From the Editor: Sustainability and
Brand — Three Questions and Answers

Why does brand reputation rate higher than waste reduction, energy savings and operational efficiencies as a reason to adopt sustainability-driven management? It has a far larger effect on the ultimate success of a business, says Michael S. Hopkins, Editor-in-Chief of MIT Sloan Management Review, in an excerpt of his interview with Sustainability: The Journal of Record.

The Sustainability & Innovation Study in this issue is our second annual exploration of how organization leaders are (or are not) changing their management and strategy approaches in response to sustainability pressures. The study findings are voluminous and rich — not least because they now offer year-over-year longitudinal comparisons along with an up-to-the-moment snapshot of executive thinking.

The findings are too rich, in fact, to cover in full. No surprise, then, that we received a pile of questions from management journalists when the study was released — including many questions about the belief expressed by survey respondents that “improved brand reputation” is the biggest reason to adopt sustainability-driven management. Because readers likely have the same questions, let’s pick up the thread right here. Below, extracted from an interview with me by Alex Philippidis for Sustainability: The Journal of Record, are three questions and answers that dig into the sustainability-and-brand theme.

Michael S. Hopkins, Editor-in-Chief

“The MIT SMR/BCG study notes that the biggest benefit seen by CEOs is the intangible of improved brand reputation. How likely is that to remain true as most companies develop new sustainability metrics for themselves, or improve on existing ones?”

“If anything, I think that will be more true as companies develop better metrics. But that may be because I’m defining both ‘brand reputation’ and ‘sustainability metrics’ more broadly than some might; I’m defining them the way the sustainability ‘embracer’ companies would. (The embracers uncovered in our survey are the sustainability-strategy leaders, and also are the top performing businesses in general terms.)

“To those companies, an improvement in ‘brand reputation’ results in far more than just improved brand appeal to end-user customers (though it definitely does that). It results also in improved appeal to all of a company’s stakeholders, including current and prospective employees, investors, prospective strategic partners and supply chain or innovation collaborators, governments, NGOs, and any other players that are counted on as key competitive resources. So, yes, a better brand will attract more customers. But it also will attract three other things that are at least as crucial: (1) talent (2) capital and (3) collaborators.

“When you say ‘metrics’ in your question, do you mean ways of assessing a business’s external impacts? (Greenhouse gases, waste, toxicity, social impacts, and so on?) Improvements in those measures — especially improvements that enable the public to accurately compare businesses and products — will obviously make the competition for reputation even more meaningful. There’ll be fewer places to hide, and less room for spin. However, embracer companies — the companies most sophisticated about sustainability-driven management — are thinking about metrics in another way, too: They’re trying to use data and analytics to increasingly understand the linkages between cause and effect. As that happens, the effect on sustainability thinking will be huge. Imagine, for instance, that it becomes increasingly possible to prove that a company’s sustainability-related actions are a driver of employee productivity gains (as many speculate is the case). If a CFO could see that in the numbers, then arguments for sustainability-oriented business decisions would be radically changed. Those cause-and-effect metrics are the ones embracers are hungering for and trying to develop.”

“The brand-reputation benefit appeared to correlate with one tangible outcome in the report: more people interested in joining the company (see Johnson & Johnson example). To what extent did CEOs correlate brand value with other positive outcomes — from favorable publicity to better results in consumer surveys, to gains in sales?”

“I think CEOs correlate brand value to all the positive outcomes you list. They’re the payoffs taken for granted, almost. When it comes to additional benefits, the recognition that reputation improvements help to attract and retain employees is usually the benefit that executives name when asked what has surprised them about sustainability-strategy consequences. The execs inevitably talk about how the subject is uppermost on the minds of prospective recruits (especially young ones) and is a greater source of employee energy and engagement than anything else the company does. Almost all interviewed executives noted this, not just J&J.”

“Why did brand reputation rate above tangible benefits more typically cited by CEOs, such as long-range return on investment or savings from a change in operations, or reduction of GHG or waste by a given amount?”

“It rated higher than things like waste reduction, energy savings, operational efficiencies, and GHG cuts for one reason: Brand reputation has a far larger effect on the ultimate success of a business. Those other areas for ‘wins,’ the ‘low-hanging fruit’ of sustainability-driven management, are real and significant. And executives don’t dismiss them, as you note. (Indeed, in interviews the execs often described being surprised by the sheer size of the operational savings that could be instantly realized, and by the discovery that they could create significant sustainability units for an immediate net profit, since the savings from efficiencies would exceed the cost of the unit.) But those savings are still not the most significant levers a business can pull. Energy costs, for instance, are commonly a miniscule fraction of a business’s operating costs; making savings just won’t affect a company’s bottom line very much. Attracting more customers at better margins, on the other hand, or bumping employee productivity by just a few percentage points, would have catalytic effects on a company’s bottom line. That’s why brand reputation, which is seen as the driver of those outcomes, gets so much attention.”

A FURTHER NOTE TO READERS: Have additional questions of your own that the Sustainability & Innovation Study leaves unaddressed? Please send them to me. We’ll answer the best of them online.

Michael S. Hopkins, Editor-in-Chief