these new strategic objectives. Overall, organisations have intensified efforts to collect information about their operations in areas from sustainable procurement to ethical labour standards. However, many are still missing - by a wide margin - the information they need to operate as a sustainable enterprise.
Organisations that outperform competitors have proven to be far better at casting a wide net for information across their ecosystems. They are also collecting information that is more relevant to understanding and meeting the performance challenges of operating in a sustainable manner. What's holding other organisations back? There are some very real obstacles.
The optimisation gap
We surveyed leaders on three information areas related to sustainability: operations, supply chain and customers. Our results indicate that operational information needs to be timelier, supply chain information is still too insular and more customer information is needed.
Operational information: Growing but not always timely
Four in ten of the business leaders surveyed reported that over the last three years they have increased the amount of information they collect about their operations in each of eight sustainability areas we tracked: energy management, carbon management, waste management, water management, sustainable procurement, product composition, ethical labour standards and product lifecycle.
Not surprisingly, the biggest increase in the amount of information collected is in energy, where just under two-thirds of respondents report increases. In Western Europe, roughly a quarter collect carbon and water management data from suppliers, and over half of business leaders collect data from suppliers on ethical labour standards. In the UK, energy data collected is very likely to increase thanks to the Government's commitment to fit 26 million UK homes with a smart meter by 2020. This will enable homeowners to monitor their energy usage and the government estimates that it could save customers and energy companies £2.5bn-£3.6bn over the next 20 years.
Nearly 60 percent of organisations are not collecting information about key operations and sustainability objectives on a frequent basis. Even in the high-profile area of CO2 emissions management, for example, eight out of ten business leaders surveyed fall short. They may be able to use the information they have for an annual CSR report. But since they aren't evaluating the ongoing impact of actions on their CO2 emissions, it's unlikely they can use the data to make their operations more sustainable.
Outperforming organisations in our survey were significantly more likely to collect timely information about their operations. For all companies, peer pressure and persistence may move those numbers up. The longer a company has been required by its business partners to adopt CSR standards, the more frequently it collects data. When it comes to making strategic decisions based on timely information collected, in Western Europe, roughly a quarter of business leaders report that they are collecting data about carbon and water management frequently enough to make informed decisions. A third are collecting data frequently enough on ethical labour standards to do the same.
Supply chain information: Still too Insular
More than half of the business leaders surveyed said they consider the open sharing of information among stakeholders and business partners a high priority. However, the vast majority aren't collecting adequate information from their suppliers to support their CSR objectives. In fact, 14 per cent of Western European countries still do not collect supplier data.
Outperforming organisations, on the other hand, are collecting more information from their suppliers in each of the eight categories we tracked as compared to their peers.
Three out of ten organisations surveyed aren't asking their suppliers for any information in any of the eight categories. Surprisingly, in the CO2 and water categories, where cross-ecosystem "footprinting" is becoming more common, approximately eight out of ten aren't collecting information from their suppliers. And, despite a long history of brand-damaging stories in the area of labour, 57 per cent aren't collecting information on ethical labour from their suppliers.
Customer information: Improving but far to go
Consumer purchasing decisions are often influenced by perceptions of how socially and environmentally responsible an organisation is. Yet overall in 2009, two-thirds of our survey respondents admit they don't understand their customers' CSR concerns well. This represents an 11 point improvement over the previous year and suggests organisations are making inroads fast. Nevertheless, 37 per cent of organisations globally, and 25 per cent in Western Europe have still not conducted any research on their customers' CSR concerns. Outperforming organisations were nearly twice as likely to understand their customers' needs well.
Across the entire sample, the shortfall in collecting information related to operations, supply chain and customers reveals an optimisation gap. In addition, we found that outperforming organisations perform better in all three information categories, as do organisations that have focused for more than three years on integrating their CSR objectives to grow revenues and become more efficient. The approach to information and actions taken by these organisations suggest that the gap will narrow over time. The immediate challenge is to identify what information is needed and then aggregate and analyse it so it contributes to efficiency and growth objectives.
Insight, engagement and action
Today, every organisation is a system of systems, more bound up in complex, inter-dependent forces than traditional business systems in the past, with a clear cut focus on profits. Given increasingly finite resources, businesses depend on balanced natural ecosystems for raw materials, water, energy and the physical health of their employees and customers. They depend on thriving community systems for labour, new sources of innovation and customers. Given the links among its systems, an enterprise committed to practicing sustainability considers both the immediate and far-reaching consequences of any action it takes.
While these dependencies obviously complicate the task of responsible business management, leaders of sustainable organisations are learning to understand and act on them. Mastering this complexity requires new levels of insight, new sources of information and new forms of collaboration. As a result, leaders in CSR are developing coalitions of business partners, NGOs and others to begin to address information gaps in areas ranging from labour to water standards. They're identifying leading practices and techniques to inform and educate stakeholders, such as customers and employees, more broadly.
Overall, most organisations know they need to engage their stakeholders in some way. However, proactive engagement with business partners and NGOs, at 55 and 44 per cent respectively, is relatively low, given the benefits that can be achieved from collaboration.
Creating leading practices and standards
Active industry participation now is one way to help ensure that the new practices and codes that emerge will make it easier, not more onerous, to operate a sustainable business. Moreover, industry coalitions are an excellent way to access and share a wider body of sustainability information. These groups can also help organisations make better use of their information by suggesting how, for example, the information can be deployed to change operations and innovate, as well as communicate progress to stakeholders.
For example, water is a topical issue, particularly in countries and regions facing scarcity of this vital resource. To address this need, 12 companies, including Coca-Cola, Diageo, Nestlé, Anheuser-Busch InBev and PepsiCo, have formed the Beverage Industry Environmental Roundtable to collect and share data and leading practices relating to water conservation and resource protection. Together, they established a common framework to exchange information on water reduction, reuse and stewardship, as well as drought preparedness.
Benchmarks and leading practices are important guides to use in setting objectives
The challenge lies in aligning these objectives across constituencies with diverse concerns and goals of their own. These stakeholders include employees, consumers, business partners, investors and NGOs, as well as regulatory bodies and governmental institutions.
Customers: Partners in sustainability
Most organisations understand expectations for transparency with regard to CSR initiatives. Over half of the business leaders we surveyed consider the open sharing of information a high priority. However, until recently, organisations have tended to share information reactively - in response to stakeholder demands. Those that expect to gain business advantage from CSR are developing new ways to inform and educate their stakeholders, whether they are customers, employees or partners. Social media tools such as Twitter, a CEO blog or forums represent perfect opportunities for communicating CSR objectives and results.
Transparency and involving the customer in decisions when it comes to a company's day to day operations can raise the sustainability agenda. For example, customer satisfaction may increase with conveniences like one-day delivery, but fully loaded transport reduces energy costs. Point-of-sale information on delivery options could provide them with a welcome opportunity to reduce their carbon footprint: "If you want to reduce your greenhouse gas emissions by 80 per cent on the delivery of this television, click here and your package will arrive next week via hybrid carrier."
Results of our survey indicate that organisations placing a higher priority on transparency and those that have attained some maturity find it easier to execute. Clearly, once organisations start efforts to increase transparency, they gain needed experience and greater confidence in the value of sharing information both within their organisation and with their stakeholders.
Engineered creatively, these collaborations can do more than inform customers; instead of simply sharing information, organisations should encourage customers to participate in genuine discussions where all concerned can reap the rewards of collective wisdom, and bring about positive change.