Magazine Summer 2012 Big Idea: Leading Sustainable Organizations Research Feature

How to Become a Sustainable Company

Few companies are born with a broad-based commitment to sustainability. To develop one, companies need leadership commitment, an ability to engage with multiple stakeholders along the value chain, widespread employee engagement and disciplined mechanisms for execution.

Robert G. Eccles, Kathleen Miller Perkins and George Serafeim Reading Time: 22 min 

Topics

Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
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Novo Nordisk A/S, a global healthcare company, follows a business philosophy based on balancing financial, social and environmental considerations.

Image courtesy of Novo Nordisk A/S.

Corporate sustainability has captured the attention of much of the world over the last few years. Trends including the growth of nongovernmental organizations and movements such as Occupy Wall Street suggest that the public is no longer satisfied with corporations that focus solely on short-term profit maximization. People want corporations to consider broad human needs.

Surveys show that a growing number of companies are taking notice of these shifts and have come to consider sustainability-related strategies necessary to be competitive.1 One recent study that compared companies that adopted environmental and social policies with companies that didn’t, authored by two of the authors of this article and another colleague, provides empirical support for this view. “High sustainability” companies significantly outperformed their counterparts over an 18-year period in terms of both stock market and accounting criteria, such as return on assets and return on equity.2 In terms of stock market returns, the “high sustainability” companies had an abnormal stock market performance that was 4.8% higher than the “low sustainability” companies on a value-weighted basis. They also exhibited lower performance volatility. It is not surprising, then, that more and more companies are exploring how environmental, social and governance performance can contribute to financial performance.

Currently, organizations that exhibit a broad-based commitment to sustainability on the basis of their original corporate DNA are few and far between. An exception is Novo Nordisk A/S, a global healthcare company created in 1989 through a merger of two Danish companies. For decades, it has followed a business philosophy based on balancing financial, social and environmental considerations. Novo Nordisk managers use the values framework to drive their day-to-day decisions and make difficult choices, and the company provides financial and nonfinancial information and data in one report.

For most companies, however, becoming sustainable involves a conscious and continuing effort to build long-term value for shareholders by contributing to a sustainable society. To illuminate how the transformation occurs and how a sustainable strategy can be formulated and executed, we studied the organizational models of companies that we refer to as “sustainable” by comparing them with companies that we call “traditional.” (See “About the Research.

Topics

Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
More in this series

About the Authors

Robert G. Eccles is a professor of management practice at Harvard Business School. Kathleen Miller Perkins is president of Miller Consultants Inc., an organizational consulting firm in Louisville, Kentucky. George Serafeim is an assistant professor of business administration at Harvard Business School.

References

1. For more information, see D. Kiron, N. Kruschwitz, K. Haanaes and I. von Streng Velken, “Sustainability Nears a Tipping Point,” MIT Sloan Management Review 53, no.2 (winter 2012): 69-74.

2. R.G. Eccles, I. Ioannou and G. Serafeim, “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance,” working paper 17950, National Bureau of Economic Research Working Paper Series, Cambridge, Massachusetts, March 2012, www.nber.org/papers/w17950.

3. M.W. Toffel, R.G. Eccles and C. Taylor, “Interface­RAISE: Sustainability Consulting,” Harvard Business School case no. 611-069 (Boston: Harvard Business School Publishing, 2011).

4. R.G. Eccles, G. Serafeim and S.X. Li, “Dow Chemical: Innovating for Sustainability,” Harvard Business School case no. 112-064 (Boston: Harvard Business School Publishing, 2012).

5. D.C. Esty and A.S. Winston, “Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage” (New Haven: Yale University Press, 2006).

6. Interview with Bruce Bremer, Dec. 10, 2011.

7. For more information, see: www.nature.org/aboutus/workingwithcompanies/companies-we-work-with/dow/index.htm and my.nature.org/gifts/?src=CPC.AWG.CE2.AG2.CC2.CL2.MT3.KW754&gclid=CMOZ5f3h9a8CFQrf4Aod1nqREg.

8. Interview with David Walker, senior director of beverage productivity, PepsiCo, May 9, 2012.

9. For more information, see “Natura Report 2010,” Natura Brasil, natura.infoinvest.com.br/enu/3766/GRI_INGLES_COMPLETO_impressao.pdf.

10. R.G. Eccles, G. Serafeim and J. Heffernan, “Natura Cosméticos, S.A.” Harvard Business School case no. 9-412-052 (Boston: Harvard Business School Publishing, 2011).

11. D.A. Lubin and D.C. Esty, “The Sustainability Imperative,” Harvard Business Review (May 2010): 1-9.

12. Interview with Mark Weick, director of sustainability programs and enterprise risk management, Dow Chemical Co., May 8, 2012.

13. D. Anderson and L.A. Anderson “Beyond Change Management: Advanced Strategies for Today’s Transformational Leaders” (San Francisco: Jossey-Bass Pfeiffer, 2001): 98-102.

i. For more information, see: www.facebook.com/innovatingforsustainability.

 

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Comments (11)
There is so much we do – why isn’t there a higher impact? |
[…] But there is a long way from knowing how to differentiate a sustainable company to actually becoming one, as Bob Eccles and George Serafeim discuss in their Summer 2012 MIT Sloan article. […]
There is so much we do – why isn’t there a higher impact? | The Transatlantic Blog
[…] But there is a long way from knowing how to differentiate a sustainable company to actually becoming one, as Bob Eccles and George Serafeim discuss in their Summer 2012 MIT Sloan article. […]
tawfik kashefi
Thanks for being a very helpful source of information in verity of fields.
gail
Kathy 
First and foremost, thank you. This is a great article.
Earlier this year my agency created the business plan and strategy for GoGreenHealthcare an ecohealthcare website. The site provides best practices to the healthcare community and the pharmaceutical industry on sustainability in the healthcare arena. Sustainability provides tremendous opportunities for companies to build equity and reduce waste. A great resource that cites numerous corporate case studies is "The Way Out..." by Hunter Lovins,  Available on Amazon: http://www.amazon.com/The-Way-Out-Kick-starting-Capitalism/dp/0809034697   If you are vested in sustainability it's a must read. I live in New Jersey and the devastation of Sandy it is quite evident that climate change is not a myth. We have an obligation to be stewards of our fragile environment.
kathy@millerconsultants.com
Jesmin,
We are pleased that you are finding the article to be useful.  We are about to start on our third study.  This time we are including several large global companies that would like to administer the SCALA to a broad cross-section of their companies.  We believe that this "deep dive" will provide invaluable new insights in testing our model.
jesmin.manalu
this is one of the must be read topic before we take a business ethic clas at this end of august in MBA ITB Jakarta. thanks in advance.
kathy@millerconsultants.com
Glad to hear that the article will be discussed by graduate students!
Let us know about significant questions and comments.  We have a great deal of data and we might be able to answer or at least address questions that come up.
Chandran A
At R.V. Institute of Management in Bangalore , we have taken this text and Research  for classroom discussion among  student of II Semester MBA and volunteers of RVIM Centre for Social Responsibility.We hope this effort will inculcate a positive inclination towards practice and commitment to sustainability.

A.Chandran
Faculty in General Management
Coordinator -RVIM Centre for Social Responsibility
R.V.Institute of Management
Bangalore-INDIA
jennifer.bach@telus.com
So many things resonate in this research with what we doing at TELUS International.  As a global contact center provider, corporate social responsibility (CSR) is especially important in our business for two key reasons.  First, our contact center clients are looking to do business with a partner that has shared values.  And if one of those shared values is an awareness and a responsibility to give back – it can play a huge role in developing a long-term, sustainable partnership.  Second, we believe CSR is directly linked to helping us do better for our customers. In our business, there’s a simple formula: happy agents = happy customers. If you’re supporting a culture for your employees to make a difference and give back to their communities, it has many benefits including enhanced engagement and agent tenure. This tenure translates into an enhanced competency to better serve customers. 
Jennifer Bach
edav@libero.it
As a consultant of a small company(28 employees) in Italy, close by Salerno, almost three years ago, I completely change the business model of this cardboard packaging, serving mainly the food district in the area.
The amazing fact is that we applied a new strategic wiew a new mission and a new way of doing business.
and that is like the topics that you have analyzed in your article.
Shortly, now we have a sustainable packaging division, a design and furniture branch and a consulting sector for sustainable application.
All this while ther's around one of the most dangerouse crisis in the era of capitalism.
It has been a fantastic story, that confirm Ted Levitt's great insight: there are no crises, but good or bad management.  
Vincent D'Avanzo edav@libero.it
kathy@millerconsultants.com
I am one of the authors of this study.  We are eager to hear feedback from others.