A ‘Value Proposition Framework’ for Sustainable Development
This article was originally published by GreenBiz on July 7, 2021.
By Neil Hawkins, President, Erb Family Foundation and Laura Asiala, Chief Sustainability Officer, Wholeworks
Value. It’s the name of the game. Create it economically; capture it distinctively.
Whatever theoretical economic framework (such as game theory or decision analysis) or business model you want to select, value is at the heart of it. Individuals, organizations businesses and governments act to increase value — also referred to as utility — from their perspectives.
We believe this is a key to understanding the actions of various stakeholders in sustainable development, developing new strategies for making sustainability progress and, most important, for building effective collaborations across and between stakeholders upon which real sustainability rests and relies.
Collaboration requires a desire for shared value — finding the commonalities in seeking defined outcomes, then working together to increase utility or value propositions for all involved stakeholders. Not everyone needs to like each other or agree on every outcome to build effective collaborations, but they also can’t be at odds. This requires all parties to understand perspectives and find the common ground.
Businesses — with their human, financial and capital wealth — represent an enormous (or potentially enormous) powerful force when it comes to sustainable development. Therefore, we think it critical to understand the value propositions that all businesses face — both danger and opportunity — in terms of sustainability. In the long run, their viability and success also depend upon it.
“Collaboration requires a desire for shared value — finding the commonalities in seeking defined outcomes, then working together to increase utility or value propositions for all involved stakeholders.”
All companies have in common five primary value propositions, although not everyone regards them as a set. Each has a direct connection to sustainability:
- Profit
- Revenue
- Talent
- Capital
- Collaboration
Growing the bottom line: Profit
It’s the bottom line — revenues minus the costs — that still makes the ultimate business case.
It’s also one of the easiest cases to make for sustainability. A company can increase its profit directly by reducing costs, and for many companies, energy, water and waste costs can be significant.
Reducing these through focused measurement, process improvement and/or specific projects can directly improve the bottom line while also improving the sustainability of the overall enterprise. It is where many companies start their sustainability engagement and with good reason: The economics can be enormous.
Dow Inc., in its first set of 10-year sustainability goals, returned $4 billion to the company on a $1 billion investment in projects. Energy reduction also reduces costs and carbon emissions. Reducing its environmental “footprint” is also often the most immediate way for a company to build credibility for its sustainability efforts. Companies that talk a good game about sustainability but don’t take meaningful action to reduce their own footprint lose credibility and reputation, which hurts them in markets for products and services, talent and investment.
Growing the top line: Revenue
Revenues grow through increasing market share or successful development of new products and services in response to society’s needs and desires, and it’s clear that sustainability trends have become big drivers.
Tesla is one example of visionary and bold investment in a single, although major, sustainability driver: electrification of mobility. Tesla has been very successful in this regard, but looking across all auto companies, you see the accelerating interest — and new product announcements — to capitalize on this incredibly important driver. (It will be interesting to see if GM and Ford can make the transition to become leaders in the future of electric mobility; we like their chances).
In the water area, companies such as EcoLab have built entire platforms around the management of water, cleaning water and recycling of water. The list goes on, but the key principle here is to identify the trends, invest in R&D and new products and processes, and ride the wave all the way to successful business growth.
Attracting, developing and retaining top talent
Employees are the core of any successful company. Top talent is drawn to — and kept in — companies that are successful in developing and implementing the kind of proactive sustainability strategies for their companies that make a material and purposeful difference.
Very few top students want to join a company whose activities are viewed as making climate change worse or polluting rivers and oceans or harming biodiversity and nature. Sustainability is the new “table stakes” for attracting top talent today.
When Neil was CSO at Dow, Dow attracted thousands of new employees in China from top universities with a “Green Jobs” program where recruits could join Dow to have real sustainability impact in applying their degrees (and Dow’s retention rates for these students was much higher than peer companies). When Laura was director of communication/citizenship at Dow Corning, top students didn’t wait for on-campus recruiting. When the company launched its first Citizen Service Corps, students started calling the company’s media center.
Look at any companies on campus these days and you will see that their efforts in sustainability are featured prominently. What is more interesting is the importance of sustainability to developing and retaining top leadership talent.
Like a customer you don’t want to lose, retaining the most valuable employees is critical. The drivers for hiring new talent are really the same as “rehiring” current employees. Dow very successfully used sustainability experiences — special projects, in-field assignments, academies and simulations — to develop leadership and strategy skills, while integrating sustainability across the company. Many of these future leaders remained because of the skills that Dow invested in for them in sustainability.
Attracting and retaining investors
All companies require capital. And the pace of acceleration for consideration of environmental, social and governance (ESG) factors has increased significantly. Virtually no company can survive and thrive anymore with its investor base without addressing sustainability concerns as an enterprise.
Dow started third-party verified Global Reporting Initiative (GRI) reporting more than 15 years ago, and it learned and grew along the way; it worked with other reporting programs such as CDP as well. In 2020, Dow was named to the Dow Jones Sustainability World Index (DJSI) by S&P Global, the 21st year Dow has achieved this prestigious ranking due to its comprehensive sustainability programs. Dow became much more involved more than five years ago after the Paris climate talks when Michael Bloomberg and Mark Carney appointed Neil (then Dow’s CSO) to join the Task Force on Climate-related Financial Disclosures, part of the Financial Stability Board.
Dow helped establish the reporting criteria, but beyond that, the experience provided Dow real learning and insight into where banks, financial institutions, insurance companies, bond underwriters and investors were headed. All companies today need to pay careful attention because investors are paying careful attention. One has only to read BlackRock CEO Lawrence Fink’s growing expectations in his annual letter or observe ExxonMobil’s abrupt board member changes to see that the term “activist investor” has been redefined. Times have changed.
Collaborating for mutual success while addressing key challenges
Finding safe places to collaborate to create the healthy ecosystems in which enterprise thrives is critical: supply chains, marketplaces, workforces, communities, industries — no company goes it alone.
Finding safe places to collaborate is neither easy nor simple. Competitors have antitrust concerns. Customers and suppliers have adversarial positions relative to costs. NGOs often have adversarial advocacy positions to individual companies or to whole industry sectors, and governments view their roles as to regulate and tax companies.
All of that adversarial energy can be put to better use if the focus is on more narrow objectives, especially those that involve sustainable development of regions, countries and the world as a whole. There is usually widespread agreement that we cannot regulate or litigate to stop negative trends in nature, public health, social equity and ecosystems, and that if we work together we can accelerate progress. But to do that requires a maturity of perspective on the part of stakeholders that we can agree to disagree on many things, but still find common ground to solve more narrow challenges.
“Adversarial energy can be put to better use if the focus is on more narrow objectives, especially those that involve sustainable development of regions, countries and the world as a whole.”
The collaboration between The Nature Conservancy (TNC) and Dow, which recently celebrated its 10th anniversary, is one such example. Finding ways to incorporate the value of nature inside the company to better inform strategic decisions was of interest to Dow, and TNC was interested in preserving nature. Both saw that valuing the services of nature would help them to meet their respective goals, and they could collaborate with integrity. It set a new standard and example for collaboration, which continues to benefit both organizations, serve as an example to companies and organizations across industries, and preserve and enhance nature, using the power of capital in a way that no mere philanthropic strategy ever could.
When Dow worked with the University of Michigan to establish the Dow Graduate Sustainability Fellows more than a decade ago, significant faculty concerns were raised about their independence and intellectual academic freedom. Together, the company and the university put in place safeguards in response to those concerns, and hundreds of Dow Sustainability Fellows have benefitted, as have the University and those communities whose projects were addressed and implemented.
Neither example would have occurred without a strong platform for collaborating on sustainability challenges. These collaborations have helped Dow advance its business strategies and helped it learn and grow, positioning the company for future success. At the same time, these stakeholders also thrived. Win-win.
Value propositions for corporate sustainability
What company does not want top- and bottom-line growth? What company does not want top talent in their sector? What company does not want access to capital that is lower cost and more plentiful? And what company does not need platforms to collaborate with their value chain, in their communities and with their governments?
This five-part value proposition framework holds that promise for companies. Nothing short of their survival and growth is at stake today.
But we also believe that the other major stakeholder groups can benefit from understanding this framework for companies, by surfacing new ideas and creating proposals for collaboration that are more sophisticated in understanding the aspirations of their prospective company partners. At the end of the day, we all want to drive more sustainable action and bringing all stakeholders into collaborations will help us accelerate progress.