In a recent conversation with SAP’s Sustainability Chief Peter Graf about the company’s second Integrated Report, the conundrum between sustainability goals and economic growth kept coming up. Were the two diametrically opposed? Was the ‘conundrum’ a red herring as Henk Campher recently put it?
Working with the SAP team, we decided to turn it into a live discussion. And along with Graf, BSR CEO Aron Cramer, CDP’s Executive Director Nigel Topping and our partner Triple Pundit, we took to Twitter. For one hour, we discussed the trials and tribulations of pursuing sustainability featuring 232 participants contributing 1,388 tweets and over nine million impressions.
But as is often the case, our panelists were not able to respond to all the questions in the hour. Here then are their responses to all the questions we were unable to answer – some questions have been modified for grammatical purposes.
How does a company reconcile a clear need in the realm of sustainability when it’s not a $$$ win for the company? What mechanisms can be used to overcome this barrier? [from @bradzarnett, @beltwits,@thesustoolkit]
Nigel Topping: “Ultimately sustainability issues are business issues and thus addressing them must change the value story. If it changes the story short term you get a P+L benefit, if long-term then through enhanced quality of earnings, talent retention, market share or some other metric, which can also be converted into an economic measure.
“Sometimes this is easy – reducing energy waste saves money so the GHG reduction may just be sustainability icing on the cake. But this same action may be making the company more resilient in the face of likely regulation. Remember that value creation is part science part art.”
Aron Cramer: “”As things stand today, market structures and incentives don’t make it easy for companies to make the long-term investments that are often needed to work towards sustainability. We all know that for publiclytraded companies, markets often push decisions towards the short-term. As such, emerging efforts to redefine financial success with more attention to long term value, such as integrated reporting, are crucial.”
Peter Graf: “If company itself has no economic reason to do so then the only levers I know of are consumer/customer pressure, public pressure or legislative pressure. If those are applied, then what seemed like an ‘externality’ again becomes revenue and cost relevant.”
Most companies see CSR as taxation without representation. What can companies do to circumvent this view and start acting now? [from @Odyamvid]
Topping: “Companies who see CSR in this way are most likely right! And at the same time leaving value on the table precisely because they are stuck in a mindset, which starts with the assumption that CSR is nothing to do with business. We really do need to see the back of woolly CSR initiatives where no one knows why they exist. There must be a value creation story – it could be direct via resource efficiency or risk mitigation or it could be indirect via brand value enhancement, talent retention, building capacity early to respond to expected consumer trends.
“If you can’t find those plausible stories, which you can tell with conviction to your front line staff, then best just to save your money – you are creating a bigger risk by acting in-authentically. Shareholders can rightly criticize you for wasting their money and NGOs can rightly criticize you for not taking issues seriously.”
Cramer: “This reflects an outdated and discredited understanding of CSR. Indeed, sustainability is about aligning strategy with changing operating conditions and not “taxation.” That said, there are issues where companies should be more active in promoting public policy frameworks that create the right kinds of incentives. One great example has to do with supply chain labor issues, on which governments have de facto outsourced the responsibility to enforce labor laws to the private sector.”
Graf: “CSR needs to be perfectly aligned with the strategy and how the company creates value. At SAP we focus on education and entrepreneurship in our CSR projects, because they help us drive long-term success as a business. If CSR is not focused on this type of shared value (value to the company and value to society), then it is only a brand building exercise with little substance.”
How can a corporation reconcile short-term needs of shareholders and longer-term sustainability objectives? [from @greengageEnv]
Graf: “Short and long-term value creation do not need to be in conflict. In essence, it’s a balancing act, like always in business. For example, companies have always balanced investments into the future and current revenues to manage their margin.”
Topping: “Companies need a portfolio of innovation to address different time cycles of the dynamics which exist in markets.”
What role do business leaders have regarding climate denialism by other businesses like the stand taken by the U.S. Chamber? [from @kayakmediatweet]
Topping: “Very few business leaders are climate deniers. Even if they don’t believe the science, they have to respond to the growing level of regulation (22% of global emissions are now subject to a price). Leaders have a responsibility to see major change coming and to get out ahead of it, but not too far ahead!
“Climate change is rewriting the rules in many industries – just look at Tesla outselling BMW in California and with a market cap half of General Motor’s already! Leaders also have a responsibility to manage risk. As Bob Litterman, former Chief Risk Officer at Goldman Sachs keeps reminding us – there is an inevitability about the coming price signal on carbon and the less a company is prepared the harder it will be hit. This is already starting to play out in the oil and gas sector with investors pushing dividend returns instead of risky exploration expenditure.”
Cramer: “Businesses very often see further out than governments do. Businesses also like to innovate. Organized business associations, more often than not, take a lowest common denominator approach that is in fact inconsistent with business interests. Leading companies should use their voice to call for smart regulation and then innovate and compete to succeed. There is a huge opportunity for just such efforts in the run-up to COP-21 in Paris in late 2015: the business voice should be heard, and if it is, companies will help lead the way to low carbon prosperity. Leaders recognize the importance of this step.”
Graf: “I have personally never used climate change as part of the business case for any sustainability project. Not at SAP. Not with customers. Unless you’re in an industry that depends on climate to be stable (e.g., agriculture), the much better way to argue is the cost of energy, and not the implications and risk of climate change. Energy cost is something I have to deal with today, tomorrow and every day thereafter. There’s zero argument around the probability around that.”
Is the biggest challenge for Integrated Reporting adoption around SME supply chains to ensure sustainable business? [from @mbauerc]
Topping: “No, integrated reporting will impact large listed companies primarily – and the way their integrated thinking leads to changed supply chain engagement will impact the SMEs. In many cases this will allow for disruptive innovations from the savvy small guys.”
Graf: “SME’s adopt more sustainable practices because their customers are expecting it from them. The push is coming from the mega-buyers like the retail giants and trickles down the supply chain from there.”
Integrated reporting is great but how do you get people to read it? [from @angryafrican]
Topping: “Make it the story of your business. I hear more and more business leaders explaining how new graduates are interviewing the companies for evidence of integrated thinking, awareness of the systemic challenges faced by society and a coherent company approach that uses the power of the corporation to make good money by adding real value to society. Telling the integrated story starts at recruitment and goes all the way to analyst calls – it will need to become the same story.”
Cramer: “This challenge affects ALL forms of reporting. But a more broad-minded report is likeliest to attract attention: Integrated reporting could ‘save’ reports.”
Graf: “You need a great overarching story (one story, not many), and use video, interactive charts, etc. to make it interesting. Moreover, use social media to promote it.”
When reporting on energy, carbon, GHG, how can we make it relevant and benchmarked? Standalone figures too abstract to mean much? [from @miamiaki,@jackwysocki]
Topping: “At CDP, we help companies benchmark many environmental indicators and practices against their peers – that’s just good practice but of course it requires good data. Benchmarking process as well as output is important to drive learning and change – for example, what percentage of capex is committed to energy efficiency, does this get same or better payback than average? This also helps overcome any lagging perceptions that these metrics are not business-relevant.”
Graf: “We always like to talk in visual explanations. Like ‘SAP consumes the same amount of electricity as a 250,000 people city.’ Or ‘Our customers collectively emit at least one sixth of the world’s man made emissions.’
How has the cloud affected our lives besides our ability to reduce environmental impact? [from @orange_harp]
Graf: “In all the ways that we all experience every day, from music, video, smartphones, millions of apps, social media, social platforms, etc.”
Where do we stand on CSR across the tech industry? Is our personal info staying private? [from @mr_rosenwald]
Graf: “Let me put it this way: I am very conservative about which information I am sharing on the web. The industry is running the risk of losing customer trust. We have to work together to ensure that’s not happening.”
Cramer: “While attention has so far focused on tech companies, almost every business has access to personal information. Companies can look to the principles established via the Global Network Initiative to ensure that this information is treated properly.”
Is part of the gender gap problem that the tech sector is too much of a chauvinistic culture? [How can we] attract women through culture change? [From @angryafrican]
Graf: “I am very proud that SAP has set a target to increase the ratio of women in management positions to 25% by 2017. We have gone up about 3.5% over the last years.”
Originally written for and published on CSRwire’s Commentary section Talkback on May 12, 2014.