Mapping the Three Justifications to the Five-Stage Sustainability Journey
Let’s suppose you’ve crafted a compelling business case to support a company undertaking a significant environmental or social initiative. Your proposal includes three justifications for the project: it helps the company do the right thing by causing less harm and doing more good for the environment, society and employees; it enables the company to capture opportunities such as new revenue streams and expense savings; and it helps the company mitigate risks that could arise if it did not do the project. Where the company is on its sustainability journey determines which of those three components in the business case will best grab the attention of the decision-makers and win their support. Mapping the three justifications to the five-stage sustainability journey helps us choose which justification to highlight.
First, we’ll review the big three justifications that are used to support any business decision in any industry sector, and how their relative importance has changed from 20-30 years ago. Then we’ll show how the three justifications are usually weighted differently by decision-makers as companies progress on their journeys to becoming sustainable enterprises. When proposing sustainability projects, emphasizing the justification that best matches the company’s maturity level on the sustainability spectrum helps decision-makers more quickly see the project’s relevance to business success.
The big three justifications
As suggested above, there are only three reasons that companies undertake anything new: do the right thing, capture opportunities and mitigate risks. Some combination of them is always in play when making big business decisions. They frame the rationale behind any big business decision.
The figure on the left illustrates the dominant mental model in the business community in the last two centuries. Unfortunately, it is also the mindset still promoted by many business schools. It positions being a steward of the environment and society as an either-or choice: either do the ethically right thing for society and the environment, or aggressively capture financial opportunities and mitigate risks.
As shown in the figure on the right, in the 21st century doing the ethically right thing has moved from the margins into the mainstream. Improving company impacts on the environment and the community can lead to capturing new financial opportunities and mitigating new risks. It is now an if-then, both-and relationship, not an either-or trade-off. Doing the right thing has morphed from being an anchor in the old business paradigm to being a driver of success in the new economy.
Three justifications mapped to the five-stage sustainability journey
The five-stage sustainability continuum, illustrated at the top, applies to any business. Companies mature from unsustainable business models in Stages 1 and 2, to a more sustainable business model in Stage 3, to a strongly sustainable business model in Stages 4 and 5. During the journey, executive mindsets evolve from thinking of “green,” “environmental,” and “sustainable” initiatives as expensive and bureaucratic hassles, to recognizing them as catalysts for strategic success. Now, let’s examine how the three justification factors are weighted differently by decision-makers as a business moves from stage to stage on its sustainability journey.
Stage 1: Pre-Compliance
It’s risky to linger here. In this phase, a company flouts environmental, health, and safety regulations. It cuts corners and tries not to get caught if it breaks the law or uses exploitative practices that cheat the system. It employs unqualified staff and forces them to work in a dysfunctional, abusive workplace. It is careless with its waste. These businesses happily externalize their negative ecological and social impacts. This stage is often associated with corrupt jurisdictions.
Society is starting to demand that all businesses be more accountable for their collateral social and environmental damage. Whistle-blowers are more courageous. Social media leaves no place to hide. If Stage 1 companies don’t clean up their acts, they will be exposed and put out of business by regulators, activist non-governmental organizations, or customers who vote with their wallets and move to more responsible companies. Stage 1 companies are driven to Stage 2 by sticks, more than by carrots.
That is, 80% of the justification to move from Stage 1 to Stage 2 is to mitigate risks of getting caught. That’s the justification to underscore in the business case when proposing sustainability initiatives to Stage 1 companies. The weight of the capture opportunities justification for the move to Stage 2 is about 20%―the opportunity is to stay in business. The do-the-right-thing justification is not on the radar screen.
Stage 2: Compliance
In this stage, the company manages its liabilities by obeying all labor, environmental, health, and safety regulations. It respects industry organization standards, regulations, and by-laws. It does what it is legally or professionally bound to do. It complies with local regulations for the handling of its waste. Its staff is professionally qualified, respected, and well-treated. But extra environmental efforts and provision of products and services to the underserved is given lip service, at best.
A Stage 1 business’s actions are illegal, unprofessional and unsustainable. A Stage 2 practices are legal and professional, but they’re still unsustainable. They may still cause environmental harm with their waste practices, water use, energy sources and supply chains, but they are not legally required to stop or to be restorative. They don’t feel much stewardship for the health and well-being of their communities or the environment, beyond token philanthropy. They are compliant.
Their missions are to grow the business and to improve their bottom lines. Ironically, that desire makes up 80% of their motivation for moving beyond compliance to Stage 3. They want to capture new opportunities to save money and generate more income. Who wouldn’t? Risk mitigation may be a background justification (10%) for doing more, if the company starts to sense that its social license to operate may be in jeopardy if its behaviors do not reflect the growing unease of its stakeholder about environmental and social issues. And the do-the-right-thing justification may be starting to stir (10%).
Stage 3: Beyond compliance
A business voluntarily moves to Stage 3 when it realizes that it can save money with operational eco-efficiencies. It’s in this stage that the company earns the label “eco-friendly” or “green.” There are typically four types of low-hanging fruit in the fruit salad of eco-savings: reducing the firm’s energy, water, materials, and waste bills. Best practices in these areas are well documented. They are amazingly straightforward once company leadership decides they want to move into Stage 3 and reap the savings.
First, finds eco-efficiencies in is current operations and processes; then it re-engineers some of its processes to capture more savings; then it acknowledges that it is mutually accountable for impacts throughout its value chain and starts to work with suppliers to improve their environmental performance; and then it starts to create more green, healthy and sustainable and products and services. for its customers.
As a company approaches the end of Stage 3, it may also see benefits of increasing its contributions to the well-being of the local community and society at large. However, the hard-nosed business case to support undertaking socially beneficial initiatives may be more challenging than the business case for environmentally beneficial initiatives. Fortunately, there are good tools available to help with that. For example, the Sustainability ROI Workbook is a free, open-source Excel workbook that allows all potential expenses, benefits and co-benefits of environmental and social initiatives to be framed on a CFO-friendly format.
As businesses explore possibilities in Stage 3, they discover the value of moving to Stage 4. They come to realize that they may make 31-81% more profit if they simply implemented proven best sustainability-related practices, while avoiding a 16-36% erosion of profit if they did nothing, as explained in The New Sustainability Advantage. So, the justification to highlight with decision-makers in Stage 3 companies to help them see the benefit of doing more is the same as it was for moving to Stage 3 in the first place: capture (more) opportunities (80%). The weights given by decision-makers to the mitigate risks and do-the-right-thing justifications are usually low: 10% and 10%, respectively.
Stage 4: Integrated Strategy
By Stage 4, the company is well on its way to transforming into a sustainable business. It re-brands itself as a company committed to sustainability and institutionalizes sustainability factors into its governance systems and policies. It injects sustainability principles into its values and the company DNA. It integrates sustainability approaches into its business strategies. measurement and management systems, and recognition and reward systems.
Stage 4 companies also set long-term aspirational goals and short-term targets for their environmental and social efforts. The goals and indicators may be expressed using the consensus-based SDG framework, the science-based Future-Fit Business Benchmark framework, the framework used in the B Corp Business Impact Assessment Questionnaire, or others. Stage 4 businesses publish periodic reports on their progress toward their goals, perhaps using an integrated report format to connect the dots between progress on their environmental and social goals and improvements in their financial results. That is, they not only integrate sustainability into their business strategies, they integrate it into their culture.
So, what’s left? Hasn’t the business gone as far as there is to go on its sustainability journey? Yes and no. What drives any organization to Stage 5 is the emergence of the do-the-right-thing justification. It becomes the dominant (80%) rationale, with capture opportunities (15%) and mitigate risks of inaction (5%) in the background. In Stage 5, doing the right thing really matters to decision-makers, so that part of the business case should be emphasized.
Stage 5: Purpose and Values
About 80% of the behaviours of companies in Stage 4 and Stage 5 look similar. They both deploy business strategies that respect the health of the environment and community, and the ongoing business health of the firm. It’s the motivation that differs. Stage 4 companies “do the right thing” so that they are successful businesses; the co-benefit is that they also do the right things. Stage 5 companies “do the right thing” so that they fulfill their purpose and values by contributing to a better world; the co-benefit is that they are also successful businesses. The benefits and co-benefits are flipped. The dotted line between Stage 4 and Stage 5 in the figure denotes this motivational difference.
The values of Stage 5 companies usually mirror founder / CEO values. Some founder-owned and founder-led companies start and end in Stage 5 without ever entering the other four stages. Examples are Seventh Generation founded by Jeffrey Hollander; Patagonia led by Yvon Chouinard; and my publisher, New Society Publishers, founded by Chris and Judith Plant. Purpose-driven B Corps are in a similar situation. They not only cause little or no harm to the environment and society, they intentionally have positive impacts on them.
Stage 5 companies are leaders. They help others discover the benefits of being Stage 5 companies. They collaborate to lead the change to resilient human society nested in a healthy environment. They use their influence for good.
Twenty or thirty years ago, if you were to ask most executives why they weren’t more environmentally and socially responsible, they’d think it was a trick question. The answer was too obvious. They would be at a competitive disadvantage if they tried to become too “green” or became too distracted by helping the under-served in their communities. It would be too costly. Just keeping up with all the workplace and pollution regulations was a burdensome expense. There was no business case for doing more. These companies were stuck at early stages in their sustainability journeys. Many still are.
In the 21st century, there is a strong three-justification business case for companies to become more environmentally and socially responsible. The appeal of the three justifications will differ at each stage, so we need to meet executives where they are and emphasize the most germane justification for where the company is on its sustainability journey. The other justifications are nice-to-have companion passengers, but the most dominant justification is the driver.
Bob
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