Report from CEO study - strategic impact on increased need to deliver social and environmental results.

1. Capgemini Consulting strategic thinking series
Contemporary Strategy in a Changing World
The Capgemini Consulting CEO Study 2008
Mastering the Triple Bottom Line

2. Contents
About the Capgemini 2008 CEO study 3
Introduction 4
Key insights 5
Sustainability has become a top priority for CEOs 7
Sustainability represents unprecedented market opportunities across most industries 8
Environmental and social performance emerge as a major source of competitive advantage 11
Mastering the Triple Bottom Line requires a strategically founded execution 13
Sustainability leaders have the potential to change the rules of the game 18
Mastering the Triple Bottom Line
– the way we see it 22
Capgemini Consulting
– A trusted sustainability advisor when results matter 23
2

3. About the Capgemini 2008 CEO study
To assess the condition of the Norwegian business climate on selected topics of strategic interest, Capgemini Consult-
ing interview Norwegian CEOs on an annual basis. Last year’s study covered strategic planning and innovation. This
year we focus on how businesses relate to the increasing demands to deliver performance on environmental and social
issues, as well as the traditional financial bottom line.
We have adopted the term Triple Bottom ties arising through a sustainability focus, and The interviewed CEOs contributed to our
Line (TBL) to label the challenges companies integrating sustainability related opportunities study with insights based upon their knowl-
are facing in order to deliver results across with the companies business strategy. edge and experience. Special thanks are di-
three dimensions; financial, environmental and rected to representatives from KLP, SN Power
social performance. The term Triple Bottom CEOs and top executives of 55 large and and Wilh. Wilhelmsen Group, who contrib-
Line was first coined by John Elkington (1994) medium sized Norwegian firms have partici- uted in the identification of key findings. The
and is spun out of the sustainability debate pated in one of the largest selections of in Centre for Corporate Responsibility at the
introduced by the Brundtland Commision depth interviews that have been conducted on Norwegian School of Management BI has been
(1987). Environmental performance includes sustainability in a strategic business perspec- a valuable partner throughout the study.
issues like impact on climate change, waste tive in Norway. Out of the 55 companies, 44
management, recycling and choice of materials are headquartered in Norway. The companies We are proud to present a comprehensive
while the social dimension covers issues like vary widely in size. The sectors included in and multifaceted report reflecting CEO’s
business ethics, child labour, poverty, health the study are: views on challenges and opportunities related
and workplace conditions. We see sustainabil- to the complex matter of “Mastering the
ity as referring to how enterprises balance the • Manufacturing Triple Bottom Line”.
realisation of business objectives, whilst taking • Financial services
responsibility and protecting society at large • Retail
(also referred to as Corporate Social Respon- • Distribution
sibility). The study investigates the positive • Oil and Gas services
impacts sustainability can have on businesses • Energy
profitability. Mastering the Triple Bottom Line • Property
requires identification of strategic opportuni- • IT/Telecom
3

4. Introduction
Businesses’ key objectives are naturally at how the increasing focus on sustainability
centred on creating shareholder value. Not can change the rules of the game, and on the
until sustainability-related media scandals business opportunities that arise from it. We
jeopardised the value of mega-stocks like argue that the ability to balance the Triple
Nike, H&M and BP, did we see a rapid build- Bottom Line affects overall competitiveness,
up of sustainability programs to manage long term growth prospects and profitability.
reputation and risks related to environmental
and social performance. Today, the environ- There are generally two ways businesses
mental threat has become more real to a can respond to the increasing sustainabil-
great amount of people, and the tolerance ity focus: defensive – with a main focus on
of unethical behaviour, like corruption, has reducing risk and protecting reputation, or
been drastically reduced. Governments and offensive – searching for opportunities to dif-
global organisations are increasingly initiat- ferentiate offerings or outperform competitors
ing rules and regulations to raise the business on environmental and social performance. In
standards on both environmental and social some industries, we clearly see that the of-
performance. These changes in business con- fensive approach is a key element in reaching
text put pressure on executives to reconsider and/or maintaining industry leadership.
their strategic options and their response to
complex market dynamics where social and We believe the ability to master the Triple
environmental performance matters. Bottom Line will characterise leading en-
terprises across most industry sectors in the
Lately, considerable attention from con- near future. Capgemini’s CEO study 2008
sultancies, media and academia has been examines how Norwegian companies view
given to the risks related to sustainability. the challenges and opportunities related to
Less focus has been given to the potential sustainability, and how mastering the Triple
strategic opportunities that emerge from this Bottom Line can prove to be a strategic
new business context. In our study, we look differentiator.
4

5. Key insights
Analysing the data from our study has lead to five key insights on mastering the Triple Bottom Line.
KEY INSIGHT 1 – SuSTaINabILITY HaS bECOmE a TOp prIOrITY fOr CEOS. Significant
shifts in customer demands, newly passed or anticipated rules and regulations, and an increase
in media attention has been instrumental in the recent dramatic increase in the demands CEOs
face to deliver Triple Bottom Line results.
KEY INSIGHT 2 – SuSTaINabILITY rEprESENTS uNprECEdENTEd buSINESS OppOr-
TuNITIES. Close to 85 percent of the participating CEOs state that sustainability creates new
market opportunities to a medium or higher extent. Furthermore, most CEOs believe that sus-
tainability will have a major impact on their business in the near future. There is a strong
perception among CEOs that sustainability creates business opportunities across most sectors.
KEY INSIGHT 3 – ENvIrONmENTaL aNd SOCIaL pErfOrmaNCE EmErGE aS a majOr
SOurCE Of COmpETITIvE advaNTaGE. The CEOs believe social and environmental per-
formance can be leveraged to create competitive advantages across most sectors. Positive effects
on brand, risk management and access to talent are the most promising strategic levers. Hence,
social and environmental initiatives can enhance your company’s competitiveness.
KEY INSIGHT 4 – maSTErING THE TrIpLE bOTTOm LINE rEquIrES THOrOuGH aNd
STraTEGICaLLY fOuNdEd ExECuTION. In mastering the Triple Bottom Line, formulating
the sustainability strategy is the necessary first step to create clear direction. In order to incor-
porate the strategy into day-to-day management decisions at all levels, and towards all stake-
holders, it requires a governance structure that supports the sustainability strategy, a broad mo-
bilisation in the organisation and an organisation that successfully communicates the strategy
towards all stakeholders.
KEY INSIGHT 5 – SuSTaINabILITY LEadErS HavE THE pOTENTIaL TO CHaNGE THE
ruLES Of THE GamE. Differences in demands and opportunities create particular strategic
playgrounds for different industries. The attractiveness of sustainability leadership varies, but
offer promising benefits across all sectors. The ability to select the right issues, integrating social
and environmental ambitions into your game plan and turning your key capabilities into sus-
tainable practices, have emerged as crucial elements of reaching and/or maintaining industry
leadership.
On the following pages we will explore each of the key findings in more depth.
5

6. Sustainability is paramount
– failure to address these issues
will put you out of business
– CEO, Distribution sector
6

7. Sustainability has become a top priority for CEOs
Winning and retaining stakeholder’s trust has become a key issue for business executives, and addressing
sustainability issues a necessity to succeed for most businesses. 70 percent of the CEOs in our study consid-
ered the demands to deliver on the environmental and social, in addition to the financial, dimension to have in-
creased significantly. Only 15 percent of CEOs claim that they experience increased demands to a small extent.
To which extent do you experience increasing Across industries, CEOs point out ethical
demands to deliver results on environmental, dilemmas that arise when conducting busi-
ethical and other social conditions in addi- ness, especially in certain developing coun-
tion to financial results? tries. Attention in developed countries are
high on corruption, and the US Anti-corrup-
50 %
tion Act, put into effect in 1999, represents a
45 %
significant threat to companies violating the
40 %
principles outlined. However, when dealing
35 %
with emerging markets there is a notion
30 %
among Norwegian executives that compa-
25 %
nies based outside Europe and US tend to be
20 %
more aggressive and inclined to offer ethical
15 %
compromises. Most of the Norwegian CEOs
10 %
with international operations in developing
5%
countries claim they offer working standards
0%
above the general level in the countries they
Very small Small Medium Large Very large
operate.
The study shows that there has been a
What are the key drivers for shifting busi-
70 percent increase in the number of CEOs
nesses approach to sustainability?
having sustainability issues frequently on
the agenda in board meetings the last two
45 %
years compared to the last five years. This 40 %
confirms that sustainability has become a 35 %
30 %
top priority for CEO’s, and as a result, busi- 25 %
nesses need to generate increased insight, 20 %
15 %
strategic thinking and new capabilities 10 %
related to a new business climate. 5%
0%
t
gs s
ce O
en ee
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NG
ian in
in oy
an
m av
nd pl
ge pl
&
s
a m
a
Br st
om a de
di Em
an
Co
C e er
m M
To which extent do you experience increasing sk m
Ri to
s
Cu
demands to deliver results on environmental,
Percentage of CEOs
ethical and other social conditions in addi-
tion to financial results (per sector)?
Oil & Gas Services
Looking forward, almost all CEOs inter-
Energy
viewed believe that sustainability will have
Property
a significant impact on their business within
Manufacturing
the next 10 to 20 years. Governing bodies,
Distribution
employees, customers, new technologies,
media and Non Governmental Organisa-
Retail
tions (NGOs) are among the driving forces
FSI
mentioned when assessing the sources of
Telcom & IT
increased demand.
Total average
1 2 3 4 5
Very small Small Medium Large Very large
7

8. Sustainability represents unprecedented
market opportunities across most industries
Norwegian CEOs seem well aware that the rules of the game are about to change in most industries. The graph below
illustrates that approximately 85 percent of the CEOs believe a sustainability focus can create market opportunities for
their business to a medium or high degree. furthermore, more than 65 percent of the CEO’s believe that focus on sus-
tainability will create major market opportunities and that it will have a considerable impact on their business .
To which extent may an increased focus on While the degree of market opportunities
sustainability create new market opportuni- varies widely across the covered sectors, even
ties in your sector? the lowest scoring industries believe there are
moderate levels of opportunities. How closely
the environmental and/or social dimension
35 %
of sustainability is related to the core of the
30 %
companies’ products and/or services have a
25 %
large influence on the extent to which the
20 %
CEOs perceive that market opportunities
15 %
arise from a focus on sustainability. Whole
10 %
industries, e.g. renewable energy and clean-
5%
tech, are developed around sustainability
0%
driven markets. Until the financial crisis
Very small Small Medium Large Very large
shook the capital markets, investors where
* 7 percent answered ”do not know”
flooding these industries with capital. All
By mapping initiatives discussed with CEOs CEOs in the energy sector state that there are
in the study, market opportunities can be more than moderate market opportunities
divided into five broad and distinct categories. related to sustainability, and 64 percent of
(Figure 2.1.) Exploration and utilisation of them give market opportunities the high-
scarce resources, need for cleaner technologies, est possible score. Financial services have a
the raise of the LOHAS (Lifestyle of Health and different opportunity space, and in average
Sustainability) segment, enabling the unprivi- CEOs consider there to be moderate market
leged and exploring sustainability options. opportunities related to sustainability.
CEOs in the Energy sector focused on market opportunities arising from
Exploration and
exploring sources of renewable energy, increasing productivity and sus-
1 utilisation of scarce
tainable use of natural resources like minerals, water, rain forest and food;
resources opportunities that can lead to both cost savings and revenue increases.
Many CEOs mentioned market opportunities related to adaption to a
low-carbon economy. Especially the CEOs in the Property, Manufac-
Need for cleaner turing and IT / Telecom sectors saw large market potential in cleaner
2 technology solutions within production, buildings, logistics, infrastruc-
technologies
ture, recycling and transport. Conversion to environmental materials
and packaging were also mentioned.
CEOs in the Retail sector acknowledged the growth of consumers that
The raise of the are willing to act responsible by selecting sustainable products or services
3 – the Lifestyle of Health and Sustainability (LOHAS) segment. A range of
LOHaS segment
green-, eco-, health- and fairtrade- products represent growth markets.
Some of the global companies in the study also focused on the oppor-
Enabling the tunities that arise from poverty and its implications. Levelling out dif-
4 ferences between developing and industrialised countries represents an
unprivileged
untapped potential for attracting talent and targeting future consumers.
Across sectors we found CEOs acknowledging how increasing demand
Exploring from customers, employees and regulators create opportunities to capi-
5 sustainability talise on sustainability leadership. Sources of competitive advantage
based on environmental and social performance has the potential to be
leadership options
leveraged into higher market share and premiums.
Fig. 2.1.
8

9. Sustainability can be the oil-adventure of
the Norwegian generation to come
– CEO, Energy sector
unprecedented opportunities exist
To which extent may an increased focus on Willingness to pay a higher price for products
sustainability create new market opportuni- that support sustainability requirements Early movers in the enterprise world will
ties in your sector? (% who answered ”yes, a premium /yes, small respond to the sustainability challenge and
price difference”) 1) introduce innovative products and services.
Based on unprecedented market opportunities,
Energy
we believe new winners will emerge as sus-
Property
24 % 61 %
Fair trade issues
tainability leaders in a number of industries.
Telcom & IT
Sustainable manu-
Innovation is a key part of the process – by
21 % 63 %
facturing features
Retail
introducing environmental and social per-
Organic food 20 % 64 %
Distribution
formance as two new dimensions to the busi-
Environmentally
Oil & Gas Services 15 % 64 %
friendly packaging
ness, the opportunity space is expanded. The
Manufacturing Energy/water 14 % 62 %
experience of General Electric, a pioneering
usage
FSI
Waste reduction/
innovator dating back to Edison’s first com-
14 % 62 %
management
Total average
mercial light bulb, illustrates how sustainabil-
0% 20 % 40 % 60 % 80 %
ity can represent promising growth initiatives.
1 2 3 4 5 Yes, a premium Yes, a small price difference
Very small Small Medium Large Very large
GE launched their “Ecoimagination” initiative
tapping into sustainability market opportuni-
ties in 2005. By 2007, revenue from 60 new
Sustainability issues are consid- Although consumers rate sustainability portfolio products reached $14 billion and
ered in buying decisions issues as highly important, the majority of orders and commitments have increased to
The rationale for competitive advantage consumers are only willing to pay a small $70 billion. Despite current economical tur-
based on sustainability is largely arising sustainability premium, and the price moil, GE’s revenue from the “Ecoimagination”
from choices among buyers – both businesses elasticity does not match the ranking of initiative rose 21% to $17 billion in 2008. The
(B2B) and consumers (B2C). Consumers’ and importance. However, the LOHAS-segment is amount is expected to increase to $25 billion
businesses willingness to pay a sustainability growing in both US and Europe, and increas- in 2009. GE chairman and CEO Jeff Immelt
premium on goods and services has been ingly strong presence will eventually lead to put it this way: “Ecoimagination is one of
limited, but is growing. In recent years, the a large segment of conscious buyers. These the most successful cross-company business
emergence of the LOHAS segment indicates a changing preferences is also reflected in the initiatives in recent history”.
shift in focus with significant impact on con- B2B segment, where we see an increase in
sumer behaviour. In the US, different sources sustainability as an important buying and/
indicate that 15–20 percent of the US popula- or decision criteria. As an example, compa-
tion can be categorised as LOHAS which are nies that have experienced negative incidents
actively searching for sustainable products related to sustainability face challenges
and services. This trend is confirmed in a related to their participation in public tender
recent (2008) Capgemini study of consumers processes and/or struggle to acquire attractive
in the US, UK, Netherlands and France. The joint venture partners. Other CEOs state that
study shows that more than 80 percent of the sustainability performance has proved to be
consumers consider issues like energy/water an important aspect of the strategy in win-
usage, sustainable manufacturing features and ning large tendering processes.
waste reduction and management as impor-
tant or extremely important.
9

10. Ecoimagination is one of the most
successful cross-company business
initiatives in recent history
– Chairman & CEO, General Electric, Jeff Immelt
All new products must use
less material, have less weight
and be more recyclable
– CEO, Oil & Gas Services sector
10

11. Environmental and social performance emerge
as a major source of competitive advantage
from a strategic point of view, business executives should always explore ways to develop competitive advantages.
Competitive advantages, based on superior resources and capabilities, enable companies to harvest more than average
returns from their business.
We have identified eight strategic param-
Increasing
1
eters (figure 3.1.) where social and environ- New performance dimensions create new competitive space.
innovation
mental performance can be developed into
competitive advantages: increasing innovation, positive brand Positive attention on environmental and social issues are valued both in
2
positive brand effect, differentiation, reduced the B2B and B2C market.
effects
use of resources, reduced risk of bad publicity
differentiated Environmental and social performance can be used to differentiate
and probability of unwanted incidents, secure 3 products or services.
offerings
market access and access to talent. All the
interviewed CEO’s considered one or more of reduced use of The company’s cost base can be reduced by introducing environmental
4
the listed strategic parameters to represent a solutions.
resources
major source of competitive advantage.
reduce the risk of Negative attention on social or environmental issues can damage a
5 company’s core business.
bad publicity
In which way can social, ethical and en-
vironmental initiatives also enhance your reduce the
company’s competitiveness? 6 probability of Damaging incidents can be reduced by raising the HSE standards.
unwanted incidents
Positive effect
on brand
Secure market To earn a licence to operate the company must comply to rules and
7
Reduce the risk of
bad publicity regulations.
access
Access to talent
Secure market
8 access to talent Environmental and social performance increasingly attract talent.
access
Differentiate from
competitors
Fig. 3.1.
Creating innovation
Reduce probability
of unwanted events
Reduce the use of
resources
Sustainability is
The CEOs’ main concern is that comprehen-
1 2 3 4 5
Very small Small Medium Large Very large
sive initiatives on sustainability may lead to
particularly important
increased costs which in turn may reduce
to attract talent
competitiveness. Challenges regarding access
Positive brand effects, reduced risk of to certain foreign markets are also a major
negative publicity and access to talent stand concern for many of the CEOs.
– CEO, Energy company
out as the most important parameters of
competitive advantage created through
developing competitive
sustainability initiatives. Positive effect on the
advantages through sustainability
company’s brand is an important factor for
is potentially rewarding
the majority of CEOs across different sectors
and companies in the study. Reduced risk Selecting the right environmental and so-
for bad publicity is even more evident as a cial issues, where company resources can be
competitive advantage among the CEOs of effectively utilised to enhance sustainability
the larger corporations. Unfortunately, fear performance, requires careful consideration of
for bad publicity can be a major barrier for strategic options and potential for developing
Sustainability is the
an offensive sustainability game plan. The competitive advantage. Too often compa-
importance of sustainability to get access nies are caught on the defence with reactive
single biggest opportunity
to young talent is widely recognised among sustainability actions. We believe companies
most CEOs in the study. should consider a more offensive approach
in the 21st century and
and identify a few strategic sustainability
will be the next source of
While the CEOs overwhelmingly see a initiatives where current capabilities can be
potential for increasing competitive strength leveraged to solve environmental and social
competitive advantage
through sustainability, 65 percent of them problems while tapping into some of the ben-
also see situations where focus on sustain- efits offered by the eight strategic parameters
– CEO, Wal Mart, H. Lee Scott
ability could reduce their competitiveness. mentioned.
11

12. CSR can be much more than just a con-
straint or charitable deed. Approached stra-
tegically, it generates opportunity, innovation
and competitive advantage for corporations
– while solving pressing social problems
– M. Porter & R. Kramer Harvard Business Review 2007
12

13. Mastering the Triple Bottom Line requires
a strategically founded execution
In the previous sections, we have seen that opportunities exist for companies in most sectors when it comes to position-
ing themselves on sustainability. While developing the right sustainability strategy, formulation is the necessary first step.
This study confirms however that incorporating the strategy into day-to-day management decisions at all levels, and
towards all stakeholders, is perhaps the greatest challenge.
Based on findings from our study, we have Sustainability is yet not an area included in the business strategy
identified four key success factors for sustain- 1 Clear direction process for most Norwegian companies. To achieve sustainability
ability execution, as illustrated in figure 4.1. leadership, clear direction and well thought priorities are necessary.
Only a minority of the companies measure the sustainability ele-
ments with the strongest strategic impact. In order for the governance
Governance
Success factor 1: Clear direction system to function as a vehicle for operationalisation, the sustain-
reflecting
2 ability strategy should be reflected in the selection of measurement
Developing a mission statement, establish- sustainability parameters and in the detailing of roles and responsibilities. Progress
ing codes of conduct for employees, actions to ambitions should be evaluated according to the sustainability ambitions towards
support local environment and good citizen- different stakeholders.
ship – these are all examples given by CEOs
For companies with international operations, anchoring the
on initiatives to increase their sustainability sustainability strategy within the entire organisation and in the
performance. Although this study clearly relations with external stakeholders is perhaps the greatest execution
3 broad mobilisation
indicates that opportunities exist to leverage challenge. The answer is not necessarily uniform performance across
operations, but finding the right balance between local adoption and
social and environmental performance to
uniform standards.
enhance competitiveness, it is challenging to
While internal communication on sustainability is widespread, most
identify the right issues to address. The most
CEOs are more reluctant when it comes to communication towards
mature companies in terms of sustainability
Targeted external stakeholders. Even though external communication can
4
are also the most humble ones on this issue, generate risk, an offensive communication approach tailored to the
communication
acknowledging the complexity of addressing different external stakeholders is necessary in order to take advantage
environmental and social issues while deliv- of potential competitive advantages related to brand-building.
ering a robust financial performance. 2)
Fig. 4.1.
The study confirms that best practice
companies develop a coherent sustainability
strategy that incorporates company values, Economic responsibility
commitments and goals. Incorporating issues
with significant social and environmental Value creation Profitability
impacts in strategy formulation is key to Efficiency Corruption and bribery
bring balance to the Triple Bottom Line, as
Quality goods Job creation
illustrated in Figure 4.2. Selecting the right
sustainability issues without a clear direction Marketing standards Innovations
and at the same time taking advantage of Competitiveness Supply chain
the strategic sustainability opportunities that
Responsible accounting Pricing
arises, is difficult, at best.
Just above 20 percent of described envi-
ronmental or social actions by the CEOs Environmental responsibility Social responsibility
in this study fall into Porters and Kramer’s
Eco-efficiency Corporate governance
(2006) definition of strategic CSR: environ-
mental and social issues affected by business Genetically modified products Use of human resources
activities, and environmental and social
Energy use Water use Workplace issues Philantropy
issues affecting the drivers of competitiveness.
Waste control Product stewardship Human rights Community development
Examples on strategic sustainability actions
from the study are: focus on growth in renew- Use of forest Climate change Culture Equal opportunities
able energy for a company within the Energy
Emissions Minorities Diversity
sector; increasing the use of electric cars for
Recycling & product take back
a company in transport-intensive businesses;
lowering energy usage in buildings within
Fig. 4.2.
13

14. There’s a lot of incompetence and naivety out there,
global expansion to low-cost countries cannot be
performed with Norwegian standards on all aspects
– CEO, Manufacturing company
the Property sector; and responsible mortgage company’s standards related to sustainability as the risk in communicating sustainability
lending in the Finance sector. towards suppliers is seen as important by the strategy towards the media and the general
CEOs facing this issue. public is substantial, these stakeholders are
also increasing their demands for a corporate
Success factor 2: Governance re- Both towards own employees and sub-level sustainability strategy.4) The solution could be
flecting sustainability ambitions suppliers, the challenge lies in identifying the indirect communication, communicating to
Structures and systems that encourage em- right balance between uniformed corporate external stakeholders through third party “ex-
ployees to pursue and measure Triple Bottom and locally adopted standards, and in suc- perts” (e.g. in industry collaboration forums)
Line performance are instrumental in im- ceeding with embedding the chosen practice or also through employees instead of in a top
proving the overall effects of social and envi- level into the cultural awareness and mobilis- management fashion.
ronmental actions. Additionally, this lays the ing the executers.
foundation for holding employees accountable Do you communicate your efforts and results
for their contribution to the sustainability of sustainability initiatives to the following
Success factor 4: Communication
goals. While 58 percent of the CEOs say they stakeholders?
towards stakeholders
have ways of measuring social and environ-
mental performance, these are mainly related The majority of the participating CEOs 100 %
90 %
to environmental costs aspects. Examples are communicate environmental and social 80 %
70 %
energy usage and emissions. A minority of initiatives to all stakeholders, but to a vary- 60 %
the firms measure the sustainability elements ing degree. Communication towards inter- 50 %
40 %
with the strongest strategic impact. While 64 nal stakeholders is especially strong, as 85 30 %
percent of the CEOs state that sustainability percent of the CEOs state that they actively 20 %
10 %
is reported to the CEO in one way or another, communicate sustainability to their internal 0%
very few companies have clearly defined stakeholders. Internal communication on the Investor Society/Media Customers Internally/Employees
environmental or social measures, such as sustainability strategy lays the foundation
KPIs. This indicates that most companies lack for trustworthy external communication. As Percentage of CEOs
structures for tracking sustainability-related much as 78 percent of the CEOs communi-
actions that may be of great strategic impor- cate their sustainability efforts to customers,
tance to their business performance. mainly through the quarterly and annual
reports and the company homepage.
Success factor 3: Communication on sustainability towards
broad mobilisation society and media varies to a great extent.
To succeed operationally, the sustainability While some companies send out press releases
priorities must be part of the employees core on important initiatives and actions, others
values, of the established routines and the state that they do not want to market their
action guidelines for “how we do things here”. sustainability actions. Overall, CEOs express
Implementing sustainability guidelines be- a reluctance to open external communica-
comes particularly challenging for companies tion regarding sustainability performance
with international operations, where the cor- due to fear of attracting negative attention
porate cultures tend to be more complex. To by the press. Research somewhat supports
maintain corporate sustainability standards CEOs reluctance, as the companies most ac-
while succeeding in the local market is an- tive within CSR are also the most criticised,
other major challenge mentioned by several whereas companies doing the least are the
CEOs, especially among those operating in least criticised (Vallentin: 2003).3) A Danish
emerging economies. Executing sustainabil- survey has even found the public to be rather
ity standards is equally challenging related sceptical towards conspicuous corporate com-
to sub-level suppliers, both in foreign and munication regarding sustainability issues
domestic markets. Nevertheless, to apply the (M. Morsing et al: 2008).4) At the same time
14

15. Sustainability is one
out of five goals I have
to report on
– CEO, Distribution firm
In order to avoid negative press coverage we don’t
communicate our sustainability efforts actively towards
external stakeholders
– CEO, Financial services
Case: unilever uK works strategically to embed sustainability into the ”culture of the organisation”
unilever uK, a global consumer goods business, is building a culture emphasising sustainability through encouraging a
sustainability mindset from the moment an employee enters the organisation Three ”lessons” from Unilever are:
1) Corporate culture and values influence internal business processes to a large degree
2) Corporate ethics is about allowing people to use their own personal values to guide them in their work
3) Continuity and consistency of communication are vital to reinforcing commitment to sustainability
15

16. best practice companies acknowledge the challenge in executing sustainability
We have identified a limited number of the We argue that performance above standard
participating companies who truly stand out on these parameters are important levers in
with their ability to maximize the benefits building a position as a sustainability leader.
for themselves and society by taking a strong
position on sustainability. The firms stand On the matter of successfully balancing
out with specific initiatives on sustainability execution with ambition in sustainability
strategies, one CEO pinpointed it well: “it
as well as their ambitions on the matter, and
might be necessary to aim lower in the first
subjective rankings of own performance. By
few years in order to ensure that the entire
comparing the average performers to the more
organisation is committed, rather than to try
mature players, the four key success factors for
to reach for the stars straight away”.
executing sustainability are confirmed.
The mature players clearly outperform the
To which extent do you succeed in implement-
more average players on several key areas:
ing your guidelines in your organisation and
• Engaging senior executives in sustainability
towards your suppliers?
issues
• Considerably higher frequency of sustain-
5,0
ability related topics in board meetings over Mature Average
the last two years 4,5
• Placing the overall responsibility for sus- 4,0
tainability at corporate level, and cascading 3,5
responsibility for execution to all manage- 3,0
ment levels 2,5
• Creating an engagement for sustainability 2,0
performance throughout the entire organi- 1,5
sation
1,0
• Communicating more towards all stake- Succeess in implementation of Success in implementing
own guidelines in organisation guidelines towards suppliers
holders, and being far more proactive in
5 = Very large extent 1 = Very small extent
external communication
• Realising the complexity in implementing
sustainability guidelines both internally
and towards suppliers
Case: adidas as a high-performer in sustainability world-wide
adidas is according to the Dow Jones Sustainability Index, one of the high performers on sustainability in their industry world
wide. They have a supplier strategy that is based on a long-term vision of self-governance in the supply chain where suppliers
take ownership of their compliance programme. This is done through a set of different tools. Standards and guidelines have
been developed and have been in use, with minor updates, for the last ten years. They have a dedicated team of auditors who
monitor and verify that the suppliers are following the standards, and give each supplier a rating based on those criteria. Those
results are again incorporated in the overall supplier rating that informs their decision of which suppliers to use.
16

17. 17

18. Sustainability leaders have the potential
to change the rules of the game
The way CEOs view the impact of sustain-
Very High
ability issues on their business context can be Oil & Gas
Very High
Services
summarised in two categories: the extent to Oil & Gas
Services
which they experience an increase in sustain-
Increased Sustainability demands
Increased Sustainability demands
property Energy
manu-
ability demands, and the degree they experi-
High
facturing
ence an increase in sustainability driven mar- distribution retail
ket opportunities. While the opportunities property Energy
manu-
Moderate
financial
facturing
Services
High
and challenges businesses are facing related IT/Telecom
to sustainability differ, CEOs across industry distribution retail
Limited
sectors experience increasing demands and
expect new market opportunities to arise
financial
(illustrated in Figure 5.1). Further more, as
Moderate
Services
IT/Telecom
many as 75 percent of CEOs state that
Very Low
they have evaluated their existing
product portfolio based on Very Low Limited Moderate High Very High Moderate High Very High
sustainability issues. Sustainability driven market Opportunities Sustainability driven market Opportunities
Fig. 5.1.
We believe that industries facing increasing
demands related to sustainability, and that
have a high exposure to sustainability driven
market opportunities, have a strong potential Strategic playground Sustainability leadership
for strategic differentiation. Based on the sector Potential for game changing strategies
characteristics across these two dimensions, we retail
Energy
have identified four distinct strategic play- Energy
grounds related to sustainability. We argue that property
Attractive positions for sustainability leadership
within most sectors there will always be niche
market driven leadership
market driven leadership
markets where sustainability has a strong property distribution retail distribution
impact, and even game changing potential.
Enhance value chain performance and increase
standards to put competition on defence
Going further, and looking at sustainability manu-
Oil & Gas manu- IT/Telecom facturing
leadership as a business strategy, the four Services facturing
Oil & Gas
strategic playgrounds give rise to two distinct Services
Protect reputation and increase standards to put
financial
competition on defence
types of sustainability leadership: 1) Market Services
driven leadership, and 2) Compliance driven financial
IT/Telecom
Services
leadership. The first type refers to the poten-
tial for developing new products and achiev- Compliance driven leadership Compliance driven leadership
ing market differentiation, and the second to
Fig. 5.2.
the potential of outperforming competitors
by driving the development of sustainability
practices within regulated industries. See
figure 5.2 for illustration.
Case: vattenfall pursues sustainability leadership within the energy sector
vattenfall produces, distributes and sells energy and energy related products to several million customers in the Nordic countries and
northern Europe. 11th of January 2007, Vattenfall launched an initiative to Combat Climate Change (3C). The 3C initiative consists of
business leaders demanding integration of climate issues in trade and markets. At present, 55 leading companies, including major global
companies like GE, BP and Siemens, have joined the initiative. This ambitious group of companies has defined a roadmap to combat
climate change, which includes recommendations on political priorities to the world’s politicians, in order to reduce emissions. CEO Lars
Josefsson has a strong commitment to develop Vattenfall into a sustainability leader within their sector. This include ambitious environ-
mental targets to reduce CO2 emissions, and he declares that the company’s mission is to reach carbon neutrality by 2050. A mission
which according to Josefsson means Vattenfall will be way ahead of its competitors, and the requirements set by regulators and society.
18

19. Category 1: potential for game related to underperformance. The potential
changing strategies upside of taking a clear sustainability posi-
tion related to overall business and/or niche
In industries where the market oppor-
segments is significant. A combination of
tunities and the demands to deliver social
increasing regulations and changing customer
and environmental performance are high,
preferences creates the opportunity to use
sustainability becomes strongly linked to
sustainability for strategic differentiation. This
the business core, and hence a key strategic
is especially relevant in order to create a new
parameter. In the Energy sector, issues on en-
competitive space and new market opportuni-
ergy production, energy efficiency and clean
ties, and to strengthen competitive advantage.
energy are critical and given a strong focus.
Sectors included in this category are Property,
Within a limited time span we believe the
Distribution and Retail.
leading companies within the Energy sector
will have the ability to explore opportuni-
In Property, the use of environmental
ties and take risks to capitalise on innovation
friendly materials, energy efficient buildings
related to sustainability. Competitiveness will
and recycling are examples of issues where
be further enhanced by the ability of inte-
sustainability leaders could excel. Increased
grating environmental and social ambitions
regulation of the industry may be appar-
into core operations. As an example, Vatten-
ent, as buildings alone represent 40 percent
fall has taken a clearly defined position on
of CO2 emissions in Norway. Distribution
sustainability leadership, as part of an overall
companies’ key issues are related to both their
ambition of reaching industry leadership.
infrastructure and their need for transporta-
tion and logistics. Differentiation based on
Category 2: attractive positions for more energy efficient solutions and reducing
sustainability leadership carbon emissions represent possible strategic
options for achieving and/or maintaining
In this category, the degree of sustainabil-
industry leadership. To retailers, the selection
ity driven opportunities is seen as high, and
of consumer products, reduction of waste
companies strongly experience increasing
and of the use of energy, environmental
demands to include sustainability in strategy
packaging and new and innovative solutions
development. While sustainability may not
for transport and logistics are all possible dif-
be as directly related to the business core as
ferentiation parameters.
in the first category, there are significant risks
Case: marks & Spencer’s plan a integrates key sustainability issues into every aspect of their business
marks & Spencer is one of UK’s leading retailers, employing 75 000 people, and having more than 21 million people visiting
their stores every week. M&S’s plan to grow into a world class retailer, includes an ‘eco plan’ for every aspect of the business
to ensure sustainable growth. Plan A is a five year plan, consisting of 100 points to tackle environmental and social challenges.
The ambitious plan is divided into five pillars, each with its own goals. By 2012, M&S aims to: 1) become carbon neutral, 2)
send no waste to landfill, 3) extend sustainable sourcing, 4) help improve the lives of people in their supply chain and 5) help
customers and employees live a healthier life.
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20. Category 3: Enhance value chain Category 4: protect reputation and and interfaces like virtual meetings and video
performance and increase stan- increase standards to put competi- conferencing. The increasing globalisation of
dards to put competition on tion on defence the industry also makes issues related to the
defence societal dimension of sustainability essen-
In the category with the lowest score on
tial. In short, ignoring the environmental or
Sectors with moderate market opportunities sustainability demands and market opportu-
social bottom line represents significant risks
and high demands to deliver environmental nities, CEOs rate the increase in demands and
related to profit and company reputation,
and social performance usually have strong opportunities resulting from sustainability as
while mastering it create opportunities in
regulatory regimes giving significant chal- moderate. Thus, companies that fall into this
new niche markets.
lenges related to production, manufacturing category should also assess how sustainabil-
and operating environment. ity could impact their competitive advantage.
Typically, industries within this category
Companies in the Oil & Gas Service sector are less raw material and energy intensive.
have faced strong regulations on HSE over Among the sectors analysed in this study, Fi-
time, and this has led HSE-issues to become nancial Services and IT/Telecom are the only
incorporated into the daily operations. Being ones placed within this category.
in an extremely carbon intensive industry,
players have experienced increasing demands Business ethics is as an area CEOs across
related to sustainability. The most likely all industries are looking into, but especially
scenario is that the demands will continue to highlighted by CEOs in the Financial Services
increase, leading to a tightening of industry sector, as they are faced by ethical dilem-
regulations. Thus, to ensure compliancy, mas related to transparency and asymmetric
leaders should strive to deliver beyond the knowledge of complex financial products.
imposed standards. Additionally, this sector Early movers on sustainability within this
offers attractive niche markets where sustain- sector are proactively using their investment
ability represents new market opportunities. placing power to influence companies to act
Examples are carbon capture and decommis- upon sustainability issues. Other leading Fi-
sioning of offshore installations, where win- nancial Services companies have also created
ners capitalise on sustainability leadership. new products linked to sustainability, includ-
ing renewable energy and clean-tech funds.
Manufacturing is a diverse sector, but
leading companies within this sector should Vodafone, a leading European telecom pro-
investigate the entire value chain with re- vider, estimates that 80 percent of its carbon
spect to use of scarce resources, energy usage, footprint is associated with its network opera-
recycling and carbon emissions. Companies tions. In this context, smarter and cleaner
with global operations also need to carefully energy solutions can reduce both carbon
address their impact on social, political and footprint and spending. In addition, IT and
ethical performance in the countries where Telecom companies can be key players in cre-
they have a presence. ating more environmental friendly solutions
Case: Toyota has established a unique sustainability position within the automotive sector
Toyota, headquartered in Japan, is the world’s largest auto-maker. They emerged as the sector sustainability leader as they
responded to the concerns over automobile emissions by launching Prius, a hybrid electric/gasoline car, voted 2004 Car of the
Year by the Motor Trend magazine. A saying is that; when California introduced regulations to promote hybrid cars, US manu-
facturers hired myriads of lawyers to avoid the new regime, while Toyota hired engineers to take on the challenge and produce
a quality car that fulfilled the requirements. Today, Toyota is recognised and awarded for their environmental commitment, while
US manufacturers are struggling to survive through the present financial crisis.
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