In his new book, “Strategy For Sustainability,” Adam Werbach says it’s time to bring back the original definition of ‘sustainable.’
Environmentalists have co-opted the word and now it’s synonymous with saving the planet. It should really be synonymous with long term profits.
The two aren’t mutually exclusive, though. More companies should be planning for long term profitability, while remaining conscious of the changing environment, says Werbach.
He should know. At 23, he was the elected the youngest ever president of the Sierra Club. He is now Global CEO of Saatchi & Saatchi S, advising companies with $1 trillion in annual sales on how to make their businesses more sustainable.
How do companies get there? By acting smart, planning for the long run and recognising that the consumer and the environment are bound to change. If it seems dead simple and obvious, that’s because it is. Werbach says the problem is too many companies feel pressure to chase short term phantom profits.
It’s time to return to old school long term growth.
Here’s a Q and A we conducted with Werbach over the past week about his book, environmental policies and getting businesses to change their strategy. Also, don’t miss this slideshow of four businesses Werbach says are doing it right →
Business Insider: How do you define sustainability?
Adam Werbach: In a business context, sustainability simply means long-term profitability. Before 1987, that’s the definition that was widely understood. But in 1987, the United Nations released the Brundtland report, defining sustainable development as meeting the needs of the current generation without compromising the needs of future generations. This definition was quickly conflated with protecting our natural environment. In the book I argue that we need to return to the old definition of sustainability because the types of changes in society, technology and natural resources that are happening today are threats to the viability of businesses. Businesses that are prepared for the long term will get ahead of these trends in order to assure their longevity.
TBI: If I’m a CEO, how do I sell shareholders and board members on sacrificing today for sustainability tomorrow?
AW: CEOs first need to gain alignment around building a strategy for sustainability. If shareholders and board members are narrowly focused on the next quarter, then it will be difficult to implement such a strategy. You need to help stakeholders take the longer view through patience and education.
There is no conflict between sustainability and long-term profits. In the short term, however, responsible business leaders will make choices that might produce smaller short-term profits, but that’s a small price to pay for assuring the long term viability of a business. Capital investments in eco-efficiency provide long term operational cost savings as well as a hedge against resource cost fluctuations, like the unpredictable price of oil. Investing in engaging your staff will result in higher productivity, innovation and retention rates. Investing in R&D towards emerging consumer trends will assure long-term innovation.
TBI: What holds back corporations from investing in sustainable projects, if it leads to long term profits? Why isn’t everyone doing it?
Two reasons. First, right now capital is scarce, so healthy companies that had planned on investing in efficiency are instead investing in capacity. Once the credit markets open up again we’ll see more eco-efficiency projects. The second reason is that current compensation practices encourage CEOs to maximise the coming quarter instead of the next few years. This leads to the avoidance of smart medium-term projects. Boards need to demand a longer term view.
TBI: What kind of compensation practices make more sense for CEOs?
AW: When boards feel like they need a rockstar CEO who will take an unwinnable situation and make it right, they tend to be ripe to succumb to the demands for an excessive compensation scheme. Better that the Board digs in and works with the CEO day in and day out to implement the longer term changes that will make a company shine. As for the brass tacks, compensation of CEOs should be based on performance, and aligned with the time-horizon of the opportunity and risks that result from their actions. Grants of stock should vest on the basis of performance compared to similar companies over five years.
TBI: So far, it seems like you’ve said rather logical things about running a business. To me, it seems like you’re saying cut back on waste, plan for the long run. Is this a radical idea in business?
AW: Sadly, sustainability has become a radical idea in business. The froth of the financial services sector (and the housing sector, and before that the IT sector) encouraged companies that had steady year over year growth of earnings to give up on their conservative ways and try to match the phantom profits of the new titans of industry. If you look at the companies in Built to Last, Jerry Porras’ and Jim Collins’ tribute to long-surviving businesses, fully 1/3 of this hallowed group has underperformed the S&P 500 since the book was written in 1994. Like it or not, the incoming changes in society, technology and resources will only increase this type of churn unless more businesses focus on the fundamentals of connecting themselves more closely to consumer and resource trends. In other words, companies need to form a strategy for sustainability.
TBI: Can you tell me what a “capital investment in eco-efficiency” might be?
Capital investment in eco-efficiency are one-time expenses that lower your operating expenses by decreasing the waste in your processes. Example include, replacing your old boiler with a high-efficiency boiler. Replacing your suite of small personal printers on every desk with one high-functioning central printer. Selling a parking lot and funding commuter checks instead.
TBI: In your book you say that Ford couldn’t achieve its goal of improving fuel economy in SUVs by 25% because environmental goals were periphery to its core business strategy. I don’t understand this point. Isn’t improving fuel economy a core business strategy? How is that not a core business idea?
AW: Improving fuel economy SHOULD have been a core business strategy for Ford. With massive changes afoot in oil prices and consumer trends changing, they could have made the hard choice to compete in an emerging market; instead they continued to take the easy path towards sport utility vehicles. To take another example, PepsiCo makes a great deal of revenue selling soda and salty chips. But they see society changing towards healthier options, so they’re taking the initiative to build their products portfolio towards healthy sustainable options, like SunChips.
TBI: Weren’t automakers getting signals from consumers that SUVs and trucks were what they wanted? How could automakers know to build smaller cars? For all the hype around the Prius, it seems pretty reliant on the price of gasoline, correct?
AW: Consumers send signals based on the options that currently exist. Leaders in business expand the options in order to gain marketshare and consumer loyalty. No one asked Xerox to make recyclable copy machines; they chose to simplify their processes and manufacturing in order to make better products that would stay ahead of a consumer trend away from e-waste.
TBI: Have you looked at the turnaround plans for GM, does this look sustainable to you? Will they succeed?
AW: I want GM to succeed, but right now I’m not optimistic. When I speak to GM managers, they blame the economy and oil prices and the health care system and the government and the dealers for their problems. I still don’t see them taking accountability for the fact that the leadership ran the company into the ground with the support of the unions.
GM needs a cultural change. It’s not the machines that need to get upgraded, it’s the mindset. I would prescribe a comprehensive training and engagement effort that puts the company back in the hands of the employees and customers.
TBI: In the book you scoff at the idea of a gas tax that would raise the price of gas to $10 because its not sustainable. Are you against raising the gas tax? Wouldn’t it provide needed funding and change consumer behaviour?
AW: I’m not against a gas tax; I’m against raising the gas tax abruptly in a way that would harm the neediest members of society and the economy. Overall, I believe we need to make energy services cheaper, not more expensive. That will require implementation of massive efficiency efforts, R&D investment, and deployment of renewables. The U.S. should be spending $30 billion a year for a decade on clean energy efforts.
TBI: How do you feel about the idea of putting a price on carbon? Is this a sustainable plan?
AW: Absolutely. CO2, like sewage, has a cost. We just haven’t been charging it. It’s time to start.
Xerox set a North Star goal of producing 100% recyclable copiers in waste-free factories. To date they've reached a 91% recycling rate while going from near bankruptcy to profitability.
Toyota set a North Star goal of building cars that never crash and clean the air when they drive. Today, the launch of the new 3rd Generation Prius is one of the few auto industry success stories.
Method, a San Francisco-based cleaning product company, set a North Star goal of beautifying the world without any toxics, 'People Against Dirty', they call it. Their design-centered philosophy has helped them take market-share from incumbents.
Nike set a North Star goal of getting rid of all of the waste in its production process, and is rapidly moving to make all of its shoes become labelled as 'Considered', which is an initiative to remove waste. Nike thinks it can save $800 million annually by cutting waste. From a company that was once attacked as a sweatshop producer they've now become a sustainability leaders. The company
Business Insider Emails & Alerts
Site highlights each day to your inbox.