The Big Headache: Weighing the Intangibles of Enviro Efforts

It’s no surprise: some of the biggest competitive benefits reported by executives who have adopted corporate sustainability strategies are some of the most intangible benefits.

Employee engagement, productivity increases, attraction of new talent, halo effects from boosts in reputation among customers, investors or other stakeholders — these are among the positive effects cited by executive thought leaders.

The big question is how managers weigh those intangibles and other qualitative information in decision-making processes.

According to respondents to the second annual Sustainability & Innovation Global Executive Study, a collaboration between MIT Sloan Management Review and the Boston Consulting Group, most executives continue to struggle in this area. Just one in five say that they use intangibles in sustainability-related investment decisions. Most say they prefer to make decisions on the things they can quantify using traditional tools.

That makes it especially interesting to consider the sustainability efforts detailed by Masamitsu Sakurai, chairman of Ricoh, the Japanese printer company (and the first company in Japan to commit to the Kyoto Protocol):

At Ricoh, environmental conservation went through three stages: The first stage, the Passive Stage, consisted of following regulations and reacting to outside pressure like “green procurement.” The next stage was the Proactive Stage where, as volunteers, we became imbued with a sense of mission regarding our planet. Through stage two, our efforts were not yet profitable. Finally, at the third stage, the Responsible Stage, we were able to simultaneously achieve environmental conservation and profit creation. This advanced stage is where Ricoh is now. The results of our activities during the Responsible Stage are published annually in our Sustainability Report and are very well received by our stakeholders.

Did Sakurai think of the Proactive Stage as the Leap of Faith Stage? How did Ricoh stakeholders receive the results when the efforts were not yet profitable? How did Ricoh go for it without an immediate business case? According to our survey, fewer than one in five respondents said they would consider longer paybacks for sustainability-related investments.

There’s no question: the difficulty of quantifying costs and benefits of sustainability-related strategies and the difficulty of developing comprehensive metrics for assessing sustainability impacts have a significant downside. They are two of the most frequently cited obstacles for making the business case for sustainability. They will continue to be a roadblock for many executives who are otherwise inclined to pay attention to sustainability issues.

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Survey details and analysis drawn from “First Look: The Second Annual Sustainability & Innovation Survey.” Survey highlights appear in the Winter 2011 issue of MIT Sloan Management Review.

Also see the sustainability section of MIT SMR for specific examples of how companies are balancing economic, environmental, and societal goals.