The Triple Bottom Line Blog

Via Ted Samson's column at InfoWorld, here are the latest findings on the perennial question as to whether sustainable business practices help, hurt, or have no impact on the financial bottom line. According to a new report from the Economist Intelligence Unit, a focus on social and economic sustainability is associated with positive stock market performance among the companies surveyed. Key graf:

The survey does not claim that the adoption of sustainable practices causes companies' share prices to rise. It could be that companies with a strong financial performance simply have more resources to devote to sustainability. What the findings do show, however, is that it is possible to take a proactive position on social and environmental issues while still delivering robust financial growth. Indeed, companies in the survey that saw their share price rise by at least 50 percent in the last three years (share price climbers) place a greater importance on social and environmental goals than companies with share prices that have declined by more than 10 percent (share price losers). Social and environmental goals include improving environmental and human rights in supply chains, where 40 percent of share price climbers rank this as an important priority versus 18 percent of share price losers; reducing greenhouse gases (38 percent to 24 percent); and developing products which address social and environmental problems (49 percent to 35 percent). Share price climbers also put a greater emphasis on social and environmental considerations at board level.

Worth noting if you're among the many business people who find themselves occasionally having to defend an interest in sustainable business practices among skeptical or even hostile colleagues.

Labels: Economist Intelligence Unit, Finance and Investment, InfoWorld, Measurement, Ted Samson

Last summer, when my wife bought her first Prius, I wrote elsewhere about how the new car had affected her driving:

As you may know, the car's dashboard features a touch-sensitive screen that displays various kinds of information and can be used to control the sound system, the air conditioning, etc. Mary-Jo normally keeps the screen set to show fuel economy, and the effect is quite fascinating. The display shows the current mileage you are getting (ranging from less than ten miles per gallon to a maximum of a hundred), the mileage you've achieved in five-minute travel increments, and your average mileage over any period you want--the current trip, the last week, whatever.

As a result, driving becomes a kind of video game: How far can I get the current mileage bar to extend? How high can I get my mileage rating for this trip? Can I beat my score from my last trip? And Mary-Jo is clearly driving differently. Her foot on the gas is much lighter, she avoids fuel-draining accelerations and needless braking, and she uses cruise control on long straight stretches of highway.

These are significant changes for a woman who used to get antsy when stuck behind a slow vehicle. Now instead of changing lanes she smiles serenely as her speed drifts down toward 50 mph and her mileage bar stretches up above 50 mpg.

Turns out I wasn't the only person to notice this effect. According to a recent article in The Economist, some smart companies are trying to apply the idea to another big energy guzzler, the average home:

What if you did the same thing to houses? A variety of products can provide real-time information about electricity consumption. Working out how much energy a house is using is harder than with a car, because electricity meters are generally hidden away in cupboards or cellars, and many people find them hard to understand. So an easily understood real-time read-out, akin to a car's fuel-efficiency gauge, could make a big difference.

The Economist articles goes on to describe two gadgets, the Owl and the Wattson, designed to make such energy-usage measurements easy and routine.

Of course, both the automative and home examples simply illustrate the old management principle, "You get what you measure." Whenever you develop a metric for tracking some activity, that act of measurement tends to affect the volume of that activity. So if, for example, you start providing daily reports about the number of defective products coming off your assembly line, within a few days it's likely that the number of defects will start to fall, just because people are suddenly thinking about and noticing defects more than ever. There's no reason to think the same can't apply to energy use, waste production, and other environmentally-sensitive activities.

Two lessons related to sustainable business:

1. A big, usually unremarked obstacle to green behaviors is the lack of reliable, easy-to-obtain feedback about the impact of our activities. (In most homes, even the traditional electric and water meters are located in an out-of-the-way corner of the basement or a closet and are hard for the average person to read and interpret. This is silly, and represents a big wasted opportunity.) Conversely, there's enormous value to be realized in the development of products, like Owl and Wattson, that don't save energy or reduce pollution directly but that improve human environmental behavior indirectly simply by making it transparent.

2. On a corporate level, the powerful impact of simply knowing what you are doing is one reason the reporting movement promoted by GRI and others is actually more important than many people realize. When a company is "forced" to report on its environmental, labor, and social practices every year, it has an automatic impact, subtle or marked, on the way its employees tend to think and act. The impact would be even greater, of course, if sustainability reporting were quarterly or even monthly rather than annual, but having any metrics at all is valuable in its own right.

In one sense, of course, just knowing what you are doing isn't terribly meaningful. Standing on the scale every day doesn't, by itself, make you lose weight. But buying a scale and using it regularly--along with a full-length mirror!--is a pretty important first step in any weight-loss plan. It's all about metrics.

Labels: GRI, Measurement, Prius, Reporting and Transparency

Here's a noteworthy item from a source most of our readers probably don't track--the online edition of the Columbia Journalism Review. Seems a couple of sociologists have published a study showing that coverage of protests against specific corporations in The New York Times has an adverse effect on stock prices:

Co-authors Brayden G. King, of Brigham Young University, and Sarah A. Soule, of Cornell University, observed that stories on protests caused a stock price to fall between 0.4 and 1.0 percent, on average. Longer stories resulted in greater declines. Most of the drop happened the day of the protest and the day after it.

The size of the protest appeared not to matter. Neither did the use of boycotts. "What really matters," King said in a telephone interview, "is that you're able to gain media coverage."

On one level, this might seem like a dog-bites-man story: Isn't it obvious that bad publicity hurts stock valuation? But actually that isn't obvious at all:

According to classic stock-market theory, prices change only upon the introduction of new information. Sounds reasonable. But, says King, a question arises: activists tend to mount protests based on already-released information, so why would their actions change a share price?

King and Soule argue that the new information is the news that someone cares about the previously disclosed problem. Investors may already have known that a company was polluting a river (our example), but now they know that someone cares enough to protest it. The study suggests that the market believes that activists' dissatisfaction could be costly in and of itself.

There is, then, a measurable economic cost, levied by the marketplace, on companies that disdain "sustainable" business practices--to the extent that "sustainability" can be correlated with positive, protest-free relationships with stakeholders. Conversely, companies that consciously pursue friendly stakeholder relationships may be able to avoid the "protest penalty" and thereby gain at least a small edge on their competitors.

One last point: The professors' study is based on data compiled from 1962 to 1990. If the effect they discovered existed throughout the period, it suggests that the influence of mass media on financial markets is nothing new and predates the Internet, Bloomberg, MSNBC, and CNN.

It may be that organizations like Greenpeace and PETA are using protests and the threat of protests as anti-corporate weapons more deliberately today than was done in the past, but the weapons themselves have been making an impact for a long time.

Labels: Brayden G. King, Finance and Investment, Measurement, Sarah A. Soule

Over at Techworld, a U.K.-based business website, blogger Chris Mellor posts an interesting comment about the sustainability initiatives of BT (formerly known as British Telecom). Mellor notes, "BT's urging of sustainable business practices on to business in general is closely aligned to its own self-interest," and asks, "How real is BT's commitment to sustainability?"

He then shows that many of the eco-friendly practices, such as teleconferencing, that BT is promoting in the name of sustainability are also revenue sources for BT. And this leads Mellor to question--albeit gently--the genuineness of the company's commitment to the cause:

Here we have a hugely-prominent British company enthusiastically evangelising the sustainability (read 'green' mostly) agenda, practising what it preaches, which is a solidly good thing, and using the green agenda to sell its kit and services.

This could be interpreted as having an element of jumping on the green bandwagon to pursue its own self-interest. When BT says sustainability makes commercial sense it certainly does for BT because other businesses may well use BT products and services to pursue their own sustainability goals. . . .

For BT it's almost a case, one might suggest, of self-interest driving its sustainability agenda rather than being a byproduct of it. I don't know if this is true and am not pointing an accusatory finger at BT. But the co-incidence of self-interest and the sustainability agenda evangelising at BT is surely worthy of note.

One instinctively believes more in the commitment of priests who take a vow of poverty than in the religious faith of television evangelists living in million-dollar homes.

We all share Mellor's cynicism about televangelists who live high on the hog. But that's because living in luxury contradicts the spiritual message most televangelists promote, which is about humility, self-sacrifice, and service to others. However, there's no contradiction between running a profitable, growing business and the "green gospel" of sustainability, so Mellor's comparison seems off the mark.

If anything, we'd make the opposite point: The more profitable BT's eco-friendly offerings are for the company, the deeper and more sincere BT's commitment to sustainability is likely to be. Anyone who has worked in a corporation will confirm that there is nothing more heartfelt than the desire of executives to report healthy profits every quarter! And this sincere love of profit is shared by board members, shareholders, and all the other key decision-makers at most companies.

So the extent to which BT is able to align its profitability goals with genuinely sustainable practices is not a measure of the company's insincerity, but just the opposite. Such alignment is exactly what believers in sustainable business need to pursue. Without it, green initiatives lose money and therefore become philanthropic efforts rather than profit sources--which makes them inherently less sustainable in the long run.

This is not to say that teleconferencing and the other business practices being promoted by BT are genuinely green--that's a matter for experts to evaluate by objective criteria. But the fact that promoting these practices serves BT's self-interest isn't a bug--it's a feature.

Labels: BT, Chris Mellor, Finance and Investment, Measurement