MEASURING SUSTAINABILITY; A new ROI - Return on Involvement

In September 2014, I attended the RILA Sustainability conference in Minneapolis, Minnesota, which began my journey to learn more about more sustainability in the retail world.  At the time, the retail industry was just starting to face the seismic shifts in ecommerce technology, the sharing economy and the demand for more transparency about where and how our products are made and managed.  

To be clear, I was also there to introduce our company, Community Recycling, to thought leaders who might be ready to embrace a new experience in clothing recycling and to be a part of the sustainability solution.  The keynote speaker at the forum was Best Buy CEO Hubert Joly, who had recently taken over at the helm and was proud to announce a significant achievement in consumer electronics recycling. His speech celebrated the landmark achievement of one billion pounds of e-waste recycled in six years by customers at 1,400 U.S. stores. He went on to announce an ambitious new goal to collect an additional two billion pounds of electronics and large appliances by 2020. Doubtless, this was an impressive achievement on its own merits. However, I was not content to leave the real question of consumer engagement and impact unanswered.  At the end of his speech, I was the given the last question to Mr. Joly.  While I applauded the Best Buy accomplishment, I asked whether this mattered to his customers. To my amazement, Mr. Joly explained that he thought this effort had no impact whatsoever on the consumer. In fact, he explained further that he thought the consumer did not care about this achievement. I respectfully disagreed and explained that consumers do care about sustainability and that we ought to engage the consumer in the story.  As case in point, I explained that Community Recycling was pursuing this very engagement as the cornerstone of our business and that we believed differently. A few applause, some nods of agreement and the beginning of a journey.

Today, we know that sustainability matters and consumers are paying attention with actions that have lasting effect.  Sustainability, while the subject of considerable attention, can still be characterized as evolving. At the very least, it can be defined as a process and set of deliverables that have real environmental, social and economic impact.  Nonetheless, embracing sustainability has been a slow and tortuous process in the retail world. However, the results thus far are measurable and meaningful.

Until recently, many in the retail business community regarded sustainability as a means of saving money, through energy programs or cost reductions, or at worst, as a means of avoiding unpleasant repercussions about supply chain management. To these ends, sustainability was regarded as a cost or necessary expense for doing business. Not any more. 

According to The Guardian, at least nine companies globally achieved a billion dollars or more in revenue annually from sustainable products or services — those that focus on sustainable living and/or are produced sustainably. The nine companies are: Unilever, General Electric, Ikea, Tesla, Chipotle, Nike, Toyota, Brazilian beauty company Natura and Whole Foods. As of 2016, Target said its Made to Matter line of “better-for-you and better-for-the-world products” surpassed the billon dollar milestone.   This represents a major change in business strategy. No longer are sustainability and profit are mutually exclusive; on the contrary, rather than being a drag on profit, sustainability can drive it.

As these large consumer brands have demonstrated, sustainability is driving revenue growth, and there a number of recent studies that demonstrate the consumer behavior that underlies this shift. According to a global study conducted by Nielsen, “sustainability is a worldwide concern that continues to gain momentum—especially in countries where growing populations are putting additional stress on the environment,” says Grace Farraj, senior vice president, Public Development & Sustainability, Nielsen. “An increasing number of consumers in developed regions consider sustainability actions more of an imperative than a value-add.”

Among the most telling results from this study: 

·     62% of respondents identified brand trust at the top of sustainability factors

·     66% of the global respondents said that they were willing to pay more for sustainable goods

·     73% of Millennials said that they would be willing to pay a premium for sustainable offerings.

·     Commitment to the environment has the power to sway product purchase for 45% of consumers surveyed.

“The hierarchy among drivers of consumer loyalty and brand performance is changing,” says Farraj. “Commitment to social and environmental responsibility is surpassing some of the more traditional influences for many consumers. Consumer-goods’ brands that fail to take this into account will likely fall behind.”

Consumers crave a deeper emotional connection in a digital world and seek meaningful experiences, noted Forrester analyst Anjali Lai. Introducing a new report on the “values-based consumer” at the recent Consumer Marketing Forum, she explained that “marketers can’t afford to remain silent about their values.”

Forrester’s research found 52% of consumers now consider themselves environmentally conscious, compared with 42% just two years ago. Another report, from Unilever, found one-third of consumers worldwide pick brands based on their environmental and social impact.

An earlier study commissioned by BSR and Futerra also found that more consumers are looking into sustainability—as opposed to just price and performance—when choosing what products to buy and which brands to buy from. In a survey of 54 of the world’s leading brands, almost all of them reported that consumers are showing increasing care about sustainable lifestyles.     At the same time, surveys on consumers in the US and UK show that they also care about minimizing energy use and reducing waste.  For the most part, consumers control what happens to a product. But as some companies are realizing, placing the burden of recycling entirely on the consumer is not an effective strategy—especially when tossing something away seems like the easiest and most convenient option.

Nowhere in the retail industry is sustainability more compelling than in the apparel and footwear sector which, behind the fossil fuel industry, is the second largest polluter in the world. Over the past few years, a select few retailers and manufacturers have launched programs that seek to incorporate conscious consumption and environmental stewardship into their engagement with customers. To include their customers in preserving their products and preventing things that still have value from going to the landfill, these companies have demonstrated a shared value in making our world a better place. By offering services to help expand the longevity of their products, they’re promising quality and durability to consumers and receiving the reputational gains for being environmental friendly. These new programs serve to engage the consumer in the solution and, while doing so, promote brand loyalty and stewardship of the environment. 

The retail world is in the midst of upheaval and change. In this increasingly competitive business landscape, with advancements in information technology, efficient logistics, and instant feedback, business imperatives remain paramount. Retailers and manufacturers are keenly focused on economic viability, competitive advantage and return on investment. In 2013, Accenture published a study “Architects of a Better World” that was prepared for the UN Global Compact, in which the importance of ROI measurement as relates to sustainability was raised.  The study revealed a significant disconnect between the importance of the concept of sustainability and the execution. At that time, as many as 80% of CEOs believed that sustainability was a competitive advantage, but only 38% could quantify its impact on the business.  Today, the landscape has clearly shifted, and customers are demanding more transparency and accountability. The dynamics and numbers have changed, but the quest for certainty continues. 

This begs the question: how do we measure the ROI on Sustainability? For starters, we can break down the consideration into four areas of assessment: Return on Brand, Employee Retention, Reputation Value and Program Value

RETURN ON BRAND:

For any brand, sustainability and shared value can be viewed in terms of the lifetime value of a customer. In this thinking, we can begin to measure whether the sustainability efforts results in securing more customers, having customers that buy more often or more exclusively, and have more valuable customers.

Creating shared value works because it leads over time to attitudinal and behavioral change in consumers. Shared value therefore drives KPI’s like brand preference, brand loyalty and usage frequency. It attracts more valuable customers, and supports the customer lifetime value of the brand, which in turn impacts directly on market share, margin improvement and profitability. In this assessment, it is equally important to know how sustainability integrates into the company narrative and what is the intended purpose served. While it may begin as a means of driving traffic or sales, companies may quickly realize the fundamental business opportunities inherent in sustainability. It is best to be open-minded and adaptive, but the ultimate experience and story must be seen as natural, consistent and authentic. 

EMPLOYEE VALUE:

Employees are among the most important of a company’s stakeholders. Critically, from the ROI perspective, employees can influence, and in turn be influenced by, their company much more directly than many other stakeholder groups. Just as customers want to feel good about the brands and companies they transact with and have relationships with, so too do employees increasingly demand jobs that feel good as well as look good. Creating meaningful work and integrating social purpose has a demonstrable effect on employee retention. According to research published in the Academy of Management , purpose-driven organizations that offer employees opportunities to make a difference have employees who are more engaged, affectively committed, and intrinsically motivated.

COMPANY REPUTATION:

Positive brand reputation means consumers trust your company, and feel good about purchasing your goods or services. Brands create value by generating demand and securing future earnings for the business. Investments in sustainability, as already noted above, have influence over those future earnings and brand value.

A company’s value is based on the revenue it will potentially generate in the future. It’s a function of the magnitude of those earnings and the risk associated with them. Therefore, sustainability is strongly related to value: the more a company proves to the financial markets and other audiences that it is a sustainable business, the lower the risk associated with that company (and the lower the rate used to discount future earnings).

Brands can be the engine towards a more sustainable world. They should be ahead of the market and create products and services that will be relevant to consumers while, at the same time, helping them to live in a more sustainable manner. This will create a positive influence on the environment and communities, as well as generate dividends to shareholders through growing demand. A sustainable brand will also enhance a company’s reputation and secure future earnings through stakeholder loyalty and advocacy, thus increasing brand value.

RETURN ON THE SPECIFIC PROGRAM:

Measuring the ROI of the specific program or initiative can be very focused and limited and is fundamentally different from measuring the impact on Brand or Talent or Reputation. Every program is different and unique and therefore requires custom-designed metrics rather than generic metrics that work well across a multitude of sectors. Specifics metrics in this regard skew more to the objectively quantifiable (e.g. tons, gallons, miles, numbers of trees saved, jobs created or resources preserved.).  Most important in this regard is to set proper expectations, objectives and standards for measurement. These guidelines and benchmarks will not only define the success of the engagement, but will allow for reporting and increased engagement among employees, customers and other stakeholders. Defining the measurement of success for a specific program can often enhance or ensure its achievement.

To be sure, there has been a discernable shift in attitude, belief and valuation when it comes to sustainability. Integrating sustainable practices and programs is no longer a good thing to have or do. It has become an economic imperative and value. When done correctly and authentically, the ROI of sustainability delivers a new level of involvement among all company stakeholders, ensuring brand value, customer loyalty and longevity and responsible environmental practices.   Today’s best practices in this regard will become tomorrow’s standards.