sustainability profitThe Economist Intelligence Unit Survey finds mixed results in a poll of 202 executives in the financial and corporate social responsibility sectors.  Many executives believe that sustainability practices will have a significant effect on their company’s bottom line in the long run.  However, short term results are less optimistic.  Executives report the main roadblocks to sustainable practices as the lack of participation in reporting firms, as well as low cash incentives.

by Nicholas Varilone, Green Economy Post

An recent Economist Intelligence Unit survey shows that only 24% of executives polled believe that in the short term (1-2 years) there is a strong correlation between the commitment of sustainable business practices and the financial performance of the firm.  Less than half of companies even report their environmental and sustainability goals.

While sustainable business practices may not have a significant impact in the minds of executives in the short run, over the period of 5-10 years 69% of executives polled believe that there is a strong link between sustainability and profit.  Companies worldwide are redeveloping their core business practices to meet sustainable goals in every aspect from supply chain to energy use policy.

This survey sponsored by Enel, of over 200 finance and corporate social responsibility executives explores the process by which executives are incorporating sustainability into their everyday business practices.  The study defines sustainability as, “operating in a way that preserves the long-term productive capacity of the natural and social environments.

Results of the Survey

According to this Survey, 34% of executives polled said that their firm’s immediate financial goals were of more importance than practicing sustainability.  This is the cause of the major roadblock between corporate profit and sustainable business practices.

Executives believe that in the long run, integrating sustainable business practices into their firms, will allow them to operate more efficiently and increase profit margins.  87% of executives agree that sustainability will become more important over the next three years. Executives report including sustainability into every facet of business operations, including supply chain relationships (29%), improving energy efficiency (38%), educating employees on sustainability (32%), and engaging employees in sustainability related activities (30%). Fifty-four percent say sustainability efforts have been led by top management, which is the reason sustainable practices have been growing at such a high rate.

The survey produced five key findings

The poor business climate is an obstacle to pursuing sustainability.
Thirty-four percent of respondents said their firms’ immediate financial goals were a more pressing priority than sustainability. Not surprisingly, this represents the leading obstacle to embracing sustainability. Lack of consensus and clarity are also obstacles.

Executives increasingly see opportunity in sustainability.
Eighty-seven percent agree that sustainability will become more important in the coming three years. Of these, 46% strongly agreed. While sustainability represents a risk for some, others see opportunity.

Companies are embedding sustainability into various corporate functions.
Executives report including sustainability into a variety of corporate functions, including supply chain relationships (29%), improving energy efficiency (38%), educating employees on sustainability (32%), and engaging employees in sustainability related activities (30%). Fifty-four percent say sustainability efforts have been led by top management, which may explain the wide reach of such initiatives.

But only around half of companies report their progress on sustainability.
Just 49% of respondents said they report progress in meeting their environmental sustainability goals. Slightly over half (53%) report their progress on meeting social sustainability goals. Nonetheless, executives say that stating goals and reporting progress towards those goals are essential in embracing sustainability.

Cash incentives are not widespread—but are growing.
Employee recognition programmes are the most widespread employee incentive, cited by 38% of respondents. Just 18% of firms link pay to sustainability indicators, but anecdotal evidence suggests this practice is growing among leading companies.

© 2010, Nicholas Varilone. All rights reserved. Do not republish.

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Author: Nicholas Varilone (6 Articles)

I am a graduate of Michigan State University with a Bachelor's of Arts in Economics. I am currently pursuing a specialization in Environmental and Natural Resource Economics and will be applying to the graduate program in Environmental Economics at Michigan State University. I am an avid outdoorsman and conservationist. I am mostly interested in studying the impact we are having on global climate change. I have extensive knowledge in cost benefit analysis of government environmental programs. I am a member of MSU's student sustainability organization as well as the MSU chapter of the Sierra Club's Beyond Coal Campaign. Email: nicholas.varilone@gmail.com. On Facebook.

  • Charles Sutton

    These findings are consistent with studies that were done on green building and sustainability several years ago. One of the most disturbing things uncovered was even though top executives have approved major renewable energy or energy efficiency projects, their estimates of the increase in cost is 2 to 5 times higher than the actual increase in cost. In many cases there were no increases but savings! This suggests a level of fear and irrationality that is not supported by the data. Profit before progress continues to retard corporate recognition of the real costs in terms of environmental degradation coupled with the loss of “green jobs” creation opportunities, etc.. How can we reach out to stockholders and the larger investment community to have them tie the compensation programs for these executives to their performance on environmental issues instead of short-term bottom line parameters? One of the problems of course is that the Board of Directors of many of these companies have been stacked with people just like themselves. This results in routine increases in salary and other forms of executive compensation far beyond standards in other parts of the developed world. Other economies are concerned because they realize what happens when such a large percentage of the productive capacity of major industries gets drained off at the top. The financial sector is a complete disaster when it comes to social responsibility. Community development is the way to go but it requires a level of investment dollars that are just not there because the nonprofit sector is so dependent upon donations, federal budget money, and PRI’s. This post also points out the necessity for legislation to ensure short-term profitability for alternative energy producers. Clean energy should not be left to the mercy of the major utility companies and the grid operators. There needs to be a regulated and carefully monitored arrangement with penalties significant enough to make criminal minded people cautious about trying to cheat or otherwise defeat the purpose of the statutes. Even though investment in locally produced power is an absolutely essential commodity to every economy(right up there with fresh water),the selection process driven by profitability and high executive compensation has produced a situation where many of the people that the top are incapable of acting in the best interests of their own country, let alone the rest of the world. Witness the number financial regulators and analysts warning of the dangers of the fast and loose games being played by the banking community and the potential catastrophe of economic breakdown as long ago as 1999.
    Couple that with the absolute inability of (Congress because of their dependency on donations from the finance and insurance sectors), to force the recipients of billions of dollars of taxpayers money to use the “bailout money” to support the economic recovery. Instead, they lined their pockets with profits and stopped lending to small businesses and funding the operation of our cities with the attendant ripple effects the unemployment, layoffs, cancellation of vital services to the poor, or homeless veterans which we are still experiencing. Social entrepreneurs may ultimately save the day along with sustained progressive government.

  • http://www.greennurture.com Derrick

    Great post. I think the challenge continues to be that most executives are seeing sustainability in the macro sense, which usually does require investment and ROI as a payback over time. It is interesting to see that there is now a new trend towards that of employee engagement and shifting of internal culture, attitudes and behaviors I believe the reason for this is that those investments usually show immediate ROI in the form of reduced waste and utilities. Engagement around sustainable issues also tend to increase morale resulting in higher revenues and earnings per share.

    I agree with Charles that there is an unfortunate belief that Macro scale projects have a long term ROI – when in some cases a simple cost benefit analysis would prove otherwise.

    Although, Charles you seem to think much of the blame should be laid upon the BOD and CEO I tend to look at things a bit differently. A CEO has a boss – the BOD and the BOD has a boss – the shareholders – the shareholders of large public companies (utilities, energy, retail) are the masses comprised of those holding IRA’s and 401K’s. They are the boss and the role of the BOD and CEO in a capitalistic system is fiduciary responsibility to their investors. So when a BOD or CEO makes a decision he has to heavily weight his responsibility to return as much profit as is legally possible (yes even lobbying and financing special interests and is still unfortunately legal).

    Personally I believe the blame falls to the government (both current and past administrations) – but there is hope as government also has a boss, you and I. Now it’s up to us to throw the bums out and fix this mess.