Check out Harvard Business Review’s latest blog, “Should Sustainability Have a Seat in the C-Suite?” – co-authored by MontaRosa’s own Rupert Davis and Eric McNulty.

A recent collaboration between a top five private equity firm and an environmental NGO has produced a portfolio valuation increase greater than $1B ($150M annual earnings increase/cost savings on 7x earnings multiple), from only a dozen companies. The sustainability cost cutting program has yet to be scaled through the entire portfolio.

According to a senior executive of another major PE firm, just one portfolio company (investors include three of the US’s largest PE firms) has shown a valuation increase of $50 million through their energy, water and waste efficiency programs. They are now hiring high-level sustainability talent across their portfolio in order to scale sustainability/efficiency efforts.

It seems PE firms have found an innovative way to increase earnings and valuations.  Using a systematic sustainability efficiency framework rigorously focused on investment return, they are uncovering substantial cost savings and increasing operational performance. Most of this is without large investment. MontaRosa has been promoting this valuation increase approach for the past 18 months with a white paper submitted to Harvard Business Review.

Clearly it makes strong financial sense for a PE firm to have an operational talent running these programs throughout the entire portfolio – the multiple on the leadership investment is a number of orders of magnitude.

We recently assessed some of the talent who sit in the sweet spot of delivering these kinds of large efficiency gains while recruiting a CSO for a Fortune 500 consumer products company and developing a book with Harvard. Though truly top talent are hard to find, $1 billion in portfolio valuation speaks to the opportunity.

Rupert
Head of Sustainability

MontaRosa is one of the few firms with in-depth analysis of sustainability talent and an understanding of the business valuation increase strategy. We recruited the globally #2 ranked sustainability leader for our last client, having providing them the choice of the #1, #2, #7. We know the subject, have access to the very top players and close deals.

To learn more about MontaRosa and our Sustainability Practice please visit http://montarosasustainability.com/

Celebrating Earth Day today caused me to think about graduating from high school, when I went to live in an Australian rainforest to build an off-the-grid micro-hydro system as a direct climate change action when I couldn’t convince Cambridge University that pricing externalities was important in their undergraduate economics curricula. Things have changed.

In 1986 the thought of having climate change and environmental news regularly on the front pages of the globe’s leading newspapers seemed an impossible dream. Having governments legislate literally hundreds of billions of dollars around the globe for green investment seemed an impossible dream. Having 25% of all venture capital pouring into clean tech, helping entire industries to flourish, driven by major companies like GE, IBM and Siemens seemed an impossible dream. And having the world’s largest procurers (Wal-Mart and the U.S. Government) running strict sustainability criteria through their supply chains would have been pure fantasy.

But the reality is that change is happening.

The reality is that with the profitable green retrofit of major iconic structures like the Empire State Building – resulting in a 30%+ annual internal rate of return – the mainstream is realizing how much energy, emissions and money are to be saved through smartening up buildings.

In transport, airlines are experimenting with bio-fuelled flights, entire cities are committing to electrified vehicle networks and best practice efficiency tactics from the world’s largest transporters like UPS are starting to filter out. Nissan just brought out their first 100% electric mainstream consumer vehicle – the Leaf – on sale in November.

In power generation the scale of production in China is bringing down solar electricity pricing to grid parity, and wind has already been doing well for a number of years. The EU is (slowly) starting to execute on the potential of marine and offshore wind in the north. Large scale solar thermal shows renewed interest and promise in desert regions.

Is any of this enough? Probably not to avoid the worst of it.

Because the fact remains that we are on a tiny and fragile planet using up resources at alarming speeds and perhaps more worryingly undermining the very life support systems that all of us – rich and poor, developed and developing nations, North and South, East and West, men and women and children, businesses and civil society – depend on.  As China and India and the like take their rightful place on the global stage the planet becomes that much smaller, and human impact becomes that much worse.

Externalities, as it turns out, are important. Indeed, they are crucial. If we don’t have clean air, if we don’t have a stable global temperature, if we don’t have potable water, if we don’t have healthy oceans that support the base of the food chain, if we don’t have enough trees to sink carbon, maintain soil coverage, filter and catch water, then life is going to become very painful very quickly for many of us. Where these effects are already happening – many point to the Sudan as an example – mass migration, resource conflict, refugees, disease and hunger are the consequence. It doesn’t take too much imagination to extrapolate such regional conflicts globally.

From the perspective of the early ‘70s all this may not seem very new. At that time there was a wave of enthusiasm for environmental responsibility. Yet the people who were part of the first Earth Day saw all that enthusiasm wane with the political cycle – so that by the time I was graduating high school in the ‘80s – environmentalism was seen as a fringe, far left concern. Is that going to happen again? Are all the positive changes that we are seeing in 2010 going to fall away?

I remain hopeful that this time around the change is more culturally embedded and that it won’t be entirely subject to the vagaries of political fashion. The environment has become a major part of early education. Young people today are much more aware and concerned about these issues. And with social networks, the Internet and mobile communications, they are both more informed and more powerful.

And business is a powerful agent of change, perhaps the most powerful. When large companies take this seriously, when they see the opportunity to make money doing it, when the incentives support green and sustainable and penalize the non-sustainable, when externalities do start to get priced in, then as we are seeing, change can happen swiftly. Just looking at life before and after the internet, or before and after the mobile phone, gives us a sense of how fast change can happen. When you take a broader historical perspective, considering say the changes from pre to post Scientific Revolution in the sixteenth/seventeenth century, or pre to post Industrial in the nineteenth/twentieth, it is clear that major, almost unthinkable changes in social and economic systems are possible. My sense/hope is that our current digital revolution will soon be surpassed in extent and pace by the sustainability revolution.

So there is hope. And one sign of that is that the U.S. Army is starting to take green seriously – and I don’t mean camouflage! We’ll talk about that – and the strategic lessons for business – in the next blog.

In the meantime, Happy Earth Day…and keep up the good work!

As reported in the New York Times, shipping quickly across the ocean burns a lot of fuel – driving up costs – which in turn increases the negative environmental impact of the ships.

“By halving its top cruising speed over the last two years, Maersk cut fuel consumption on major routes by as much as 30 percent, greatly reducing costs. But the company also achieved an equal cut in the ships’ emissions of greenhouse gases.”

Maersk’s customers like the savings and many are willing to wait a bit longer for their goods in order to pocket the savings. The practice began two years ago in response to the spike in oil prices; the reductions in CO₂ are an added benefit.

I met Soren Stig Nielsen, Maersk’s director of environmental sustainability, when I was in Copenhagen for COP15. He told me that not only is Maersk adjusting their cruising speeds to maximize fuel efficiency, they are also using super-slick coatings on the hulls of their boats to reduce drag in the water.

Maersk’s moves are an example of creating advantage by looking at the business case for sustainability through a cost lens. Without the need for major investments in innovation, Maersk was able to drive down costs and increase its appeal to companies that are calculating the total carbon impact of their products. This strategy is similar in intent to the one pursued by Wal-Mart that resulted in a 30 percent improvement in their truck fleet efficiency over three years.

Of course cost is just one lens to use. Other companies look at brand, top-line growth, innovation, or regulatory advantage.

There was also interesting news in the latter category just a few days ago. BP, Conoco Phillips, and Caterpillar have all dropped out of the U.S. Climate Action Partnership (USCAP). While they have effluvious statements about why, from my view, these companies joined the partnership because it looked like either cap-and-trade or a carbon tax was a near-certainty and thought it best to be on the inside helping to shape the debate. Now that things are more in flux, they’ve calculated that it is better to be in the more traditional business position of slowing down regulation.

It’s a simple risk-reward calculation. As much as those of us who are true believers in sustainability may not like it, companies place these kinds of bets every day. They seek to advance their interests as they see them.

Increasingly it has been common for sustainability leaders to try to cement their advantage through regulation and public policy – USCAP was the poster child for this. If you’ve done more than others, why not try to make your standards the bar that others must clear? Those that haven’t will try to keep the bar as low as possible.

I think that an explicit cost for carbon and other greenhouse gases is inevitable but I can’t begin to guess how soon it will happen in the U.S. Executives at BP, Conoco Phillips, and Caterpillar obviously think that it will be later rather than sooner – and they’re going to do what they can to ensure their bet be right. Maersk, to bring it all back around, sees a clear case for burning as little of BP and CP’s fuel as possible. And even though three companies have dropped out of USCAP, those that remain – including the oil company Shell – represent something in the neighborhood of $3.2 trillion in revenues and they are actively advocating for legislative action around greenhouse gases.

Companies and industries look at sustainability from different perspectives. The lenses they use lead them to make different choices. Given the uncertain economy globally and the difficulty of advancing major legislation in the Congress in the U.S., it will be interesting indeed to watch it play out.

What do you think? If you were running one of the four companies I’ve written about, would you make the same bet – or a different one?

Rupert

In the room there was much buzz about the challenges businesses face around sustainability. The spirit of collaboration impressed me at this invitation-only event.

The forum aimed to help senior executives create competitive advantage through their sustainability and “green” initiatives, driving the most value from current efforts and identifying the most promising opportunities for future action. It provided a great opportunity for networking and relationship building.

I found many of the day’s topics engaging: implementing real strategies for sustainability rather than “greenwashing” for the sake of publicity and marketing; creating a green supply chain; the role of technology – or clean tech – in sustainability; and lessons from COP15 in Copenhagen.

But this blog isn’t meant simply to be a report on what happened there; I’d rather share some of what I learned:

• Companies that are getting the most from sustainability efforts are engaging in a discussions beyond their own firms. They are forming alliances up and down the supply chain, talking to NGOs, joining industry initiatives, etc. They’re thinking big picture.
• Sustainability can boost employee morale, like at eBay, and customer engagement, like at UPS and SAP. These are both proven profitability boosters. In a world where talent and customers are fought over aggressively, companies ignore sustainability at their peril.
• There is much interest in the metrics of sustainability but, as yet, no commonly accepted body of knowledge about what is most important to measure.

So – my take on the event? Clearly the companies in attendance represented different points on the continuum regarding awareness of, commitment to, and investment in sustainability initiatives. Sustainability is woven into the fibers of certain organizations, while at others it is more of a peripheral objective they’re beginning to work toward. Some are aiming higher than others, that’s for sure.

“In 2008 we stepped back and realized our field and customers were asking for sustainability. We went from tactical to strategic in our approach,” said Scott Bolick, VP of Sustainability at SAP. That elevation was something I heard more than once that day. Still, it can be challenging to get the CEO or CFO to focus on sustainability because the metrics are just evolving.

“Metrics are still the holy grail in this [sustainability] space,” said Libby Reder, Head of Environmental Initiatives at eBay. Rupert provided something of an answer to Libby’s challenge at the end of the day when he pointed out that J&J’s internal rate of return on their sustainability investments was about 16% — as good as what a top private equity firm achieves after they put a company through a performance improvement process.

Peter Williams of IBM, one of Scott’s co-panelists, emphasized getting sustainability out of the CSR (corporate social responsibility) area and integrating it the operations in individual business units and into the supply chain, where the greatest results will be achieved. “3-4% of our total energy usage is spent moving water around,” Williams said. Doing simple things like dynamically optimizing pumps every 30 minutes can cut energy use by 15%. “15% of that 3-4% is a number worth the effort,” he said.

This was echoed by 1E CEO Sumir Karayi in speaking about the 2% vs. 98% debate in Green IT (IT is estimated to consume 2-4% of total energy in developed countries), “The 2% is a big idea, first because it’s really 4% … you only need 25 of those solutions to solve the whole thing.”

There’s much to accomplish. In his opening remarks, Adam Werbach, CEO of Saatchi S, said that “the next 10 years are going to be more traumatic than the last 10 years.” Yet In his closing, Rupert offered up ways to make it through the trauma through actionable guidance for companies to further their sustainability plans and create the business case to sell a sustainability strategy internally and gain executive buy-in. I’m sure Rupert will have more to say on that in upcoming blogs.

Tracy

Note: Check out Thomas L. Rosenberg’s review of the forum for a succinct summation of Rupert’s remarks and other commentary.

Working closely with potential customers and end users, identify, develop, and execute programs to provide for the energy management needs of defense, government, and commercial organizations, including monitoring and submetering, load shaping, demand response, and interface with external utilities and internal energy sources such as cogeneration and renewables. The Director, Energy Management will have full responsibility for the growth and success of this business area, and will be accountable for formulating strategy, selecting personnel, developing capability, and defining and achieving a financial plan for the business area.

As I have argued in previous blogs, sustainability and the environment can be – in fact should be ­–  seen as massive growth drivers. The issues are no longer simply compliance driven. A wise sustainability strategy drives core business and shareholder value. Firms need the appropriate talent to seize these opportunities. Gone are the days when firms can allow sustainability issues to languish on the periphery. Clearly, BAE recognizes this for themselves and for their customers.

This segmentation of the specific entrepreneurial aspect of sustainability speaks to the maturing and evolution of the marketplace in this area. Nevertheless many organizations, as well as more traditional search firms, still confuse or conflate VP of Environment Health and Safety with Chief Sustainability Officer, VP of Corporate Responsibility or VP of Energy. Yet the skill sets are profoundly different.

Energy efficiency is set to be the most spectacular growth market of the next quarter century due to the factors described below. The talent to capture this opportunity – and the compensation structure to incentivize them – must be entrepreneurial.

Like the founder of a successful start up, suitable talent must be able to spot the future opportunity, write the business plan and strategy, make the case and raise the finances – either internally or externally – pull together an appropriate team and then scale in to the opportunity. The talent BAE needs is a business builder with a track record of success with a start up or new division/product or service line.

Let’s revisit the economics behind this oncoming wave of opportunity. Energy prices are set to shoot up once the world economy kicks back into gear (anyone remember $140/barrel oil?). BRIC-economy demand increases commodity prices across the board from oil to steel to lithium (crucial content in batteries, that store renewable energy and serve electric vehicles, currently being bought up in droves by China). Meanwhile the supply of oil is shrinking, whether in production rates or actual amounts. Though ”peak oil” remains a debated topic, everyone agrees the resource is limited and getting scarcer. Third, governments globally are recognizing the climate change effects of fossil fuel use and are attempting to put a price on carbon to lead us toward a future low-carbon economy. Where nations fail, states and even municipalities are creating their own legislation. Finally, politicians are realizing the beneficial energy security and job implications of making and buying energy at home (renewables) versus buying it overseas from hostile regimes (oil and gas) where the purchasing dollars come back to bite the U.S. This is even though in the short term renewables and local energy will be more expensive. The combination of increasing energy demand, decreasing cheap supply, increasing regulation and incentives, plus national security strategy all push energy price up.

Amory Lovins, the efficiency guru who founded the Rocky Mountain Institute, has been preaching the cost effectiveness of energy efficiency for decades, and has saved global businesses and the U.S. Defense Department over $30 billion in that time. It stands to reason: not using something because you have found more efficient ways to get the same energy bang for your buck is a heck of a lot cheaper than building the infrastructure necessary to produce and distribute more of it. Indeed, estimates range that as much as 50-80% of all energy needs in the U.S. could be met from investing in efficiency (the cheapest solution) rather than more oil/gas/coal/nuclear or renewables.

In a world where energy prices are going up and energy efficiency is the cheapest solution, guess what: anyone who makes energy efficient products, which save their customers money, or offers efficiency solutions, services or software is on to a winning, fast-growth path.

Hence companies from sectors as diverse as defense like BAE, to software giants like SAP and solution providers like IBM, or product creators like HP or SUN, to consumer product innovators like P&G (Coldwater Tide anyone?) or Toyota (Prius) or Whirlpool (energy-efficient washing machines) to large commercial real estate landlords who are saving their tenants utilities costs through retrofitting “green” are all in the very different ways, chasing the same opportunity – efficiency.

If you can save your customers money, you will grow market share and make money. Efficiency is the goldmine of the future in resource-constrained, world.

Finding the talent to make that play pay is the job of a search firm that knows what it is doing.

The essential issue, one that is being disguised by the PR efforts of various governments who wish to point the finger for the failure elsewhere, is that the U.S. will not come close to matching Europe’s offer of 30% reductions by 2020 based on a 1990 baseline.

In short, having just lived through the painful experience of an auto industry bailout, the U.S. is showing that it has learned little and is opting for a GM-style strategy with regard to climate change. The U.S. government continues to listen to the short-term, carbon ‘dirty’ business group (which does not represent all of business by any means, which I will come to) and is essentially setting itself up to be a General Motors compared to the more Toyota-like strategies of Europe and China.

GM went bankrupt because is stayed with legacy offerings, short-term profitability and didn’t position to or anticipate future demand for higher efficiency, compact cars. Toyota hit the ball out of the park with its development of the Prius, based on a long-term strategic assessment of future markets. National and regional climate change strategists are at the same crossroads where the auto companies found themselves five years ago and the stakes are much higher.

The challenges of real politik

The Obama administration is already having difficulty securing 60 votes in the Senate for a 4% reduction by 2020 (it’s described as a 17% or so reduction but that is based on 2005 baseline, which is a clever way of covering the fact that it is a paltry offer compared to Europe.)

Quite clearly developing nations won’t commit to limiting emissions, which equates to limiting energy use and, in turn, equates to limiting economic growth while they still have millions to billions of people to lift out of poverty. This is particularly true as it is the industrialized nations who have caused the problem in the first place over the last 200 years.

In terms of moral equity the issue is clear. But unfortunately the issue is also clear in terms of real politik.

The U.S. is highly unlike to willingly cede economic and competitive advantage to China. That is clearly the U.S. concern: if U.S. industry has to spend more on energy because it is required to be clean or low carbon, and China doesn’t, then that hands direct economic advantage to China. This is the basis of the intractable negotiating positions.

China has conceded something in that it says it does not expect the U.S. to provide financing to transfer clean tech to China to permit carbon-decoupled economic growth in the developing nation. However quite understandably China is not willing to consign the majority of its citizens to poverty/limited growth by agreeing emissions cuts comparable to the developed nations, which have of course already achieved their wealth through economic growth and carbon pollution over the last centuries.

China presents a conundrum because parts of the vast country resemble an industrialized nation while other regions lag far, far behind. Western negotiators look at the developed areas and expect China to play like the economic superpower that it has become. The Chinese, on the other hand (and admittedly with a healthy dose of self-interest), point to the poor, rural parts of the country and plead the case that they are not nearly as developed as the U.S. or Europe.

Three possible solutions

There are actually three possible solutions. One is to take countries out of the negotiations and create some kind of sector-wide agreements between industries (all cement factories agree to reduce or limit emissions to “X”). This cuts out the unfair national competitive advantage issue and places power in the hands of business who as we know tend to actually get thing s done.

A variation of this is to go upstream to the sources of the emissions – that is the oil and coal companies and price the carbon at the initial production point, having that then be filtered down through all value chains and passed on to the consumer. That of course is fiercely resisted by the fossil fuel companies and would require their mutual agreement and commitment, something that is not likely to happen. And there are issues about who collects that money – essentially a global carbon tax at the point of production – and how it gets distributed. Both of these solutions, like an international nation-based solution are subject to cheating.

The third solution is the most compelling in my opinion and perhaps one likely to change U.S. politician and voter minds, which is the crucial challenge: going green is the only way we can prevent ceding competitive advantage to China.

Right now China is gaining competitive advantage over the U.S. because it has already decided to develop green as extensively as is possible. China is the lead manufacturer of both solar PV and wind turbines in the world. China is developing multiple large eco-cities with the most innovative and contemporary technologies deployed. The internal Chinese market for energy efficiency and non-polluting, renewable energy is large and growing fast. China is buying up strategic global eco-resources such as lithium (the key element for long range renewable energy storing batteries).

In other words with or without a national or international agreement China is already wholeheartedly embracing the low carbon economy that is the inevitable destination of the future.

There is a large and growing contingent of U.S. businesses that see where the future is going to be and is positioning to be ahead of the curve. I met with some of these leaders to Washington D.C. a couple of months ago. We went there to lobby senators to pass more, not less, stringent regulation on carbon. These industry leaders saw that it was in their best interests to have tough legislation because that rewarded them for their early mover efforts and nailed their laggard competitors. Many of these forward-thinking companies have operations in Europe or Japan where there are already stringent carbon rules, so they have already had to increase efficiency. It is much more effective for them to have one global set of protocols for their product manufacturing than to try and develop different standards for different regions. Companies pushing for a cap on carbon include Alcoa, BP, Caterpillar, Conoco, John Deere, Dow, Duke, DuPont, Exelon, Ford, GE, Johnson & Johnson, PepsiCo, PG&E, RioTinto, Siemens, and Xerox, as well as consumer brands like Nike, Coca-Cola, Starbucks and technology companies like HP, Dell, Cisco and Intel.

All of these leading companies – plus all the nascent start-ups that are set to grow into these clean tech, efficiency markets (last year saw more venture capital invested in clean tech than fossil fuel for the first time in history), plus all the consumer brands who realize their reputations depend upon and their customer and employees are demanding sustainability responsibility – are pushing for a carbon price and a clear long term framework so they can go ahead and make the sorts of investments that are necessary.

As Joel Makower says (see his Dec 11^th blog entry ‘Copenhagen Gets Down to Business’ http://makower.typepad.com) – some of this is driven by plain old ethics, some by the business value (energy efficiency has a very high internal rate of return), some because they see it coming via regulation so want to get on with it. But the point is some very big name companies realize that clean tech and efficiency, which are supported by a strong carbon price, (whether through a cap or a tax), are good for American competitiveness.

So in fact America is already ceding competitive advantage to China by not setting carbon constraints. As any good innovator knows (Apollo 13 anyone?!) constraints actually drive innovation and breakthrough practice. So for America to stay in the game, for America to create the next Prius rather than go down the GM bankruptcy route, it needs to be a leader in this low carbon future, not a laggard.

Steering a Path Forward

When you turn the arguments around in this way it becomes obvious, despite the legacy lobbying and powerful relationships mobilized by old carbon industry in states with vulnerable senators, that it is actually against U.S. interests to block carbon caps. It is actually in U.S. interests to go clean and green first. All a price on carbon does is push America and consumers toward efficient, low carbon, clean products and services. It is a restructuring of the economy focused on successful adaptation for the future, not a destruction of the economy as die-hard climate change deniers would have it.

In fact the die-hards, who are heavily invested in the status quo much as were GM’s executives, designers, and union members, are in the long term ensuring the destruction of the U.S. economy by keeping America stuck in legacy markets which are dying out. Someone needs to make this case loud and clear.

Unfortunately that case has not been made well enough by progressive business leaders, by sensible long-term strategically oriented Republicans, by Obama and the Democrats, or by the NGOs. So the U.S. remains wedded to a position which stops any chance of a fair climate change deal in Copenhagen as well as setting the U.S. up to lose strategic advantage in this massive ($10 trillion on the Goldman Sachs estimate) emerging new market of low carbon.

Still, whether there is a deal or not, efficiency and sustainability will remain for many sectors, the way forward to increased profit, growth and brand advantage.  For these companies, the smartest ones, top talent remains crucial. Luckily for them these companies are also the ones most likely to attract that talent.

MontaRosa continues to enjoy building out the best sustainability teams possible for these great corporate leaders.

What are your thoughts as you’ve watched the negotiations unfold in Copenhagen?

At the conference Linda Fisher, CSO at Dupont, was honored with the Businesswomen’s Sustainability Leadership Award. Linda’s accomplishments are indeed impressive. Her background in corporate America as well as her experience with the EPA is a CSO dream. What I liked most about her was that she was very real in describing the challenges corporations have in driving sustainability. She even noted there are some divisions at DuPont that are nowhere close to having green initiatives, even though DuPont was one of the first corporations to bring sustainability into its strategic planning process years ago.

That is a good reminder for all global companies: It will take a while to get sustainability woven into the fibers of the company and its employees, and it will require a lot of executive buy in.

The conference’s discussion panel included sustainability gurus from Pfizer, IBM, Wal-Mart and TIAA-CREF. I could have listened to each of these panelists for hours because they not only were driving incredible and inspiring movements within their companies, they also had a passion for their mission.

But the final keynote speaker, Michelle Moore, was probably the most unexpected. Serving in a brand new role, Michelle is in charge of managing sustainability for the U.S. federal government. She threw out some astounding numbers when you include both civilian and non-civilian real estate holdings, purchasing, staff, vehicle fleets, energy use, and logistics. (Specifically: our federal government is the largest consumer of energy in the U.S. economy. It occupies nearly 500,000 buildings, operates more than 600,000 vehicles, employs more than 1.8 civilians, and purchases more than $500 billion each year in goods and services.)

Michelle announced that President Obama just signed an executive order related to sustainability, instructing the federal government to lead by example. His directive requires agencies to measure, manage, and reduce greenhouse gas emissions toward agency-defined targets. It also requires agencies to meet a number of energy, water, and waste reduction targets. Projected benefits for taxpayers include substantial energy savings and reduced costs from efficiency improvements. Michelle has her hands full and I look forward to hearing about her successes.

Now that there are sustainability goals for the U.S. government mandated by President Obama, no doubt there is legislation coming soon for corporations to do the same. And any corporations that don’t yet have a C-level sustainability executive had better start thinking about it soon — it’s the way of the future.

Jodi Kaelle
Knowledge Leader
MontaRosa

photo credit: NASA/Goddard Space Flight Center

Yet while awareness is growing about the CSO role and what it’s meant to do, some questions remain: where are good CSOs found? And what, for that matter, does good look like?

Unlike established C-level roles the blueprint is not set for CSOs. Nor is it possible to find many candidates who have, say, ten years of clear CSO track career building experience – because the role has only started to be deployed in the past few.

This is, of course, a feature of all new, fast-growing markets: new roles, new services, new products, and new activities. All of these are emerging and crystallizing, with some lasting and some falling away.

But the positive upside of this fluidity is the real possibility of bringing sector-transforming innovation into play, enriching the mix with diverse skill sets and career histories that don’t necessarily fit a conventional mold.

Sure, there are a number of core business skills and green tech knowledge requirements that are fundamental for any CSO role. But what’s interesting is the diversity of skills needed because the role, in its most empowered position – that is to say with the full backing of the Board and CEO – can become a core, enterprise-wide, innovation and invigoration driver.

Sustainability as innovation driver applies across all functions. From HR to MarCom (internal and external) to IT to finance to product design to facility management to energy procurement to stakeholder engagement to supply chain improvement to sales force transformation to employee inspiration and beyond.

And speaking of “beyond,” take just one example: the once highly unlikely idea of corporate/activist partnership.

If you track the history, some of the most socially responsible companies today are the ones that suffered severe brand damage with activist campaigns in past decades. It’s a healthy debate whether activist pressure drove change or not, of course. But the remarkable turnaround is that, in many cases, former polarized adversaries are now actively cooperating to create change together that benefits all parties, driving business value enhancement and eco-social contribution.

Great companies excel at listening, whether that is to their customers, their suppliers their employees, or other stakeholders. By expanding this notion of listening a step further, many companies have realized that a solution to the reputation risk issue, is to partner with relevant activist and NGO groups rather than fight. For one thing it is a lot cheaper! If a company can take the opposition inside and genuinely reach the high bar set by such groups then the brand is protected and third party credibility is assured. Former adversarial NGOs became sources of knowledge and feedback that companies need and don’t have. Classic examples of this operating to both the benefit of corporate reputation and activist mission are Wal-Mart, Nike, Starbucks, Dell and Gap.

It’s also worth noting that activists’ causes often are leading indicators of more general long term social and consumer shifts. Companies smart enough to see activist pressure as a trend signal have adapted and gained competitive advantage by creating brands and messaging campaigns that caught the oncoming wave with perfect timing.

Returning to our headline question then: where on earth in the private sector do you find a candidate with the openness and vision to see aggressive – and quite often unfair – critics as sources of innovation and market knowledge? Where do you find a candidate with the background, credibility and networks to turn adversarial relationships into strategic learning partnerships, to court and gain activist and NGO trust and recognition, overcome traditional corporate defensiveness and suspicion towards such groups, and utilize external feedback as a driver for genuine business value building?

It may not surprise you to learn that the answer is – from all over the place!

MontaRosa has found that great CSOs often have both public and private sector backgrounds. Their experience cuts across multiple stakeholder groups and audiences, they may have consulted with multiple clients, they are internationally experienced, and innovation and entrepreneurialism run deep.

Hiring such unique candidates brings multiple creative benefits into a company, and not just in sustainability. Finding such a unique candidate on the other hand requires search firms to operate way outside their traditional scope.

This is where Monta Rosa comes in…

Rupert Davis

Photo credit: tim eschaton

Sourced from: montarosasearch.com » Sustainability

The majority of U.S. companies, however, still mistakenly see sustainability as an additional cost rather than a revenue driver. In fact, nothing could be further from the truth. Executed correctly a sustainability transformation not only enhances the bottom line in quantifiable ways but in the world’s most forward thinking companies is seen as central to a reinvigorated growth strategy for the 21st century.

Whether it is opening new fast growth markets, cost reduction, protecting reputation, access to talent, building brand equity, associate engagement or innovation enhancement, sustainability demonstrably adds business value. CSOs who can lead this capably, though, are hard to find – in part because the role itself is relatively new and there are precious few executives with a proven track record of success in the sustainability arena.

There’s a legitimate business case here for the wisdom of, even necessity for, implementing a well-thought-out sustainability program.

The most obvious is in slashing waste, and we mean this in the broadest sense. The cost savings achieved by cutting waste out of the system are tangible and liberate financial resources. Whether through energy efficiency (Johnson & Johnson calculates an internal rate of return of 16% on energy efficiency projects) effective packaging (Wal-Mart saved half a billion dollars through a 5% reduction) or other measures like transport optimization, large, quantifiable savings can be achieved that the most conservative of CFOs will welcome. And rolling this into the supply chain helps suppliers’ costs become more manageable as well.

These business benefits come without quantifying any of the associated marketing value or brand enhancement. Johnson & Johnson calculates that the entire CapEx of its 1.1 megawatt photovoltaic facility in California – the largest private renewable system in the state – was paid for out of the media impressions generated. This unexpected benefit was supplemental to the emissions reduction and the predictability of supply and price established by installing its own electricity generation.

(As an aside, this case can be made even during these troubled economic times. Bruno Berthon and Eric Lowitt of Forbes magazine write about ways to drive profitability through sustainability during a downturn in “Don’t Give Up Sustainability Now Or You’ll Pay Later.” It’s an interesting article.)

On the product side those companies that can position their products and services to meet the inevitable transformation to a low carbon economy are seeing remarkable results. GE’s Ecomagination Division was the only unit to show a profit last quarter, with revenues of $14 billion and growing. In certain B2B and B2G markets it is no longer a choice: if you supply a customer who demands green, whether that is a public body or Wal-Mart, you have to participate to play.

But what about consumer-facing brands?

In mature markets growth rates and profit margins are mostly flat. That is why large companies like Unilever have bought leading sustainability brands like Ben and Jerry’s, or L’Oreal purchased Body Shop. This segment – the “Lifestyles of Health and Sustainability” or LOHAS marketplace – has been growing at rates of 15 to 20% per year for over a decade. Anyone who is a core consumer of them knows it. A good public example is Whole Foods, which has transformed itself from a health food store and hippy grocery to a Fortune 500 company in a less than two decades. Similarly, building social missions into brands can have spectacular results on the ground in terms of gaining market share as Hindustan Unilever’s soap/public health campaign clearly demonstrated.

So there is money to be made in developing green product lines. It is where society and consumers are going. The genuine triple bottom line leaders have carved out fast-growth and high-profit new markets for themselves. The big players are having to stand up and take notice. Sector disruptors like New Leaf Paper, a supplier of quality green paper products to large corporations and governmental organizations, set the bar and force catch up across a whole industrial sector.

To capture all this potential business value means that companies need a CSO who is fully entrepreneurial and strategic, who grasps and can articulate the business case to top and middle leadership, and who can even price projects against future energy cost curves. Green-washing simply won’t cut it anymore – consumers and activists are too savvy, and the reputation risk is too large.

By any measure this is a wide set of skills to bring to the table. But chosen correctly the right CSO can bring tremendous business value to an enterprise across all functions. The trick, of course, is to know where to find them.

MontaRosa has a solution. Combining in-depth, metrics-based, analysis and knowledge of the leading CSOs with deep understanding of the wider ecosystem of executives with relevant skill sets (governmental agency, NGO corporate partner facing, activist movement builders, consulting) MontaRosa specializes in finding the very top sustainability leaders.

They are out there … if you know where to look.

Rupert Davis

Sourced from: montarosasearch.com » Sustainability

photo courtesy of Flowery *L*u*z*a*