How going green can save you money

From leading the EPA’s Climate Leaders program to consulting for a company at the forefront of sustainable business practices, SAP’s Jim Sullivan knows a thing or two about corporate sustainability. Before speaking on a webinar this Wednesday presented by NRF’s Sustainable Retailing Consortium, Jim took a few moments to share thought-provoking insights on building a sustainability program from the ground up and offer compelling arguments on why sustainability makes business sense. Read on for his thoughts about what shoppers really think about retailers’ green initiatives, how to get employees at all levels to buy into sustainability programs, and which retail brands are taking green to the next level.

For a retailer just thinking about a sustainability program, what are the most important things to keep in mind when getting started?

The key factor in any corporate sustainability program is to create a solid business case on how the program will increase overall profitability and then get the appropriate buy-in at the senior management level to make sure it can be well-executed. In retail, the two main drivers for profitability are the opportunity to improve margins (primarily through operational efficiency) and the opportunity to increase revenue growth. Over time as the program matures, there is also the opportunity to improve the company’s valuation multiple (primarily by improving risk premiums such as predictable access to insurance/capital).

After creating a solid business case, the second most important thing to take into account is the scope of the program. “Sustainability” is an intentionally broad concept and a key factor for success is to narrow the scope of a corporate program to a manageable number of material indicators that are extremely relevant to an individual company, their customers, and their broader stakeholder community. For example, SAP reports out on eleven core metrics around the environmental, social and economic dimensions.

The final ingredient necessary for a successful program is an early commitment to transparency in tracking progress. Senior management and stakeholders must realize sustainability is a journey on which most companies are on their initial steps. For the long-term credibility of the program, companies should commit to not only reporting on their success but also on lessons learned and challenges in achieving their goals.

When developing company sustainability goals, what areas of the business process should retailers look to improve first? Does it differ for large retailers versus smaller operations?

The first area which is common among all retailers is improving the bottom line due to cost savings from business process efficiencies. Typically savings of 30% or more can be achieved by a focused look at benchmarking operations around energy and climate change (particularly electricity and fuel use in stores and warehouses, fuel use in fleets, lift trucks, and logistics operations, refrigerant and cooling use, etc.). The second is improving top line revenues through increased market share (more loyal customers, increased product differentiation), new market entry (new eco-friendly products), or margin improvement (higher brand values).

After improving efficiency within a retailer’s directly controlled operations, many are now finding success in working in collaboration with their broader value chain (either suppliers or customers) to find additional hot spots and increased opportunities around innovation/efficiency/cost-savings. These are areas where I believe increased automation can significantly improve operations within companies as well as within the broader value chain and why I’ve focused in this area the past few years.

For small and large retailers, the scale and the scope of material issues may change, but the business drivers should be reasonably consistent across all companies no matter the size. The main difference will be each company defining its own material issues based on its own management culture, customer values, and broader stakeholder community.

What do you consider the fundamental building blocks of a successful sustainability team?

There are two fundamental building blocks to success here: 1) leadership must come from the top; and 2) execution must come from everyone. The overall message and direction must come from the CEO/board level in order to be seen as a corporate priority from both employees and external stakeholders. The core sustainability team needs to be multi-dimensional and include participation from all divisions of the organization: finance, operations, marketing, logistics, product brand, buyers, etc. One common practice is to name a Chief Sustainability Officer reporting into the CEO or Board to evangelize the concept across the broader organization and develop and enable sustainability champions within each department.

Another fundamental building block is employee engagement with all employees to ensure that sustainability concepts are taken into account as day-to-day decisions are being made and employees feel that their activities are contributing to overall corporate goals. One good example of this engagement is Levi Strauss: the CEO has an e-mail account which he personally checks daily where employees may contribute sustainability suggestions. This completes the loop where many of the strongest ideas come from employees who know their day-to-day operations best, with the senior leadership who is able to provide resources to quickly execute on innovative ideas.

How have you seen customer reaction to retail sustainability efforts change over time?

Certainly the consumer awareness of sustainability has improved over time with the increase in green branding/messaging from a variety of retailers. The real question is what consumers do with that information. Sustainability is one of many factors taken into account while making buying decisions (along with quality, price, etc.) and retailers need to know how their specific consumers react to sustainability messaging. The economy is always a large factor. Sustainability efforts don’t work at the expense of the other attributes and customers are not necessarily willing to pay higher prices for a similar but more sustainable product – it needs to have both.

Retailers have to balance the three factors: price, quality and sustainable attributes. This is where for example Walmart’s branding “Save money, live better” ties directly into their core sustainability strategy of improving operational efficiency in order to drive down costs for their customers. Whole Foods consumers, however, might be willing to pay slightly higher prices for better sustainable and heath attributes. So it really depends on knowing the customer for specific programs.

The challenges in this area include a lack of standardization around sustainability metrics in products and the large possibility of consumer backlash around “greenwashing” (or overstating sustainability claims) from retail messaging. This is why so many retailers and consumer product companies are investing time and resources in the Sustainable Retailing Consortium to work on industry standardization around these types of marketing efforts.

You led the EPA’s Climate Leaders program for a number of years. What was your biggest take away from your time in this position?

For me personally there were three big takeaways from that program: 1) the willingness of companies to share (possibly competitive) information through the community we built for a larger environmental/social good, 2) the large cumulative effect of individual company reduction commitments, and 3) the power of “friendly competition” to drive environmental performance.

First, companies came together to develop the metrics around measuring and tracking progress around climate change commitments. I was pleasantly surprised by how open companies were with sharing very detailed information around their own implementations, including financial and engineering data on individual projects, willingness to share “lessons learned” (a polite way of saying early failures), and other detailed information with the larger community based on the fact that individuals involved believed that addressing the climate issue required early open cooperation among a wide variety of companies to help accelerate adoption of corporate responses to the issue. One tangible success out of this collaboration is that companies were able to provide comments to EPA on proposed regulatory approaches (such as the GHG mandatory reporting rule) which allowed the agency to draft regulations that remain protective of the environment while taking much better account of the potential financial impact on industry.

The second major impact of the program was the institutionalization of the goal tracking process within companies and the large cumulative effect of collaborative action. “You cannot manage well what you cannot measure well” was an early mantra of the program and Climate Leaders helped hundreds of companies realize business value by institutionalizing this process. By the time I left EPA, Climate Leaders included hundreds of companies that represented more than ten percent of U.S. GDP and the cumulative impact of these commitments has the potential to impact global emissions pathways due to the power of networking and community and social interaction. Together we had a much bigger impact than any of us individually.

Finally, we collectively learned the power of “friendly competition” to drive improved environmental performance. And what I mean by that is that you see a company come out with a goal of 20%, a month later their competitor would come out with a 22% goal (10% better). And a month later someone else would come out with 30%. So the power of competition to drive environmental performance was a very powerful lesson from that type of program.

I really value my time at EPA and the time spent running the Climate Leaders program and have made a wide variety of lifelong friends from all industries whom I know are strongly committed to the long-term health of our environment as well as our companies.

Over the past few years, high-level sustainability positions within business have become quite common. Do you think Chief Sustainability Officers will continue to populate upper management?

I think they certainly will. It’s becoming a lot more common, and I think there’s a very good reason for that. Each company needs someone who’s an expert on these issues because they can quickly become very technical and someone needs to have the ability to translate these highly technical subjects into more understandable concepts and language. And they need somebody to evangelize a bit within the company.

For a company to be truly successful, and for a CSO to do their job correctly, they need to push sustainability decisions into everyone’s job title as the day-to-day decisions are being made. If somebody making an investment in a new refrigeration unit for a store has to call up a sustainability officer and ask, “Is this a good deal for the environment or not? ,” we’ve missed the boat. That has to become part of core day-to-day decision making for a business to truly transform itself into a sustainable company.

What retail companies are on the forefront of greentailing?

Certainly our partner on the upcoming webinar is a great example: Walmart as a company has transformed themselves over the past five years into an exemplar on sustainability. Their internal efforts as well as supply chain efforts are having an absolutely enormous impact on the market.

Staples and Office Depot are also doing a good job on corporate efforts, supply chain and consumer engagement. Also, the recycling program that Best Buy has put into place: the ability to drop off any small appliances, any old computer, any cell, any TV at a Best Buy location, I think is very ground-breaking on the waste issue. Let me throw them a kudos for that.

How can a company get employees at the lowest level to buy in to company-wide sustainability goals?

It’s incredibly important that sustainability be relevant to their daily lives. The incentive and the direction for the program has to come from the top, but the ideas and the motivation need to come from everyone.

The people working on the retail floor, the people driving the trucks, the people running the logistics operations have the best ideas how to improve those. And what management needs to create is some transparency with both the corporate strategy and the progress tracking for that. And then take some responsibility for allowing employee to bubble up the right ideas to help them get their goals for their group, their division, their stores.

As an incentive, employees become very engaged if it’s included in their performance indicators, they become very engaged when they’re empowered. Going back to the Levi’s example, knowing that someone at the C-level is going to read your ideas and act on them is very empowering.

How do you see legislation impacting the sustainability movement, both in the U.S. and around the world?

Let’s face it – legislation affects every company and their cost of doing business. It just affects some more directly and materially than others, so even, for example, if climate legislation is only drafted to regulate heavy industrial industries – the power sector, the oil and gas sector – those costs are going to be passed through to users of electricity (warehouses, retail stores, corporate HQ) and diesel (truck fleets). To be able to get a handle on that, every company needs to know their sources of energy used and what their opportunity costs of improving those.

And in some countries, like the UK, they are directly regulating companies at the retailing commercial level with the Carbon Reduction Commitment program. Companies need to be aware that all legislation will have some affect on them, whether large or small. And by having a strategy, you know your opportunities as well as risks and can better prepare for the affects of certain legislation.

Another example from Climate Leaders and other voluntary programs is by doing things in a voluntary manner companies prepare themselves to influence legislation because they know what works and what doesn’t work.

Want more info on sustainability? Check out NRF’s sustainable retailing headquarters, complete with on-demand webinars, training tools, white papers, blog posts and interactive resources.