The Natural Edge Project The Natural Advantage of Nations Whole System Design Factor 5 Cents and Sustainability Higher Education and Sustainable Development




"This book (The Natural Advantage of Nations) has the potential to not only sell well but make a major difference to our environment... It is full of good news stories offering positive solutions and a holistic approach to creating a sustainable future. An inspiring message for our times."
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Introduction to Sustainable Development for Engineering and Built Environment Professionals


Unit 3 - Preparing to Walk the Talk

Lecture 10: Creating Value from Sustianable Development

         
Educational Aim
 

To provide the argument to present to a CEO or company board convincing them that efficiency and sustainable development, as well as being the right thing to do, can also be highly profitable. While many business people now understand the basic business case for improved efficiency what is provided here is an overview of some of the most important studies proving that what is good for the environment can be good for the bottom line too.

 

Textbook Readings


Brief Background Information (6 pages)


Learning Points

* 1. As shown in Section Two of The Natural Advantage of Nations, efficiencies and strategies for sustainable development offer business new ways to improve shareholder value through reducing costs, improving product differentiation and market share, unleashing the creativity of staff, and reducing multiple risks.


The Business Council of Australia believes that the pursuit of sustainable development – development that meets the needs of the present without compromising the ability of future generations to meet their own needs – is necessary for the future prosperity and well being of the world.

The Business Council of Australia, 2000[1]

 

*2. Companies like Interface Inc., that have genuinely adopted sustainable development as their core strategy, have created a virtuous cycle whereby they have:

  • Achieved over $260 million worth of savings through eco-efficiencies.

  • Increased market share through their eco-product carpet lines.

  • Improved reputation through their genuine commitment to sustainable development.

  • Received free publicity and marketing through their achievements and awards through the media, publications, TV documentaries and the internet.[2]

 

* 3. Ray Anderson CEO of Interface Inc. sums up the multiple positive benefits for Interface of pursuing a comprehensive strategy to achieve sustainable development:


Customers are inclined to support us, which helps the top line, efficiency helps the bottom line. It’s a positive feedback loop (of doing well by doing good): the more good you do, the more well you can do, the more you attract attention, which helps the top line…

Ray Anderson, CEO Interface Inc[3]

 

* 4. There are numerous examples of businesses in Queensland that are doing well by doing good. Take the example of Caroma, a wholly-Australian owned subsidiary of GWA International Limited. Caroma is based in Brisbane and regarded as the leader of the Australasian sanitaryware industry, and its products, including the 6/3 litre dual flush system, are shipped to over 30 countries worldwide.

* 5. Previously there were just a few good case studies of businesses like Interface, but now studies by investment analysts (i.e. Innovest) in the US and European markets show that sector by sector environmental leading firms are financially outperforming those not adopting a sustainable development policy. Over 85 percent of the literature surveys of business performance and environmental sustainability performance show a positive correlation between a business pursuing good environmental stewardship and their financial bottom line.[4]

* 6. The four stock-market measures of ethical business performance such as the Dow Jones Sustainability Index all show that those businesses listed on these stock-market indexes have strongly performed against the market average.[5] A survey by the World Business Council for Sustainable Development of its members showed that they have actually outperformed the market average.[6]

Brief Background Information
 

As an engineer you may deal with clients who are sceptical that you can offer anything new through a focus on sustainable development. Your audience may believe that their company is already as efficient as possible, or that their firm has already undergone significant change and could not cope with anymore.


In your response to such concerns you may consider the following:


One of the first companies to really make progress into achieving sustainable development was the carpet company, Interface Inc. The company found new areas where highly cost effective gains were possible. The original gains, or low hanging fruits, were quick and effective, and Interface concentrated initially on those areas where cost effective gains could be easily made. Interface is now saving over $260 million per annum with their eco-efficiency initiatives, and investing these savings into a range of additional initiatives to further improve efficiency. Improvements have also started affecting the company on a much more fundamental level.


Interface has now replaced petrochemical based carpets with carpets made from renewable biomass such as corn waste that can be recycled with little loss of quality. The new carpet is the first certified climate-neutral product in the world; that is, the climate impact of making and delivering the carpet has been offset before it gets to the customer. The carpet is so non-toxic it could be edible, thus eliminating OH&S concerns. Rather than owning the carpet the public will lease it from Interface who then collects the worn out squares for recycling. In the first four years of this business model and wringing out waste in its own operation, Interface more than doubled its revenue, more than tripled its operating profit, and nearly doubled its employment, all at the same time. Overall they have achieved a 97 percent total reduction in materials used while providing a better service in every respect. Interface has gone further than Factor four (the factor most sustainability experts estimate to be required to achieve ‘sustainability’). Interface is on the way to achieving Factor ten and becoming the first genuinely ‘Sustainable Corporation’ on the planet.[7]


In being the first company to significantly progress to becoming a sustainable corporation Interface has demonstrated an example of the significant competitive advantage to be gained through applying Porter's ideas of ‘Complementary Activity Systems’ with sustainable development as the goal. Interface has integrated hundreds of eco-efficiency initiatives and other new forms of innovation in accounting and product delivery, and in so doing are now far ahead of their competitors.


Michael Porter's Theory of Complementary Activity Systems.[8]


Rarely does sustainable advantage grow out of a single activity in a business. A company doesn't get sustainable advantage simply because it has some unique product design or a unique sales force. Sustainable advantage comes from systems of activities that work together and are complementary.


These complementarities occur when performing one activity and gives a company not only an advantage in that activity, but it also provides benefits in other activities.


Companies with sustainable competitive advantage integrate lots of activities within their business: their marketing, service, designs, customer support.


As a result, competitors don't have to match just one thing, they have to match the whole system. And until rivals achieve the whole system, they don't get much of the benefits.

As Amory Lovins, from the Rocky Mountain Institute, states,[9]


I think you will have to conclude that the earlier adopters of the next industrial revolution’s Natural Capitalist [Sustainable Development] principles are finding they’ve not only got greater short-term profitability, but stunning competitive advantage. Think of the carpet example with Interface: how can you compete with a company that’s using 3% as much raw materials as you are, a tenth the capital, to produce a service that’s better in every way, costs less and has a higher margin? I don’t think that’s possible to compete with. That’s the kind of leapfrog that the next industrial revolutionaries are now achieving.


In addition, by innovating on the sustainable development front Interface has solved many problems regarding marketing. Companies like Interface barely have to advertise. This cannot be emphasised enough. Multinational companies spend vast amounts on marketing, however a significant amount of new products fail, suggesting that even the best short and long term marketing campaigns do not always lead to sales. Fundamental innovation to create more environmentally sound products, while seeming at times a significant investment, can pay off in many unseen ways.


By ‘doing the right thing’, the worldwide environment movement provides international advertising for these companies more effectively than any PR firm. Interface is invited to speak at hundreds of conferences and the media cannot report their progress enough. They are reported in every book on new business models and studied by University graduates who then wish to work for them. Interface will never have any trouble recruiting the best most innovative people. These are not isolated case studies either, nor is this just for billion dollar companies. As we will show, numerous actual experiences reported in many studies and reports have consistently proved that eco-efficiency and cleaner production provide various ways to save and thereby begin the road to genuine sustainable development. Many companies in Australia are at least starting.


A wide range of studies in the last ten years have shown that companies that perform better than the market average, both environmentally and socially, actually can perform as well or outperform the market even with its current short term profit focus. The research literature shows clear links between improved sustainability performance on the environmental and social dimensions, and a company’s financial results.


As Innovest’s 2004 report, Corporate Environmental Governance: a Study into the Influence of Environmental Governance and Financial Performance, stated:


The literature review found strong evidence for the existence of a positive relationship between environmental governance and financial performance. In 51 of the 60 studies reviewed, a positive correlation was found between environmental governance and financial performance… results from fund, sector and company analysts are all generally positive.

Innovest Strategic Value Advisors, 2004[10]


As of 2004, Innovest’s most recent reports clearly show that, sector by sector, companies that are environmental leaders are financially outperforming the laggards, providing further evidence to support Porter’s Theory of Complementary Activity Systems. Companies with good corporate environmental governance and proactive stances on greenhouse gas reductions generally out-perform the rest of the sector, according to data across numerous sectors. There is also evidence that the average share price movement of firms with strong environmental governance responses outperform the lagging companies (i.e. those with a below average carbon rating). In the forest and paper products sector, for example, analysing the performance of the environmental leaders versus the laggards resulted in a 43 percent difference over a four-year period.[11] (See Figure 10.1)

Figure 10.1. Percentage change in total return of environmental leaders vs. laggards in the forest and paper products sector 1999-2003.

Source: Innovest Strategic Value Advisors (2004)[12]


The same is true in the oil and gas industry, where companies with a pro-active climate/carbon management strategy (plotted in light green in Figure 10.2) outperformed their peers (plotted in light blue) by 11.8 percent over a three-year period.[13]

Figure 10.2. Percentage change in total return of environmental leaders vs. laggards in the oil and gas sector 1999-2003.

Source: Innovest Strategic Value Advisors (2004)[14]

Sectors such as pulp/paper and oil/gas both have significant greenhouse gas emissions, but it is the energy supply sector (electric utilities) that is the largest single source of global greenhouse gases. In this sector, over three of the last four years for which there are figures available, the percentage change in total return of environmentally leading electric utilities was 39 percent above that of the below average environmental energy utility performers. (See Figure 10.3)

Figure 10.3. Percentage change in total return of environmental leaders vs. laggards in the EU electric utilities sector 2000-2003

Source: Innovest Strategic Value Advisors (2004)[15]

Electric utilities in the United States exhibited the same pattern. (See Figure 10.4).

Figure 10.4. Percentage change in total return of environmental leaders vs. laggards in the USA electric utilities sector 2000-2003.

Source: Innovest Strategic Value Advisors (2004)[16]

In addition, recent research is showing clear links between improved sustainability performance on the environmental and social dimensions, and a company’s financial results within companies in the emerging economies of the world.[17] For an overview of this literature and the latest evidence to support the argument that there is a business case for sustainable development/corporate social responsibility, see chapters 1, and 6-10 of The Natural Advantage of Nations.[18]


According to Dr John Cole, Queensland EPA, Sustainable Industries Division Executive Director, the wide variety of good news stories in Queensland demonstrate that, ‘the means of improving environmental sustainability is often remarkably obvious, remarkably simple and remarkably beneficial to the bottom line of businesses that embrace them.

Case Study

Description

Industry Partnership - Sustainable Urban Development Program[19]

Through a partnership with the EPA, the Urban Development Institute of Australia – Queensland (UDIA) has established the Sustainable Urban Development Program (SUDP) to encourage continued improvements in development projects. The program advocates a collaborative approach to identify issues and find solutions in a positive, proactive and timely manner, benefiting all stakeholders.


Launched in 2002, 25 projects were submitted by the development industry for consideration and champion projects were then chosen on the basis of the range of initiatives they incorporated to deliver triple-bottom-line outcomes. The partnership considers that the selected projects will provide practical demonstrations of the viability of sustainable development and set a high benchmark for future development.

 

Australian Country Choice (ACC)
Paddock to Plate – Sustainability in Meat Production

Australian Country Choice (ACC) an integrated livestock producer and meat processor, and one of Queensland’s largest privately owned companies. The Queensland EPA, Meat and Livestock Australia and the United Nations Environment Program are assisting ACC to implement an industry best practice environmental strategy over a ten year period.


Winning the 2002 Queensland Primary Industry Achievement Award for its environmental stewardship, ACC has developed an eco-efficiency program that aims to decrease operating costs while also reducing environmental impacts. Paul Gibson, ACC Manager for Research and Development, explains that, ‘this strategic program will eventually measure and monitor environmental impacts over the whole product life cycle, making a direct connection between eco-sustainability and long-term profitability’.


ACC is keen to communicate what it has learned with other agribusinesses, so that they can share the benefits and help Australian industry to lead the world in moving toward sustainable meat production. According to Gibson, ‘we anticipate others will take what we’ve done and improve it further still – the benefits are tangible for anyone wishing to implement an environmental management program’.

 

Eco-Efficiency in the Food Industry

The EPA joined with the UNEP Working Group for Cleaner Production, the Australian Water Association and eight local governments to produce a booklet called Eco-Efficient Food! Save Money While Saving the Environment.


This guide shows restaurants, cafes, hotels, clubs and fast food outlets how businesses can become more eco-efficient and save money; providing an efficient service to customers while using less energy, less water and producing less waste. With one of the key resources for food-related business being water, the publication provides readers with facts and simple calculations on what savings can be achieved.


Table 10.1. Sample of projects underway in Queensland supported by the EPA, Sustainable Industries Division.

Source: QLD EPA (n.d.)[20]

 

Key References

- Halliday, C., Schmidheiny, S. and Watts, P. (2002) Walking the Talk, The Business Case for Sustainable Development, World Business Council for Sustainable Development, Greenleaf Publishing, London.


- Hargroves, K. and Smith, M.H. (2005) The Natural Advantage of Nations, Earthscan, London. Chapter 1: Natural Advantage of Nations; Chapter 6: Natural Advantage and the Firm; Chapter 10: Operationalising Natural Advantage through the Sustainability Helix.

- Hawken, P., Lovins, A. and Lovins, L.H. (1999) Natural Capitalism: the Next Industrial Revolution, Earthscan, London. Chapters of the publication are freely downloadable from www.natcap.org.


- Innovest Strategic Value Advisors (2004) Corporate Environmental Governance: A study into the influence of Environmental Governance and Financial Performance, Innovest, New York.

- Pfeffer, J. (1998) The Human Equation: Building Profits by Putting People First, Harvard Business School Press, Boston.


- Porter, M. and van der Linde, C. (1995a) ‘Green and Competitive: Ending the Stalemate’, Harvard Business Review, Sept-Oct.


- Porter, M. and van der Linde, C. (1995b) ‘Toward a New Conception of the Environment-Competitiveness Relationship’, Journal of Economic Perspectives, (IX- 4) Fall, pp. 97-118.


- Schaltegger, S. and Figge, F. (1997) ‘Environmental Shareholder Value’, WWZ/Sarasin Basic Research Study, no. 54, Basel, WWZ.


- Schaltegger, S. and Synnestvedt, T. (2002) ‘The Link between “Green” and Economic Success: Environmental Management as the Crucial Trigger between Environmental and Economic Performance’, Journal of Environmental Management 65, pp 339-46.


- Schmidheiny, S. (1992) Changing Course: A global business perspective on development and the environment, MIT Press, Boston.


- von Weizsäcker, E., Lovins, A. and Lovins, L.H. (1997) Factor Four: Doubling Wealth, Halving Resource Use, Earthscan, London.

 
Key Words for Searching Online

World Business Council for Sustainable Development (WBCSD), Innovest, Deni Greene Ethical Investment Services, Rocky Mountain Institute, Environment Business Australia, National Business Leaders Forum on Sustainable Development

 

[1] Business Council of Australia (2000) Statement on Principles for Sustainable Development. Available at http://www.csp.uts.edu.au/resources/bca.html. Accessed 3 January 2007. (Back)

[2] Additional Information at Interface, Inc (n.d.) Interface, Inc Awards. Available at http://www.interfaceinc.com/results/Awards/Awards.asp. Accessed 26 November 2006. (Back)

[3] Natural Logic (1997) ‘Strategic Sustainability (5): Facing the Facts at Interface’, The New Bottom Line, September 24. Available at http://www.natlogic.com/resources/nbl/v06/n20.html. Accessed 3 January 2007. (Back)

[4] Innovest Strategic Value Advisors (2004) Corporate Environmental Governance: A study into the influence of Environmental Governance and Financial Performance, Innovest, New York, p 10. Available at http://www.cdproject.net/download.asp?file=cdp_report3.pdf. Accessed 26 November 2006. (Back)

[5] ACF (2000) Natural Advantage: Blueprint for a Sustainable Australia, Australian Conservation Foundation, Melbourne, Australia. (Back)

[6] Kommunalkredit Dexia Asset Management (2004) Sustainability Pays Off, World Business Council for Sustainable Development, WBCSD. Available at www.wbcd.org. Accessed 26 November 2006. (Back)

[7] Additional information at Interface, Inc. (n.d.) Interface Sustainability. Available at www.Interfacesustainability.com. Accessed 26 November 2006. (Back)

[8] Porter, M. (1995) Magazine interview, CIO, 1 October. Available at www.cio.com. Accessed 26 November 2006. (Back)

[9] Lovins, A.B. (n.d.) ‘Natural Capitalism’, In the News, ABC Australia., Available at, http://www.abc.net.au/science/slab/natcap/default.htm. Accessed 3 January 2007. (Back)

[10] Innovest Strategic Value Advisors (2004) Corporate Environmental Governance: A study into the influence of Environmental Governance and Financial Performance, Innovest, New York, p 10. (Back)

[11] Ibid, p12. (Back)

[12] Ibid, p13. (Back)

[13] Ibid, p13. (Back)

[14] Ibid, p43. (Back)

[15] Ibid, p50. (Back)

[16] Ibid, p51. (Back)

[17] SustainAbility, International Finance Corporation and Ethos Institute (2002) Developing Value: The Business Case for Sustainability in Emerging Markets, SustainAbility, London; and UNEP (United Nations Environment Programme) (2001) Buried Treasure: Uncovering the Business Case for Corporate Sustainability, SustainAbility, London. (Back)

[18] Hargroves, K. and Smith, M.H. (eds) (2005) The Natural Advantage of Nations, Earthscan, London. The publication’s online companion is available at www.thenaturaladvantage.info. Accessed 3 January 2007. (Back)

[19] Additional information at QLD EPA (n.d) Sustainable Urban Development Program, EPA QLD Sustainable Industries Division. Available at http://www.epa.qld.gov.au/publications?id=1350. Accessed 26 November 2006. (Back)

[20] Ibid. (Back)

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Program is supported by the Australian National Commission
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