Introduction
We live in extraordinary times. We can expect unprecedented business and societal change over the coming decade.
Every CEO dreams about having the line of customers outside the store double in size. Well, that is happening—at a global scale. Between 2015 and 2030, the size of the middle class globally will double,i which will result in exploding demand for consumer goods and resources.
Yet, already today, the natural systems that provide resources are strained severely.ii Across the globe, the rapidly expanding middle class is beginning to crash into constraints caused by the fixed supply of natural resources that support growth. Something has to give.
And with change comes business opportunity as companies navigate the sustainability transformation.iii
On the Threshold of Transformation
The last time society experienced such dramatic change was about 150 years ago. In a twenty-year span from 1859 to 1879: oil was discovered in Titusville, PA (1859); the French engineer, J. J. Étienne Lenoir, invented the internal combustion engine (1859); and Thomas Edison invented the electric light bulb (1879). The inventions over those two decades unfolded years later as the industrial revolution of the late 1800s.
Yet, in many ways, very little has changed in the past 100 years. Consider that today we continue to drive oil-fueled vehicles, rely more than ever on light bulbs, and still burn little black rocks to keep our cell phones and iPads running.
Market forces, societal trends, and resource constraints are converging for the first time in history. However, with globalization, the digital transformation, and demands for greater transparency, these changes take place today far more rapidly than the transformation during the late nineteenth and early twentieth centuries.
The entire global economic system is built on a set of assumptions that are eroding in front of our eyes. The century-old model of the industrial era is being shattered—not only by Airbnb, Lyft, and Amazon, but also by more traditional companies such as M&S, Allianz (insurance), Ford, M&S, NextEra Energy, Nestlé, LEGO Group, Philips, Siemens, Unilever, and dozens of other leading companies.
The convergence of global mega forcesiv (i.e., population growth, urbanization, resource and fresh-water scarcity, ecosystem decline, and more) and business realities that companies face represent the greatest set of risks and simultaneously, significant business opportunities in a century. That is what sustainability is about.
A CEO and Board-Level Issue
The core business challenge has come into sharp focus for many CEOs. How can we succeed without consuming too many resources or having a negative societal impact? That means we need to figure out how to:
–Create a profitable, growing company that approaches zero (negative) and even net-positive2 environmental and social impacts (or footprint);
–Help our suppliers and customers to do the same.
Over the next decade, we can expect environmental, social, and governance (ESG) factors to increasingly impact how companies choose new businesses to buy, old businesses to reshape, or shed, new offerings to create, and suppliers with which to partner.3 Board members and C-suite executives own the sustainability agenda—simply because this subject is inherently long-term, complex, and impactful. Yet, they continue to struggle with sustainability. I know that from first-hand experience. Over the years, I have been fortunate to meet with Fortune 500 boards and their committees on over sixty occasions—across about twenty companies and many industry sectors.
In every one of the sixty meetings, the board members have asked me some version of a single question regarding sustainability: How do we stack up? They want to understand: Where does our company stand today vis-à-vis sustainability as compared with competitors, peers, and best practices? What are our biggest gaps? What actions should we take now?
The Corporate Sustainability ScorecardTM
The Corporate Sustainability Scorecard builds on my thirty years of experience working in the trenches with executives at over 250 companies in the United States, Europe, and Asia. From 2000 to 2015, my colleagues and I used variations of the Scorecard with executive sustainability teams at dozens of companies across a range of industries. Here are some key points about the Scorecard:
–By industry; for industry. This Scorecard—unlike others, has been truly developed by industry—for use by industry. This is not like the hundred odd external sustainability ratings and awards that were developed by some outside group where they rate you. With this Scorecard, you rate yourselves on a set of criteria developed over twenty years by your peers. As a result, the information is confidential if you choose to make it so.
–It speaks the language of the CEO and board. This Scorecard has its origins in the boardroom. I started developing it in 1997 after back-to-back meetings with two Fortune 500 boards of directors. The seventeen individual elements that comprise the Corporate Sustainability Scorecard are discussed in the boardroom— and owned by various C-suite executives. Each element (e.g., Culture and Organization; Strategic Planning; Innovation, Research, and Development, etc.) is a major corporate function or activity on which CEOs and boards of directors spend considerable time.
–It’s proven. The Scorecard has been around for twenty years. In addition to the twenty-five–thirty companies that were involved with the Scorecard prior to 2016, an additional sixty major global companies all completed a company self-assessment in early 2018. These companies found the Scorecard to be easy to use. A common reaction was, “a lot of lightbulbs went on as we completed the self-assessment.”
–A compendium of best-practice company examples. The Scorecard (and Part 2 of this book) includes several hundred examples of companies that are considered to be global leaders for a particular attribute. In the Scorecard’s four-stage rating scale, these companies are Stage 3 or higher.
–On-line and easy. While the core Scorecard elements and rating criteria are included in Part 2 of this book, the tool is an on-line rating system that continuously evolves.
–Continuously improved. The sixty large global companies using the Scorecard in early 2018 benefited from input from the twenty-five companies that participated in a 2015 pilot. Likewise, these 2018 participants offered suggestions on how to sharpen the rating criteria. Those changes have been made (and are incorporated in Part 2 of this book). While the author expects the core structure, framework, rating criteria, etc., to remain intact, there will be constant improvements going forward.
The Scorecard is intended for corporations globally. The rating system—described in detail in Part 2 of this book, is applicable to companies large and small, public and private.
The initial sixty “founding member companies” that completed a company self-assessment were by invitation only. As we go to press, invitations are being sent out to the next forty global companies.
With the launch of this book—and with a solid presence of the Global 500 already in the database, we expect many additional companies globally, large and small, private and public, to access the benefits of the on-line rating system. While the full rating criteria are included in this book, those criteria are constantly being updated and best practice examples are being added. Moreover, registered Scorecard users are able to access detailed analyses of the results to see how their company compares with all of the others in the database (or just within their industry peer group). To learn more, visit www.thesustainabilityscorecard.com.
Organization of the Book
Sustainability: What it Is and How to Measure it is a business-focused summary of how to think about the risks and opportunities associated with sustainability for your company. The book draws on insights gained from working with hundreds of companies over thirty years—from the boardroom to the shop floor; not only from the approximately sixty board meetings I have participated in, but also from the experiences of over seventy companies that have used the Scorecard over the past twenty years on www.thesustainabilityscorecard.com.
The book is organized into two parts.
–Part 1 provides a full background on the subject from a business practitioner’s perspective. It begins with addressing the basics: Why bother with this stuff at all? How do I make sense of all this terminology? What does it mean for my industry sector?
–Part 2 then walks the reader through the seventeen core elements of the Corporate Sustainability Scorecard—organized in the four main parts of the Scorecard: Governance and Leadership; Strategy and Execution; Environmental Stewardship; and Social Responsibility.
i Homi Charas, The Unprecedented Expansion of the Global Middle Class: An Update, Brookings, February 2017.
ii “GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector,” United Nations Environment Program’s fifth Global Environment Outlook (GEO-5) Report, June 2012.
iii Gilbert S. Hedstrom, “Navigating the Sustainability Transformation,” Director Notes, The Conference Board, January 2015.
iv “Expect the Unexpected: Building Business Value in a Changing World,” KPMG/Cutting through Complexity. https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/building-business-value.pdf