For these Kellogg alumni, 'sustainability' is more than a buzzword — it's the key to long-term success
By Rachel Farrell
In 2007, software company Intuit noticed that a lot of big consumer brands — such as Timberland, Gap and Nike — were beefing up their investments in corporate social responsibility.
At the same time, Intuit's employees and prospective employees began expressing interest in what the Mountain View, Calif.-based company was doing for the environment and community. Executives began to wonder if there were ways the company could leverage its existing software products — QuickBooks, Quicken, Digital Insight and Turbo Tax — to help households and businesses save money and become greener.
"It felt like we had opportunities to make a positive difference for the environment and for our customers, so it made sense to invest a little and see what we could do," says Rupesh Shah '00, who was named director of corporate sustainability as a result of Intuit's decision to invest in sustainable initiatives. "I thought it was important to increase our focus on sustainability in order to make a strong brand even stronger."
Shah's instincts were right. As he began interviewing and visiting small businesses — the firm's core consumers — he discovered that more of them were using, or trying to use, green messaging as a means to attract customers. "For example, there's a dry cleaner that has a sign that says 'we're going green' or a bakery shop that told me 'we're using more organic flour' or a housekeeping service that is using natural cleaners," he says. "It's happening all over the country. Businesses are looking for an edge."
Intuit isn't the only company that's taking a serious look at sustainability. Walmart recently announced a plan to improve the efficiency of many of its energy-intensive products by 25 percent within three years. Two years ago, Coca-Cola announced a partnership with the World Wildlife Federation and pledged to reduce the amount of water used to produce the company's beverages. And in 2006, the Johnson & Johnson Company introduced "Healthy Planet 2010," a set of five-year goals with regard to energy and water use, paper and packaging, waste reduction, environmental literacy and more.
"The concept of sustainability is becoming more socially and politically accepted," observes Adrian LaTrace '04, a graduate of the Executive MBA program (EMP-57) and vice president and general manager of Acciona Windpower North America. "We're seeing more and more companies incorporate sustainability in all aspects of their business — from building design to company image to recruiting. It's part of the fabric of how companies are doing business today."
But what exactly does it mean to be sustainable?
For many people, the term suggests a sensitivity to environmental concerns. But that's not where sustainability's application ends.
"It's a wooly concept," acknowledges Lynne Kiesling, senior lecturer of social enterprise at the Kellogg School. "As an economist, I think of it in terms of this: Do the production and resource decisions that we're making today allow for similar thriving and similar growth and similar experience in the future?"
Some perceive sustainability as a state that's achieved when all three objectives of the "triple bottom line" — environmental, social and economic concerns — are fulfilled, explains Klaus Weber, assistant professor of Management & Organizations. "So, if you go out of business, that's not really sustainable; if you ruin the planet, that's not sustainable; and if you don't create welfare for the people involved, that's not sustainable, either."
As its broad definition implies, sustainability manifests itself in many ways in the corporate world. And Kellogg alumni, for their part, are approaching sustainability from as many different angles.
Drawing on his seven previous years of experience in software product management at Intuit, Shah helped develop a new application, "Intuit Green Snapshot," which was rolled out this past spring. The software, which is still in the beta-testing stage, uses existing data in QuickBooks to estimate a company's carbon footprint. It then suggests a goal for that company — for example, to reduce its carbon footprint by 10 percent — and provides a list of actions that can help the firm achieve that goal. The product is free and takes about two minutes to run.
"For example, we might recommend using a smart programmable thermostat," Shah says. "We describe what it is, tell them how to use it and give them links to an article or video with step-by-step directions. We also list the potential carbon savings and potential dollar savings. We try to make it really simple because we know small businesses don't have any extra time. "
The software also produces a report, the "Green Profile," that includes a pie chart of a company's carbon footprint, a list of actions the business is committed to taking and a statement of how much environmental benefit these actions will create. Businesses can show this report to customers and vendors or post it to their business Web site.
Ryan Ruskin '94, president and chief operating officer of The Ruskin Group, works with businesses that want to make their packaging more sustainable, economically or environmentally.
For example, The Ruskin Group worked with a national retailer to reduce the costs of one of its gift boxes. "It was the most beautiful, magnificent gift box you've ever seen," says Ruskin. "And it was extremely expensive: $12 a box, whereas your average box at Macy's is probably 20 or 30 cents."
This high cost, Ruskin determined, was the result of an unsustainable manufacturing and distribution chain. The paper for the boxes was made in England and shipped to Indonesia, where the boxes were assembled. Then the boxes were shipped back to the U.S., where they were distributed to the retailer's stores, some of which were located in London. "So it went full circle around the globe," Ruskin says. "You can imagine not only the cost in materials and labor, but the cost in transportation. And it had an enormous impact on the environment."
The Ruskin Group reengineered the gift box's supply chain by using local products and local manufacturers; it also used renewable energy and renewable resources, such as FSC Certified Paper. Not only did this reduce the retailer's costs, but it greatly reduced its carbon footprint and turned the gift box into a certifiably green product.
At Acciona Windpower North America, LaTrace's work in sustainability is more straightforward: During the past year, LaTrace has overseen the manufacturing of a wind turbine generator in Iowa and managed the installation of turbines for three wind farms in the U.S. He is currently finishing a fourth wind farm in Illinois. Along with saving one million tons of CO2, these wind farms are capable of producing 510 megawatts of electricity, which is enough power to supply more than 150,000 homes.
On the innovation front, Acciona is developing cutting-edge technology in renewable energy, such as geo-thermal or concentrated solar power. Its "Nevada Solar One," a 64-megawatt, concentrated solar power plant in Nevada, is the third-largest CSP plant in the world and the first such plant commissioned in the U.S. in more than 15 years. "We are an innovator," LaTrace says. "Acciona is developing and commercializing a number of renewable energy technologies — not only in the U.S., but around the world."
Driving the cause
Altruism and philanthropy were once the drivers of the sustainability movement. But today, businesses have more practical reasons for wanting to become more sustainable.
Concerns about global climate change have led consumers and stakeholders to put increasing pressure on businesses to invest in more environmentally sustainable business practices. That has forced many executives to sit up and pay attention to issues of sustainability.
"Consumer demand drives all," says Ruskin. "If consumer demand is strong enough for these products and for the values of sustainability, that will lead to regulatory pressure and will force companies to design and innovate."
Firms are already beginning to recognize that sustainability isn't optional — it's a value they have to adopt if they want to keep pace with their peers and avoid a competitive disadvantage. "We're down the street from Yahoo! and Google, which in '06 decided to go carbon neutral," says Intuit's Shah. "eBay has a sustainability team and a variety of green initiatives. Adobe, another software company, is showing their commitment through their LEED buildings."
Some business leaders and academics take this notion a step further, arguing that sustainability can offer companies a competitive advantage. Jason Saul, a lecturer of social enterprise at Kellogg, cites a June 2007 Goldman Sachs study that drew a correlation between the environmental, social, and governance (ESG) index and market performance. The report stated that businesses that scored well on the ESG index also outperformed the MSCI (a global stock market index) by 25 percent since August 2005. Of these, 72 percent outperformed their peers over the same period.
Ruskin believes that companies can gain an even greater competitive advantage if they break ground in the area of sustainable technology. "Being the first to market new products — to create revolutionary ideas, as opposed to evolutionary ideas — is enormously powerful," he says. "Those that are the first to innovate will really reap the benefits."
State regulations and, potentially, federal regulations also promise to push the sustainability movement forward. To date, 27 states have adopted some form of voluntary or mandatory renewable portfolio standard, which requires utility companies to increase the production of energy from renewable sources, such as wind or solar energy. The renewable portfolio standard may soon become a federal regulation. President Barack Obama has called for a federal mandate that would require that the U.S. get at least 25 percent of its electricity from renewable sources by 2025.
"The administration understands two things," says Saul. "The importance of social issues in our economy and the importance of the role of the economy in solving business issues. That's huge. In the past, we looked at it as exogenous. Now social issues have become business issues. Education is a business issue. International development and poverty is a business issue."
Despite these motivations and benefits, many firms have yet to embrace more sustainable business practices.
Why? For one, it is difficult to put a numerical value on sustainability. "The problem of metrics is a big one," says Timothy Feddersen, the Wendell Hobbs Professor of Managerial Economics & Decision Sciences and director of the Social Enterprise at Kellogg program. "Businesses would like to not only measure [sustainability's] impact on their bottom line, but they might also measure their broader impact on society."
Metrics that measure energy waste will also motivate businesses to reduce their carbon footprint. "It's like exercise," says Feddersen. "If you go to the gym and get on the elliptical, in an hour you'll burn 500 calories. That's about the same number of calories in a candy bar. Now you think, 'I don't want to eat that candy bar after working really hard for an hour.' You always knew that the candy bar was something you didn't want to eat, but getting feedback on it transforms your attitude."
Saul is currently developing a system of metrics to measure the business value of social change. His method aims to analyze companies and value them based on financial data generated by the adoption of social and environmental strategies. In essence, he is creating and calculating numerical values for goals such as reputation and revenue improvement, entering new markets, attracting better talent and building customer relationships.
Slow economy, slow progress
Not surprisingly, the economic recession is slowing the momentum of the sustainability movement. Many businesses that, prior to the recession, had plans to invest in sustainable business practices are now rethinking their decision.
In part, that's because energy has become cheaper. "Prior to the recession, there was a sense among businesses that environmental problems are going to become increasingly important," says Feddersen. "But energy prices are down now, and people tend to be less worried about social problems when they just want to stay in their house."
Sunil Chopra, senior associate dean and IBM Distinguished Professor of Operations Management and Information Systems, suggests that the downturn could ultimately move sustainability efforts forward. "Many of the factors that drive sustainability are also the factors that drive efficiency — less packaging, more efficient transportation," he notes. "All of these improve cost structures."
Obama's economic stimulus package has helped mitigate some of the recession's impact on the sustainability movement. The $787 billion package allocated more than $50 billion in spending for energy and environmental projects, plus billions more in tax breaks, credits and grants for sustainable initiatives.
"What the stimulus package does is make sure that the demand for sustainability doesn't completely fall by the wayside," Weber says.
Weber believes that the recession's impact on corporate sustainability varies across the board. Companies that have made a commitment to become more sustainable may pull back somewhat, while others that haven't done so will fall behind.
"But the companies that stick with their sustainability agenda during a recession are going to have an enormous advantage afterwards, because there are very few sectors that are not going to be affected by it," Weber says. "This is definitely something that's here to stay in the long run." ˜
"I thought it was important to increase our focus on sustainability in order to make a strong brand even stronger," says Rupesh Shah '00, director of corporate sustainability at Intuit.
Ruskin, president and COO of The Ruskin Group, works with businesses that want to make their packaging more sustainable.
LaTrace is vice president and general manager of Acciona Windpower North America.