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Sustainability

4 strategies for sustainable business

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It took decades, but sustainability is finally a mainstream business practice.

Or is it?

Ten years ago, 20% of companies in the S&P 500 index published sustainability reports detailing their economic, environmental, and social impact. By 2019, the figure was 90%. The CEO of BlackRock, the world’s largest asset manager, declared in a recent annual letter to CEOs that climate change was “a defining factor in companies’ long-term prospects.”

Widespread recognition of the importance of sustainability in business is “great news,” said management professorco-founder of the MIT Sloan Sustainability Initiative. But it doesn’t tell the full story.

As part of the initiative’s commitment to “fundamentally shift how the business world embraces sustainability,” Sterman and colleagues routinely poll business leaders about progress at their firms. Despite the proclaimed importance of sustainability, these leaders rarely report sustainability action is embedded throughout their organization.

Rather, companies issue reports through public or government relations departments, engage in sustainability activities only when they believe it is profitable, or comply with applicable environmental laws and regulations — nothing more.

“This is a huge disconnect,” Sterman said. “And it is also a huge opportunity.” Firms that invest in sustainable practices, he said, will reduce risks and cut costs while likely gaining competitive advantage as demand for sustainable goods and services grows.

With that in mind, here are four guiding principles from MIT Sloan experts to help global leaders set sustainability strategy for their organizations:

1. Listen, internally and externally

MIT Sloan senior lecturerco-director of the Sustainability Initiative, articulated two approaches companies must balance when tackling sustainability.

The “outside-in” approach centers on listening to the concerns and demands of stakeholders, from investors to consumers to prospective employees. Listening allows companies to identify and shape their response to new sustainability issues as they emerge, Jay said.

It also helps them clarify their position relative to competitors and recognize novel opportunities for leadership. Jay highlighted the example of McDonald’s. Confronted by Greenpeace over its use of soybeans grown on land cleared in the Amazon rainforest, the fast food chain ultimately partnered with the global environmental organization to eliminate that soy from its supply chain.

The “inside-out” approach requires introspection; it is about convening those who define the culture of a company — board members, the C-suite, star employees — and discussing what the company exists for and the mark it wants to leave on the world.

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Refining a company’s social mission illuminates the issues on which it will take a stand. Examples can be found in “any of the purpose-driven companies that have been mainstays of the B Corp movement,” Jay noted. As an example, he cited Patagonia, which, since its founding, has used the tools of business to address environmental crises.

“Ultimately, you can’t get away from doing both,” Jay said, but each approach comes with distinct challenges.

As companies turn inward they may overlook the rise of new, urgent sustainability issues. Patagonia recently had several “tough engagements,” as Jay put it, around the Black Lives Matter movement. Companies facing outward, to stakeholders, may be pulled in many directions at once, and, as a result, fail to exhibit meaningful and durable progress.

“An important point of reflection is to consider the balance between these modes of inquiry,” Jay said. “If you’re running in circles chasing stakeholder expectations, then you need to ground yourself with the internal work; if the world is changing around you and you aren’t responding, you may be too self-satisfied and insular.”

2. Deploy overlapping timelines

Richard Wilner, EMBA ’19, head of business excellence and sustainability at Takeda’s BioLife Plasma Services, likes to define solutions to any given sustainability challenge across several time scales — generally months, years, and decades. He described the case of plastic waste.

In the short term, BioLife is working to reduce plastic use and recycle specific components of their blood plasma collection kits, which are difficult to recycle because they are labeled biohazardous and composed of several different polymers.

In the medium term — the next several years — BioLife is striving to work with its strategic suppliers to design a more circular system. Are there interventions that will allow them to take existing plastics, break them down, and feed them back into manufacturing?

Finally, in the longest timeframe, the company’s ambition is to fully eliminate plastics. Though this could take decades given the operational, regulatory, and supply chain challenges associated with such work, their near-term and intermediate steps are designed to explicitly move them toward the big-picture goal.

“The objective is to get rid of this material altogether, but that is not the only place we’re focusing energy,” Wilner said. “There is much we can do to adjust our trajectory now so that when we get to the point of eliminating plastics we have significantly attenuated the problem. These overlapping timeframes are a way to attack broad and often messy challenges.”

3. Develop a mix of metrics

Citing the work of Sustainability Initiative co-directoran MIT Sloan professor of applied economics, Jay described three distinct methods by which companies should measure their sustainability efforts.

First, companies should establish overarching intentions by drafting principles and mission statements; they can join coalitions and establish codes of conduct for supply chain partners. While these do not immediately sound like metrics, “a metric can be a binary variable,” as Jay put it. Is Company Y part of the UN Global Compact: yes or no?

Such declarations are also becoming increasingly specific — and powerful — as companies adopt goals like net-zero carbon emissions by 2050. “Such a statement doesn’t say there is a procedure in place, and it’s not measuring any outcomes like total carbon footprint,” Jay said. “It’s a declaration of intention, an alignment to broader societal objectives, but some companies have it and others don’t.”

Sterman agrees, noting however that without specific, measurable, transparent actions and outcomes, goals like “net-zero by 2050” become meaningless or worse: corporate greenwashing. “Aspirations are great. Actions are essential,” he said.

Second, companies should be clear about the processes they’ve established to move toward sustainability — what Jay, citing Rigobon, calls “procedural sustainability.” How many of their factories, for instance, are ISO 14001 certified? How many materials come from sources certified as sustainable, or how many products are stamped with labels, like the Rainforest Alliance, that suggest a basic level of sustainability? “Ideally these processes increase the likelihood of good outcomes,” Jay said.

Third, companies must measure those outcomes. What are annual greenhouse gas emissions? How many tons of waste are generated per month? These outcome measures are used to benchmark progress toward sustainability. Importantly, these metrics must be granular enough to drive change — a point that arose on a panel at the recent MIT Sustainability Summit, where large companies like Salesforce, Amazon, and Google discussed how they measure climate impact.

Amazon started out by tracking its total carbon footprint. While a helpful figure in its own right, it could not inform investment or dictate specific actions. So the company built a detailed model showing carbon dioxide per unit shift as well as the electricity required to power data centers; this helped the company spotlight deficiencies and develop targeted responses, according to Dara O’Rourke, SB ’89, a senior principal scientist at Amazon who spoke on the panel.

Rigobon notes that different approaches to metrics complement each other, Jay said. “The biggest mistake [companies] make is relying too heavily on only one of these three instead of measuring holistically.”

4. Connect sustainability with diversity, equity, inclusion, and justice

Companies often separate DEIJ and environmental sustainability efforts. They shouldn’t. “Climate change is necessarily a justice issue,” Jay said.

Those who have been most affected and who will continue to be most affected by environmental degradation, he noted, are Black and brown people primarily in southern latitudes. “I think that racism ultimately underpins much of climate inaction. Lack of solidarity will always be toxic.”

Connecting these worlds opens tremendous opportunity. Sterman offered the example of increasing energy efficiency in low-income housing — an issue that companies like BlocPower are tackling.

The poorest and most disadvantaged communities are also those with the least efficient housing, and, as a result, every winter “too many are forced to choose between heating and eating,” Sterman said.

“People turn down the heat and wear parkas inside. But they then suffer from higher rates of pneumonia, bronchitis, and other illnesses, often ending up in the emergency department or hospital. Kids stay home from school; parents miss work. Life outcomes suffer.”

“But if you complete a deep energy retrofit on that housing, people can turn their thermostats up and still have lower energy bills, boosting their disposable income. Their health improves, reducing costly medical emergencies and hospitalizations. Parents are less likely to lose their jobs; kids do better in school,” Sterman said. “You have a win for the environment and help redress longstanding inequalities in our society.”

Jay described the broader imperative for the sustainability movement to embrace economic and political equity. “What’s really essential is a just transition,” he said. As industries like oil, gas, and coal are phased out, a “glide path” must be in place to help those displaced. Economic transitions have traditionally been racially exclusive, he said, and the current moment presents a chance to reimagine these transitions.

“It’s obvious that we can’t have prosperity, good health, security, equity, and peace if we destroy the environment,” Sterman said. “But it’s equally true that we won’t have a healthy environment if people are poor and hungry, lack decent shelter, meaningful work, and opportunities to develop.

“Building a safe, equitable, sustainable world requires that we recognize the fundamental alignment of a healthy environment, healthy economy, and healthy society.”

Read next: Why sustainable business needs better ESG ratings

For more info Tracy Mayor Senior News Editor & Writer (617) 253-0065

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