Entropic Valuation – energy economics as if thermodynamics mattered

The constitution of the universe

“Everything you are, and have, you owe to the radiations from your sun.”

Chocky (John Wyndam)

 

The Laws of Thermodynamics provably frame and shape our scopeeverything we have...

for existence, yet they are effectively ignored by economic policy and process.

The first and second laws of thermodynamics are sometimes called the “constitution of the universe”. They describe the fundamental physical principles of the behaviour of energy. The 1st Law refers to change in energy states, the 2nd Law to energy dispersal, which can be expressed as follows: “energy of all kinds in our material world disperses or spreads out if it is not hindered from doing so.

To use a metaphor, energy is like water, it only moves in one direction: towards dispersal (energy) or downhill (water). However, not all water moves downhill at the same speed, just as not all energy flows from concentrated to dispersed forms at the same rate.

The measure of the dispersal predicted by the 2nd law is entropy. As entropy applies without exception to all energetic processes, it can provide a common metric to measure the lifetime performance of different energy sources.

Why isn’t overall thermodynamic performance part of energy economics?

Despite recent advances in renewable production, fossil fuels still make up more than 80% of our planet’s energy use. There are some good, practical reasons why coal, oil and natural gas (CONG) dominate supply in the global economy. Most significantly, CONG provide concentrated, transportable sources of utilisable energy.

However, this ease of use distracts us from their lifetime energetic (entropic) performance: that is, how efficiently they capture, store and render the sun’s energy over their lifetime.

We tend to think of CONG as energy itself, but this is not accurate. They are storage media for concentrated solar energy which was aggregated by photosynthesis in prehistoric vegetation and then subjected to nearly 100 million years of geological process. In conceptual and literal terms they are natural batteries, comparable to a lithium ion battery storing energy derived from solar PV.

The Sun is the original source of almost all energy, arguably excepting nuclear, geothermal and tidal. This common origin provides the opportunity to derive like-for-like comparisons of energy sources.

Comparing the entropic performance of energy sources provides us with a way of assessing and therefore pricing the total efficiency of a wide range of energy sources. This could be called ‘entropic valuation’.

Why entropic valuation matters

Entropic valuation is a means to compare the total energetic efficiency of solar derived energy sources, it considers: “How many solar kilojoules (kJ) have gone into this storage media in order to obtain 1 kJ of usable energy from it?” This ratio can then be used to assign a nominal price to the results.

If common solar origin is considered for a range of energy types then a very different picture of value and efficiency emerges. For example, if we consider the conversion of solar kilojoules into usable kilojoules, then solar PV is circa 100,000 times more efficient than oil.

This may be technically correct, but what difference does it actually make? After all, while CONG includes many million years of investment, we don’t pay for that time and can simply reap the benefits of its existence. However, there are compelling reasons to explore the real total energetic (entropic) performance of different energy sources.

Benjamin Franklin wrote that “the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things”.

The false estimates that we make of the value of fossil fuels blinds us to the challenges which arise from their use. Beyond the pollution impacts of burning irreplaceable stored energy, the belief that fossil fuel energetically outcompetes other sources of energy has lead to distorted markets and incentives to pursue resources that are ever harder to exploit.

Projects such as Carbon Tracker have begun to highlight the extent of the problem, calculating that only 20-40% of carbon assets held by listed companies could be burnt without exceeding global warming of 2°C. Yet the worth currently assigned to these assets can only be realised if they are used. In our current industrial model this would be a onetime use: valuable in the short term, but catastrophic in both planetary and financial terms in the future.

Applying entropic valuation to differing solar derived energy sources reveals that fossil fuels carry sunshine at a much lower rate, in terms of original energy received, than the real-time production of solar PV and storage.

overpowering fossil fuels

The above table compares the energy conversion (of solar input) efficiencies of a number of energy sources. Put simply, coal, oil and natural gas capture only 2.4% of solar input received, while solar PV captures vastly more, varying between 15 and 40%.

This ‘capture gap’ is compounded through the geological translation of ancient vegetation into concentrated fossil fuel, meaning that while every KJ of sun energy received by solar PV produces around 0.1kJ of usable energy, oil produces only 0.00000094 kJ – more than 100,000 times less!

This analysis highlights an interesting relationship between the energetic efficiency of ‘real-time’ or ‘live’ energy generation and that of fossil fuel energy generation.

These differences can be translated into money. Using the relative efficiency figures from the table above, energy sources can be priced on an equal basis. If each input kJ of Sun energy cost $1, the product energy price required to break-even per kJ produced are shown here:

The fossil fuel price problem

The whole picture – don’t forget the externalities

While comparisons of total energetic performance are dramatic, we should also remember that significant external costs arise from the use of CONG.

These costs, rarely integrated into the actual price paid for energy, exist across a range of “balance sheets” and consist of the following dimensions:

  • Climate impacts the contribution of CO2 and other emissions driving climate disruption.
  • Pollution direct impacts from extraction, production and refining in addition to combustion emissions for energy and other uses.
  • Opportunity costs one time use of such complex, time-rich compounds precludes a huge range of other uses, for: plastics, agriculture, pharmaceuticals and possible future technologies.

Use of oil - entropy

There appears to be a correlation (but not necessarily a causal link) between energetic performance and the scale of these externalities. While climate and pollution costs are well documented, the huge differences in energetic performance perhaps highlight the scale of opportunity costs incurred by our predominantly “one-time” use of fossil fuels.

Towards real-time energy

Francois de La Rochefoucauld noted that “The principal point of cleverness is to know how to value things just as they deserve.”

It is just such intelligence that humanity must apply to the environmental and energy challenges of the coming decades.

Clear and unarguable environmental and resource trends indicate an overwhelming need to connect energy pricing with the fundamental realities of physics in terms of:

  • overall energetic performance
  • longevity & replenish-ability
  • cleanliness/pollution
  • significant/irreversible opportunity costs

Entropic valuation provides a means to connect these aspects, founded in immutable physical law.

Entropic valuation reveals the orders of magnitude difference between the life time efficiency of “live” solar generation and the ‘stored sunshine’ of fossil fuels.

It suggests that truly sustainable solutions lie in growing ‘real-time’ energy and moving rapidly away from our dependence on upon finite, and borrowed, prehistoric time.

It’s time we paid rather more mind, and money, to entropy.

 

Entropic Valuation is idea developed by Joss Tantram in conjunction with Sean Grunnet Cuthbert and first tested in public at the Energy Storage World Forum, Berlin, April 2013. Our motivation in developing the idea was to explore new ways of looking at old problems and to connect energy perspectives with the energy reality defined by the laws of thermodynamics.

A slightly shorter version of this article was first published by Green Futures Magazine on 3/02/14.

Entropic Overhead – measuring the circular economy

Errors using inadequate data are much less than those using no data at all.

Charles Babbage

The broken hourglass

Do you break the timer when your boiled egg is cooked?

Our economy does, it is like a broken hourglass. We collect together valuable materials, apply energy and labour, put them into products that have yet more added design and brand value and spew them out into the world before starting again (mostly), from scratch.

This of course would all be fine if scarcity was not a problem: if the materials, energy and inputs we rely upon for industrial production were either eternally abundant or safe to distribute and use. However in our current industrial models this is simply not the case.

To pursue the disposable hourglass metaphor, instead of merely turning it over when the sand has run through (a cradle-to-cradle, or circular industrial model), we smash it, buy another hourglass (a cradle-to-grave industrial model) – and maybe pop the old one in the recycling if we’re feeling virtuous.

This is all fine until the raw materials, energy and skills to make more hourglasses start to get scarce or expensive. Then we would have to start to pick over the remains of the broken one to collect these now valuable raw materials for remanufacture and reuse.

How much easier is it to retain the investment that has gone in to making an hourglass than to smash it and start again every time we want to boil an egg?

Measuring the performance of different models

The performance difference between a broken and unbroken hourglass economy is easy to sum up simply – “a lot”. However, in practice more marginal differences can be crucial. A metric would allow us to measure the difference between potential courses of action and help determine the processes and activities most effective in achieving a circular, sustainable economy. But given the complexity of modern industrial processes and the fact that a well-functioning circular economy would add further convolutions, how do we develop a suitable measure?

The common denominator for all industrial activities is energy, therefore a metric which refers to the energetic characteristics of systems and processes is required. We believe this is entropy.

Entropy applies without exception to all activities and processes. Given that universality, it might be used to measure the overall efficiency of our economy and the transition to a circular economy.

Entropy applies primarily to energy and not to matter – something we are fundamentally concerned with in the circular economy. However, matter is of little use until we organise, process, manufacture and distribute it in products and services – all these activities require energy.

We therefore propose the metric of Entropic Overhead.

 

What is Entropic Overhead?

Entropic Overhead is a relative lifecycle measure of the energetic efficiency of maintaining the utility of a product or service, or reusing its constituent materials.

It can be used to assess the energetic efficiency differences between alternative pathways: for example the energy required to either make a new product or retrieve its resources to original utility, versus the energy that would be spent on retaining the original products’ use. It can also be used to assess the efficiency of alternative uses of constituent resources, beyond the original utility, in different products and processes within a circular economy.

 In terms of the hourglass metaphor, it is the energetic performance difference between:

  • obtaining a new timer with virgin materials;
  • obtaining a new timer and making some further use of the constituent materials of the old one for other purposes;
  • remaking the broken timer by retrieving and reprocessing all the constituent materials (and supplementing with new materials where needed), and;
  • avoiding breakage and simply turning the hourglass over.

Entropic Overhead is therefore a measure of the differential energy costs we would bear because we failed to make full use of the initial investment we have made in creating a functioning object with long term utility.

Why we need a metric for the circular economy

Humans seek simplicity, and we value simple measures to tell us whether we are moving in the “right” direction and to help assess marginal choices.

However, this desire does cause us problems, such as an over reliance upon metrics that are so abstracted as to be meaningless or even dangerous. GNP was famously condemned by Senator Robert Kennedy as a metric which “measures everything in short except that which is worthwhile”.

The dictum “If you can’t measure it, you can’t manage it” might be trite and one dimensional (and often wrong), but in this case it is useful. How do we measure progress towards a circular economy and, is there one measure, rather than a million, that we can use?

 

“all models are wrong, but some are useful”

George E. P. Box

Finding a metric that applies everywhere is difficult. In order to do so, we must look to universal principles which apply to all, without exception. The laws of thermodynamics are a good candidate as they represent a fundamental framework for physical existence.

 

What about zero impact energy and materials?

Entropic Overhead is an ideal measure to indicate the difference between varying production approaches because, in our current unsustainable economy, energy is a useful proxy for environmental efficiency.

However, it would theoretically be possible to have an economy that used only zero impact energy sources and materials. In this utopian situation, Entropic Overhead would be less suited to indicate the sustainability or otherwise of processes.

Therefore the metric is a transitionary one – useful until we achieve a circular economy which uses zero impact energy. Before this occurs, we can rate the Entropic Overhead of different processes using carbon intensity factors to allow for different means of production.

What scale can Entropic Overhead be applied to?

Any scale we like: from a product level, comparing the performance of a leased product to a “disposable” one; to the level of a value chain; for comparing business models, or comparing national & international economies.

Who else has explored this?

“It is not once nor twice but times without number that the same ideas make their appearance in the world.”

Aristotle

Various people have explored the concept of entropy in different fields from economics to social dynamics, including Frederick Soddy in the 1930s and more recently Nicholas Georgescu-Roegen. Many have caught the imagination and many have foundered, possibly because the concept of entropy has been misunderstood or misappropriated – often stretched to apply to social organisation or economics.

However, this doesn’t mean the concept is without value, particularly if we don’t over extend our interpretation of the underlying science. Entropic Overhead is seeking to avoid the pitfalls that misappropriation of the concept can create by focusing upon the fundamental energetics of different industrial and economic processes and not over extending the application of the second law.

 

Measures that matter

Truly useful measures are required if we are to assess and drive towards a sustainable world. At the physical level, sustainability requires us to find ways to exist and thrive in a system which is closed to matter – though open to energy.

This existential context should define our ways of measuring and managing performance yet we have effectively ignored the reality of life on this planet for too long.

As we start to recognise and push against the hard limits of existence we need measures which tell us, meaningfully, how we are performing and the value of doing so.

Entropic Overhead allows us to measure our progress to a sustainable future, we are keen to join with others to explore its use in practice.

 

This post was also published by Sustainable Brands on 9/09/13 and by 2degrees on 19/09/13.

Sustainable futures and the status quo bias

“All is for the best in the best of all possible worlds.”

Dr Pangloss, “Candide”, Voltaire

Winning the battle but losing the war?

Sustainability has become a concept that, by certain measures, has gone mainstream. It has become an expectation, rather than an exception, that companies of global (and smaller) significance have staff and effort expended towards some form of sustainable, responsible or citizenship related endeavour.

However, this does not mean that the “war” for the protection and enhancement of the global environment has been won. To the contrary, all the scientific evidence tells us that the overwhelming global trends in environmental quality are downwards (with the odd little piece of less-bad news).

The reasons for this are many, varied and complex. It is perhaps easiest just to say that sustainability was never a design consideration of economics, and therefore, by extension, of capitalism.

However, from a psychological and neurological perspective, there are also some other, very interesting, factors at work.

The forces of reaction and the forces of protection

Beyond the forces of reaction – those who believe that environmentalists are wrong, are wrongheaded, or who have wilfully or naively misinterpreted data; and beyond the forces of protectionism – those who may privately agree that environmentalists have a point but are having far too good a time to want to change, there is a further challenge we face in building a sustainable world – status quo bias.

 

Status quo bias – the best of all possible worlds?

It is not reason which is the guide of life, but custom.

David Hume

Status quo bias is the phenomenon (backed up by some significant evidence) that humans have an objectively non-rational preference for the status quo. A 2009 paper published by the US National Academy of Sciences found that, when faced with difficult choices, people are more likely to choose the status quo. In addition the study also noted that these choices were frequently not the “best ones” but that the difficulty of making the decision was a factor in driving people to stick with the familiar.

A common example is that presented by an over-abundance of choice, for instance when faced with too many varieties of cereal in the supermarket, we often find ourselves buying either what we always buy, or refusing to make any choice at all.

Status quo bias implies that, than rather than setting us free, choice may actually imprison us.

This phenomena presents a huge challenge for building a sustainable world, even though that world might be demonstrably more likely to benefit us all. It also calls in to question the idea that a sustainable world can or should be achieved through presenting people with a greater variety of sustainable choices when perhaps such a change would make little or no difference.

Change and the fear of change

Change alone is unchanging.

Heraclitus

To an extent, status quo bias can also be attributed to a natural fear of change. As a man, this is something I am of course familiar with; move the contents of kitchen cupboards around and I become lost, listless and existentially challenged until my brain eventually gets used to opening the correct door.

In contrast however, humans actively embrace certain types of change, notably those we label as progress. In the last 20 years technologies have transformed our access to knowledge and learning – a change we have embraced as undoubted progress, and our ability to travel and explore has expanded also.

Fundamental, radical, change happens all the time and humans are quite capable of adapting. My grandmother, for instance, was born into a world which was in many ways indistinguishable from that of two or even three hundred years before. Yet when she died the world had convulsed, tens of millions had been killed deliberately and died preventably. Technology had boomed and mass material production and consumption had become a core mode of good citizenship, as had universal healthcare and the chance for many of not dying from dirty water and many communicable diseases.

Yet, while we are living it, change appears not to be something called change, just life, which may or may not have new features from one day to the next. Our lives are defined by change, however small – so why does real sustainable change seem like such a challenge to achieve?

It is perhaps not change which presents the problem for building a sustainable world, but the fear of change. It is also the fact that, whether we like it or not, we tend to assume that the status quo, the now, is somehow right and natural; an instinct which prompts us to instinctively reject visions of the future as containing more design and value judgements than our present reality.

The argument goes like this – “You may consider that the environment is important, and want it to be protected or valued differently, but doesn’t the valuation or protection you propose require value judgements as to what is important? Who are you (or anyone) to make judgements which may not be shared by all?

This is of course a fair point – any environmentalist seeking to assign or champion value or behaviour without some logical and empirical framework underpinning their thinking should be ashamed of themselves.

Value judgements are a fact of life so let’s get on with it

Any vision for change from the status quo will involve value judgements, but aren’t we already wrestling with a set of value judgements that tell us that economic activity (i.e. a developed wetland) is more valuable than none (an undeveloped wetland), regardless of the consequences for the system as a whole?

We live in a world of value judgements; therefore to suggest that some value judgements may produce better outcomes for common-self interest than the current set of value judgements doesn’t really seem to me to be imposing anything.

Towards common value (judgements)

Visions of a sustainable future are by their nature based upon judgements as to what is valuable. At a species level, I would suggest that most of us would probably agree on what is valuable: water, food, air, shelter, warmth, security, equitable income, education, communication and representation.

Equally, in terms of what is valuable in nature, it is fairly clearly understood that qualities of diversity, resilience and productive capacity are critical for thriving ecosystems and we also have a pretty good idea of how to support and encourage these characteristics.

Given the possibility of consensus we mustn’t confuse the way we happen to do things now with the “right way to do things”.

We must not let our comfortable attachment to the norms of today prevent us from embracing the change that a sustainable human future demands. Yet we must also understand that there are good reasons why we tend to associate what is familiar with what is “best”.

 

This post was originally published in a marginally more sober form by Guardian Sustainable Business on 15/02/2013

Looking forward and facing back – can standards deliver a sustainable world?

A few strong instincts and a few plain rules suffice us.

Ralph Waldo Emerson

My firm (Terrafiniti) has recently had the pleasure of supporting Corporate Register’s CRRA 13 Awards, a unique, user generated sustainability and corporate responsibility reporting awards scheme.

This has given us a concentrated snap-shot of sustainability and corporate responsibility reports from companies of all sizes and sectors from around the world. It also provided us with an insight into the systems, standards and best practice approaches these companies are using to guide their activities or demonstrate their responsibility.

In addition to judging sustainability reports, I have also had the vast and eternal pleasure over the years to be involved in a number of best practice approaches and more formal management and guidance systems. These have included the SIGMA project – still one of the best sustainability management approaches in existence, the little known UK Standards BS8900 (Guidance for Managing Sustainable Development) and BS8901 (Sustainable Events Management) and the battle-scarred and possibly flawed ISO26000 Social Responsibility Guidance Standard.

A question which often arises, when discussing these and other best practice approaches such as the UN Global Compact and the Global Reporting Initiative (GRI), is whether they give rise to more sustainable practice and, if not, why not?

Leading and following standards – how do standards arise?

Standards are developed for two main reasons:

1.            Because something is already happening and it is considered mainstream enough to be codified into standard practice, and;

2.            Because something is not happening that people think ought to happen and therefore a standard is developed to encourage it.

These two circumstances give rise to two types of standards; following standards and leading standards.

In sustainability terms an example of a following standard is ISO 14001, which codifies generally accepted practice, whilst a leading standard would be ISO 26000. Other leading standards would be the AA1000 series – which seeks to stimulate leading practice in areas of activity that are new to many organisations.

It can be argued that such leading standards arise not from established practice, but a recognition of the gap between what is currently happening and what is required to happen in order to avoid undesired outcomes (e.g. rising social inequity, systemic economic instability or the total destruction of ecosystems and societies as we know and love them – little things like that).

For many sustainability practitioners, who believe that transformative change is required in relation to the scale of the sustainability challenges we face, leading standards are those we are most interested in, whilst following standards are those most widely employed in the marketplace.

Procedures for a sustainable world?

Immaturity is the incapacity to use one’s intelligence without the guidance of another.

Immanuel Kant

A common challenge in organisations is the substitution of procedures for devolved trust and decision making. When they get to a certain size, or have a bureaucratically minded leadership or culture, it is often supposed that strict procedures, permissions or systems will guarantee correct decision making.

This may be so where every aspect of a process is well established and known and there can be no possible utility in innovation or change. However, such organisations and processes are rare; most organisations can stand to improve their approach by encouraging and supporting creativity of thought and innovation in process but such behaviours cannot be mandated by top-down dictats.

An apposite example comes from was a project I was involved in a decade ago considering what a sustainable bank would be like. We heard from a small, ethical bank alongside a global financial institution. They both had approaches for assessing environmental and social risk in lending decisions. The small organisation’s process was shockingly simple – the happiness or otherwise of its staff – they discussed the potential decision and decided whether they were happy to accept or decline the lending. The big organisation had an extensive checklist approach designed to provide an entirely procedural solution.

Since that time one has quietly gone on to grow slowly with no fuss or scandals, the other has had more spectacular growth and become globally recognised as somewhat ethically challenged.

Principles based standards

If procedures encourage rote behaviour a solution can be to develop standards which do not prescribe specific activities but which articulate sets of principles to guide and shape actions. Conversely, with a very detailed approach such as that of the GRI, it is theoretically possible to look at the GRI index in an organisation’s report and to judge the level and quality of embedding.

For principles based approaches such a judgement can be much harder, it can be difficult to tell whether something has happened (or not happened) because of a set of principles because it is much harder to tell how individuals make decisions.

Proliferation – guidance for all?

In my previous life in the NGO world we often found that organisations were keen to respond positively to sustainability but just wanted to be told where to look to find out what to do. This is a seductive but problematic thing to achieve and has given rise to both a proliferation in the number of tailored approaches to support every possible combination of organisational sector and size and the exponential growth of more generic approaches.

For example, the GRI has expanded in both directions. Their core indicators for all companies have expanded through the lifetime of the initiative as has the production of sector specific supplements (now numbering 10 and counting).

Finding our way in the dark

Here is where we encounter a deep and fundamental challenge with sustainability – it is substantially unmapped territory, therefore it is difficult to say exactly what it will look like, and indeed how to get there. This is especially the case when the specific expertise and knowledge required in many areas to develop sustainable solutions lies with those currently involved in unsustainable ones. A standard cannot mandate such innovation and perhaps should not try to. 

Stakeholder standards – do successful solutions really need consensus?

Consensus is very big in sustainability right now, and there are some good reasons for this. The AA1000 series, the GRI and ISO26000 all developed through huge, multi-stakeholder approaches which were based in consensus and which required that consensus for legitimacy.

Yet in the fast moving world of commercial products, consensus and stakeholder based development is not a success criterion. It could be argued that the same should go for sustainability standards.

Truly disruptive and commercially successful products are not the outcome of extensive stakeholder processes and consensual development. They are the products of creative activity, often from single individuals or flexible, capable small teams. Dyson’s cleaners and Apple’s iPods were just such products – successful because they redefined a market effectively, cleverly and elegantly.

Why should standards really be any different? Why is it not possible to develop sustainability approaches which are able to drive sustainable change, deliver viable long term decisions and are communicable to the wider world but which do not need the best part of a decade and the involvement of thousands to do so?

Massively detailed stakeholder derived consensus based standards and guidance, unimpeachable though they may be in giving everyone involved their voice, are really, really unlikely to stimulate the innovation, creativity and swiftness of action required to tackle fast moving environmental and social problems.

The innovation we depend upon for a sustainable future may be rooted in established practice but may be as different from that practice as night is from day. While standards clearly have a role in such a transition, they are unlikely to be our salvation.

This post was originally published on Green Conduct on 14/12/2012.

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Stakeholder engagement – building resilience

It’s when we start working together that the real healing takes place…when we start spilling our sweat, and not our blood.

David Hume

Companies which ignore the views of stakeholders from within and outside their organisation may overlook issues that could come back to bite them.Resilience in diversity

An essential part of a meaningful approach to sustainability and CSR management for more than a decade, stakeholder engagement is not just a way of keeping external parties happy, or a PR campaign. Used properly it can be a powerful way of building strategic awareness and resilience.

This post is aimed at practitioners in companies, providing guidance, hints and tips for designing and conducting stakeholder engagement which is meaningful and relevant for all parties involved.

Engagement builds resilient business

Just as any species unable to notice or adapt to changing conditions is likely to die out, companies which are unable to pay attention, interpret and respond to a changing operating environment are unlikely to last for long.

Any good company pays active attention to its operating environment and stakeholder engagement is one vital method for doing this – actively seeking input and insight from people who see your business differently. A great recent example of this is from one of our clients, Elopak, which kicked off a recent long term sustainability vision process with input from external parties and NGOs .

The difference between engagement and PR

We often hear companies, when faced with opposition to their plans, emphasise their failure to communicate rather than find fault with the plans themselves. This has come especially into focus with the recent “Shareholder Spring” votes against proposed executive rewards.

This stance highlights the difference between engagement and PR. With engagement there should generally be an openness and expectation that the engagement may result in a different outcome to the one that the company first envisaged.

PR, on the other hand, is about the transmission rather than the exchange of information – which lies at the heart of stakeholder engagement.

Who are your stakeholders?

Stakeholders can be broadly divided into two categories: internal and external. Everyone who works for the company is an internal stakeholder. However, identifying external stakeholders can be more complex.

A standard list of external stakeholders could include the following:

> Existing consumers > Communities living near your operations/offices
> Potential consumers > Business partners/allies
> Suppliers > NGOs and pressure groups
> Regulators/government > Competitors
> Investors > The media

There is no one-size-fits-all approach, you need to understand how you might affect stakeholders, their interest (or otherwise) in your business and, if they are, what they want from you. This must also be assessed together with their potential to influence or have an impact on your activities.

Can you get stakeholder views without talking to stakeholders?

This may seem like a silly question but the answer is, yes, you can! It is possible, given the increasing amount of information and opinion freely available on the internet to conduct what we call “Stakeholder Engagement by Proxy”. This involves using existing sources of information pertaining to organisations in your sector or your company in order to gain a picture of the issues which are deemed to be relevant and therefore might become priorities for management. Such sources include the views of progressive investors such as the SAM yearbook , Eurosif’s sector reports , guidance on key indicators and issues for focus from the GRI Sector supplements and other sectoral and universal guidance on sustainable business issues.

But is this a substitute for talking to stakeholders?

No. Proxy sources of stakeholder information can never replace active engagement. Nevertheless, it can be a useful pre-cursor to active dialogue and engagement with stakeholders as it will arm you with a feeling for the sorts of issues which may come up.

Fundamental principles for stakeholder engagement

There are a number of very good sources of information and guidance on how to conduct stakeholder engagement and this article is not long enough to go into these in detail. If you want the “gold standard” for stakeholder engagement, start by looking at Accountability’s AA1000SES (Stakeholder Engagement Standard)

At its heart though, there are some simple fundamental principles which can guide your approach.

Here are my top three tips to bear in mind when planning and designing your approach.

1.                   Honesty – don’t expect to agree on everything

Stakeholder engagement is not about agreement but about honest and open interaction and this should work both ways. There will always be some things that you are able to change following engagement and things that you cannot or would rather not change. Just as you should be able to explain such issues to stakeholders and the wider world, you should recognise that some stakeholders will wish to do likewise with their points of focus and disagreement.

2.                   Relevance – don’t get diverted by immaterial issues

It is important that engagement focuses upon the issues that matter – to your business, stakeholders and the wider environment. If you go into stakeholder engagement seeking to focus upon what stakeholders might consider a peripheral or irrelevant issue then you haven’t understood the purpose and point of engagement and, crucially, you won’t gain strategic benefit from external input and insight.

3.                   Expectations – be clear on the scope for change

Be clear about what you are engaging about and also ensure that there are shared expectations on what scope there is to effect change. As noted above, engagement without change is difficult to differentiate from PR.

Conclusion

Companies which are capable of evolving in response to the signals that society and the environment send them will be those equipped to survive and capitalise upon the challenges of the future.

Ultimately, the businesses likely to become truly sustainable will only do so if they can successfully anticipate and react to changes in their marketplace, social context and resource base. Proper and full engagement with their stakeholders is an essential tool for achieving this and building businesses fit for the future.

A true reflection…getting satisfaction from independent Assurance

It does not require many words to speak the truth

Chief Joseph

If your organisation either already reports or intends to produce a sustainability report, you will need to be thinking about independent assurance – formal or informal input designed to provide an independent view of the effectiveness, thoroughness and relevance of your sustainability approach.

This post follows on from our insights into the fundmentals of sustainability reporting.

What is assurance?

Assurance is the process by which readers of sustainability or CSR reports and information (commonly referred to as “non-financial information”) can have confidence that what they are reading is “true”.A true reflection?

This post contains advice and guidance for organisations new to the world of independent assurance or for those already commissioning such activities who wish to gain more, in terms of both sustainability and business value, from the process.

When I refer to “assurance” I am referring to “independent assurance” rather than assurance conducted by internal audit or other in-company parties.

Why assure?

The aim of any sustainability assurance process is to reassure internal and external stakeholders that the sustainability information provided by organisations is credible. A high quality assurance process should also act as a driver for performance improvement. There has been much debate on whether assurance processes are successful in achieving these aims.

As a judge for sustainability reporting awards, I have tended to believe that a report without an independent assurance statement is not worth the paper that it is printed on. However, it is also possible to have an independent statement which tells the reader so little that it is almost equally worthless!

It is difficult to draw black and white distinctions. Nevertheless a well specified, in-depth, independent assurance process and statement can be a fantastically meaningful, useful and essential part of delivering transparency and accountability and sustainable performance improvement.

What constitutes an assurance statement?

In CSR and sustainability reporting, an “assurance statement” is a blanket term that is used to refer to a number of review, perspective or audit pieces that are commissioned by a reporting company in order to gain insight and to demonstrate the veracity or truth of sustainability management or reporting disclosures.

There are three broad categories for such statements:

  1. Formal Assurance Statements (e.g. those based upon a specific Assurance methodology – AA 1000AS, ISAE 3000, and the Dutch Standard 3410N.
  2. Verification statements from accredited bodies which verify against a specific standard (e.g. ISO14001, EMAS).
  3. Perspective and commentary pieces – a wider category of statements which do neither of the above but which are intended to lend some credibility, weight or reliability to the contents of a report. These might be produced by recognised authorities (or personalities) in sustainability and CSR, NGOs, stakeholder panels or other parties intended to lend weight, gravitas or critical perspective on the work of the reporting organisation.

For a reader of a report – the purpose of any sort of statement is to allow them to have confidence that the contents of the report bear some resemblance to the “truth” of actual company commitment, practice and performance.

Given this, it is most likely that those assurance statements which either follow a clear third party methodology or disclose the methods by which the statement was derived are those likely to be able to create the most trust.

For a reporting organisation, the purpose of an assurance statement is twofold: to allow readers to trust the report contents but also (and this aspect is often overlooked or avoided) to gain insight and understanding from a third party of the strengths and weaknesses of their reporting approach.

Scope and depth

Assurance statements can vary in depth and extent of scrutiny, depending upon the Standard that is being used to conduct the assurance process. For assurance engagements conducted according to Accountability’s AA1000 AS, there is a requirement to “cover the full range of organisational performance”. For those conducted following ISAE 3000 it is possible for assurance to be conducted at either “limited” or “reasonable” levels. These levels refer both to the depth of and scope of activities undertaken to produce the statement, but also determine the type of conclusions made by the assurer.

For “limited” engagements, this conclusion is likely to be a fairly impenetrable, double negative based statement such as “there was nothing which came to our attention which indicated that the statements in this report are not a true and fair picture of…”.

For “reasonable” engagements, the conclusion is a little more meaningful, and will be of the form that “the statements in this report present a true and fair view”.

Using assurance to drive continuous improvement

However, if the purpose of obtaining assurance goes beyond a pretty bland statement from a third party that the contents of a report are not outright untruths then a reporting company should seek to drive value through the process and perhaps engage in a more developmental process.

Such a process can be delivered through specifying the use of AA 1000AS guided statements. These are more detailed, deep and, to a reader such as me, meaningful. They often contain specific recommendations for the development of the reporting company’s approach to managing and disclosing sustainability performance. The best statements may also contain year-on-year commentary which can be a useful way of assessing and disclosing progress in the maturity and embedding of sustainability management.

Type of assurance provider, qualifications and independence

There is a wide range of companies that have moved into the market of providing assurance statements, especially as assurance has moved from being the provision of formal verification statements. Such assurance providers include professional services firms, sustainability and CSR consultancies, specialist auditors and verifiers and specialist non-financial assurance firms.

Because there is such a wide range of companies earning income from providing such statements, it can be difficult for a reader to tell whether any of them is suitably skilled and equipped to provide such statements, therefore it is difficult to know whether the reader should trust all such statements or none of them.

There is, however, guidance on the levels and types of expertise required for the provision of assurance statements, for ISAE3000 and COS 3410N, this is provided by IFAC, for AA1000AS, Accountability has a Certified Sustainability Assurance Practitioner qualification.

Must an assurance provider always be “independent”?

In some cases, the provider of an assurance statement to a company is also the provider of advice and support to that company. Under such circumstances the relationship between the statement provider and the reporting company should be clearly and publicly disclosed.

Judging and specifying a good quality assurance statement – 5 key questions

The following guidance questions are drawn from my experience as a reporting judge and as an active participant in reporting consultancy and a number of best practice initiatives.

  • Does the assurance statement cover the whole of the report?
  • Does the statement refer to any standard methodology e.g. AA1000 AS, ISAE 3000 or Standard 3410N used to develop the third party statement (in my opinion AA1000 AS is perhaps the most meaningful standard)?
  • How deeply did the third party organisation investigate (e.g. did they check the methodology, the figures, conduct interviews within and outside the organisation, did they use secondary data or go back to the original sources)?
  • Does the statement note areas for improvement of company performance?
  • Does the statement comment on previous performance and indicate key future issues for consideration?

Of course, these questions can also be used as the basis of a checklist to specify future assurance engagements.

Reporting without assurance

Though a large part of the non-financial reporting industry, external assurance remains a minority actvity within most non-financial reporting. At the recent Corporate Register Reporting Awards CRRA13 it was highlighted by Wayne Fletcher of ERMCVS that only 20-25% of reports have assurance.

In addition, and beyond the “Assurance Statement” industry, we are starting to see some company reports without a formal statement but have started to take us towards a “comply or explain” approach – for instance the recent CRRA13 overall report winner Nike – see page 83 of Nike’s Sustainable Business Report.

Without a clear perspective and intention for assurance to provide developmental insights to the company and trust to the stakeholder, assurance can too easily become all about (minimal) process and not about utility or outcomes.

Creativity and innovation is undoubtedly required but it will be essential to maintain a focus upon the ultimate purpose of assurance – it is a mechanism for trust and truth. If it becomes a mechanism for box ticking than we will have lost something vital!

Want to find out more?

In addition to the advice and guidance you can receive from experts such as us, there are a number of recent publications providing an overview of sustainability assurance and its use in practice, see especially, this overview from ICAEW, ACCA’s briefing paper and Corporate Register’s AssureView.

 

This post was updated in June 2013.

Sustainability reporting – clear, meaningful & resonant?

Can you see the wood for the trees?

Over the past decade as a judge of the ACCA UK Sustainability Reporting Awards and the Charities Aid Foundation Corporates and Communities Awards provider of shortlisting for CorporateRegister.com’s unique CRRA Reporting Awards and an occasional independent report reviewer for CorporateRegister.com, I have had the pleasure of reading many hundreds of non-financial reports.
Close up of heart woodWhile these reports can be called by a wide variety of names, all present management information and performance data on issues not traditionally included (though increasingly finding a place) in the Annual Report and Accounts.

Some reports contain more than 400 pages, some occupy endless virtual spaces on internet sites, some are engaging and interesting, some are invaluable aids for the insomniac.

Many utilise, follow or borrow from the range of national, international, industry or sectoral initiatives designed to support the development of best practice in sustainability management and reporting.

When faced with such a flood of information on the sustainability approaches of companies from all over the world, you are faced with a fundamental question – which of these reports demonstrate meaningful, strategic engagement and progress in becoming more sustainable?

A torrent of helpful guidance

There are of course a wide range of best practice guidance approaches out there, used by companies and consultants to design and assess sustainability reporting. Best practice guidance initiatives such as the UN Global Compact, ISO 26000 and other sector specific information represent a constellation of useful advice. In addition, the GRI presents a fantastically detailed set of material guidance, indicators and content which is invaluable for any reporting company.

The trouble is, however, that all of these approaches and initiatives can be confusing and overwhelming, even for those companies experienced in producing non financial reports.

It all comes down to this…

Lets remember what a sustainability report is – a story about the sustainability management, performance and intent of an organisation. When judging such reports I believe that, below the level of the specific guidance and indicators used by a reporting company, any good report should be able to answer the following simple questions that may naturally occur to a reader.

Does the report:

  1. Provide a full description of the company and its activities?
  2. Give a comprehensive perspective on the environmental and social issues arising from company activities, including stakeholder views and how these were obtained?
  3. Highlight the priority (material) issues picked for management focus; how they were defined and how wider global trends are likely to affect these over the next few years?
  4. Describe how the management of these material issues has clear business implications in terms of cost, risk, reputational value and licence-to-operate?
  5. Give a clear vision or strategy for responding to and addressing material issues?
  6. Provide details of the structures and processes that will deliver that vision (governance)?
  7. Display evidence of actions implemented (or planned) likely to achieve the vision?
  8. Contain proof that the reporting company means what it says (third party assurance, commentary or verification)?

Balancing the fundamentals with the details

Of course, the detailed guidance and content support provided by the GRI remains the best source of reporting best practice and is an invaluable resource for the specific approaches and metrics which will make sense for your reporting.

However, the sheer weight and detail of such approaches can sometimes obscure the fundamental purpose of sustainability reporting – to communicate simply and clearly about what sustainability means for your organisation, how you intend to respond and how you are performing.

Reporting is moving fast into unknown waters

Such clarity is essential, and will become ever more important as sustainability reporting becomes an increasingly integrated aspect of overall financial reporting. In such a context, sustainability information risks being overly diluted through the attention of risk-averse company lawyers, ghettoised into a small, dedicated, part of a predominantly financial report or buried by caveats and clauses.

Sustainability performance will I believe, in time, become the predominant focus of those seeking to assess whether the reporting company is likely to be a going concern in the medium to long term.

Clarity, meaning, and resonance

The job of sustainability professionals, now and in the future, is to tell the strategic sustainability story in a way that can be heard by company leadership, investors, owners, customers and all stakeholders and which leaves them in no doubt that sustainability is critical to the company as a whole.

This story can only be told through the strength of a clear, meaningful, compelling and truthful narrative. It is this that makes a story worth listening to and re-telling.

GRI G4 update – January 2014

As noted above, meaningful sustainability reporting is all about business relevance. At the heart of business relevance is the concept of materiality, the significance of an issue to both stakeholders and the business as a whole.

The latest edition of the Global Reporting Initiative (GRI) G4 Guidelines put materiality at the heart of its approach. This represents a major step forward for reporting as it enourages a focus on business relevance – allowing analysis in the context of business risk, a language familiar to companies in the first place.

A materiality centred approach translates sustainability into the language and dimensions that have resonance for business strategy and performance. The G4 is a major step towards promoting the meaning and resonance of reporting for both specific  company success and also the sustainability of business in general.

Sustainability – how does your business compete?

Aligning strategy and actionThis post builds upon our advice for developing sustainable corporate strategy (Part 1 & Part 2) and focuses upon how sustainable activities can be assessed in financial terms and also how they can most valuably strengthen your organisations’ competitive positioning.

Can you explain your company’s competitive strategy?

For sustainability and CSR managers, a clear understanding of how your company competes is an essential part of supporting and tuning your efforts to develop and embed sustainability as a core part of your organisations’ commercial proposition.

The business case

The business case for sustainability has been a key area of investigation and exploration for the last 10 to 15 years. In 2001, when I was working at WWF-UK, we produced To Whose Profit?: Building a Business Case for Sustainability. The aim of the document was to highlight the alignment between sustainability and value creation, and to show that, for every company, there were compelling and powerful business and profit related reasons to develop sustainable activities.

In the years since To Whose Profit? a number of studies have been undertaken seeking to identify the “killer case” – undisputable evidence that sustainability yields better results. Such evidence has proved elusive. Whilst it is very possible to identify that sustainability can be aligned with overall concepts of good management and indeed that sustainability plays a key role in reducing share price volatility the “holy grail” of sustainability professionals has remained elusive.

A great “survey of surveys” on the evidence for an alignment between more sustainable  companies and positive financial performance has been published by the Natural Capital Insitute – Sustainability Pays.

This is perhaps not surprising. It would be difficult for such a business case to emerge for sustainability when it concerns issues that are inadequately valued by the economic system (e.g. long term rather than short term approaches, ecosystem health rather than ecosystem extraction).

To be optimistic though, whilst the business case for sustainability is difficult to identify within our current market models, a business case undoubtedly exists for your organisation – it’s just a case of finding it and making sure that your approach to sustainability enhances the way you compete commercially.

Where are the benefits of sustainability likely to be found?

Sustainability can provide clear commercial benefits but they will differ from company to company. However, for your company – they will lie somewhere within the following four categories, depending upon your exact business model and market positioning:

  • Revenues and earnings – sustainable innovation can create new markets or provide your organisation with a clear set of product and service performance characteristics with market recognition and differentiation.
  • Costs – environmental efficiency and cost efficiency are, in the majority of cases, very closely aligned. This is becoming especially important as some of the fundamental resources which all businesses rely upon (energy, water, fuel, raw materials etc) become more volatile in price terms.
  • Risk – risk identification, assessment and management are processes in place in any significant business and can provide a vehicle for putting sustainability issues onto the business agenda. Sustainability issues can often be easily translated into the language of business risk.
  • Intangibles - intangible value is increasingly understood to represent a significant proportion of overall company value, and refers primarily to “soft” issues which do not feature directly upon company balance sheets such as leadership, transparency, intellectual capital, human capital, workplace organization and culture. Environmental, social and ethical issues have been identified as top-ten drivers of intangible value and there is a strong link between sustainable business practices and key drivers of intangible value.

The competitive dimension

In addition to identifying where the commercial benefits of sustainability might lie for your organisation it is also fundamentally important to ensure that, when planning new initiatives, these are aligned with the way that your organisation competes – your market positioning.

Such an analysis is key because it is potentially possible for a sustainability projects and ideas to either align (and support) the way you compete in the market, or to undermine (and clash with) your competitive position. For instance, there is no point in a company which competes upon cost investing time and effort on sustainability activities which  benefit them only in terms of their brand resonance.

This commercial alignment of sustainability activities with strategic positioning is often ignored by companies and consultants, however it is key to the longevity and commercial sustainability of efforts to improve environmental and social performance.

How does your company compete?

Broadly speaking, companies compete in one of two ways, through cost or differentiation.

Cost strategy

With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed upon minimising costs. If the achieved selling price can at least equal (or near) the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering “standard” products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share.

Differentiation strategy

This strategy involves selecting one or more criteria used by buyers in a market – and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product – often to reflect the higher production costs and extra value-added features provided for the consumer. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products.

Aligning sustainability and competitive strategy

Once you have identified which competitive strategy is employed by your organisation, assess existing or potential sustainability actions and initiatives in the light of their ability to enhance and reinforce that strategy.

It is important to note that, regardless of the strategy your business uses to compete, actions which reduce costs and improve efficiency are likely to always be valuable!

1.         If your organization seeks competitive advantage through cost leadership then responses which reduce your operating costs, increase operational efficiency and allow the production of products or services more cheaply will fit this strategy.

2.         If your organization seeks competitive advantage through differentiation then responses which allow your product or service to be viewed as embodying quality, ethical values, enhanced brand or other wider values will fit this strategy.

In practice, your organisation may utilise more than one strategic approach in different markets or for different products and services. Nevertheless, ensuring that sustainability efforts are aligned correctly with the wider commercial approach has the double benefit of improving business performance as well aligning with the way that you already do business.

 

Elements within this post are derived and adapted from “To Whose Profit(ii): Evolution – Building Sustainable Corporate Strategy”, WWF-UK (2004) by Joss Tantram, Alasdair Stark and Vicky Kemp and from the WWF One Planet Leaders programme Apply Tools, developed by Terra Consult/Terrafiniti and ESD Consulting Ltd.

Developing sustainable strategy – Part 2

A previous post, Developing sustainable strategy – Part 1 presented the definitions of a sustainable company and sustainable strategy, highlighted the components of any good strategy and identified challSteps to sustainabilityenges which practitioners often encounter when seeking to make sustainability a part of their organisations’ strategic approach. This post provides step-by-step guidance for practitioners wishing to put sustainability at the heart of strategy.

Overcoming obstacles – developing sustainable strategy

There are a number of steps which can be taken by CSR and sustainability practitioners to ensure that sustainability is understood as a truly strategic issue:

Step 1: Identify and agree on the material (priority) issues which present strategic threats and opportunities for the company.

Step 2: Identify corporate ambition, where does the company plan do be on the scale of corporate evolution?

Step 3: Understand how strategy is already developed within your own company and assess whether sustainability issues are currently considered as part of strategic planning and product development.

Step 4: Establish what processes are used within your own company to manage strategic change. What works; what does not; and why?

Step 5: Ensure that the strategic opportunities and threats posed by sustainability issues are included alongside other strategic business issues that influence strategy.

Step 6: Ensure engagement with key external stakeholders to achieve a broader consensus about what is material to whom and why.

Step 7: Develop responses to all material strategic issues which align with and support your company’s competitive positioning.

Step 8: Develop a clear overall strategic vision integrating social, environmental and economic dimensions.

Step 9: Start to make the investment case to leadership and investors. Sustainability has clear financial and risk benefits, likely to lie somewhere in the following areas:

  • Direct impacts upon the performance of capital – where sustainability increases efficiency and reduces costs.
  • Impacts upon equity risk profile – where effective risk improves the likelihood of share price stability and growth.
  • Influence upon the assessment of drivers of shareholder value – analysis undertaken by investors of the management of risks likely to affect the company’s ability to create shareholder value.
  • Intangible value – representing a significant proportion of overall company value, these refer to “soft” issues which do not feature upon company balance sheets such as leadership, transparency, intellectual capital, human capital, workplace organization and culture. Sustainability has a significant role in intangible value in terms of reputation, brand value, trust and stakeholder relations.

Sustainability – a strategic business issue

Over the long term, sustainability issues present clear systemic challenges to the continuation of business as usual. Sustainable strategies present a way of changing the overall risk profile of an organisation through mitigating, minimising and designing-out potential flaws likely to act as obstacles to business success over the long term.

The tools and techniques for assessing and interpreting the strategic implications of sustainability for organisational success are either well developed or can be derived by adapting commonly used business management techniques. The critical challenges for companies lie in understanding sustainability as a transformational driver rather than an operational issue and in communicating the financial implications of sustainable behaviour to investors and markets.

 

Elements within this post are derived and adapted from “To Whose Profit(ii): Evolution – Building Sustainable Corporate Strategy”, WWF-UK (2004) by Joss Tantram, Alasdair Stark and Vicky Kemp.

Developing sustainable strategy – Part 1

As part of our series of practical guidance for building sustainability in organisations, this post builds upon our definition of a sustainable company to identify the key components of sustainable strategy and highlight key obstacles found by practitioners. Part 2 provides simple, step-by-step guidance for creating sustainable strategy.

What is a sustainable corporation?

A sustainable corporation is an organisation that determines its behaviour through a detailed understanding of the environmental Strategy by Designand social context in which it operates, works within the understood limitations of that system to reflect the demands and requirements of society and ensures that its impact upon environment and society is either neutral or positive.

What is a sustainable strategy?

Sustainable strategy is the vehicle to support the transformation of an unsustainable company to a sustainable one. Such a strategy should establish a pathway likely to support and drive the company as a going concern over the long term (at least 2 decades).

Delivering a strategy requires the following core elements:

  • A clear sustainability vision – painting a picture of the company’s long term ambition in the context of relevant environmental, social and economic trends and pressures.
  • Plans for action – an implementation strategy containing actions and plans likely to achieve that ambition.
  • Timescales – a timescale relevant to the trends identified for material environmental and social issues.
  • Communication & reporting – clear, meaningful and consistent messages demonstrating authenticity, transparency and progress to internal and external stakeholders.

Why focus on strategy?
All companies need strategy to attract investment, whether they are publicly listed or seeking support and capital from private investors or banks. Strategy represents a translation of company capacity and market positioning into a series of actions to be conducted over time to meet stated business objectives.

Essentially, investors and funders analyse a company’s strategy and assesses its capability to deliver that strategy. They then make a judgement about how well that company represents a good candidate for investment (e.g. that it will supply the required “return on investment”) over the time frame that the investor requires.

Company strategy is therefore an essential area of focus for anyone who wishes to effect change towards more sustainable corporate behaviour. Strategy is the distilled essence of a company, and if this strategy does not feature, or reflect, a company’s commitment to a delivery of more sustainable business practice then investment drivers will wholly focus upon narrow financial performance, not reflect and reward sustainability actions or respond to the needs and intentions of society.

The challenge of truly strategic sustainability

While most leading companies acknowledge the importance of sustainability, they still struggle to weigh environmental and social issues against economic ones.

At its heart this discussion is about the ability of sustainability practitioners within companies to make the case for sustainability as a driver of business practice and strategy. While many companies have established programmes of CSR, environmental management and sustainability, these generally run in parallel to the development of mainstream business strategy. As a result that they do not truly influence company direction and decision making.

What areas do practitioners struggle with?

There are a number of challenges faced by sustainability practitioners:

  • Focus: implementation activity (i.e. what companies are actually doing) tends to focus upon the control of sustainability impacts and risk at an operational rather than strategic level. The result being that efforts can be of a small scale and also that benefits achieved through these activities are not explicitly expressed, reinforcing the notion of sustainability as a side issue.
  • Ownership and organisation: whilst most company sustainability reports feature statements from the CEO or Chair, and some will also have statements such as “sustainability is in our DNA” (have a look) most business decisions actually pay scant regard to sustainability or only do so if all other things are equal. In addition, unless those with a sustainability responsibility are clearly equipped with the authority to shape and effect plans then sustainability will always be an add-on to the normal business of business.
  • Strategy and planning: the idea that sustainability practitioners should be adept at the use of mainstream business strategy and planning tools has been around for a while . However, it is still possible to find business school professors highlighting the possible use of Porters 5 Forces (and similar) as sustainability tools as though they were the sole discoverers of a wonderful new pre-sliced dough-based baked comestible product. Nevertheless, there is an important point here, very few of those with dedicated responsibility for sustainability within companies are actually also involved in mainstream business planning and strategy development. Still fewer are practiced in the use of mainstream business management tools and processes for analysis. Therefore, although companies may be investing significantly in these initiatives, sustainability remains a secondary, or parallel, issue within company strategic direction.
  • Timescales, risks and costs: in many cases sustainability initiatives can be related clearly to issues of business risk – especially regulatory and reputational risks. However, standard payback periods within many companies are often too short to pick up clear sustainability price impacts which may occur over longer time horizons. This means that, whilst the implications of environmental and social trends can clearly be identified over the medium term, the company itself struggles to translate these into risk and costs in the short term.

Overcoming barriers – developing sustainable strategy

A number of simple steps can be taken to develop sustainable strategies, these will be developed in Part 2 of this post.

Elements within this post are derived and adapted from “To Whose Profit(ii): Evolution – Building Sustainable Corporate Strategy”, WWF-UK (2004) by Joss Tantram, Alasdair Stark and Vicky Kemp.