Is Sustainability the new key to Corporate Competitiveness?

Is Sustainability the new key to Corporate Competitiveness?

Excerpt: A survey by global management consultants Accenture has produced a new measurement for business performance – and for the first time, companies demonstrate that those who invest in sustainability, win.

A new investigative study into corporate competitiveness by global management consultation company Accenture has uncovered a new key strategy to being the best in any field: well measured and implemented sustainability practices.

All sectors change continuously and as technology develops, the way in which companies seek a competitive edge against their rivals changes also. Now more than ever, businesses must act nimbly and be as agile as possible to integrate continuous improvement and stay ahead of others. Company performance is still measured in two traditional ways: Market Cap and Total Shareholder Return (TSR). However, these measures are fast becoming outdated and failing to account for more modern aspects of business performance.

Accenture instead created a Competitive Agility Index, taking into account growth, profitability, trust and sustainability. This is the first time the latter two have been included in such measurement. To create this, Accenture analysed 5,200 points of data from over 350 companies spanning 9 industries.
Rating businesses using the new Competitive Agility Index comparing them to their ratings on the two more traditional measures resulted in real movement. On average, those leading in terms of Market Cap dropped 21 positions, and those leading in terms of TSR dropped 8 positions. Instead, those companies that focused on the new areas of the Competitive Agility Index equally and simultaneously yielded greater revenue improvement and EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation).

In practical terms, the Competitive Agility Index demonstrated real earnings potential for those who chose to focus on sustainability alongside trust, growth and profitability. Raising the Competitive Agility Index scale by one point for a $30bn automotive company saw a 3% rise in revenues – which equals $1bn! Similarly, in the insurance sector, a one-point increase resulted in a 6% EBITDA rise and in energy, a 4.7% increase in revenue growth.
Once assessed against the new Index, companies were categorised into one of four areas. These were as follows:

  • Striving to Survive (28%): aggressive intervention required to urgently improve performance, or the business will fail
  • Over-Estimated (22%): companies whose value is over-estimated with current market analysis and could be at risk as a result
  • Under-Estimated (21%): companies whose value and competitiveness has not been conveyed correctly to the current market

  • Disruptive Competitors (26%): those who dominate their sector but must constantly review and adapt approach to remain at the top of their game.

Those who fit into the latter two categories are those who maintain a healthy business balance between the four key elements.
Accenture’s Competitive Agility Index is the first mainstream business performance measure to robustly demonstrate the real, tangible corporate value of sustainability and corporate social responsibility practices. It is hoped that now this will encourage those few businesses who are not considering sustainability thoroughly enough to finally seek advice and new focus on it within their operations.

The authors of the study had previously mentioned in a white paper that this growing interdependence is now ‘hard wired’, saying

“Accountability is no longer just to customers and shareholders, but to society at large. If a company fails to uphold its covenant with customers, it will never achieve profitable growth”. Indeed, even the study stipulates that those who fall within the ‘disruptive competitors’ must continue on the correct path of balance, which it stated “They must continually reinvent or reposition themselves while using an integrated growth, profitability, and sustainability strategy”.

The interdependence displayed between elements now leaves no room for discussion: sustainability is as key as profitability, and this will no doubt not be the last competitive analysis index that displays so.

Mind the Gap: Energy Consumption to grow up to 50% over the next 25 years

Mind the Gap: Energy Consumption to grow up to 50% over the next 25 years

Studies have shown that energy consumption across the globe is set to increase anywhere between 30-50% in the next quarter of a century. For many countries this will include soaring air pollution, oil consumption and greenhouse gas emissions – all of which, of course, lead to rising energy prices.

Whilst the roll-out of energy efficient technologies, products and methods offer real potential to help the problem be reduced and the associated environmental damages lessened, their take-up worldwide is yet to reach a level that could be considered acceptable for the future. This difference between the take-up and usage of such efficiencies and the potential damage current usage would still allow to be caused is known as the “energy efficiency gap” or the “energy paradox”.

The first major detailed study into this area has just published, coined by Professor Richard Newell at Duke University and Robert Stavins, the Director of the Harvard Environmental Economics Program, sponsored by the Alfred P Sloan Foundation. The investigations aimed to uncover the possible explanations for the paradox and as a result, to identify how to best implement and spread efficiency technologies. The study, called Assessing the Energy Efficiency Gap, draws in work with leading social scientists and US-based scholars, and has been co-authored by a pre-Doctoral Fellow of the Harvard Environmental Economics Program (HEEP), Todd Gerarden.

It has found stark contrast between private and social optimality of efficiency technologies, examining the assumption that some such technologies would not be adopted, despite the fact they would pay off financially, and the assumption that some such technologies would not be adopted despite their projected social payback.

Investigations began by dissecting cost-minimising energy efficiency decisions into their fundamental elements: whether or not they are economically efficient; whether energy operating costs are priced appropriately and understood; whether or not product choices are currently cost-minimising or whether they’ll be affected by later external factors; and finally whether other non-observed costs may inhibit the decision to adopt efficiency measures.

Once these four elements were studied, these are understood in terms of market failures, behavioural effects and modelling flaws. These include the explanations for failed adoption as informational issues, energy market failure, capital market failure, attitudes and business appetites, understated and misunderstood costs, ignored and misunderstood product attributes and the use of incorrect and misunderstood pricing.
Needless to say, Assessing the Energy Efficiency Gap finds all three explanations for method and measure adoption failure to be theoretically sound with some empirical evidence for every category.

The validity from each explanation can now be used to influence future policy and planning around the paradox and be used to justify and effectively bridge the gap that current measures (both adopted and un-adopted) leave behind. High priority should now be given to research that evaluates the effectiveness, cost-effectiveness and economic efficiency of such policies, to not only develop new ones but also to enhance, improve and develop those already in place or planned for the future.