The Business of Sustainability: Our Editor Speaks

Next month, MIT Sloan Management Review editor-in-chief Michael S. Hopkins will speak at the Opportunity Green business conference at UCLA. He'll be expanding on our recent special report on the business of sustainability. For a hint of what he'll discuss, there's an interview with him on the conference website. Some highlights:

One of the most baffling results from your survey is that while 92% of respondents said their company was “addressing sustainability in some way,” 70% said they still had not developed a clear business case for it.

That is the contradiction that gets to the heart of the issue, and as we continue with the second round of the survey that is probably where we’re going to do the most digging. It’s one thing for an executive to understand that sustainability is going to have a major impact. It doesn’t mean they understand how to make a case for investing in products that will capitalize on it.

One reason for this contradiction is this enormous gap between experts, or “thought leaders,” and novices. Novices recognize sustainability is going to have a big impact, but they are stuck in the “green” silo. To them, sustainability can seem like a cost rather than a benefit. Unfortunately, that’s not going to drive company behavior.

Thought leaders see sustainability in system-wide terms. Improving products, motivating employees, lowering costs, and improving relationships with governments, the public, the capital markets — even competitors. They think about many, many different things — it’s a bigger way to think. Suddenly opportunities to create value seem much more obvious.

According to your survey, improving company reputation seems to be the major driver of sustainability. Do you see this as a weakness, going forward?

I can see it cutting both ways, both for good and for ill. Depending on how well we do in ferreting out green-washing. For the typical company, reputation is the reason they think they’re doing sustainability, so if they got away with making false claims, that would be bad. And yet as a driver of activity, what’s wrong with reputation being a good return loop, a good feedback loop?

Reputation is very complex when it comes to sustainability. One of the examples is Nike. They have made amazing progress in improving the sustainability of their products, by redesigning them to use fewer materials, for example. But they are really in a quandary because they don’t feel they can promote that fact, because they worry it stands in direct contrast with what their customers want them to do.

Nike fears that by going out and saying look what we’ve done — and it’s really win win — customers will say “wait, I thought you created your product solely to make sure I got the best performance out of it. Sustainability has to compromise your other goal.” Nike is really worried about it, and as a result, they’re quite decidedly not pushing it.

I think reputation benefit is driver now, but will greatly diminish. As time passes, reputation will just be table stakes. Already seeing that in certain parts of the food industry: almost becomes difficult to find a product that is environmentally sound because they all claim that they are.

How is sustainability changing the way companies operate?

When you talk to people that are trying to do sustainability initiatives in companies, it’s a completely different business process, because it requires collaboration across all different boundaries, both inside and outside the firm. Inside firms, sustainability often requires collaboration across divisions and departments that don’t have to deal with each other. Outside, it requires collaboration with governments, NGOs, communities, citizen groups, and competitors about standards and practices. It requires an ability to collaborate that is unprecedented. Most execs don’t have it, or don’t know how to do it.

It also means companies will have to find ways to be more transparent about their practices and activities. People want to collaborate with people they can trust. If Company A runs their operation in a way that allows me to see inside it, then I’m more likely to collaborate with them. Certain things about management, like accounting and financial reporting, have to change.

It’s the same with the greening the supply chain, where suppliers are being asked to go into detail about manufacturing processes, materials, etc. Of course, some suppliers say “thanks, but no thanks” we’re not going to share that information with you. Herman Miller’s response is, well then we’re going elsewhere. Plenty of people would rather hold their cards close to their chest, but it is going to be less beneficial to do so, and more beneficial to be more transparent.

Sustainability issues are going to drive management harder towards transparency than almost any other challenge we’ve seen.

Sounds like a tall order — I’m thinking of companies trying to survive in a highly competitive market. Why risk being more transparent?

The risks far outweigh the rewards. Like for instance, protecting patents. A lot of companies don’t care about patents at all. Patents aren’t going to protect them, if [competitors] know what they do and how they work, by the time they copy it they’re on to the next thing. Companies need to think about service.

Also, companies will begin to see that in an age where it’s harder to get capital than it used to be, if you can be the kind of company to make outside providers of capital more comfortable, you’re going to attract more capital.

There are a lot of green companies that are glad about the widespread mistrust of sustainability – they realize that “because these other folks are too scared, I have a competitive advantage. My competitors are in the stone age.”

One would think that, during the current downturn, sustainability initiatives would be the first programs cut, but your survey shows fewer than 25% of respondents had cut their sustainability initiatives recently.

Honestly, I don’t understand it. I have posited a thesis to others which is that in some measure, especially early on in the trajectory, sustainability is often about savings and waste, and so there are ways in which a downturn can push a company to invest more in efficiency. “If we use less materials and cut emissions, we know it can save us money.” There is a menu of sustainable activities that look more attractive when you’re in a downturn.

Could it be that sustainability is a “growth industry,” and thus immune to the downturn?

I am hesitant to say its because it’s a growth industry, because I think the typical business person is still an novice, and I don’t think they believe it’s a big enough business opportunity yet. But, that 92% [who believe it is important] number is huge, and that fact plays into this. People really do believe they’re likely to keep paying attention to it because they don’t want to be blindsided.