Section II: Ahead of the Game: The Leaders in Sustainability

This is part 3 of 8 from “Sustainability Nears a Tipping Point,” a report on the findings of the 2011 Sustainability & Innovation Global Executive Study and Research Project.

We asked respondents to identify regions that are leaders of corporate sustainability. Their answers were revealing. On one hand, a clear majority pointed to Europe. Yet our data indicates that companies increasing their sustainability commitments the most are located in emerging economies. Respondents from countries with strong economic growth in Asia-Pacific, South America and Africa said that their companies were going to increase their commitments to sustainability in 2012 at much higher rates than respondents from companies in slow-growth economies. (See “Emerging Markets Have a Strong Commitment to Sustainability” and “Europe Seen as Sustainability Leader.”)

Companies in emerging countries have several reasons to develop robust sustainability agendas. One is the need to address environmental degradation, such as pollution and lack of clean water, in the areas where they operate. While the history of environmental degradation in developing countries is diverse, many companies in these markets must contend with this issue.3 According to a 2007 Worldwatch Institute report, China had 16 of the 20 most polluted cities in the world.4 It is not surprising that respondents from China, more than from any other major country, say that their companies are planning to increase sustainability commitments for next year. While some of this increase may be due to regulatory pressure and resource scarcity, innovation may also have an important role.

Emerging Markets Have a Strong Commitment to Sustainability

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Many types of innovative approaches to sustainability are taking place in emerging markets. In 1998, CEMEX, the Mexico-based cement company, started Patrimonio Hoy, a savings club for low-income people who want to build their own homes. In exchange for weekly savings payments, CEMEX provides materials and architectural support through a network of CEMEX distributors and community promoters. Instead of taking years to build poorly designed and unstable shelters, participants in the Cemex program typically build their homes three times faster, with higher quality and at two-thirds the cost.5 By 2011, the program had supported 300,000 participants in emerging countries around the world, including Mexico, Egypt, Indonesia, Thailand and Latin America.6

Europe Seen As Sustainability Leader

View Exhibit

In 2008, Florida Ice & Farm, a century-old Costa Rican food and beverage company ­— one of the largest businesses in Central America — began merging its sustainability practices with its business strategy.7 Because of changing consumer and government expectations, as well as philanthropic considerations, the company reasoned that its strategy of rapid growth would be difficult to achieve. Some 60% of company CEO Ramón Mendiola Sánchez’s pay is now tied to performance on a scorecard of financial and nonfinancial measures — so-called triple bottom line indicators. Among other sustainable business practices, Florida Ice and Farm became much more efficient in how much water it uses to produce a liter of beverage, dropping from an average of 12 liters of water per liter of beverage produced to 4.9 liters of water under Sánchez’s watch. Between 2006 and 2010, the company had a compound annual growth rate of 25%.

In India, multinational Jain Irrigation has pioneered a system of contract farming in which the company buys farmers’ crops at a guaranteed price, enabling farmers to plan and to obtain loans to buy irrigation products, such as an affordable drip irrigation system that reduces water consumption. Jain works closely with customers to promote precision farming, which increases output by optimizing the balance between fertilizers, pesticides, water and energy. This approach also gives Jain Irrigation a competitive edge: its close relationship with smallholder farmers and the fact that its products are customized to local conditions make it easier to win business from large agricultural suppliers.

Companies such as these are capitalizing on local conditions and shaping their business strategies to accommodate constraints on natural resources in a way that allows them to develop innovative new products, services and business models that also bolster their growth potential and profitability.

References

1. R. Bowman and M.S. Hopkins, “What’s Your Company’s Sustainability Filter?,” January 18, 2011.

2. http://www.businesswire.com/news/home/20100122005661/en/Nike-Outlines-Global-Strategy-Creating-Sustainable-Business

3. We acknowledge, of course, that some businesses in developing countries may have substantively contributed to the environmental degradation that other, more sustainability-oriented businesses must contend with.

4. Worldwatch Institute, “State of the World: Our Urban Future,” 2007.

5. S.L. Hart and S. Sharma, “Engaging Fringe Stakeholders For Competitive Imagination,” Academy of Management Executive 18, no. 1 (Feb. 2004): 15.

6.IDB to Support Expansion of CEMEX Microfinance Program for Low-Income Families,” June 28, 2011.

7. World Economic Forum and the Boston Consulting Group, “Redefining the Future of Growth: The New Sustainability Champions,” Geneva, Switzerland, 2011.