Strategies. Is Sustainability Sustainable? The Future of Green Business Consulting. President s Perspectives

Transcription

1 Strategies Is Sustainability Sustainable? The Future of Green President s Perspectives February 2012

2 We are not at the end of history for sustainability. To the contrary, the global change forces that will shape the next decade of business will require more than ever the foresight and insights of the type of innovative thinkers and practitioners who have put sustainability on the map.

3 Strategies February 2012 The last decade has seen an evolution of corporate demand for consulting and advisory services on corporate social responsibility (CSR); environmental impact mitigation strategies; green or socially-minded re-branding efforts; development of new product and marketing strategies to serve environmental markets; and internal and supply chain assessments that have led to improved efficiencies and regulatory risk mitigation. These and other services today are generally referred to as sustainability consulting. Green business evangelists have long argued that sustainability should be a core business strategy for brand differentiation and value creation. Green consultants have helped achieve great progress toward proving this point with leading companies around the world. But arguably, the green consulting business model is self-limiting. As sustainability and its metrics for value become more main-stream and more like other core business risk mitigation and performance enhancement practices, the boutique green consulting firm is losing ground to conventional consultancies long-accustomed to managing mainstream business needs. However, the needs of companies will evolve over the next decade in the face of significant global change drivers. These forces that will help shape the next decade of business will require more than ever the foresight and insights of the type of innovative thinkers and practitioners who have put sustainability on the map. But the next leading consultancy will need new skills and, maybe, a new name. Roger Ballentine, President

4 P a g e 1 Is Sustainability Sustainable? The Future of Green The last decade has seen an evolution of corporate demand for consulting and advisory services on corporate social responsibility (CSR); environmental impact mitigation strategies; green or socially-minded re-branding efforts; development of new product and marketing strategies to serve environmental markets; and internal and supply chain assessments that have led to improved efficiencies and regulatory risk mitigation. These and other services today are generally referred to as sustainability consulting. Initially led by boutique firms (headed by professionals with personal passions for environmental and/or social causes and career histories to match), larger firms (accounting, legal and traditional corporate consulting) soon entered the market, redirecting existing personnel or acquiring new expertise and applying their traditional business models to market demand for sustainability services. The question, however, is whether there will be continued demand in the future -- i.e., is sustainability sustainable? * * * Hockey great Wayne Gretsky attributed his success to skating to where the puck is going to be; not where it is. The needs of companies will evolve over the next decade; sustainability consultants must be prepared to consult to where risks and opportunities are going to be. Looking forward, what services will clients need and why? What will a successful consultancy look like? The Sustainability (or Global Change ) Consulting Market Going Forward Where is the puck going? Over the past decade, mega-trends like globalization, e- commerce and information technology have fundamentally impacted businesses and markets. Over the next decade these and an expanding number of powerful drivers of market change will place a higher priority on foresight, innovation and adaptation by both companies and the consultants that seek to serve them. Drivers of Market Change Consultants offering global change consulting services must understand a number of market-impacting forces and megatrends, including: 1) Planetary Constraints. Population growth, land and agricultural stresses, growing stresses on water quantities and quality, extreme weather and social and regulatory responses to all will challenge markets and businesses in the 21 st Century. For business, these trends raise questions about the long-term affordability and availability of products that rely on finite resources or agricultural commodities that face dual stresses of climatic change and the nourishment demands of what will soon be 9 billion people. Climatic strains such as extended droughts and rising sea levels also pose threats to the economic and political stability of the markets for companies goods and services. Over the next decade mega-trends like globalization, e-commerce and information technology will continue to place a higher priority on foresight, innovation and adaptation by both companies and the consultants that seek to serve them.

5 P a g e 2 2) Energy Dynamics. Rising populations, expanding middle class populations and increased urbanization will increase demand for modern energy services and the resources upon which they rely. These demands will have consequences for national and world economies, geopolitical relations as well as the environment. corporations see many of the social megatrends as market opportunities, and they are increasingly demanding: supply chain transparency, commodity traceability, product life-cycle impact analyses, and dramatically increased accountability for how products are made, shipped and sold. 3) Information Flows and Expectations for Radical Transparency. The combination of changing stakeholder expectations (including those of governments, customers, investors, civil society and capital markets) and the power of social media will have impacts on corporate governance and transparency; if social media can bring down non-responsive/non-strategic governments, corporations too have vulnerability. Planetary Constraints Radical Transparency Social Megatrends Energy Dynamics Market Pull by Global 100 Companies Government Responses 4) Social Megatrends. Changing demographics and consumption, urbanization, population aging, deteriorating air and water quality with resulting health impacts, the liberalization of autocratic economies and the social and political responses to all will change markets and demand new business strategies. 5) The Market Push: Governmental Response. Governments around the world will respond to these global changes. Environmental regulation, trade policies, incentive structures, performance standards and disclosure rules are already business-impacting; their business relevance will only increase. 6) The Market Pull: Response of Global 100. Governments are not alone in responding to these global change drivers. Many of the world s largest multinational corporations are putting new demands on the companies in their supply chains far faster than governments are able to craft regulations. By accelerating efforts to manage the impacts of planetary constraints on long-term commodity supplies, global mega-corporations yield as much or more influence as governments on companies who seek to do business with them. These leading Some of these trends and forces are creating new markets and business opportunities; others present strategic risk to business models and markets. A successful global change advisory firm must stay ahead of current thinking and understand the forces that will fundamentally change the world in which business must operate over the next decade. Only in this way can a firm provide the greatest value to clients and compete among the growing legion of consultants offering the next generation of sustainability services. Expanding Client Needs A full understanding of the fundamental changes that will be impacting businesses over the next decade foreshadows the services companies will require. It might be that these needs will be met by an incremental evolution of current sustainability-type consulting services. On the other hand, it is likely that the services that companies will need to deal with dynamic global change will outgrow today s sustainability label. To some extent the debate will be only semantic and mostly relevant to how consultants market their services. Regardless of labels, and moving beyond leaders to a

6 P a g e 3 much broader set of companies, clients are likely to need help in a growing number of areas, including (but not limited to): Global Change Strategic Opportunity Assessment and Risk Mitigation. Companies will need to re-assess strategic opportunities and risks in business strategies and product/services offerings presented by global change drivers. Risk management will likely be the increasingly core driver of strategy, though branding, reputational enhancement, new market access and cost-savings will continue to be important. The assessment must look beyond company footprints, governance practices and direct impacts to a dynamic look upstream, downstream, and side-stream (new business relevant stakeholder impacts) at core business risk and success factors. Performance Assessment. Companies will need an expanded ability to measure performance, establish baselines, set operating goals, implement organizational/operational systems, develop and track internal reporting systems, benchmark against peers across the scope of operations, supply chains and their products lives and to do so across a growing set of businessrelevant metrics. Metrics Development. Just as traditional business performance and business decision-making is measured and made according to well-understood metrics, the increasing business relevance of nontraditional factors will demand new metrics to measure performance and make decisions. In the current sustainability context, even leading companies struggle to compare sustainability-related spends, for example, to other uses of capital. Companies need better ways to compare non-financial apples to traditional financial oranges when they both impact value. Evaluation of return must include global change risk reduction values that can be directly compared to traditional financial metrics (e.g., revenue generation). Such metrics are being developed in a piecemeal fashion and companies will need help in adopting best practices. Transparency, Reporting and Communication. Companies will need assistance in external communications, reporting and transparency strategies aimed at both non-financial and traditional financial stakeholders. Integrated reporting of performance is a likely new major trend in such transparency. Identification of and Strategic Management of Stakeholders. Global change will make clear to a growing number of companies that they have a larger universe of business-relevant stakeholders that must be identified and managed. Strategic management of stakeholders can enhance corporate credibility and social licenses to operate, provide expertise and insights into business improvement, and reduce risks to reputation and market share. Strategic Understanding and Management of Government Relations. How companies manage global change will be influenced and informed by the actions of governments. Companies must adapt to and sometimes seek to influence regulatory actions. In many jurisdictions, governments will increasingly seek input from and responsible participation of the private sector in addressing pressing global change challenges. Just as businesses must see government as a key stakeholder, government policies are increasingly looking at the private sector as important stakeholders in solving public policy needs. Capabilities Companies will Expect Global change consulting firms need to provide a wider range of expertise and services to meet the demands of companies over the next five to ten years. The boutique firm will have to expand competencies, become more global, and increase analytic capabilities. These Just as traditional performance is measured according to well-understood metrics, the increasing business relevance of non-traditional factors will demand new metrics to measure performance and make decisions.

7 P a g e 4 evolving client needs will demand that global change consultancies, through firm personnel and/or alliances, be prepared to offer a broad set of capabilities and expertise, including: C-Level Access and Credibility: Firms must have senior members who have access to and credibility with C-level or even Board-level client decision-makers. Energy Expertise: Consultants will need broad and deep energy expertise, including knowledge of technology, regulatory market structures, environmental footprints, environmental attribute markets, cost structures, supplyside constraints, energy commodity markets, and demand side management practices and incentives. Land Use, Agriculture, Waste and Water Expertise: Natural resource and water scarcity, changing water resource distribution, increasing demands for potable water, and changing cost structures for resources will present growing challenges for businesses. Firms must have relevant capabilities in market analysis, life-cycle analysis (LCA), substitution and efficiency options, technology development, waste minimization and end of life strategies. Policy Expertise: Public policy globally impacts business strategy and execution. Energy and environmental policies in particular will evolve in reaction to global change and consultants must offer bestin-class policy insights, analysis and advocacy services. Expertise in Performance Measurement and Reporting (Traditional Financial and Non-financial): Firms must be on the cutting edge of rapidly developing metrics to measure and report on today s sustainability key performance indicators (KPIs) and be ahead of the curve on integrating these and developing metrics into traditional financial reporting. Leading Edge Knowledge of Technology. Clients will need access to and understanding of the availability and proven market use of the technologies needed to adapt to global change, including new IT tools. Stakeholder Expertise and Credibility: The increasing business relevance of previously more peripheral environmental and social matters makes strategic stakeholder relations of increasing business value. The firm must have access to and credibility with key NGO/stakeholder groups in order to deliver competitively valuable information and/or coalition strategies to their clients. Communications Skills: Whether servicing this function itself or working with incumbent corporate communications teams and public affairs consultants, clients will need strategic communications and social media skills. We have seen how technology and social media can bring down non-responsive governments; corporations too face new vulnerabilities as well as opportunities. Understanding of Corporate Finance and Capital Markets: Few things threaten the long-term viability of a niche green consulting firm than having less than a full understanding of corporate budgeting, capital deployment decisionmaking, financial performance measurement and reporting, and the role of equity analysts and capital markets. Certainly these aspects of corporate governance are changing; firms must be grounded in traditional practices while counseling on dynamic change. Core Competencies Global Scope Analytics C-level access and credibility Energy Land use, agriculuture, waste and water Government, regulatory, and policy Stakeholder credibility Communiciations Performance measurement and reporting Finance and capital markets Leading edge technological knowhow

8 P a g e 5 Evolving Market Strategies for Consultancies Global change consultants will need to move beyond today s current core offerings and client development strategies to be successful in an evolving and increasingly competitive market. A few key strategies include: Expanding Market Beyond Leaders /Moving Beyond Green. A significant portion of the higher profile sustainability successes have been by companies now widely recognized as leaders. Some followed a visionary CEO (Interface Carpet), others saw the potential for rebranding and new markets (GE), and others, who may have started for reputational or defensive reasons, became leaders by demonstrating cost savings and competitive advantage (Wal- Mart). Going forward, however, the successful consultancy should not just sell green ; they must sell strategic value creation consulting services over a more broadly defined set of non-traditional factors to a much broader set of companies including those that today might be considered the laggards in terms of embracing today s sustainability agenda. Leading the Collaboration Movement. While many responses to the global megatrends discussed in this document will have competitive benefit, many companies are moving rapidly in precompetitive forums to collectively manage global change risks. Consulting firms must be deeply connected within and between organizations, serving as a compass in a rapidly shifting landscape to help clients navigate decisions on when to collaborate, how to leverage key forums without compromising competitive advantage, and why such collaboration is beneficial. Helping Companies Demonstrate Value of Risk Mitigation and Long-term Value Creation Strategies to Analysts, Ratings Agencies and Underwriters. Leading companies have derived new revenue or market share through greener product offerings and they have reduced costs through efficiency investments. While such progress is usually touted in a CSR or sustainability reports, the bottom line contributions to company performance were reported on traditional financial reports using traditional financial metrics. The universe of those who do not believe in the business relevance of the social, planetary, and political drivers described above is shrinking under the weight of rapid global change and the success of the relatively small but important segment of true leading companies. Current corporate practices of managing for quarterly performance will be increasingly in conflict with strategic value creation and risk mitigation. The most impactful set of believers that corporate value is directly tied to global change strategy and adaptation might soon be the analyst community, underwriters and ratings agencies. More so than the most brilliant of journal articles or sustainability treatises, this would drive change in corporate behavior and force resolution of the tension between planning for and investing in strategic risk mitigation or value creation and managing to quarterly performance metrics. Quarterly earnings calls will not become a thing of the past, but analysts will increasingly ask questions about strategic risk and use new metrics and integrated reporting tools to evaluate company value. Consultancies must be prepared to assist in this change. Offering Strategy, Market Analysis and Deal Diligence Services to Asset Managers, Private Equity and Strategic Investors. Many of the same forecasting, risk assessments, energy market insights, technology expertise and understanding of non-traditional value measurements that will benefit corporate planning and resource allocation are also skills that will be needed by investors considering transactions impacted by energy, environmental and social drivers. A successful consultancy can expand its

9 P a g e 6 services to private equity investors and institutional asset managers. * * * Green business evangelists have long argued that sustainability should be a core business strategy for brand differentiation and value creation. Green consultants have helped achieve great progress toward proving this point with leading companies around the world. But arguably, the green consulting business model is self-limiting. As sustainability and its metrics for value become more mainstream and more like other core business risk mitigation and performance practices, the self-branded green consulting firm is losing ground to conventional consultancies long-accustomed to managing mainstream business needs. But we are not at the end of history for sustainability. To the contrary, the global change forces that will shape the next decade of business will require more than ever the foresight and insights of the type of innovative thinkers and practitioners who have put sustainability on the map. But the next leading consultancy will need new skills and, maybe, a new name.