After spotting the trends that corporate sustainability practitioners see in their daily work (Read: Four Trends in Corporate Sustainability), I looked deeper to figure out which strategies were getting leaders ahead. My conversations with some 20 leaders in Fortune 500 companies revealed three key strategies:

1. Changing how the business views sustainability benefits – from cost reduction to revenue growth
2. Moving sustainability out of departmental silos into shared business goals
3. Reporting and sharing the things that matter with the people who care

In this follow-on post, I’ll highlight some of the common obstacles to implementing sustainability within companies, how leaders are overcoming them to achieve true sustainability leadership, and what laggards can start doing now to catch up.

Changing Minds About Sustainability: Moving sustainability from cost reduction to revenue growth

There are many perceptions within companies of what sustainability is or is not. Most corporate sustainability programs start organically as employee-led recycling programs and other eco-efficiency activities. These programs often evolve little beyond this point because business leaders have been slow to understand the value of implementing sustainability across the board.

Outside of the corporate responsibility department, sustainability within many companies is viewed as a “check the box” activity, or at best, as a cost-reduction activity. Leading companies are asking: How do we move sustainability from eco-efficiency and operational cost savings initiatives to top-line revenue growth?

Long-time practitioners understand sustainability will take its place at the executive table only when they can present a revenue case for sustainability initiatives that captures leadership attention. In most companies, delivering return on investment to the business is the only way to move sustainability into the mainstream corporate planning and strategy processes. While demonstrating this ROI can be painstaking and won’t happen overnight, it is a requirement for all but the lucky few companies whose leadership naturally and enthusiastically embraces sustainability as a way of doing business.

Moving Sustainability From CSR to the Business, AKA, Sharing the Load

For any company that aspires to leadership, sustainability strategy and goal achievement cannot be left to a single department. Sharing the strategy and goals among all business units and providing incentives to accept accountability and reward achievement helps move sustainability out of one job description or department and into the entire business.

What’s key here is pairing that responsibility with the means to achieve sustainability goals. Allocating a percentage of sustainability budgets to other business units and dividing the amount among the value chain (including IT, logistics and manufacturing) will empower groups to execute on their goals and reap rewards.

Distributing goals across the organization is the required pre-work to answer the question on the minds of many corporate leaders today: How do we continue to demonstrate sustainability leadership to our stakeholders? They understand leadership and innovation result from embedding sustainability ownership throughout the business and not relegating it to a corporate social responsibility (CSR) function.

Companies looking to broaden innovation potential beyond even their own business units are engaging leading non-governmental organizations (NGOs) for help in setting targets and goals. Companies often need help in setting greenhouse gas and other environmental goals, as they do not have the internal capacity or experience. Not only do NGOs offer experience in setting goals and targets, they also have gained insights working with leading companies that can lead to new opportunities for your business.

Reporting and Sharing What Matters with People Who Care

Although voluntary, most leading companies publish annual or biennial CSR reports, which represent a direct cost in both money and resources. These reports require a lot of work. Many companies complete them to satisfy stakeholder expectation, but struggle to define the clear business value of reporting beyond brand reputation. One leader asked me: Is this what the shareholders want?

Typical companies are still unsure how much value customers place on their green practices, but leading firms see being green as a tiebreaker for their customers or consumers when all else is equal. With this in mind, they know they need to determine the target  audience and frequency of their sustainability reports. Some are trying to evolve from a static “summary” reporting to a more engaging monthly or quarterly web-based storytelling method.

Often sustainability reporting is imposed from the outside. For example, larger companies may feel peer or competitive pressure to respond to prominent sustainability-related reporting schemes, such as the Carbon Disclosure Project and Climate Counts.

Companies also receive sustainability questionnaires from customers, investment funds, stakeholders, NGOs and other interested parties. These are usually not standardized and require time and resources to complete. Some practitioners I’ve interviewed wonder whether their completed questionnaires are ever even reviewed by the originating company. One leader said he has never received a follow-up or clarifying question from his company’s replies. The suspicion is these questionnaires are just another example of some other company’s sustainability “box checking” exercise – “Yes, we have inquired about our vendors’ sustainability programs.”

Even so, these reports need not be a waste of time. For companies that participate in global reporting programs, solicit sustainability information from their suppliers or respond to customer questionnaires, the exercises can be a source for growth and competitive advantage. But not if they just gather information without acting on it. They lose an opportunity to learn where they can leverage or improve their sustainability investments to maximize return.

Exploratory dialogue with like-minded suppliers and customers can unlock great opportunities. It also requires effort beyond just collecting completed surveys. This activity is what often separates leading companies from the laggards.

How to Catch a Leader

Leaders like Timberland, Nike and Patagonia press forward to see sustainability as a revenue growth opportunity, distribute goals throughout their whole business and share their results widely and regularly with their stakeholders. What more can your business do?

• If you’re on an internal green team trying to get larger buy-in, start making that business case to grab the attention of corporate.
• If your CSR/green department is strong but siloed, find other departments to collaborate with and share the challenges and rewards.
• If you’re not doing any reporting yet, commit to robust sustainability data capture.  Share metrics internally with leaders, business planning and strategic planning teams. Before starting a corporate sustainability report, understand the commitment and resources required to produce a high quality report, including accurate data and metrics. Look at what your competition is up to, or ask your customers directly which sustainability metrics are important to them.

Taking one meaningful step forward in any of these categories would be a great way for lagging businesses to begin to catch up.

Part One of our interview with architect, innovator, and thought leader Eric Corey Freed of organicARCHITECT explored his thoughts on the green building innovations and critical issues we’ll see in 2012. Here in Part Two, he shares practical steps building owners can take right now at no cost, and where he finds hope and the greatest potential for change.

Brandon G. Sprague: Many readers of this blog are members of the real estate community. When you travel around the country speaking and teaching, you often state, “My vision of why I’m doing this is the basic idea that everything that exists in this world should exist because it makes the world a better place.” In what ways is the design and building community making the world a better place with its current practices? In what ways is it not?

Eric Corey Freed: On a very high level, you can argue that the built environment – any built environment – improves the world by providing human beings with shelter, habitat, places to work, places to live…

But at the same time, practically all of the buildings that exist in the industrialized world – all but a very small percentage – ignore how they use energy, water, and resources. In creating such a built environment over the last 150 to 200 years, we have created a system that that is too expensive for us to maintain, a system that is actually threatening our existence. When we planned and designed this system, energy was cheap and abundant. But in the last 50 years, we’ve realized that energy is neither cheap nor abundant. And we’ve realized that our consumption of energy is actually threatening, if not killing, our way of life.

Now that cheap energy no longer exists and our consumption patterns are forcing us to change our way of life, what do we do? This is where the opportunity comes in for the design and construction industry to transform buildings and thereby transform civilization. We have the technology to do it, we have the ability to do it, we just need the will to do it. In doing so, we will have to look for innovative ways to work in, live in, and operate our buildings.

This could be your shopping center. Image via organicARCHITECT

People in real estate have done certain things well. In the current economy, they’ve realized that the cost to operate their buildings is greater than planned. Now that we have a glut of buildings empty or partially empty due to on-going weakness in the global economy, attention to operational costs is growing. That’s why you’ve seen the growing demand for LEED certification for buildings, especially LEED certification for existing buildings.

But there’s another level of innovation that needs to occur. This level of innovation will produce new ideas for how buildings operate, but also for what it means to go to work and even to live. We’ve just begun to scratch the surface of the potential.

Brandon: It sounds like technology isn’t an issue. We often think of innovation as the innovation of things and systems. But Brightworks has recently formed a business unit – the Brightworks Enterprise Solutions Group – to focus on the way people do what they do and how we can help them do it sustainably. If we have all the other resources we need, then how do you innovate social systems so that they can support the change we need?

Eric: That is the right question. We’ve known for a long time how to build energy efficient – even net-zero – buildings. We’ve known for a long time how to build buildings that process their own waste and generate their own energy. Technology is not the issue. The things I do and the things Brightworks does, which focus on development and change management, for example, are the most exciting part of current work in sustainability. Not only because people’s complacency is the last obstacle that we need to overcome, but because people can adapt and generate ideas. It is more difficult to change a building than it is to change a person. People can change, and often do at an alarming pace when they need to. The “new normal” will require us to. But I’ve also learned through my teaching and speaking that people can always generate new ideas. This gives me a great deal of hope.

What do you think when you look at a tree? Picture courtesy of organicARCHITECT

Brandon: If you became the leader of the world tomorrow, what would be the first thing you would direct people to do to pursue the innovations on which a major transition in the built environment would be based?

Eric: Ah, how wonderful it would be! (laughs) First, I would demand that everyone stop waiting to be asked what to do. We need to move quickly toward planning our sustainable future together. Then I would give them two broad directives. First, I would tell anyone who maintains a building or a portfolio of buildings to do a list of things that are available to us right now – and that pay for themselves in the first year and thus cost nothing: cool roofs, occupancy sensors in stairwells, programmable thermostats, and smarter use of finishes. Such “no-brainers” would be mandated and this widespread acceptance would drive down the cost of these technologies.

Second, I would require the measurement of the energy use of each building and the resource footprint that goes into that building. By measuring these things, you take finally responsibility for them.

Brandon: That sounds straightforward. Why hasn’t every building owner and designer done these things?

Eric: We have 30 years of data showing us that there is no risk in implementing basic energy efficiency or sustainability measures into buildings. Yet the building industry is very risk averse, so most of our buildings stay the way they are because that’s the way they’ve always been. We have designers and builders today building Spanish Colonial buildings and French Chateau. Why are they doing this? Just because something was successful in the past doesn’t mean it’s the right approach for the future. The future will be very different from the past. And those who own a building, remember: you make your money in the future, not the past! Now that the economy is so bad that many can’t afford to maintain their buildings as they used to, they’re letting go of this risk aversion and exploring new opportunities.

We are creatures of habit. We wait until someone asks us to be sustainable. Whether it’s a government agency requiring a certain amount of green features, or a permit official, or an operations person demanding ways to save money. Imagine what will happen five years from now when everyone will have to take responsibility for the carbon footprint of their buildings. Whether by choice, necessity, or policy, that will happen. It’s inevitable. Do you want to wait and be caught off guard – and make less money in the meantime? Or do you want to start saving now, thereby preparing for that inevitability by taking action? I trust that we will make the right decision.

The turning of the annual calendar always brings with it a range of associations, not the least of which is the idea of new beginnings.  We mark the occasion with a ritual of making resolutions that often vanish as quickly as our holiday leftovers, and yet, we still carry this intangible sense that after all, a new year is a chance for a fresh beginning.  It is the eternal human impulse to want a fresh start, to have another chance.

And somehow, deep inside, this desire for another chance has roots in an eternal optimism that says no matter how bad things have been in the past, there is still a possibility of a better tomorrow.

This resonates strongly for those of us in the sustainability business.  How can one look with open eyes at a world with so much trouble – from war and famine to financial scandal to the degradation of the vital ecosystems that sustain our prosperity and survival, and not simply despair.  The answer has to lie in some sort of deeper wisdom, which reminds us there have been challenges in the past, whose answers were not always visible at the time, yet human perseverance and ingenuity somehow provided solutions that could not have been imagined before they were invented.

And that is precisely where we stand today in the endeavor to create a post-carbon, socially equitable sustainable economy.  As Paul Hawken said in his brilliant 2009 commencement address to the University of Portland graduating seniors:

If you look at the science about what is happening on earth and aren’t pessimistic, you don’t understand data. But if you meet the people who are working to restore this earth and the lives of the poor, and you aren’t optimistic, you haven’t got a pulse. What I see everywhere in the world are ordinary people willing to confront despair, power, and incalculable odds in order to restore some semblance of grace, justice, and beauty to this world.

That captures it pretty well:  ordinary people willing to confront despair, power, and incalculable odds in order to restore some semblance of grace, justice, and beauty to this world.

Ordinary people doing the extraordinary.  That’s what it’s all about.  As 2012 dawns and sparks in us that sense of new beginnings, won’t you join us in doing something extraordinary?

Happy New Year.

Eric Corey Freed

We at Brightworks are frequently in conversation with clients, partners and the media about what’s new and what’s next in sustainability. Heading into 2012, we sat down with architect, innovator and thought leader Eric Corey Freed of organicARCHITECT to get his perspective on the future of green building. A frequent speaker and author of four books on sustainable design, Eric shared his views on the limits of “sustainable design”, the three most critical issues for the building industry in 2012, and the next waves of innovation.

Brandon G. Sprague: Organic Architecture is an approach to the design of buildings that has guided your career. How do you describe Organic Architecture?

Eric Corey Freed: For decades now, we’ve had this thing called “green building” or “sustainable design” which dictates that the designers, builders, owners, and operators of buildings orient them in certain ways and take responsibility for the energy, water, and materials used in them. Defined this way, sustainable buildings are pretty straightforward. Make “better” siting and material and building system choices and you make a “better” building by focusing on the nuts and bolts of the building’s assembly. Organic Architecture – which is the term Frank Lloyd Wright used for designing the way nature designs – looks beyond that, into how the form and structure is shaped by these natural principles.

Photo via organicARCHITECT

Brandon: What are the similarities and differences between Organic Architecture and sustainable design as practiced today?

Eric: The way sustainable design is practiced today takes us only halfway toward where our built environment needs to go. Like a green building, an organic building would include passive solar design, natural materials, and innovative mechanical systems, but it would also look to nature to inspire the form of the building – the way the space is used to solve a problem. As a result, Organic Architecture often has unexpected forms derived from those found in nature.

Most buildings are built a certain way if only out of tradition. As members of the design and construction community, architects and builders often accept these customs without questioning them. Our buildings are inefficient not because we thought very hard and set out to intentionally create energy inefficient buildings. Instead, we’re simply mindlessly following old habits and doing what we’ve done before. Only later do we realize that we’ve painted ourselves into a corner. What we need is to step back and question the reasons we do the things that make our buildings inefficient.

Why do we seal off all the windows in buildings? Why do we ignore the fact that the southern exposure of a building will get much hotter than the other sides? Why do we design buildings that need lights on all day even when the sun is out? Because it’s always been done that way, we are told. Organic Architecture gives us an opportunity to be innovative not just for the sake of innovation but out of necessity, because we need to find smarter ways to manage our built environment and operate our buildings.

Brandon: A lot of innovation can seem hard to imagine, sometimes even hard to understand. But eventually the practical implications of the innovation become so clear as to make it commonplace. Can you give some examples of this from your work?

Eric: Solar panels are a 60-year-old technology. They’ve been around for a long time. They were available before I was born! We’re just now at a point where people think of solar panels as commonplace. We have solar panels now that are so integrated into the building that you aren’t even aware that they’re there – solar panels woven into the façade or part of a skylight or shading system, so that you don’t notice the panel. Instead you notice the architectural element. And how wonderful that it also generates electricity. The only thing that has changed is the awareness that they exist, the awareness of what they do, and the awareness of why they matter. Many of the things deemed “innovative” today will be commonplace in the near future. This is inevitable.

Brandon: What are the new frontiers in sustainable design innovation?

Eric: There are innovations in development that would freak people out. These seem far out, but they are the next logical step in which to take our buildings. We are working on self-healing materials that repair themselves when damaged or worn. We are working on biological materials based on plant material that literally grows. Soon, you will be able to grow your floor tiles or grow the insulation for your building. Over time, we’ll become more comfortable with these technologies and they too will become second nature.

Photo via organicARCHITECT

Brandon: In the next 12 months, what are the three most critical things for people in the building industry to do to reduce the environmental impacts of buildings?

Eric: 2012 is a turning point for humanity. In the last 18 months, we’ve discovered that we’ve reached a point of no turning back on climate change. It’s here, and now we’ve run out of time. Here in the United States, we’ve seen some of the most unpredictable and erratic weather ever recorded. 2010 and 2011 were the hottest years on record. Some 2,500 different weather records were broken in this period. This crazy weather is just going to get worse. It is the “new normal.” This is just the way it’s going to be now on planet Earth.

Although we’ve been dragging our feet for 30 years, 2012 is a rise-to-greatness moment for all of us. Everyone is going to have to start looking at their energy footprint in terms of carbon emissions. Everyone is going to start looking at their building footprint in terms of resources. Our buildings will have to adapt to this quicker than ever before. So you’re going to see widespread retrofit technology in terms of heating and cooling as a response to this crazy weather. This is just how it’s going to be and it will force us to adapt whether we like it or not, because we’re out of time.

Click here for Part Two of my conversation with Eric, exploring the limits and potentials of technology, and why it’s easier to change a person than to change a building.

It goes without saying that conducting business “sustainably” requires a new paradigm of operations. Given that, it should also go without saying that businesses will need a different employee skill set as well. Unfortunately, companies that pursue sustainability are often hesitant to equip their employees with the necessary knowledge and tools to realign their operations.

A recent Wall Street Journal article highlighted this disparity. “American companies don’t seem to do training anymore,” it declared. While the U.S. unemployment rate is almost 9 percent, 52 percent of employers reported having difficulty filling positions because of talent shortages, according to Manpower. By offering “just a bit” of employee training, these companies could develop the talent they need.

Instead, in-house training opportunities have all but dried up, the article reported. “Data are hard to come by, but we know that apprenticeship programs have largely disappeared, along with management-training programs. And the amount of training that the average new hire gets in the first year or so could be measured in hours and counted on the fingers of one hand.”

And yet, opportunities abound for professionals to develop the skills that make sense for progressive companies: from ongoing workforce education programs (like we offer at Brightworks) up to a graduate business degree with a sustainability focus.

To get a better idea of the benefits of burnished sustainability skill sets, I chatted with Scott Marshall and Alison Dennis of the Portland State University (PSU) MBA program. Given that PSU’s MBA program was recently ranked by the Aspen Institute’s Beyond Grey Pinstripes as the best small business school in the world, I figured they understood what skills companies should and would look for in new and existing employees.

Scott Marshall, Associate Dean of graduate programs, said the shift from short-term, often quarterly goals to operating a business for the long-term precipitates the first critical change. Firms must develop skills around recognizing trends and identifying resource constraints pertinent to their business.

Alison Dennis, Director of the Center for Global Leadership in Sustainability (CGLS) at PSU, said this boils down to using a systems-thinking lens:

“Professionals working on the leading edge of sustainable business are really pioneering the field as we go. Sustainability expertise implies first the ability to take a critical view of the current state of a business, then to design a new model and – most critically – to offer the change management and strategic leadership capabilities to put it into place.”

In the workplace, this requires new hires to bring more than just what was asked in the job description. Alison said, “On day one, count on the sustainability lens to bring process improvement to the table. They won’t just do the job; (they will) also work to assess whether the position is effectively designed with the long term in mind.”

Consumers increasingly expect businesses to demonstrate and disclose at least a basic level of action toward sustainability. Through employee training, your firm greatly improves its ability to track and report its progress. Professionals who gain additional sustainability skill sets while maintaining their current positions are your answer to meeting consumer expectations. “Ultimately,” Alison said, “the most profitable companies will be the ones that take care of their people as well as the planet.”

In my next post, I’ll talk to several hiring managers to more fully contextualize the benefits of sustainability training for progressive companies today and into the future. Suffice it to say, firms have a clear incentive to engage their workforce now: Right Management found 84 percent of North American workers are planning to look for a new position in 2012. In addition to the benefits mentioned above, training on sustainability can help engage and retain employees. The question is: What are you waiting for?

A couple of weeks before the 35th celebration of Earth Day in April 2006, the New York Times declared “Green Is The New Black.” The article reported on how environmental friendliness had reached into consumer trends, business and fashion, and stated, “Eco-awareness is becoming a hot topic and a growing business.”

Five years later, an Obama has replaced a Bush in the White House (and finally done something for the planet); the economy is showing tentative signs of life after suffering a meltdown; and green has gone from trendy to what the MIT Management Review calls “table stakes” for doing business. As companies and industries move from compliance to strategic investment in sustainability throughout their value chain, the new watchwords are disclosure and reporting.

We’re now in the age of transparency: Clear is the New Black. Hiding sustainability exposures behind the veil of corporate secrecy is shifting from common practice to a sign of weakness. Today, leading companies – in sectors ranging from consumer goods to major extractive industries – are producing public reports with greater detail and transparency than ever thought possible.

Public Reporting Requirements Grow

In the U.S., two recent developments have hastened the shift toward greater public reporting of sustainability risk, opportunity and progress:

• Under a federal rule (referred to as “Part 98”) published in October 2009, all “large source” greenhouse gas (GHG) emitters in the U.S. are required to track and report their emissions. The rule, under what is also called the Greenhouse Gas Reporting Program (GHGRP), covers more than 10,000 facilities in the U.S. and accounts for more than 85 percent of all U.S. greenhouse gas emissions.
• In January 2010, the Securities Exchange Commission – the federal agency charged with determining what business risks publicly traded companies must document in their quarterly or annual reports – for the first time included climate change on the list of required disclosures.

Sustainability reporting, however, is not only a U.S. phenomena – it’s global. A 2010 survey of sustainability reporting requirements of 30 countries showed a total of 142 country standards and/or laws have some form of sustainability-related reporting requirement or guidance. Approximately two thirds (65 percent) of these standards can be classified as mandatory and one third (35 percent) as voluntary.

A large array of reporting options exists for public agencies, educational institutions and private enterprise, ranging from custom corporate social responsibility (CSR) reports to widely adopted, industry-standard reporting schemes. The Global Reporting Initiative (GRI) and Carbon Disclosure Project (CDP) are two of the most commonly used and well-known reporting models.

The Carbon Disclosure Project (CDP)

More than 3,000 organizations in some 60 countries around the world measure and disclose greenhouse gas emissions, water management and climate change strategies through CDP. Their goals are to set reduction targets and create performance improvements. Responses from most CDP reporting companies are available in a searchable database from the CDP web site: www.cdproject.net.

The CDP Leadership Index

Company responses are scored based on the quality of their reporting to CDP. Companies with the top scores for disclosure qualify to be listed in the Carbon Disclosure Leadership Index (CDLI).

Source: www.cdproject.net

In addition, the carbon performance score recognizes companies that are taking positive measures on climate change mitigation. Top-scoring companies for performance qualify to be listed in the Carbon Performance Leadership Index (CPLI, shown at right). Companies reporting under the CDP are scored for both the quality of their reporting and the quality of their action plans to reduce their climate impacts. To qualify for leadership recognition under the “action plan” rankings – the CPLI – a firm has to first achieve a score on the Disclosure ranking of 50 percent or greater. (Both rankings can be found on the CDP web site.)

To achieve top ranking in the Performance index, a firm must accomplish the following outcomes:

• Attain a disclosure score of 50 or above in order to be scored for performance
• Attain a performance score greater than 70
• Score maximum performance points on question 13.1a (absolute emissions performance) for GHG reductions due to emission reduction actions over the past year
• Disclose gross global Scope 1 and Scope 2 figures
• Score maximum performance points for verification of Scope 1 and Scope 2
• Make their responses public and submit via CDP’s Online Response System

The Global Reporting Initiative

Like the Carbon Disclosure Project, the Global Reporting Initiative (GRI) represents a broad-scale, industry-standard reporting scheme. According to its web site, GRI “is a network-based organization that produces a comprehensive sustainability reporting framework that is widely used around the world… GRI’s core goals include the mainstreaming of disclosure on environmental, social and governance performance.”

Where CDP reporting goes deep on carbon and water, GRI looks more broadly to include social sustainability considerations and corporate governance. Since its inception in 1999, GRI has forged alliances with the Organization for Economic Cooperation and Development (OECD), the United Nations Environmental Programme (UNEP) and the UN Global Compact. This effort aligns reporting standards with national laws and regulations to support consistency in tracking and reporting sustainability performance information.

GRI has also received widespread global adoption. Research by KPMG in 2008 indicated 79 percent of Global 250 companies disclose environmental, sustainability and governance (ESG) data and 77 percent of those use GRI to do so. In addition, 10 governments have a formal reference to GRI in their governmental corporate responsibility guidance documents and/or policies.

Reporting in Higher Education

Sustainability reporting is not limited to the public and for-profit sectors alone. In higher education, the American College & University Presidents’ Climate Commitment, which requires both reporting of climate footprint and publication of action plan strategy for climate mitigation, now has 674 signatory colleges and universities. This includes most major state university systems and nearly every notable major college or university in the U.S.

Public Scrutiny Grows

In the U.S. and globally – and across public agencies, private enterprise and the world of education – sustainability is not only considered an internal best practice or policy matter. How organizations track, document and report sustainability efforts are subject to higher levels of public scrutiny than ever. Increasingly, customers, investors, employees and regulators are expecting to see sustainability reporting and actions from the organizations they interact with.

Five years past Earth Day 2006, we’re now well into the era of full sustainability disclosure. Yes, reporting on your social, environmental and community impacts is a tall order. And it requires nothing less than a full commitment. But to postpone the commitment is to simply delay the inevitable. Organizations that fail to track and report their sustainability impacts and action plans do so only at their own peril. That much is Clear.

For those of you impatient with progress on sustainability in our society, I have wonderful news: Sustainability is here. Today.

OK, we haven’t literally solved it. But it is possible, within reach even. This is encouraging, right? Most of us worried about sustainability are concerned we aren’t moving fast enough — and we aren’t. But not because renewable energy isn’t cheap enough, worldwide climate protection policies are insufficient, or Whole Foods’ Organics aren’t organic enough. Nor does sustainability cost too much, require additional technological breakthroughs or need further study.

Progress is being held back by the widespread, self-defeating business mindset of “waiting for a good time” to consider sustainability — when the best time is always now.

Why Standing Still is the Greatest Risk of All

Truly innovative and leading organizations make decisions with imperfect or partial information, or in spite of immature or uncertain technology. And they use creativity or partnerships to work around financial obstacles. They are successful independent of these limitations — perhaps even more successful because their competitors stand flat-footed, unwilling to challenge assumptions that prevent action.

Unfortunately, sustainability won’t be “easier” to address in the future when solar energy is cheaper and ecological impacts are fully valued and integrated into reporting. Why?

• Sustainability problems – such as risk of climate disruption and increasing prevalence of toxins in our air, water and soil – are becoming increasingly severe.
• Available options and resources – such as time to act, collective willpower and financial resources – are becoming increasingly limited. Inaction or complacency based on deferred action is a human behavioral phenomenon. Decisions by society or corporations to defer or de-prioritize action on sustainability represents a mental barrier more than a consequence of technology, information or financial resource limitations.

Forward-Thinking Decisions That Pay Off

The Toyota Prius, Forward-Thinking Success. Photo via Consumer Reports

Many companies have defied predominant business norms or customer preferences and transformed their industries for the better. A modern classic is, of course, the Prius. For automakers, developing a hybrid-electric vehicle seemed niche at best and suicidal at worst. Previous electric car efforts had gone poorly for other manufacturers. And there was a very small market, at best, for these expensive, fuel-sipping vehicles when Toyota began their designs. But when the company released the first Prius, they had a multiple-year lead on the entire automotive industry and are now the de facto “brand” of hybrid electric vehicles.

Who in your company has the analogous good idea that is being prevented from implementation?

Another company that ignores market constraints and consumer whims and has blown away the rest of their market is Apple. None of us knew we needed an iPod, iPhone or iPad before they came out. Apple redefined or created each product niche, leaving the mp3 players, cellphones and tablets of other companies to fight for a distant second place. Steve Jobs is credited with much of this success because he was willing to make forward-looking decisions. If you just respond to what customers want now, Jobs is often quoted saying, “by the time you get it built, they’ll want something new.”

The “right time” for Apple to launch a product no one asked for was before anyone asked.

Consider also Patagonia, one of the leading sustainable apparel companies. They grew from a small outdoor gear outfit to a medium-sized company providing clothing for just about all types of occasions — assuming your occasion isn’t too formal. They have led the way among apparel companies of their size with a closed-loop recycling take-back program, community investment, use of organic cotton and many other efforts.

None of these initiatives were easy or cheap, and Patagonia does not sacrifice on quality or price in their products. No customer base or government regulation was standing up and demanding more responsibly made – and, yes, more expensive – clothing. And yet, in the midst of the Great Recession, Patagonia just had its best two years since 1974.

Removing the Blind Spot

The disregard of decision-making agility is a huge blind spot across business. The current discussion on barriers to sustainability is based on a faulty and implicit assumption that financial and technological limitations hold us hostage from making progress on sustainability.

Leading organizations know the best time is always now. They look forward and gather good data on what’s possible. They’re the ones moving quickly and effectively to find new opportunities in sustainability. Not only are they diminishing their environmental impacts, they’re growing their business.

Meanwhile, their competitors fall farther behind — “waiting for a good time.”

This two-part post is the result of more than a dozen in-depth conversations with leading sustainability practitioners, most of them within Fortune 500 companies. We wanted to understand the sustainability trends these practitioners see to help us convey where, why and how leading companies are engaging sustainability to achieve their business goals.

This piece will explain the trends themselves. Part two will focus on how leaders are accomplishing their work and the first steps others can take to stay competitive.

In the last four months of conversations, we saw consistent sustainability themes emerge as companies move through the cycles of their business: from procurement and resource use to measuring and marketing. Leading companies are:

• Acknowledging their supply chains
• Examining their relationship to nature’s systems instead of single elements
• Improving their data quality
• Telling customers simple, memorable stories with that data

1.  It’s All About Supply Chain

Companies experience a predictable evolution in their sustainability journey: They focus initially on understanding their own “four walls” – defined as what they own and operate. Next, they evaluate the inputs they use to power the business elements they own and operate. Only then do companies begin to consider their subcontracted services, such as manufacturing and logistics – also known as their supply chain.

Most consumer brands based in the U.S. and Europe do not own their manufacturing or logistics, yet their supply chain accounts for up to 75% of their greenhouse gas emissions. Leading companies understand they will be held accountable for these subcontracts and services due to their influence over the design and development of their products.

Over the last two years, two particular events highlighted the need for organizations to understand and report on their supply chain impacts: the Walmart sustainability index and the Greenhouse Gas Scope 3 protocol.

In 2009, Walmart created much of the early supply chain momentum with the launch of its sustainability index. Walmart’s tier-one suppliers were required to report 10 metrics from their contract manufacturing. The metrics focused on four areas: energy (and related CO2 emissions), water, waste water and solid waste. Effective July 2011, Walmart suppliers are required to complete the Carbon Disclosure Project (CDP) investor questionnaire. Other global brands, including Proctor & Gamble and Staples, have launched similar programs around supplier sustainability reporting.

The Greenhouse Gas (GHG) Scope 3 protocol, released in September 2011, is the generally accepted global standard for greenhouse gas reporting. Most companies understand the GHG footprint concept, but may be overwhelmed when attempting to calculate their GHG footprint for Scope 3 emissions.

Leading companies are not only reporting Scope 3 emissions (UPS used the new Scope 3 protocol when reporting their emissions in July 2011); they are also assessing their sourcing/procurement strategies and where they are sourcing their products. Creating redundancy and resiliency within the supply chain is vital to a company’s future competitiveness.

2.   From “Carbon Counting” to “Climate Adaptability”

Companies are moving past counting and measuring individual sustainability elements, such as carbon and water, in isolation. Companies leading in sustainability look at the larger systems, such as biodiversity, climate adaptability and water resources, and assess potential impacts from their operations on the systems that support them.

Companies are looking at embedded carbon within their products and thinking broadly about climate beyond carbon counting alone. The topic of sustainability has expanded to include larger issues like biodiversity. Many are placing a focus on water. While some view water as “the new carbon,” water is clearly an issue with very local concerns and impacts that are dependent upon the water inventory of that particular region.

3.  From Spreadsheets to Smart Systems

Companies are always challenged to gather and make sense of data, but sustainability data is especially difficult. Early sustainability data and reporting is often a very manual process, relying on hunting down data points throughout the organization and sticking them in spreadsheets. This process is not sustainable, forcing companies to consider more automated data gathering systems, whether a stand-alone sustainability data program or a sustainability module within an ERP (Enterprise Resource Planning) system.

Leading companies are looking at how to integrate smart decision-making, find efficiencies and model outcomes within their operations using sustainability as a lens, and then at reporting their performance against sustainability metrics.

Those who have already captured their low-hanging energy savings are purchasing companies with smart energy systems that enable energy intelligence to provide the right information for them to make smart investments with good business ROI. All companies have difficulty with data quality, but leaders are investing in improvement.

4.  Communicating Sustainability to Customers

Coca Cola's "Living Billboard" in the Phillipines

We see three trends in sustainability communication from industry leaders:

• From consumers to customers: Companies are finding benefits from communicating sustainability activity to their customers, even while they are unsure of the value consumers place on sustainability. Companies typically focus on one or two messages that educate and enable consumers to take action themselves, such as prompts to recycle their packaging or encouragement to use lower temperatures for clothes-washers to save energy and money.
• Don’t mention climate change: Most companies are afraid to talk about climate change in the U.S. As one thought leader pointed out, the United States is the only country in the world where climate change is a political issue. One company is launching a global marketing campaign about climate change through evocative images, but is avoiding mentioning climate change explicitly to sidestep the controversy.
• Sustainability around the water cooler: Sustainability conversation has moved from Corporate Social Responsibility broadcasts alone and is now influencing daily business conversations among many business units. Sustainability is now commonly part of the business language within procurement, on request for proposals and in operational discussions with international business units.

Stay tuned for my second post on these corporate sustainability trends for practitioners, when I’ll share how these trends play out in real corporate spaces. How are leaders doing what they are doing within their organizations, what challenges are they facing, and where should other companies start to stay competitive?

In September 2011, the London 2012 Olympic Games made news by dropping plans to offset the event’s carbon emissions. The Games organizers said offset projects would have taken place away from Britain, and they prefer to maximize their environmental efforts locally.

Development for the London Olympics in 2012, photo via energydigital.com

This dramatic change made me wonder what caused the London Olympic organizers to renounce their offset plans, besides the estimated $4 million price tag. Climate neutrality was considered a leadership position back in the mid 2000s. But in recent years the value of climate neutrality has diminished, mostly because carbon offsets have fallen out of favor.

What changed the landscape for carbon offsets? Could it be trendy sustainability measures are losing currency as companies find and adopt strategies whose business benefits better align with their needs?

What is a Carbon Offset?

A carbon offset is a “promise” to avoid creating a ton of carbon emissions somewhere else in the world, typically in a developing country.

An example of a carbon offset project is a factory in Indonesia replacing an oil-fired boiler with a natural gas boiler. The sale of these carbon offsets would provide the necessary return on investment to pay for the cost of the new gas boiler. The owner paying for the gas boiler can sell carbon offsets equal to the amount of CO2 they will avoid emitting by upgrading their equipment.

It was an elegant idea, but eventually problems surfaced:

• Many projects did not produce the carbon offsets they promised or their measurements could not be independently verified.
• Investigations revealed many of projects would have occurred regardless of whether carbon financing was included – thus the purchase of a carbon offset produced no added benefit.
• Many U.S.-based companies want local carbon offsets so they can be seen as helping their own communities, but offset projects are typically located in the developing world.

Unclear ROI: A Recipe for Disaster

The cost of carbon offsets ballooned in the late 2000s, selling anywhere from $8 to $20 a ton. Renewable Energy Credits (RECs) became a very popular substitute for carbon offsets and were much cheaper, priced from $.50 to $3 a ton. The use of RECs came under heavy criticism as they were used by some companies like offsets to reduce a firm’s overall carbon footprint. Whether businesses purchased carbon offsets or RECs, they incurred costly annual expenses from offsetting their CO2 emissions.

Most companies featured these programs in corporate responsibility reports or related marketing efforts, but they began to ask: Should a U.S.-based company invest in carbon offsets to achieve climate neutrality goals when a large percentage of the U.S. population does not believe climate change is real? Do U.S. or global customers care if a company has either achieved or established a climate neutrality goal?

As these questions became harder to answer, many companies re-examined climate neutrality as a corporate goal: If consumers don’t believe in or care about climate charge, why make the investment?

The deepest liability of carbon offsets, and the reason their ROI is so hard to quantify, is they are frequently just a band-aid on business-as-usual practices. Environmentalists frequently saw them as a way for companies to pay their way out of their carbon “sins.” This made them unsatisfying for the audience companies wanted to win over with their environmental initiatives.

Environmentalists were frequently right. Many companies were not making offsets part of a broader effort to take sustainability deeper into their organizations, find recurring cost savings and spark innovation (Click here to read some success stories of companies that did). As a result, these companies were not capturing any real value or public relations value from their offsets.

Every Business Case for Sustainability is Different

Every business will find its own unique mix of business benefits from sustainability (learn more about the Business Case for Sustainability). Buying carbon offsets alone seemed to be of less value than many companies hoped when this trend took hold. But there are still exceptions. About one month after the London Olympics announcement, British Petroleum (BP) and their not-for-profit carbon management arm, BP Target Neutral, announced they would purchase carbon offsets to cover the emissions from spectator travel to the London Olympic Games at no cost to the ticket-holder.

BP Target Neutral is hoping to sign up enough spectators to set a new world record for the largest offset as measured by number of participants. Participants can sign up using BP Target Neutral’s London 2012 web page or its Facebook page.

Making the offsets an interactive event with customers is probably an effort to build goodwill and customer engagement. BP and its subsidiary perceived a business value from purchasing carbon offsets that just wasn’t there for the Olympics organizers.

That’s the business case philosophy in action – sustainability makes sense for everyone differently. The trends of the moment won’t last if they can’t create real value for businesses. As companies think more deeply about how to create and capture the sustainability benefits they need most, we can expect carbon offset programs to continue falling away.

Well, the bad news is that 2010 had the highest annual net increase in atmospheric carbon dioxide ever, a 6 percent increase, with China and the US leading the pack.

This coincides with the human population passing 7 billion people for the first time.  Not a coincidence, perhaps.

7 billion and going strong. Source: ngm.nationalgeographic.com

The good news is that the world is just brimming with opportunity for rapid transformation to a renewable energy economy, if only we could get those dang policy makers – the ones who make the rules about what kinds of energy get most heavily subsidized, incentivized and regulated or not regulated – to make decisions in the public interest rather than the interest of their funders.

Seriously, the good news is that when enough people clamor loudly enough for real change, the technology and resource capacity is not the barrier: Scientific American published a plan to power the whole world with 100 percent renewable energy back in 2009.  Here’s to the possibility of a future with lasting prosperity for all, just waiting to emerge.