Selling sustainability to the c-suite

Sustainability needs to be led from the top. That’s not rocket science. It’s a simple fact of corporate life. Whatever the policy area, if it doesn’t have a green light from the board, it ain’t gonna happen. Get the go-ahead, however, and once closed doors magically start opening. Look at the likes of Unilever, Kingfisher, Swiss Re, Pansonic, Patagonia – all are sustainability leaders, all have vocal, pro-sustainability CEOs.

But what if you find yourself on the other side of the fence? What if your board thinks an annual Charity Day and a tree planting outing is enough to tick the sustainability box? Let’s face it, despite what CEOs might say (93% claim to think sustainability will be “critical” to their future business success, according to a recent-ish UN study), board ambivalence is frequently the norm.

Some business leaders just don’t buy it. Ryan Air’s Michael O’Leary famously referred to man-made global warming as ‘horseshit’. But for most, it's more likely that they just don’t get it. Sustainability sounds fluffy and nice, but irrelevant to their quarterly targets (and annual bonuses, for that matter). Which is why Ethical Corporation columnist Mallen Baker advises would-be sustainability advocates to ensure their business case is absolutely watertight. Company leaders won’t abide wooly thinking. That’s what makes them company leaders. So “Drill and drill” until you have the “hard proof you need”, Baker quotes one leading sustainability practitioner as saying.

Other tips include finding some quick wins that prove sustainability can tangibly impact the business bottom line. Benchmark too. Senior executives hate to think the competition is out ahead. And go public. Chief executives typically have short shelf lives. It’s much harder for a new appointee to backtrack if the world has already been told about your sustainability commitments.

Selling sustainability to the C-Suite is not always easy. But there are harder tasks out there. None more so than trying to implement sustainability without boardroom backing.

Sustainable Agriculture: fact, not factoid

Factoids and facts. In the ‘Just Google It” generation in which we live, both proliferate. But an important distinction exists between the two. Factoids win you pub quizzes. Example One: 2010 was the International Year of the Potato. Example Two: almost a third of the 4,000 known potato varieties are grown in the Peruvian Andes. Facts, in contrast, demand that you get up and take action. Example: Peruvian glaciers above 5,000m (26,000ft) will have almost completely vanished by 2015. Why? Climate change. So what? No more potatoes.

It would seem a semantic distinction were the same story not being repeated the world over. The planet’s capacity to provide the food stuffs that keep us alive are under strain. Warmer temperatures and changing rain patterns are altering farming conditions and impacting agricultural productivity. Earlier this month, the New York Times reported on how Colombia’s coffee harvest is faltering because of higher temperatures and above average rainfall. That’s not just a worry for the country’s producers (many of whom are small farmers with diminutive incomes). It’s a concern for coffee drinkers too. Less supply means higher prices. Global brands such as Maxwell and Folgers have upped their prices by 25% since the middle of last year. 

Global agriculture is coming under threat just as demands on farmers are on the increase. Another jump-into-action fact: the world will have an extra two billion mouths to feed by 2050. And another: demand for agricultural products is expected to double over the same period. Without action, the prospect of food shortages looms large. Food price crises point to what could be around the corner. Over the last three years alone, the UN Food and Agriculture Organisation calculates that around 40 million people have been pushed into hunger due to food inflation.

The business world is beginning to respond. At this year’s World Economic Forum, a heavyweight coalition of seventeen multinational food and beverage companies took the podium to call for a “New Vision” for the world’s farming and food communities. Their goal? Sure future access to affordable and nutritious food. Their ‘roadmap’? To be decided.

In the search for possible answers, Ethical Corporation’s latest issue includes a Special Briefing about how large food companies are responding to the pending agricultural crisis. Walmart, Pepsico, Unilever Coca Cola, Cargill and Nestlé are just a few of the enormous players in the food and beverage industry to have recently come out with big commitments around ‘sustainable agriculture’. Strategies range from improving farmer productivity through crop science to introducing environmentally friendly growing techniques (reducing soil loss, cutting back excessive nutrient use, minimising pesticides) and increasing the capacity of food processors (as in the case of General Mills' new 'Partners in Food Solutions' programme).

So far, no one solution has won out. That’s not surprising. Early experiments in sustainable agriculture demonstrate that the right answers depend on a host of factors (geography, soil type, crop variety etc). Nor are the solutions in the hands of private sector alone. World farming requires a complete ‘redesign’, according to the authoritative Foresight Project report ('Global Food and Farming Futures'). For that to happen, it will require no less than an overhaul in public policy, market and trade systems, and consumer behaviour. A fact to act on if there ever was one. 

n.b. as well as an overview of the issues underlying sustainable agriculture, Ethical Corporation's Special Briefing includesexamples of best practice from the food industry as well as an examination of partnerships with civil society organisations.

Executive Remuneration: fat cats v's the future

If Britain’s Liberal Democrats had their way, they would limit bankers’ bonuses to £2,500 per year. It doesn’t look like they will, however. UK banks are readying themselves for a predicted £7 billion bonus season. As the bank tills ping back open, the Conservative-dominated Coalition stands accused of a climbdown on a promise to curb “unacceptable bonuses”.

No one likes fat cats. Much of that, let’s be honest, derives from envy. Not always, though. Sometimes the public’s dislike is justified. Why should BP’s Tony Hayward walk away with a £1.045 million handshake after overseeing one of the worst environmental disaster in US history (not to mention leaving an £11 billion hole in investors’ pockets)? Pay should be commensurate with performance. When bankers so spectacularly failed during the recent financial meltdown, their pay packets should be adjusted accordingly.

Away from the contentious issue of bankers’ bonuses, however, giving your top dogs an annual ‘extra’ has a well-attested business rationale. It’s there in industrial and organisational psychology 101. In sum, bonuses are supposed to motivate those managing certain assets to work those assets harder and more profitably. Hence a large chunk of executive pay comes in the form of share rewards. Perform well and the share price goes up. And then everyone wins, both the managers (executives) and owners (shareholders) of those assets.  

Corporate Responsibility advocates are not blind to the appeal of such thinking. They want companies to improve their non-financial performance. They know general business case arguments can get them so far. Those that live in the real world of business and not in do-gooderville know they can get a whole lot further if they can link their agenda to executive pay. A CEO will nod benignly and make vague commitments on responsible business if he has nothing at stake personally. He’ll be sure to pick up the phone and make it happen, meanwhile, if he knows his bonus is one the line.

The move from theory to practice is taking time. Precious few companies have integrated corporate responsibility into senior management pay. Among Europe’s 300 largest companies, the percentage is under a third (28%), a study by specialist analysts EIRIS finds. Those that have, have done so in a way that could be best described as “opaque”, according to Ethical Corporation writer Stephen Gardener.

The reasons are easy to identify, but tricky to fix. First, there’s the deep-seated issue of corporate culture. Remuneration policies lack transparency, full stop. Companies start making noises about confidentiality and commercial sensitivity as soon as the light shines too brightly on their pay schemes. More importantly for corporate responsibility, the metrics for identifying the drivers of value with respect to non-financial factors are not there yet. Even in measurable areas, such as accident rates or greenhouse gas emissions, establishing a direct causal link between the top dog and the target is not straightforward. To do so requires very strict vertical integration.

That’s not to say companies aren’t trying. Gardener highlights the example of Dutch paint and chemicals firm AkzoNobel. Half of the share allocations that the company’s directors receive is dependent on the company’s average positioning over a three-year period in the Dow Jones Sustainability Index. It’s not just the board that is impacted. AkzoNobel’s top 600 managers are similarly incentivised. In the same vein, shareholders at banking giant ING recently approved a remuneration plan that links 40% of the variable element of directors’ pay to sustainability targets. Again a sizeable number (this time, 200) of senior managers are directly affected.

It’s notable that both cases derive from the Netherlands (Dutch life sciences group DSM and mail operator TNT are other examples). Dutch law makes executive remuneration packages subject to a binding shareholder vote. Shareholders in countries such as the UK, France and Germany also vote on executive pay, but only in an “advisory” capacity.

There are some important lessons here. First, when it comes to remuneration, it’s investors (as asset owners) that hold the clout. They need to be convinced that sustainability impinges on their long-term interests. The arguments are there. They just need to be made more clearly and more urgently.

Second, investors need to act. If more countries adopted the Dutch voting norms that would certainly help them do so. Whatever the case, it can’t be left to company boards alone. However well intentioned they might be, the language will inevitably be general and the targets vague. Clear deliverables with direct lines of responsibility is what’s required if sustainability is ever to be seriously factored into executive pay.

Hopefully come bonus season we then can begin to talk about the future and not just fat cats.

The Netherlands and CSR: Moths or Behemoths?

For a small country, the Netherlands has more than its fair share of big companies. Aegon, AkzoNobel, Heineken, ING, Philips Electronics, Royal Dutch Shell, TNT, Unilever – the list rolls on. Many will be familiar to those that follow sustainability indices. There are a dozen Dutch multinationals in the benchmark Dow Jones Sustainability Index.

But does big necessarily mean beautiful? That’s the question behind Ethical Corporation’s recent Country Briefing. The answer all depends, author Stephen Gardner concludes, on who’s doing the beholding.

If it’s a box-ticker, then ‘yes’. More than six in ten (63%) of major Dutch companies produce an annual sustainability report – a figure far in advance of European counterparts such as Germany, Italy and Spain.

Internationalists are also likely to answer positively. From the days of the Dutch East India company, the Netherlands’ sights have been firmly set overseas. It’s a perspective to which its modern multinationals have remained true. As with its government, private companies rank international development highly. And not just in cash terms. Programmes such as the Sustainable Trade Initiative are making strides in spreading efficient, ethical standards away from home. Their supply chain record is no less impressive. The vigilance of Dutch campaign groups and investors has a lot to do with that.

For others, big means bad. Not all Dutch companies are whiter than white. Global bank ING, for instance, has recently come under scrutiny for its holdings in controversial companies”, such as cluster bomb and landmine component makers.

But for most, big simply means cumbersome. Dutch companies have a reputation for following, not leading. Most are a century-plus old. That slows the dynamo somewhat. As Gardner puts it: “Though Dutch companies are among the best, they are generally not the very best, or they are the best only in certain areas.” Shell stands as a case in point. It recently slipped from the Dow Jones Sustainability Index, the first time since the ranking’s inception over a decade ago. The reason has yet to be published. Problems in the Niger Delta could be to blame. But more likely, the company just stood still and let others go past it.

Yet the Netherlands is not without its ethical innovators. It’s just a case of where to look. The real action is happening at the other end of the telescope, among the moths not the behemoths. The Dutch know these small, nimble players as “double goal” firms. Triodos Bank, the ethical finance pioneer, is perhaps best known. Its fames for using its $3 billion balance sheet to finance those “working to make the world a better place.” Others - like union-founded bank ASN, local brewer Gulpener and pro-organic fashion label G-Star Raw - are less well known. (The Briefing includes a case study of carpet manufacturer Desso’s cradle-to-cradle production approach should anyone need convincing).

Of course, there’s always a danger that the Netherlands’ ethical minnows might sink rather than swim. In an age of austerity, government incentives are few and far between. That said, the Dutch government does now apply sustainable purchasing criteria to all public contracts.

But government support is confined mostly to the realm of the rhetorical. “Inspiring, innovating and integrating” runs the current mantra from the Staten-Generaal (the Dutch Parliament). If you’re on the look-out for examples, it’d be as well to think small as it would big.