By Comly Wilson, Research Associate at CleanEdison
The forces of sustainable consciousness and resource scarcity are making environmental responsibility a necessity, not just a strategy, for major corporations. It is becoming increasingly difficult to simply re-brand products to be green as the public gradually becomes more wary of “greenwashing” and starts to pay attention to corporate responsibility indices, such as Innovest’s 100 Most Sustainable Companies in the World (aka Global 100) or the Dow Jones Sustainability Index. In fact, there is a growing body of research that indicates that companies that are successful in implementing and reporting environmental improvements command a market premium in their industry. Moreover, natural resource shortages are expected to affect the core business objectives of most corporations as forces such as population growth and climate change strain availability – often earlier than most companies expect.
These may prove to be real drivers of change, as the idea that sustainable initiatives are also money-savers has been met with skepticism and derision. This is evident in a recent Carbon Trust survey that found that 47% of executives believe that acting on sustainability issues decreases profits – and only 13% of board directors are compensated for achieving sustainability metrics. On the other hand, a recent survey by the MIT Sloan Management Review and The Boston Consulting Group found that 37% of businesses reported a profit from their sustainability efforts, a 23% rise over last year. The trend towards greater environmental responsibility is likely to continue and could create a real distance between the early adopters of sustainability and those who remain idle.
However, even the most enthusiastic and genuine efforts can be bogged down by challenges and setbacks. It can actually be quite difficult to evaluate which green initiatives should be pursued, how to properly implement these programs within the overall business plan, and how to measure tangible benefits. While most companies have detailed records of their cost and revenue streams, environmental costs are often hidden and are considered an ongoing and unavoidable expense of operating a business. While physical resources and labor expenses are often linked directly to products or services, the costs for electricity, real estate, space heating, water, and other environmental expenses tend to be considered overhead costs. The same Carbon Trust study found that 43% of businesses surveyed do not monitor the risks to their business of environmentally-related shocks such as energy price rises and environmental disasters. Even when organizations do apply ongoing process efficiency strategies that benefit the environment, there frequently is no attempt to quantify the environmental performance associated with the project.
If corporate sustainability has an increasingly direct influence on the economic value of a company, how are these “hidden costs” supposed to be quantified, addressed and reported? How can those in the early stages of corporate sustainability build a comprehensive system? Furthermore, how can the business community be expected to maintain their financial priorities with such a significant shift in operations?
To date, companies have attempted to ‘go green’ by hiring a Sustainability Director or arbitrarily implementing a host of eco-friendly technologies and practices. Worse, these Sustainability Directors have been in the position of first proposing an environmental initiative and then working to prove the business case for the program. This has led to businesses recognizing slowly, and in spurts, the costs and benefits related to their environmental performance. Such a system can never fully grasp the goals, risks, and opportunities involved in making a true shift to sustainability, or detail strategies and results of taking on these challenges.
Sustainability May Be Closer to ‘Business-as-usual’ Than Many Expect
Hundreds of corporations worldwide have already woven a methodology into their business that can be realistically broadened to justify environmental responsibility. This methodology is known as “Lean Six Sigma,” a concept originally developed for manufacturing, but which has grown to include business and customer service processes. Lean Six Sigma is a proven methodology of defining problems, reducing waste, systematically improving outputs, and tracking results. With the same prioritization, measurement, and problem-solving tools, Lean Six Sigma could prove to be very suitable for corporate sustainability programs.
Lean Six Sigma addresses two of the most significant problems that environmentally-focused businesses face: How is a project that costs money but improves the companies’ environmental footprint weighed against one that does little for the environment but cuts costs? And, once environmental responsibility is accepted within the company, which sustainability project deserves to be pursued first? Lean Six Sigma allows companies to define what metrics are the most important to the business at the highest level and drill down to understand the indicators that are the most closely correlated. It also provides the measurement and analysis tools, such as Value Stream Mapping, to sort out which projects will contribute most to environmental improvement and at what cost. For example, when Lockheed Martin took a closer look at its supply chain, it found that out of 2,000 indicators, many of which the company had deemed materially important, ten areas accounted for 96% of the company’s overall environmental impact.
Obviously, defining the problem is only the first step towards true sustainability. The principles of streamlined processes, reduced variability, and continuous improvement found in Lean Six Sigma are ideal for implementing sustainable projects as well.
Lean Six Sigma At Headquarters
Major companies looking to make their large, multi-building campuses more energy efficient could use the idea of “lean energy audits” to make the process more organized and accurate. Traditionally, energy audits are focused on one building, such as a residential home or a commercial office space. The process involves an auditor taking measurements one at a time, such as analyzing lighting techniques, levels of insulation and HVAC efficiency, putting the results in a comprehensive plan, and then implementing (or recommending) solutions. When the same energy auditing process has been used on a multi-building complex, the traditional methodology has proven to be wasteful in terms of time and work load. By focusing on one measurement, for example, lighting techniques, for each building, the auditors needlessly build up the amount of information and work-in-progress (WIP) involved in the project.
Instead, a lean energy audit would analyze and implement efficiency upgrades in each building from beginning to end. This way, auditors avoid mistakes by verifying that the process of collecting data, analyzing data, and implementing recommendations is sound from start to finish. By completing the program for each building of a multi-building campus, problems with implementation, client preferences, or incorrect assumptions can be caught before they are repeated in other buildings.
Lean Six Sigma Throughout the Supply Chain
An improvement undertaking that is extended beyond a localized portion of a business to the entire value stream can significantly magnify the environmental benefits. A more systematic implementation of environmental accounting techniques would improve the ability of companies to make a strong business cases for understanding and reducing risks associated with environmental costs. A Carbon Trust Survey found that 43% of responding companies do not have any reporting or management infrastructure in place to understand the risks associated with environmental costs, such as soaring energy prices, on their supply chain. The Lean Six Sigma process produce savings from increased material efficiency and reduced resource waste streams, thereby reducing risks associated with rising costs and resource depletion.
Lean Six Sigma Culture of Continuous Improvement
Environmental responsibility means a different thing today than it did a decade ago, and will likely continue to evolve as regulations and environmental consciousness change. Effective governance can help put a company’s limited resources to appropriate use by identifying and prioritizing projects, and effectively allocating resources needed for those projects. Lean Six Sigma governance has built-in mechanisms in place that help identify and bring to light specific opportunities, based on proven reporting and measurement techniques, to help leaders understand the progress of their organization and initiatives. Ideally, these tools and measurements proceed to specific departments in the organization to get more targeted measures and recognize more precise improvement opportunities.
In addition, because Lean Six Sigma already contains a robust mechanism for training managers and front-line employees, companies should find that extending it to encompass sustainability would not reduce overall productivity. Lean training programs could incorporate a few additional tools and concepts to educate employees on the increasing importance of sustainability to business performance. Concepts might include awareness and understand of greenhouse gases, greenhouse gas baselines and reporting, sustainability maturity models and assessment frameworks, sustainability metrics, energy consumption, paper consumption, and waste and recycling.
Obviously, continuing what we’re doing will not be enough to avert climate change and other environmental degradation. But business-as-usual for many companies means access to a methodology that is primed to entwine sustainable consciousness into successful business operations.
About the Author: Comly Wilson is a Research Associate at CleanEdison, a national provider of clean energy, energy efficiency, and corporate sustainability training and certification courses. He studied Energy and Environmental Policy at American University and lives in New York, NY.