Business Sustainability Published Online in Sustainability Company (www.sustainabilitycompany.net)

Why Business Sustainability is Strategic ?

Lecture: 2 By Giovanni Tordi - Sustainability Company CEO Lectures on Business and Environment Sustainability for Luiss University, Rome – 2009/2010 In the medium long term the enterprise must generate profit. We have seen that, if we concentrate exclusively on “short term”, originating profit is sensibly at risk. It is around this concept of risk that business sustainability is based: SUSTAINABILITY = DEVELOPEMENT + MITIGATION OF RISKS Sustainability is therefore no longer essentially a concept with a social and environmental dimension, but also economic. In fact, a non-sustainable approach may cause the progressive failure of the enterprise. What are the benefits deriving from the introduction of sustainability in the conduct of business? Let us make some example: ANTICIPATE THE MARKET, INNOVATE Introducing sustainability in processes and products, allows innovating and differentiating from competitors. There are today many companies which, like Toyota and Fiat, present hybrid models - gasoline + electric or gas - capable of reducing consumption, improving cost efficiency and reducing CO2 emissions.

Consumption styles are modified. The consumer is always more attentive and available if, in case of similar efficiency, in satisfying his all requirements, he can obtain an indirect benefit for the environment and for the society. Generate an improvement in quality In many cases, one of the effects of sustainability integration is the induced improvement in the quality of products. The reduction of the environmental impact of a given product through the modification of the production method, represent a quality element perceived by the client. A company producing cotton fioc had always suffered of problems with the environment organization. This was caused by the fact that the plastic holder of the product was not biodegradable and was polluting the sea. For this reason, when the company found a material that was absolutely biodegradable still having the same structural characteristics of the plastic holder, the effect on the attitude of the environmental and consumers organizations was highly positive.

Why is business sustainability strategic ? This holder was produced from corn meal and was introduced in the production chain. Reducing operational costs (example score reducing energy costs) Nowadays many companies are re-qualifying the energy system of their buildings. They are definitely aware of the fact that energy was a high cost, which is subject to increases caused by shortage of fossil combustible materials. The utilisation of new technologies from renewable sources (solar, aeolian) allows savings of up to 60/70% of energy costs and a reduction of CO2 emissions. Reducing waste and the environmental impact In production processes but also in services, disposal of scraps may be optimized with substantial benefits for the environment. In the sector of electronic RAEE, some components of waste may serve to originate new products. Very often we can see the reconditioning of obsolete computers which may be reutilized where there is no budget for the purchase of machinery (schools, prisons). This is a tangible example of waste management with social and environment benefits. There are companies, like Nokia, which, annually, make handsets recycling campaigns. But this is also true in solidarity food trade with food bearing a close expiration date and serve a low cost chain for poor families. The Zero Waste Strategy, is now carried by 50% of cities in New Zealand, Australia, Canada, from

California, Oregon State and many multinational companies (Toyota, Bell Canada, Xerox, Hewlett Packard, and others). For example, Xerox Usa estimates its Zero Waste policy has saved, since 1990, more than $ 2 billion. Hewlett Packard in Roseville, CA has reduced waste by 95% and saved 870,564 dollars in 1998. Interface, Inc. Atlanta, GA has saved more than $ 90 million. In 2000, the establishment of Epson Portland, Oregon has reduced its waste to zero and has saved $ 300,000. In 2006, Toyota has achieved the goal of zero waste in all its European plants. Improving the work environment One of the fundamental elements for prosperity of companies is the management of human resources. To this end, the adoption of policies in favour of employees is a key element for success. There are numerous cases of wellness at work: companies which open the gyms for employees or nurseries for the children have obtained a remarkable improvement in acceptance and productivity. In Spain, some companies have allowed a longer rest period in the middle of the working day to allow their employees to rest at home. In so doing, they have obtained a remarkable increase in the afternoon productivity. Integrating services for employees in the company model is definitely a success element in attracting new talents and keep in the company. In 2009, a survey of MonsterTRAK.com found that 80% of young professionals interested in working in an ambient that has a

Giovanni Tordi, CEO Sustainability Company

positive impact on the environment and 92% would be more inclined to work for a company environmentally friendly. A chain of fast-food restaurants in the U.S., through a study on employees, found a direct correlation between the pursuit of sustainable policies (organic food, waste reduction, energy efficient lighting, training, ....) and the ability to attract qualified workers. Reducing operational risks One of relevant aspect of risk governance is definitely that of mitigating legal and insurance risks. It is sufficient to think of refunds made by financial sector companies (bonds in default) for consigned products, which were not in line with the risk profile of the client and have not gone through a sustainability examination. This has meant long and costly processes that have generated unbelievable recovery costs for companies. Anticipating policy changes Having a sustainability approach and follow it up with a pro-active stakeholder engagement, often allows to anticipate times and to overcome, without a critical impact, policy changes. In some European countries the introduction of an energy certification is a mandatory element to proceed in the sale of buildings (also in some Italian regions). Having foreseen a step of certification in the conduct if business and work processes is an element of remarkable advantage. According to a study published in 2008 McKinsey study, 80% of managing directors expect new

environmental legislation, relating to climate change within the next five years and third in just two. Those who had expected an earlier trend, have had more time to improve their standards. Reducing reputation risks The induced effect of having sustainability integrated in business is to be found in a return of reputation based on facts. Many corporations invest millions of euro in publicity communication aiming at the sale of their products and trying to motivate a positive approach in the consumer. Actually, today, also thanks to the diffusion of Internet, which represents an innovation for the consumer to inform himself, reputation is more easily achieved with facts. For this reason we start seeing in some firms, departments in charge of management of reputation risks. These are unites specialized in the preventive evaluation of risks which may be caused by some company decisions. At the same time, the incorrect integration of sustainability in business may cause a threat to the development of the enterprise. Pollution risks It is the effect of unsustainable processes. An incomparable example is provided by the great environment catastrophe caused by the pouring of highly harmful and toxic substances in the environment. Here are a few examples:

• 1976, the emission of dioxin in Seveso left the population w

Why is business sustainability strategic ?

ith a rate of deformed birth 6.6 times higher than the Italian average.

• IN 1984 the Bhopal pesticides plant in India killed 3787 people in just a few days after the discharge of 40 tons of Methyl isocyanate. But still nowadays, the mortality rate is 2.4 times higher than National average.

• After the explosion of the 4th reactor of a nuclear plant in 1986 the population of Chernobyl decreased from 350.000 to 400 habitants. Debris are still easily findable around all EU.

• The British Petroleum is

ordered to refund 9.5$ billion to the Mexican Gulf population after a leak of more than 4 million barrel of petrol in the ocean.

These catastrophes have caused death to human beings, upset the life of thousands of persons and damaged the environment in a dramatic way but nowadays we talk about pollution also in finance. We should consider the so called “toxic bonds”, I.E. bonds whose value, all though submitted to the evaluation of financial analyst of important rating agencies (Moodys, Fitch) are thwarted, dissipating life savings of many investors. We can remember the case of Lehman Brothers, historical company in the world of international finance, with a high rating (A+) which, because of

speculation in housing in the USA, have gone bankrupt. The impact of this failure has been dramatic not only for thousand of employees losing their job but also for all those people which were badly advised and lost their life saving. Problems of products or services Always because the superior information capacity through a community web, if a given product has some problems, the network puts it immediately in evidence. There are non-specialized blogs of people having their own independent opinion about products and services, throwing under a good or a bad light the work of some firms. One example could be the Dell case, a company which produces computers and entered the market with highly competitive prices. The problem evidenced by consumers was in the customer care and assistance. For these reasons, after a short time, an independent campaign was launched attacking the company in internet. This originated a heavy decrease in sales and forced the company to make improvement and guarantee a better after sale service to clients. If Dell had immediately integrated sustainability, this attack to their products and services was not going to take place.