Ms. Charlotte Grezo says the approach to CSR requires a balance between managing the risks and potential negative impacts on the business with maximizing the positive consequences of doing business. There are two pieces around sustainability. One is managing risk, the other is delivering opportunity. Most companies start off with managing risk, which can deliver opportunity.
Linking Sustainability to Share Holder Value
What does it take to innovate? Arcus Consulting Group has launched a major initiative to explore growth and innovation as key elements of corporate and business unit strategy. A majority of executives say it involves a pervasive corporate culture, deeper customer insight and a comprehensive strategy that will enable an organization to offer its customers important added value. They say such steps reduce costs, increase sales and achieve higher earnings. But how does one come up with new solutions, and can innovation really be part of a strategy plan? Arcus’ multi-industry survey of senior executives found that of all the challenges companies face in this area, the biggest challenge is finding ways to create a “culture of innovation”.
As Arcus research indicates, doing so means that you need to be surrounded by highly talented people. It also means finding a way to transmit your passion to them, so they will buy into your vision of the future, perform at the highest possible levels, and come up with innovative solutions to the challenges of achieving the vision. No surprise, then, that the topic of innovation has been gaining ground as CEOs seek to incorporate concepts like a “culture of innovation” into their assessments of a company’s long-term value.
Arcus research indicates that besides contributing to the bottom line through reduced operating costs, insurance premiums, and capital costs, sustainable business practices contribute to shareholder value in a broader and more strategic way—by strengthening brand equity, reputation, human capital, alliances, and other important “intangibles” that can account for up to 90% of a firm’s market value. The Arcus View from the Top report on corporate sustainability practices espouses the business case for sustainability by clarifying how sustainable business practices are linked to shareholder value.
The term “sustainability,” once an obscure ecological concept, has now been adopted by many in the business world to connote the principles of social and environmental responsibility. Progressive businesses have recognized that profitability alone does not guarantee continuity, and that sustainability contributes to long-term shareholder value. Likewise, investors increasingly see sustainability issues such as controlling greenhouse gases as “material” concerns that must be addressed by management.
Today, business leaders in every industry have adopted sustainability as a strategic imperative, although some prefer other terms, such as “corporate citizenship” or “sustainable growth.” In addition to customers and shareholders, corporations are beginning to consider the interests of a broader range of stakeholders, including employees, local communities, regulators, lenders, suppliers, business partners, and advocacy groups.
Many have adopted the so-called “triple bottom line”— economic prosperity, environmental protection, and social responsibility—as a basis for measuring and reporting their sustainability performance. The emerging view is that there is a strong business case for sustainability, although actual quantification of the value remains challenging. Sustainable business practices go beyond corporate governance, codes of conduct, and engagement with stakeholders.
A genuine commitment to sustainability requires adopting a broader view of the full life-cycle implications of business decisions, including new product development and supply chain management. Practical interpretation of sustainability requires evaluation criteria.
For example, a sustainable product or process might be defined as one that constrains resource consumption and waste generation to an acceptable level, makes a positive contribution to the satisfaction of human needs, and provides enduring economic value to the business enterprise. The notion of an “acceptable level” suggests that resources should not be used at a rate faster than the rate of replenishment, and that waste generation should not exceed the carrying capacity of the surrounding ecosystem.
Three topics were addressed in this discussion about CSR with Ms. Charlotte Grezo- the drivers of change with regard to sustainability; the barriers that are holding back companies and business opportunities in CSR.
Arcus: Could you please share some of the challenges companies face with regard to managing corporate responsibility strategies?
Charlotte Grezo: From my own company’s perspective is that we do see climate change as a very serious environmental issue and we believe that our business, government and others and society needs to find a way of addressing it. Let’s start with the importance of trust. This is something that we focus on in this company. To go back to the definition I use the corporate responsibility was, it’s around understanding and managing the impacts of our influences of business or environment. It has to do with couple of other things as well. It’s a balance between managing the risks and negative impacts of the business with maximizing the positive consequences of doing business. Between that, you maintain and sustain your license to operate, I know it’s an old-fashioned terminology but we feel that it does remain very relevant. Our behaviour on environmental and social issues is extremely important in maintaining our license to keep going as a company. We’ve woven into that that you should also be very much focused on providing, where you can, an environmental and social benefit. So it’s a bit more than just managing our impacts; it’s very much looking at where our activities as a company can provide an overall benefit.
Arcus: Do you have a comparatively low carbon upstream and midstream operation?
Charlotte Grezo: We are an integrated energy company operating predominately in the UK and North America. Upstream, we source, generate, process, trade and store energy. Downstream, we supply gas and electricity to millions of homes and businesses and offer a distinctive range of home energy solutions and low-carbon products and services. We have three major companies- British Gas, which supplies gas, electricity and related products and services to UK residential and business customers, Direct Energy, one of North America’s largest energy and energy-related services providers and Dyno, the UK’s leading drain cleaning service, also offering plumbing and lock fitting.
What we have is a comparatively low carbon upstream and midstream operation. So our power generation is lower carbon. We have recently bought an interest in nuclear firm British Energy. They currently generate around 14% of the UK’s domestic energy supply. So the power we generate is relatively low-carbon.
Arcus: Is the environment a significant business opportunities?
Charlotte Grezo: Our focus in the UK is to move downstream towards becoming an energy services company, helping people use less carbon in their homes. So for us the environment and climate change is a significant business opportunity. We absolutely need to look at our operations and make sure that we are minimizing the environmental impact. We can do a lot more than that; our mission is to become the most trusted energy company leading the move to a low-carbon future. The lead piece of that in terms of CR and business is energy for low-carbon, so we have a significant role to play in helping the world move in a low-carbon direction.
Arcus: Does a low carbon direction deliver superior shareholder value?
Charlotte Grezo: Because we can look to providing end services around energy efficiency, for example, installation, which are some of the basic building blocks of energy efficiency. You start with insulations, with more efficient furnaces and moving on from there to micro-generation, in particular. In addition to selling residential business energy to customers, there’s a whole additional piece of business to be built around delivering energy services that have a lower carbon outcome.
Arcus: Could you talk about challenges that the corporate world faces with regard to sustainability? How can Centrica’s experience in this area help others with their approach to sustainability?
Charlotte Grezo: There are two pieces around sustainability. One is managing risk, the other is delivering opportunity. Most companies start off with managing risk, which can deliver opportunity. For example, if you’re using risk in a very broad context, with things like energy efficiency in the oil business, if you address energy efficiency and use less energy as a company, it will not only address environmental issues but it goes to the bottom line as well. But you are successful only when your business people see those opportunities. Many other companies have start looking at opportunities in this area. GE Ecomagination, Marks and Spencer with Plan A, GSK and an initiative on affordable medicines in the developing world. Through these initiatives, these companies are working with customers and suppliers to combat climate change, reduce waste, use sustainable raw materials, trade ethically, and help customers to lead healthier lifestyles.
So when you start to see how it affects you, you commercialize this area and make it part of your business. You can really start to deliver some results commercially through your company and also in terms of environmental and social benefits, depending on the business your company is in. So that’s when it starts to get much easier. So that’s really the stage where a company starts to get enthusiastic about this. I can think that some companies will see greater commercial benefits than others and it is harder to get beyond managing the risk.
Arcus: You recently talked about doing good for business. In context of the macro-economic situation that we’re in today, have you seen an erosion of interest in sustainability in a broader context from political, economic or a social standpoint? Have these been effected by the recession?
Charlotte Grezo: I believe that for companies that are here for the long term, realize that these things don’t go away just because it’s tough economically. You could make the case that your license to operate the company is more important. So you need to continue to address issues around corporate responsibility through tough economic times and make sure that you’re fit for when we come out the other end. You have to make adjustments for cost-economic times. We haven’t seen an erosion in interest in this sector in the past two years. At our company, it is so much part of the way we do things here. It is engrained in the culture.
Arcus: Moving onto culture and employee engagement. Has Centrica addressed the challenges with regard to sustainability practises, corporate values and culture? How have you gone about creating that shift? Could you please highlight three actions you have taken?
Charlotte Grezo: We have an active employee engagement program and we find that across the company people are very enthusiastic about it, which I think speaks for culture. They understand that setting an example starts within organizations. It’s very important to engage all employees and help them feel like they’re all contributing. Usually key ways of doing this are by making sure you do all the things such as recycling, looking at how you use your lighting etc., which is a tried and tested technique. Employees see a genuine commitment to the environment by the company. We have a large vehicle fleet in our downstream business which is energy efficient and has low-emission vehicles. It helps that customers see that energy services fleets have low emissions. We have ongoing initiatives and internal communications around energy, recycling. It is fairly well-trodden ground to keep employees engaged. You ensure that you use the right channels for your campaigns such as emails, TV screens and notice boards.
Arcus: What kinds of challenges are companies facing today in this area?
Charlotte Grezo: There are a couple of things that really matter for companies in general, and one is that the CEO is engaged in this agenda, and encourages it within the company, so that’s incredibly important. A second area is that you have a good system of governance so that you can actually get action. There is a clear accountability, an ownership to the agenda across business lines, so that the CSR plan isn’t out on a side but its inside.
Arcus: Have you heard about how these companies are addressing those challenges from a best practise standpoint? Is it different from the way Centrica’s been doing it?
Charlotte Grezo: One thing that’s important is there isn’t a fixed model about how to do this. When you’re addressing these issues, it has to fit into the management structure and the culture of the company. There’s no one size fits all and you have to integrate the sustainability. The other key thing is that sustainability is part of company structure. You have it ingrained in the organization within the strategy and you resource it. It does mean that you have to make a really good case for it so that the business teams buy into it. The key thing is that within every company there’ll be a most effective way to do this.
There isn’t a standardized approach to sustainability; each approach is unique. It is my view that sustainability is only another element of how you manage a company. So the sustainability needs to be, for example, integrated within the key company processes such that financial and non-financial imperatives are aligned. Your processes should include consideration of these risks. Woven in you should have deployment approaches running across your strategy. So if you weave it into existing governance, addressing the issues that really matter for that company so, it’s a question of identifying the issues or the risks. So I would say sustainability shouldn’t be managed in any way that is significantly different from the way you manage anything else in a company. The key is to getting it in there in the first place. That’s really easy to say but not so easy to achieve.
Arcus: What advice would you have for business leaders on deploying their sustainability strategies?
Charlotte Grezo: I would say that you need to be very clear about what the real issues are for your company and be very focused on managing those issues. But when I say issues I mean in a sense on managing your waste and delivering low carbon. So you should put your energy into those areas that are relevant to the company, and around that, you need to have a clear program and clear measures of performance indicators so that you can measure your progress in each area. There is a whole bundle of detail underneath. You absolutely need to make sure you address your energies are going to the right areas, you have a well thought out plan that’s agreed with other businesses to address it, and that you measure and understand what you’re doing. So make it a business imperative and measure it. It’s not something that a special group should own; it needs to be done together with colleagues in the business so that you get the direction right.
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