SOURCE: MIT Sloan Management Review

MIT Sloan Management Review

September 17, 2009 10:15 ET

Global Study Reveals Major Disconnect Between Corporate Leaders' Concern About the Impact of Sustainability on Their Business and the Actions They Are Taking

More Than 70 Percent of Executives Say Their Company Has Not Developed a Clear Business Case for Addressing Sustainability, According to Joint Study by MIT Sloan Management Review and The Boston Consulting Group

BOSTON, MA--(Marketwire - September 17, 2009) - An overwhelming majority of corporate executives believe that sustainability-related issues are having or will soon have a material impact on their business. Yet relatively few companies are taking decisive action to address such issues, according to a new study by MIT Sloan Management Review (MIT SMR) and The Boston Consulting Group (BCG).

The study, titled "The Business of Sustainability," is being released today in two publications -- a detailed special report by MIT SMR and a summary report by BCG. The findings are based on a global survey of more than 1,500 corporate executives and more than 50 in-depth interviews with experts from a range of disciplines such as energy science, civil engineering, management, and urban studies.

"What came across loud and clear is that sustainability is having an increasingly significant impact on business, and executives are placing it high on the corporate agenda," remarked Maurice Berns, a BCG partner and a lead author of the report. "But we also found a wide gap between intent and action. Simply put, a majority of companies are not acting decisively to exploit the opportunities and mitigate the risks that sustainability presents. The findings should be a wake-up call to executives that if they want to make progress on sustainability, it's time to get serious."

Although almost all the executives in the survey (92 percent) said that they were trying to address the issue of sustainability, most said that their companies were either not taking bold action on sustainability or falling short on execution.

--  Less than a third of survey respondents said that their company has
    developed a clear business case for addressing sustainability
--  Less than 45 percent said their organizations were pursuing basic
    sustainability strategies such as reducing or eliminating emissions,
    reducing toxicity or harmful chemicals, improving efficiency in packaging,
    or designing products or processes for reuse or recycling
--  The majority of sustainability actions undertaken to date appear to be
    limited to those necessary to meet regulatory requirements
    

The study identified three major barriers to decisive corporate action: a lack of understanding of what sustainability is and what it means to an enterprise; difficulty modeling the business case; and flaws in execution, even after a plan has been developed. But the risks of failing to act decisively are growing, according to many of the thought leaders interviewed.

"I think that the world has reached a tipping point now," said Steve Fludder, vice president of ecomagination at General Electric, in an interview. "We're beyond the debates over whether [addressing sustainability] is something that needs to be done or not -- it's now mostly about how we do it."

Dierk Peters, former international marketing manager for Unilever, echoed the point that companies need to get focused and concrete in their action plans: "All the benefits of sustainability are only possible if you tackle the issues on the supply chain. If you don't, it's greenwashing."

While many companies are either moving slowly or struggling with execution, there are several noteworthy exceptions. The study profiles a small number of companies (including Nike, Better Place, and Rio Tinto) that have aggressively integrated a sustainability strategy into their businesses -- and that are reaping substantial rewards.

--  The five companies cited most often by survey respondents as "world
    class" in addressing sustainability were General Electric, Toyota, IBM,
    Royal Dutch Shell, and Wal-Mart.
--  The research indicated that once companies begin to pursue
    sustainability initiatives in earnest, they tend to unearth opportunities
    to reduce costs, create new revenue streams, and develop more innovative
    business models.
    

"One of the most interesting findings was that the more you know about sustainability, the more it matters," noted Michael Hopkins, editor in chief of MIT SMR and a coauthor of the report. "Executives who have been thinking and strategizing around the issues are much, much more likely to see the competitive advantage that a sustainability strategy can grant."

--  Sixty-eight percent of business leaders with sustainability expertise
    cited improved financial returns as a benefit from their organization's
    investments in sustainability initiatives, compared with only 32 percent of
    novices
--  While novice practitioners thought of sustainability mostly in
    environmental and regulatory terms, with any benefits stemming chiefly from
    brand or image enhancement, practitioners with more knowledge tended to
    consider the economic, social, and even political impacts of sustainability-
    related changes in the business landscape
    

To help companies mobilize around sustainability, the authors offer a diagnostic tool that executives can use to assess their company's sustainability progress from a managerial perspective. This "sustainability audit" is meant to help organizations gauge the extent to which they have framed a sustainability agenda, developed a business case for it, and executed their strategy.

For more details on the study's findings and interview transcripts, please visit the Sustainability Initiative Web site at http://sloanreview.mit.edu/busofsustainability.

To receive a copy of the special report or arrange an interview with one of the MIT SMR authors, please contact Michael Hopkins at +1 617 253 8071 or mhopkins@mit.edu.

To receive the summary version or arrange an interview with one of the BCG authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About the Research Methodology

The first annual Business of Sustainability research project -- an undertaking of the Sustainability Initiative -- had three parts. First, there were interviews with experts in various disciplines at MIT (including civil engineering, energy science, management strategy, and urban studies) as well as interviews with Boston Consulting Group experts. Second, MIT Sloan Management Review and BCG conducted in-depth interviews with more than 50 thought leaders worldwide. The interviewees included C-level executives, managers, academics, and experts from government organizations, nongovernmental organizations, advisory services firms, and think tanks. Finally, MIT SMR and BCG collected 1,560 responses from corporate executives and senior managers to a 20-question electronic survey conducted in March and April 2009. The large number of survey responses allowed for statistical significance across all of the major categories (such as industries and regions) examined. An additional 462 survey responses from nonprofit executives, academics, government officials, and others were analyzed separately.

About MIT Sloan Management Review

A Web site and print magazine published at the MIT Sloan School of Management, MIT Sloan Management Review's mission is to host the conversation about the future of management practice among thinkers, professors, and managers. MIT SMR captures the best new management ideas developed in the world of scholars, researchers, and thought leaders and brings them to the managers and leaders who create impact by putting those ideas into practice.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. BCG partners with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. BCG's customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that the firm's clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more information, please visit www.bcg.com.

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