Apr 15, 2015

The Next Wave of Corporate Sustainability

I returned to graduate school almost three years ago planning to transition to a career in corporate sustainability. Understanding the economic benefits that corporate environmental programs had, I was excited to contribute to a company’s bottom line by discovering additional resource efficiency opportunities.

Preparing for graduation next month, I am just as excited about a career in corporate sustainability. However, it is now generating top line growth that fuels my enthusiasm for working in corporate sustainability.

Corporate sustainability is evolving in its definition, scope, and impact. We have witnessed the emergence of corporate sustainability from the first wave of opposition and ignorance to the current tail end of its second (and much more powerful) wave. Companies have mobilized to reduce environmental risks, optimize resource consumption and minimize costs, and even captured a growing market demand for environmentally-sensitive products. Generally, these corporations have done well by doing less bad.

We are now paddling into the third (and most powerful yet) wave of sustainability.

According to Suzanne Benn, Dexter Dunphy, and Andrew Griffiths, this third wave represents the “transformation” that businesses make to become a “sustaining corporation”. Here, business adopts and operates based on the ideology of sustainable development. In other words, companies do well by doing good.

The Third Wave

Imagine a meeting with key company strategists and decision makers in which the only topic of conversation is how the company can address various environmental issues while pleasing shareholders. With their understanding of the company’s product or service and the resources available, they brainstorm for complementary business lines that aim to address problems such as climate change, urban air pollution, biodiversity loss, water inaccessibility, or poor marine health.

The occurrences of these conversations in some of today’s biggest corporations are signs of the third wave of corporate sustainability. There are two ways for businesses to catch the third wave.

The first option is to incorporate sustainable development into the mission and heart of an organization at establishment. These companies either directly address an environmental issue (Nest) or strongly embed a sustainability ethos into the company culture (Patagonia). Companies that have proven this model successful include Seventh Generation, Whole Foods, and Tesla Motors. Certain service industries also subscribe to this pattern, including environmental remediation, sustainability consulting, clean energy, and green banking.

The second way in which companies are evolving into the next phase of corporate sustainability is by expanding their business strategy.  Companies can generate complementary products and subsidiaries that not only address environmental challenges but also create an additional revenue stream. These products and business lines either emerge internally through strategy and R&D departments or brought to market through private equity or venture capital investments.

In these companies, corporate sustainability is evolving into a model in which companies strategize with an understanding of the consequences of their activities and impacts of their goods and services.

Which Companies Are Expanding?

GE was a pioneer in the corporate environmental expansion strategy, starting their “Ecomagination” program in 2005. IBM later announced “Smarter Planet,” after they recognized the potential of their expertise in information technology to contribute to sustainable development and social progress.

In 2011, Honda Motor Co. created the Environmental Business Development Office (EBDO) under American Honda Motors. According to Honda’s 2011 North American Environmental Report, Honda charged this new division of American Honda Motors with the responsibility to “increase strategic coordination of environmental matters across organizational functions and, looking across our various product lines, to propose new environmental products and business strategies.”

Just last year the Honda EBDO completed construction of the Honda Smart Home US in Davis, California. The zero-net energy showcase residence (available for tours) represents Honda’s vision for “zero carbon living and personal mobility.” The home includes green features such as adaptive circadian LED lighting, radiant geothermal heating and cooling, FSC certified lumber, solar photovoltaic panels, rain garden, and stationary energy storage tied to an energy management system. 

The Home Energy Management System-Experimental (HEMSx), is a new Honda product in testing phases that has its roots in the EBDO. The HEMSx system monitors and controls energy consumption to minimize high carbon or high price grid draw. It also optimizes electricity generation through stationary electricity storage and direct PV system-electric car charging to eliminate inversion losses.

In 2013, HP adopted the HP Living Progress framework. According to the 2013 HP Living Progress Report, this program embodies how HP thinks about how they do business. The report states that ‘it is essential that [HP’s] efforts as global citizens do not stand to the side of [their] business activities.”

One example of a product that came out of the HP Living Progress framework is the HP Moonshot server system. This server consumes 89% less energy, uses 80% less space, while costing 77% less than traditional server systems.

Another game-changing product that HP developed in collaboration with Conservation International is HP Earth Insights. This solution uses HP’s access to big data to collect and deliver information about biodiversity loss in tropical forests. This product, an early warning system for threatened species, provides data and rapid analytics on the trends and health of forests and their inhabitants.

The Opportunity

The third wave of corporate sustainability is swelling. Despite a handful of companies cruising on this wave for some time now, the tide is rising today due to large (and less environmentally progressive) companies seeing the business opportunity.

In understanding their market position, competitive advantage, and core competencies, many large corporations stand to benefit economically while having a positive impact on the environment and society. They can create shared value by not only reducing their environmental impacts but also generating new business lines with solutions to today’s biggest environmental challenges at their core.

We may not quite be at the point in business where environmental sustainability is ingrained into every facet of organizations. However, I expect to see a shift in the competitive landscape because of innovative strategies. With the potential energy behind this next wave, I cannot wait to get paddling.