Often our conversation focuses on the first two – economic and natural capital.  You know, water, waste, electricity, cost reduction, ROI.  It’s easier to measure and not as messy as dealing with human beings.  But the third kind of capital – human capital – is what we want to discuss this month, specifically the human capital within the company.

At the core of any business enterprise is its people.  No matter how automated the process, someone still has to reliably turn on the machines.  Of course most business enterprises are nowhere near that simple.  And while many businesses pay lip service to the need for engaged employees, far fewer quantify the value of an engaged workforce to the company.  A company seeking a well-rounded sustainable strategy needs to know what that value is.

Engaged employees deliver better business results.  A 2010 report from the World Business Council for Sustainable Development revealed these statistics:

• Companies with engaged employees grew profits three times faster than competitors.
• Highly engaged organizations have 87% less staff turnover and 20% better performance than average.
• Operating income of companies with engaged employees improved by 19% in one year vs. a decline of 33% for companies with low levels of employee engagement.
• 59% of engaged employees say their job brings out their most creative ideas vs. 3% of disengaged employees.

So what is an engaged employee?  The team-consulting company Belgard-Fisher-Rayner identified four factors that cause an employee to be committed to a project or overarching goal:  Clarity (an understanding of what the goal is), Relevance (an understanding of how it benefits the company and therefore the employee), Involvement (having a personal opportunity to shape and implement the initiative) and Meaning (the goal resonates with their personal values).    It is the Meaning component that drives the commitment because it is at this level that the employee becomes emotionally engaged.

Studies have shown that 60% to 70% of employee absenteeism is due to reasons other than illness.  Employers can influence that 60% number by implementing such programs as flexible work schedules, work-at-home options, and job-sharing opportunities.   A company focus on sustainability includes an understanding of the influence of the work environment, both physical and mental, on the employee, leading to programs that value the worker’s physical and emotional health.  And engaged and innovative employees can often come up with their own solutions, not readily apparent to management but equally workable.

Employee engagement is also enhanced by opportunities for volunteerism.  These sorts of programs need to be aligned with the Meaning component of the employees’ commitment.   Employers can run company-wide volunteer programs for specific organizations that align with the company’s passions, or they can support employees with paid time off to volunteer in employee-selected programs.  Programs can be ad hoc or ongoing, but they need to speak to the employee’s desire for meaning and involvement.

All this leads to several quantifiable changes.  Engaged employees are more innovative and productive—two of the things that a successful sustainability strategy requires.  If only 25% of employees become more engaged, it is a conservative estimate that the company will see a 10% increase in their productivity.  More engagement means more productivity and more innovative ideas.  These increases avoid the cost of hiring additional employees to produce the same amount of work and create employees who may just think up the company’s “next big thing.”

Having an engaged workforce also leads to a significant reduction in turnover.  While recent financial conditions have resulted in significant workforce reductions, during more normal economic times, turnover is a high cost item for any business.  Voluntary turnover rates in 2008 were 10.4% for the manufacturing sector, 14.9% for the distribution and warehousing sector, and 14% for the services sector with an average of 12.5% for all sectors.  Estimates of the total cost of a voluntary turnover range from 30% to 150% of the salary of the vacated position.  Reducing that turnover by the 87% cited above can have a significant bottom-line impact.

Most importantly, any company seeking to embed sustainability within its corporate DNA needs the buy-in of its people, a capital asset just as valuable as money or materials. Their innovation and creativity provide the greatest pool of resources to identify and implement sustainable change.  Engaging this most important asset unleashes those resources, creating benefits that flow directly to the bottom line.  Just remember, once those benefits reach the bottom line, share them with the folks who helped create them.  It’ll become a virtuous cycle that’s sure to return multiples of the investment.

To combat this problem, five cities and two states have passed energy disclosure laws that require all buildings over a certain size make their energy consumption public.  Conventional wisdom holds that “you can’t manage what you can’t measure,” and these laws target the measurement piece of that adage.  The idea is that once you start measuring consumption, it will illuminate opportunities to upgrade systems, increase efficiency and control costs.  It’s a position that we whole heartedly support at iSpring.  It’s hard to make good decisions without adequate data.

These laws affect approximately 4 billion square feet of building space, which is more than three times the square footage of every Walmart, Target, Home Depot, Barnes & Noble and Costco in the U.S.  That may seem like a lot until you consider that the total amount of floorspace in the U.S. (as reported by the Energy Information Administration in 2003, the last time it surveyed commercial buildings) is 72 billion square feet.  It doesn’t take a rocket scientist to figure out that we’ve got a long way to go before everyone’s on board with energy disclosure.

There seems to be good reason to hop on the benchmarking bus.  A recently released study from the Institute for Market Transformation (IMT), an energy-efficiency and green building research, education and policy focused non-profit based in Washington, D.C., found that building owners, consumers and tenant businesses stand to reduce energy costs by more than $18 billion by 2020 if a national building energy rating disclosure policy were to be enacted.

It all makes sense to us.  Good measurement and reporting is key to reaping financial benefits from sustainability.  It also could be key to creating competitive advantage for those building owners who use the data to make energy-efficient building improvements.  After all, what business wouldn’t rather be in an efficient building than an inefficient one?  And if you’re looking to buy a building, wouldn’t you choose the one with lower operating costs?

It appears that this all makes sense to decision-makers in the Delaware Valley, too.  The Coalition for an Energy Efficient Philadelphia and Next Great City are making headway in pushing for Philadelphia to adopt energy benchmarking requirements.  When it happens, it’ll rank Philadelphia with New York City, Washington, D.C., Austin, Seattle and San Francisco, all of whom currently require commercial buildings to benchmark and disclose their energy consumption.  It’s not clear yet what platform they’ll be required to use for disclosure—or what size building will be the threshold for disclosure—but all current jurisdictions with policies have specified the use of EPA’s Portfolio Manager, an online energy management tool and benchmarking system that allows the user to track consumption across all buildings in their portfolio and compare to other similar buildings.

As usual, though, the devil will be in the details.  For many building owners and managers, tracking down the energy consumption data necessary to report out is difficult.  IMT reports that getting monthly consumption data from some multi-tenant buildings is nearly impossible because owners lack whole-building data access.  According to IMT, it’s the number one barrier to benchmarking, but some utility companies—not surprisingly, the ones in jurisdictions where energy disclosure laws are in place—are piloting solutions.

But with the national emphasis on energy efficiency in recent years, we think it’s only a matter of time before energy benchmarking and disclosure goes national.  Will you be ready?

Along comes integrated reporting.   Also known as “One Report,” it sits at the confluence of financial, non-financial and sustainability reporting to provide a more accurate picture of value creation.  It ties environmental, social and governance (ESG) performance to financial performance and serves as a tool for not just articulating actions more holistically and accurately, but also for promoting positive ones.  United Technologies, Philips, BASF and Southwest Airlines are all currently reporting this way, and it may be that everyone will soon be required to report this way, too.  The European Union is expected to mandate ESG reporting by June 2013, and it’s likely that the U.S. will begin to move in this direction, too.

So if integrated reporting is so great, why aren’t more companies doing it?  Why should they bother?  Well, it turns out that an integrated report requires an integrated strategy.  As last month’s Buzz article reported, the companies who have integrated sustainability into their overall business strategy are pulling ahead of the competition in reaping financial benefit from their sustainability efforts.  Reporting may not be sexy, but greater profitability sure is.

We’re learning that judging a company purely on their economic performance is short-sighted, and it doesn’t accurately account for all of the risks to their continued profitability and performance.  Better management of resources (energy, water, materials, air quality, talent) is going to be a driver of competitive advantage for companies.  Integrated reporting provides an opportunity for senior management to gain insight on performance in these areas.  There needs to be a solid information platform supporting sustainability-focused business transformation initiatives to facilitate companies’ abilities to meet their goals.  Again, it’s back to the “you can’t manage what you can’t measure” thing we talk about so frequently at iSpring.

Currently, there’s a mishmash of information out there for shareholders and stakeholders that lacks consistency or integration.  Some companies have gotten on board with the Global Reporting Initiative’s G3 Guidelines framework to create meaningful sustainability reports, but they still exist as an “add-on” to their financial reports and only address ESG performance.  Integrated reporting standards need to be more comprehensive—as if the G3 Guidelines and the U.S. Generally Accepted Accounting Principles had a love child.

The Integrated International Reporting Committee (IIRC) is currently developing an overall framework for integrated reporting, and they released their discussion paper, Towards Integrated Reporting – Communicating Value in the 21st Century on integrated reporting in September 2011.  Their vision for the future of reporting and key report components doesn’t feature the words sustainability or corporate responsibility anywhere in there.  Their assumption is that sustainability is part and parcel to truly integrated model of disclosure.  In the U.S., the Sustainability Accounting Standards Board (SASB) has recently been formed to develop sector-specific key performance indicators (KPIs) for environmental, social and governance issues that affect financial performance.

Unfortunately, a key barrier to integrated reporting—or even sustainability reporting—for many companies in the U.S. is that they are still having difficulty getting the data they need for internal management reporting and performance evaluation.  That data simply isn’t ready for primetime yet.  For these companies, integrated reporting surely looks like more work and financial investment than they can handle right now.

However, as more companies test the integrated reporting waters, pressure will be on the others to follow suit.  The IIRC is undertaking a pilot program to work with 100 companies worldwide to produce integrated reports based on their new framework.  Don’t you think once Microsoft and Pepsi put out integrated reports, competitors like Oracle and Coca-Cola won’t follow suit, especially if the integrated reports receive praise?  And in the end, it may just be good business.

Last year’s study, which we previously wrote about in The Sustainability Buzz, outlined the competitive advantage gap between the sustainability “embracers” and “cautious adopters,” and this year’s study goes further to describe that this new class of businesses is not only seeing competitive advantage but also the profits attendant to that advantage.  Resource-intensive industries, like energy and utilities, consumer products, chemicals and utilities, still lead the way, but compared to last year, companies from service and technology industries also are seeing the competitive merits of sustainability and are permanently placing the issue on their agenda.

This year’s study also finds that more companies are drawing the connection between sustainability and innovation.   The study reports that 25% of respondents selected improved innovation in products and services as a top benefit of sustainability (up from 16% last year); 22% chose business model and process innovations as a top benefit (up from 15%).  No one is seeing these benefits more clearly than the Harvesters, who are experiencing increased profits from sustainability.

So what makes these Harvesters different?  Three key areas have emerged that set these Harvesters apart—they have a business case for sustainability, they’ve modified their organizational structure, and they’re operating more collaboratively.

The Business Case

First, they have a business case for sustainability.  In fact, they’re three times more likely to have one than non-Harvesters.  They’re also twice as likely to have a separate sustainability reporting process and more than twice as likely to have operational and personal key performance indicators (KPIs) for sustainability.  57% of Harvesters have set company or operational key performance indicators related to sustainability, compared with 25% of non-Harvesters.

These companies may still struggle with quantifying comprehensive metrics, measuring brand reputation, and predicting resource price uncertainties, but being proactive in making internal changes to adapt to anticipated external changes lessens their struggle.  In contrast, only 9% of cautious adopters—ones who adopt sustainability practices in response to legislation or other outside pressures—reported that sustainability added to their profitability.  Clearly, having a strong business case for sustainability is a key ingredient in reaping profitable rewards, but that’s not all.

New Organizational Structure

The study reports that Harvesters are “adopting new structures, instituting new lines of communication and establishing new performance metrics” instead of trying to fit sustainability-related resources into established organizational structures (a variation on the square peg-round hole approach).  In a typical Harvester organization, the sustainability officer has the backing of the CEO and is often supported by separate senior management committees that support sustainability objectives.  Harvesters are 50% more likely to have have a CEO that supports sustainability, and they’re 62% more likely to have financial incentives tied to sustainability performance.  As the study states, “Harvesters tend to have a distinctive organizational mindset and design that support sustainability.”

Collaborative Operations

Finally, Harvesters are more collaborative with internal and external stakeholders.  Harvesters especially collaborate among geographic business units.  “So if we’re talking about something that’s working really well in Europe, we look at whether there’s a way to bring it to the U.S.” says Dave Stangis, Campbell Soup’s Vice President of CSR, Sustainability and Community Affairs.  Additionally, Harvesters collaborate more with customers and suppliers.  Both Walmart and Procter and Gamble have sustainability scorecards for suppliers that measure things like energy use, water use, waste management and greenhouse gas emissions.

This is not to say that you can’t see profits from acting more sustainably without large-scale change.  Cornell University professor Stuart Hart describes “eco-efficiency gains” as things such as reductions in energy consumption, and these can still contribute to profitability even without having sustainability strategy embedded in your organization yet.  But Harvesters are going beyond those gains to innovate, achieve competitive advantage and reap the financial benefits of making that business case for sustainability.  Wouldn’t you like to join them?

Source: Sustainability Nears a Tipping Point (Findings from the 2011 Sustainability and Innovation Global Executive Study and Research Project). MIT Sloan Management Review and Boston Consulting Group. Winter 2012. Get the full report here.

• Environment
• Governance
• Workforce
• Community Engagement and Human Rights
• Customers and Supply Chain

In developing the standard, the authors examined 140 existing standards worldwide, including product, industry and single media standards, and aggressively engaged stakeholders to provide feedback.  In two rounds of commenting, 800 stakeholders from 32 countries significantly contributed to the architecture and content of the final standard.

The standard has seven prerequisites, which are mainly compliance-related, including the use of an environmental management system (EMS) and the existence of sustainability, ethics and occupational health and safety standards.  Similar to the Leadership in Energy and Environmental Design (LEED) certification process, organizations meeting the prerequisites are then awarded points for performance against 100 different indicators to become certified.  There are 22 core indicators, spread across the five different domains, for which organizations seeking certification must achieve points in each one (although they need not achieve all the available points in any individual core indicator).

There is a total of 1003 points that an organization could theoretically achieve, but according to Rory Bakke, Director of Sustainability at GreenBiz Group and one of the standard’s authors, UL 880 is designed to be aspirational, and they don’t believe any company out there today could achieve the maximum points (although they encourage someone to prove them wrong).  Bakke says that at 200 points, a company would be doing pretty well; the core requirements are meant to be aggressive but accessible.

UL Environment will be administering the standard, and in their commitment to transparency, a key component of sustainability, they will be listing certified companies’ scores on their website.  UL Environment has developed a program called Sustainability Quotient (SQ) to guide organizations through the certification process, and they are currently developing an SQ training program to allow individuals to become “SQ Qualified” (similar to the LEED Accredited Professional designation) to work with organizations seeking certification.

According to Bakke, this is the first set of sustainability audit procedures in the world to have been developed for manufacturers.  It will, no doubt, be a bellwether for the industry to see how many organizations begin to adopt this standard and achieve certification.  Already, LG Electronics, Intuit and igefa have signed onto the standard, and the authors are at work drafting another standard, UL 881, for the service sector.

iSpring will be watching the evolution of this standard closely.  It has the potential to serve as an excellent foundation for any organization that is interested in taking a holistic approach to sustainability and becoming recognized for it.  With the credibility of the UL name behind it, there’s a good chance that the standard will take off and become the standard, similar to the LEED standard for green buildings.  We, of course, couldn’t be more excited about the standardization of evaluating sustainability performance, as we’ve discussed previously on The Buzz.   A solid (and evolving) standard only serves to raise the sustainability bar across the industry.

Interested in getting started on the road towards certification?  iSpring can help you assess where your gaps are relative to the new UL 880 standard.  Give us a call.

From Practical Energy Solutions:

A project team led by Practical Energy Solutions (PES) was awarded a long term contract with the City of Philadelphia to provide energy consulting and design services. The Mayor’s Office of Sustainability selected the PES Team from a large group of companies that submitted proposals.  PES was determined to be the best qualified to help reach a goal of reducing energy consumption by 30% in City-owned buildings by 2015. Paul Spiegel, President of PES, said, “We are excited to have this opportunity and look forward to helping Mayor Nutter make Philadelphia the Greenest City in America per his Greenworks plan.”  Paul also stated, “We are thrilled to be working with our other team members: Re:Vision Architecture, E & M Engineering, David Chou & Associates, KO Angotti, and iSpring Associates on this important project.”

BBU is a division of Grupo Bimbo, one of the world’s leading bakery companies with facilities in 17 countries.  As a food production company with headquarters in Mexico City, Grupo Bimbo is particularly sensitive to the need for a constant, reliable supply of clean water for their baking operations.  Because many of their facilities are located in the more arid portions of the world, they could be vulnerable to water shortages as well as price spikes as the water supply becomes increasingly taxed.  Therefore, all Bimbo facilities have a major interest in reducing water usage as much as possible through conservation and reuse.

The Challenge

One of their cake plants presented a unique opportunity to pursue not only water conservation but also cost reduction.  Because of local restrictions, the plant is required to truck much of its wastewater to a treatment facility, rather than utilize the municipal sewer system.  This requirement adds considerable cost to the disposal of the wastewater.   While water purchase cost is relatively low in this municipality, the disposal costs are quite high.  Finding ways to limit wastewater for disposal by truck and treatment plant would also result in lower costs.

Project Description

iSpring, in collaboration with the Enterprise Systems Center from Lehigh University, identified the sources, uses and disposal means of the plant’s water system.  The resulting water map was used as the basis for determining the cost per gallon of water based on the use and the disposal method for that gallon.  Water costs ranged from a low of $.005/gallon for water used directly in product to a high of $.337/gallon of water for wastewater that must be trucked from the facility and that includes the chemical used as a foaming detergent.

The project team analyzed 44 water-related processes within the plant that used the most water in terms of gallons and the most water in terms of cost.  Because of the significant variance in the cost per gallon of water, these two analyses yielded very different results.  The top three water usage areas by gallons were different from the top three water usage areas by cost.  Combining this information, the project team focused on those areas where there was the greatest potential for cost reduction primarily through reducing wastewater.  Through observation and trial implementation, the team identified process improvements including standardization of equipment and operating procedures and scheduling changes that would reduce water usage.

Results

The project team achieved the following results:

• Identification of water conservation opportunities that would yield savings of 262,774 gallons and $68,102 per year
• Opportunities for non-water waste reduction that would result in significant additional reduction of waste removal costs
• Input based on observations into creation of Standard Operating Procedures
• Enhanced understanding of the sources, uses, costs, and methods of disposal of water and waste

To read more case studies of successful projects iSpring has completed in the areas of sustainable manufacturing, waste and alternative energy, click here.

The existence of the LV Sustainability Network was an important factor in the awarding of the grant to the Lehigh Valley.  The concept of the network and the work that is going into developing it show that the Valley has an advanced understanding of the need for collaboration and communication in the development of a sustainable community.  The Network will provide the platform for this connectivity.  iSpring is delighted to have been a founding sponsor of the Network.  Andrea Wittchen, iSpring partner, is the co-chair of its Steering Committee.

At the annual Membership Celebration, Andrea Wittchen received the Sustainability Award for Inidividual Leadership. The awards are presented annually in five separate categories: Private Project, Public Project, School District, Green Campus and Individual. For the Individual category, the award is given to the person who best exemplifies the spirit of sustainable design, construction and management within the Lehigh Valley.

Andrea’s committed work over the last two years in co-convening the first Lehigh Valley Sustainability Summit and chairing the Steering Committee of what would become the Lehigh Valley Sustainability Network, launched in May 2011, earned her the prestigious award. Other nominees in the category were Tom Kerr, Past President of the Wildlands Conservancy, and Robert Kiel, Senior Vice President at Liberty Property Trust.

Andrea was excited and surprised to win the award amongst such distinguished company. “I’m thrilled to receive this award on behalf of all the volunteers who have worked so hard to create the Lehigh Valley Sustainability Network,” she said. “It’s an honor that the DVGBC has chosen to validate the work we’re doing and support our vision of regional collaboration to promote sustainability.”

iSpring would like to congratulate all of the Sustainability Award winners:

Private Project: Science, Technology, Environmental Policy & Society Initiative (STEPS) Building, Lehigh University
Public Project: Clifford Bartholomew 9th Grade Center, William Allen High School, Allentown School District
School District: East Penn School District
Green Campus: DeSales University

The DJSI, established in 1999, was the first index to provide investors with a benchmark to help them make sustainability-related investment decisions.  Since then, the index has become one of the most influential lists of companies aspiring to be leaders in sustainability—and garner the support of investors in the process.  This year’s DJSI is comprised of 342 companies that have been compared to their industry peers and score in the top 10% of their industry based on numerous economic, environmental and social metrics.  If companies are dropped from the list, it means they underperformed relative to their industry peers.

For Coca-Cola, it must’ve been a doubly tough pill to swallow to see that rival beverage company, PepsiCo, came in as the industry leader of the food and beverage sector.

But the deletions of these green corporate titans and the addition of up-and-comers, such as local favorite Air Products and Chemicals, can only be good for the cause of sustainability.  It shows that companies cannot afford to become complacent when it comes to sustainability.  Because as we’ve been saying for a while at iSpring, if you’re not willing to step up and be a sustainability leader, there are plenty of other companies out there that are, and those companies may attract your consumers and investors as followers.

It’s tough staying on top, especially when competitors are getting more savvy and charging head first towards sustainability.  In the May issue of The Sustainability Buzz, we talked about the need to set the bar higher when it comes to measuring sustainability, and this is due in part to the fact that more and more companies, as witnessed by the movement in the DJSI, are reaching the targets that were previously established as criteria for being sustainable.  If companies want to stay on top, they’re going to have to continue to find innovative ways to move the sustainability needle farther.

And you can bet that’s what will be front and center of Coca-Cola’s mind in the next year.  As they work to get themselves back on that index, it can only serve to benefit the entire cause of sustainability.  Because for as hard as they’ll be pushing to get back on that index, so will their competitors to retain their own coveted spots, and a rising tide of sustainability lifts all boats.