The face of sustainability is changing, according to a new report by Boston Consulting Group and MIT Sloan Management Review. In a worldwide survey of more than 1,000 executives and managers, BCG and Sloan took the pulse of sustainability efforts. Their research shows that sustainability is steadily growing in importance and is being integrated into the mainstream of corporate strategy. Most importantly, the key drivers of sustainability are evolving.
Customer preference leads the way.
In the early days of corporate sustainability work, companies focused on easy changes that cut operating costs while benefiting the environment. Energy-saving came first: replacing light bulbs, upgrading HVAC and improving logistics. But that's changing, perhaps because the low hanging fruit has mostly been picked. Now, more companies are discovering that their customers have a preference for products that are more clean, safe and sustainable. Many customers will pay more for sustainable products and services, and they prefer to buy from companies that provide them.
The power of customer preference comes through loud and clear in the survey results. Customer preference and customers' willingness to pay a premium was the single most important factor driving sustainability efforts, as shown below:
This is extremely encouraging, because a combination of marketplace dynamics (customer preference, competitive pressure) alongside regulatory measures will likely be much more effective and economically efficient than regulation alone.
Growing recognition of sustainability as a competitive issue
As the forces driving sustainability are becoming more customer-centric, corporate leaders are recognizing that a sustainability strategy is essential for success. Of those polled, 62 percent said a sustainability-oriented strategy is needed today. Nearly 40 percent agreed that sustainability is "permanently on [the] top management agenda and [is] a core strategic consideration" for their companies.
Growing recognition that pursuit of sustainability can boost profit
For most companies, sustainability-related actions add more to profits more than they detract. Roughly three times as many business leaders said that sustainability initiatives added to profit (32 percent) than took away from profit (11 percent). This suggests that in general, businesses are picking sustainability initiatives wisely, and implementing them successfully.
Widespread Acknowledgement of Climate Change as a Threat
Despite ongoing efforts by some industry lobbyists to belittle climate change, an overwhelming majority of those polled believe that climate change is both real and caused by human activity – and that their companies are largely unprepared for the threat. A full 88 percent of those polled agreed that "climate change is real." Nearly as many (79 percent) agree that "climate change is a risk to political and social stability." But only 34 percent believe their company is properly prepared for climate change. At this point, the climate threat is still too far off for most companies to respond. Energy efficiency remains the top environmental priority among the companies polled. Rising energy costs, rather than climate-related damage, are driving corporate decision-making in this area.
The Sloan-BCG report brings welcome news. It's great to see the steady rise in support for sustainability initiatives, the mainstreaming of sustainability with the rest of corporate strategy and a growing recognition that sustainability boosts profits of the traditional kind. But the best news is that customer preferences and competitive pressure are now driving sustainability forward. Gone are the days when sustainability efforts relied solely on regulation and on the enlightened owners of privately-held firms. With market forces now propelling companies forward, we can expect more and faster progress in years ahead.
David Brodwin is a cofounder and board member of American Sustainable Business Council. Follow him on Twitter at @davidbrodwin.