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Sustainability — Arrival of a new corporate focus June 14, 2007

Posted by Amit Chatterjee in Business User, Enterprise Software, General Enterprise Musings, Governance, GRC, Uncategorized.
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Awakening of a new trend

Last week, I was invited to a McKinsey presentation on the impact of Green or Corporate Sustainability Management (CSM). When McKinsey offers to give a presentation, people stop and listen.  In a packed room, Matt Rogers, a director of the Firm led the audience through the impact that carbon and other green house gas initiatives were being addressed by the clients that the Firm serves (Low Carbon Future).

During the presentation, it was clear that there was a significant need for changing behavoir.  I was trying to determine how long it would take to make this trend a reality vs. short-term FAD status.  Then I was hit with the most interesting stat of the whole presentation.  Another director of the Firm announced that McKinsey was currently serving 20 of the Fortune 100 around establishing or building out their corporate sustainability program. 

Ladies and gentlemen, CSM has arrived.  Basically, when a large corporation is willing to hire McKinsey brainpower (which does not come cheap) to establish a strategy, it is no longer a fad, but a true initiative for change within an organization.  Thus marks the arrival of CSM into our lexicon as a legitimate method for competitive advantage or lever for shareholder value.  This is truly exciting news.

Basics of CSM

CSM is defined as meeting the needs of the present without compromising the ability of future generations to meet their own needs.

Corporations are increasingly under attack if they disregard environmental and social concerns. For example, the Financial Times considers climate change to be the next legal battlefield. Just few months ago the State of California filed a lawsuit against six automakers for global warming damages.

Corporate Social Responsibility (CSR) is a strategic weapon that companies in all industries around the world use as a reaction, to protect their key value drivers – their good name and brand reputation. Companies like BT, General Electric and Wal-Mart (Carbon-Neutral companies) are helping change the game by building sustainability factors into their competitive strategy. This explains the burst of non-financial /CSR reports over the past few years. According to Al Gore, “the full spectrum of value that represents a corporation’s activities can only be understood if you look outside the narrow confines of financial reports.”

However, hardly any company has a systematic approach to manage their non-financials (like energy consumption, emissions, degree of diversity among workforce etc.). They rely on manual operations, on number crunching, and time-consuming processes, which lack transparency and are difficult to audit.

What SAP can do to help

Therefore, SAP has recently committed to systematically cover the domain of non-financial indicators. We’re planning a solution which automates key elements of the process of CSR reporting (List of reporting). This solution will automatically extract non-financial indicators from the backend, allow analytics, drill down and benchmarks. This can be the first step to integrating financial and non-financial indicators. Management of the triple-bottom-line (financial, social and environmental issues) will become as powerful, transparent and accountable as one can expect from SAP. This can become a paradigm shift, expanding SAP’s traditional core competence to the area of non-financials.

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Comments»

1. Avoiding Greenwash? Sustainability, reporting and materiality.. « Vendorprisey - June 18, 2007

[...] discusses sustainability, reporting on a McKinsey conference that he recently [...]

2. Greenmonk Associates : Towards Sustainability: We Are The Watchdogs - July 5, 2007

[...] Amit Chatterjee points out that corporations are spending real money on this new-fangled sustainability thing. Dollars spent is always an interesting metric. You don’t pay McKinsey money to help you [...]

3. Subhashish Acharya , Strategic Account Manager - Financial Accounts - January 28, 2008

This is really an interesting article. Thanks a lot ,Amit ,for putting your thoughts on the same , and educating people like us. A decade back as a Mining Engg in India , I remember having a school paper on the same , which never received seriousness attention from any Corporate mine owners except a Director in ICI ( Paint and explosive manufacturer). I am really intrigued to contribute on this post. Do pardon me for doing so without asking your permission.

Let me take this opportunity to take the discussion a bit further, by touching upon a couple of points “laterally” and spin it up from different angles, and eventually focus on the premise , which Amit , had put across – CSM is there to stay and its really serious.

First, CSM is in no way a fad,..not anymore. The term existed at least 50 to 60 years before, probably not coined this way , until a decade before. If one reads the work done by Edward Demings on TQM , Six Sigma and the concepts of Lean , the concepts of CSM were reiterated over and over again. For example Honda started designing a car running on water(H2O) in 1975 , not because of the amazing idea of water being used as the alternative fuel, but that ,it can create a better balance , will have bigger social and environmental impact, as it resonates with better Lean concepts , management and change.

And after 3 decades today, manufacturing companies like LG, Samsung and even Power companies like POSCO have stepped up the gas to accelerate into a better sustainable future. Let me put forward these links below to prove the same:

http://www.azom.com/news.asp?newsID=2179 – Posco

http://www.lge.com/about/sustainability/management_system.jsp – LG

While the example of Honda and concepts of TQM and Lean may sometimes sound a but biased , may I request you to read the book The Body and The Soul , by Anita Roddick , who most know was the owner of The Body Shop. 50 years ago(before going public) she harped on the use of recycled paper , advertise social causes in company stores, advertized the banes of animal testing, and above all use of products which were environment friendly and bring the concepts of biodegradibility. I know of conglomerates whose products most of us use everyday, who although have never even done a bit of what she did. The point being, you can grow, but can’t keep growing all the time, with the same principles.

Want to take a look at the principles of The Body Shop? http://www.thebodyshopinternational.com/About+Us/Our+History/

Well , the corporate world is a cold , unassuming , non emotional place where business happens, and all humans like us have followed the same , until probably a decade back when Business Leaders started prophesying downfalls if they didn’t shift gears to a much more sustainable model.

Let me move forward on some thoughts , which most people know today :

“When you pick one end of a stick, you automatically pick up the other end”

With respect to this blog , this means; what you do here for business , also affects others. Just like an intricate ecological case study where a small oil slick can affect a huge human race.

The good thing is Business Leaders have understood the thought , “You sit where you stand”. People have widened their horizons to understand CSM models , and how they can be a great market positioning for the company. Amit had mentioned companies like GE and others shifting their gears. Yes, definitely, there are tons of companies moving in that direction, and so has the university :

Heres a link that exemplifies how a FAD actually is a big responsibility in todays world , with books being written and universities researching the topic :

http://www3.interscience.wiley.com/cgi-bin/abstract/112718273/ABSTRACT?CRETRY=1&SRETRY=0

The last bit , here, I would like all of you to note the last of the 7 principles propounded by Stephen Covey. Remember he mentioned about the “ spiral of growth” where he illustrated ; growth can be based on Universal Laws and the cycle instead of repeating concentrically , can actually grow as a spiral. That is Corporate Sustenance truly spoken.

A very important law in that spiral is the 7th law known as Sharpening the Saw. There are times when Corporate Business needs to take a break and think what they need to sharpen to create a better, sustainable model , holistically. CSM is indeed an effort to do the same. They are much bigger than the financial numbers that analysts crunch to create a gamut of information used on Wall Street for investment purposes.
I urge people to add a criteria on CSM as a must mention during stock listing.

In short CSM is the way to a better Growth Strategy. It is also a great oppty for software companies to make sure things are monitored and analysed properly around the company. CSM should be considered as a vertical like sales, manufacturing etc.

4. Simon - February 21, 2008

your article inspired we many
interesting info on that post.
The post really interesting.


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