In my previous article The Positive Impact of Sustainability on Business, Financial Performance and Resiliency I had talked about how sustainability drives financial performance for enterprises. On a foundation of an economy framed around the axiom of financial profit maximization, now is the time to irreversibly build business upon the principle of integrating financial performance and sustainability measures and thereby to have a much broader purpose into the business, the business models and business performance metrics. But with this fundamental shift in businesses, come expectations, uncertainty and opportunities. The new business context demands sustainable economics where cash flow and economic growth are generated while resources are used responsibly and thoughtfully to ensure a little environmental and low-carbon footprint.
Sustainable and Profitable business: What you can do?
Now, what can your business do to create business solutions that are sustainable and resilient while generating profit? – A lot! The list below is by no means exhaustive but it mentions a few examples;
- Develop a sustainability strategy, a step-by-step roadmap and communicate this. Importantly: Be always consistent on what you do and what is communicated. Inconsistency is toxic to reputation and brand value.
- Leverage digital technologies and ways of working to boost operational efficiency (e.g. from RPA, IoT, exception-based surveillance), reduce downtime, reduce transportation, enhance remote operations, harvest power of computer-assisted decision making etc.
- Reduce transportation by leveraging VC communication technologies, 3D printing etc.
- Create a sustainable value chain using sustainable suppliers who discloses sustainability KPIs and show consistency in sustainability efforts and communication
- Enhance productivity and efficiency from process simplification, LEAN and zero-based design
- Electrify high-CO2 intensive equipment to reduce CO2 footprint and ensure electricity comes from renewables (such as hydropower, wind power or solar power) with low CO2 footprint. Create strong partnerships and negotiate electricity contracts.
- Be proactive in electrification efforts and planning as the levelized cost of electricity (LCOE) drops at a significant rate due to technology development and learning curve effects.
- Reuse and recycle materials at all levels – from coffee cups to oil field installations.
- Have energy efficient buildings, sensor-based lights, thermostats and timer-based heating controls. Energy efficiency is by far the most cost-efficient way to reduce CO2 emission.
- Think energy efficiency into all aspects of the value chain, define KPIs, monitor these close and act upon these.
- Save clean water in operations
- Minimize waste along the value chain
- Have focus on the energy mixture of your business and set targets to drive energy mixture towards renewables
- Assess opportunities to capture or reduce carbon from each step along the value chain. Some companies can even make money on storing and/or capturing CO2. Create strong CCS partnerships and build win-win commercial models around this.
- Balance and diversify asset portfolio in line with the sustainability strategy.
A Sustainable Business Strategy
Sustainability is an economic and strategic imperative for today’s businesses. It comes with uncertainty, risks and opportunities. It gives competitive advantage and creates value to the greater good of the society and World population. To ensure business sustainability, a balance between short- and long-term perspectives of both financial and non-financial KPIs (e.g. ESG sustainability performance, CO2 emission etc.) should be established. As a foundation a clear and transparent business strategy where sustainability is embedded as a key element should be developed.
The sustainability strategy should be centered around the following key aspects:
- Long-term perspective on profitability and strategic investments while ensuring solid current ratios, net working capital and financial leverage
- Protection and preservation of natural resources and the climate, while ensuring revenue generation
- Handling of environmental risk as well as financial risks
- Investment justification and evaluation taking economic and non-economic into account
- Building of long-standing relations with stakeholders, shareholders, partners and suppliers
- Leveraging technology, digitalization, data analytics, computer-assisted decision-making and innovation
- An operating model where decisions are driven by ESG, CO2 emission, energy mixture and financial KPIs
- A clear communication strategy on the sustainability vision and concrete roadmap
Lastly, and importantly, to achieve the goals outlined in the sustainability strategy, formal ownership around sustainability and the strategy is required. Adequate and concrete ownership should be placed at all levels throughout the organization: At C-level, line managers, front line workers, the Board etc. Importantly, there should be a link between ownership and performance to compensation and incentives. What gets measured and acted upon, gets done!
One a final note, sustainable business models open opportunities for much bigger business ecosystems of companies and suppliers with sharing-economy and shared resources and operations. The signs that we observe on sharing-based ecosystems originates in the fact that sustainability is a shared responsibility and that sharing can drive down costs and improve operational efficiency.
Sustainability is not a nice to have. It is a need to have. It is expected by the society, employees and investors. And: It can drive financial performance and ensure business resiliency, while taking care of the natural resources of the Planet.
This topic of sustainability strategy and sustainable leadership will be discussed much more details in my coming blogs.
Martin V Bennetzen
Martin is director and part of the Energy, Utility and Chemicals core team in Capgemini Norway. Martin has a background with oil and gas operations, petroleum economics, big data analytics and digitalization and has earned his PhD degree from University of Southern Denmark. Martin has worked in an oil operator company in the Qatar and Denmark and an oil service company in Norway prior to going into consultancy as has experience from day2day production optimization, master development planning and economic investment evaluation and technical/commercial due diligence. Martin is leveraging his background from oil and gas in his work on technical and economic aspects of sustainability and energy transition including renewable energy, carbon capture and storage, electrification and digitalization.
Martin has been awarded “Top 100 Business Talent” in Denmark in 2016 by the Danish Newspaper ‘Berlingske Business’ and received the EliteResearch Award from the Danish Ministry of Science, Technology and Innovation in 2010.