strategies february 2012

8/2/2019 Strategies February 2012

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Strategies

Is “Sustainability” Sustainable?The Future of “Green” Business Consulting

President’s Perspectives

February 2012



Energy & EnvironmentalBusiness Consulting

We are not at the end of history for sustainability.To the contrary, the global change forces that willshape the next decade of business will require morethan ever the foresight and insights of the type of

innovative thinkers and practitioners who have put“sustainability” on the map.”

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StrategiesFebruary 2012

The last decade has seen an evolution of corporate demand for consulting and advisory serviceson corporate social responsibility (CSR); environmental impact mitigation strategies; “green” or socially-minded re-branding efforts; development of new product and marketing strategies toserve environmental markets; and internal and supply chain assessments that have led toimproved efficiencies and regulatory risk mitigation. These and other services today are generallyreferred to as “sustainability” consulti ng.

Green business evangelists have long argued that sustainability should be a core businessstrategy for brand differentiation and value creation. Green consultants have helped achievegreat progress toward proving this point with leading companies around the world. But arguably,the green consulting business model is self-limiting. As sustainability and its metrics for valuebecome more main-stream and more like other core business risk mitigation and performanceenhancement practices, the boutique “green” consulting firm is losing ground to conventionalconsultancies long-accustomed to managing mainstream business needs.

However, the needs of companies will evolve over the next decade in the face of significant globalchange drivers. These forces that will help shape the next decade of business will require morethan ever the foresight and insights of the type of innovative thinkers and practitioners who haveput “sustainability” on t he map. But the next leading consultancy will need new skills and,maybe, a new name.

Roger Ballentine, President



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Is “Sustainability ” Sustainable?

The Future of “Green” Business Consulting The last decade has seen an evolution ofcorporate demand for consulting andadvisory services on corporate socialresponsibility (CSR); environmentalimpact mitigation strategies; “green” or socially-minded re-branding efforts;development of new product andmarketing strategies to serveenvironmental markets; and internal andsupply chain assessments that have led toimproved efficiencies and regulatory riskmitigation.

These and other services today aregenerally referred to as “sustainability”consulting. Initially led by boutique firms(headed by professionals with personalpassions for environmental and/or socialcauses and career histories to match),larger firms (accounting, legal andtraditional corporate consulting) soonentered the market, redirecting existingpersonnel or acquiring new expertise andapplying their traditional business models

to market demand for sustainabilityservices.

The question, however, is whether therewill be continued demand in the future --i.e., is “sustainability” sustainable?

* * *

Hockey great Wayne Gretsky attributedhis success to “skating to where the puckis going to be; not where it is.” The needsof companies will evolve over the next

decade; “sustainability” consultants mustbe prepared to consult to where risks andopportunities are going to be. Lookingforward, what services will clients needand why? What will a successfulconsultancy look like?

The Sustainability (or “GlobalChange”) Consulting MarketGoing Forward

Where is the puck going? Over the pastdecade, mega-trends like globalization, e-commerce and information technologyhave fundamentally impacted businessesand markets. Over the next decade theseand an expanding number of powerful

drivers of market change will place ahigher priority on foresight, innovation andadaptation – by bothcompanies and theconsultants that seek toserve them.

Drivers of Market Change

Consultants offering “globalchange” consulting services

must understand a numberof market-impacting forcesand megatrends, including:

1) Planetary Constraints . Populationgrowth, land and agricultural stresses,growing stresses on water quantities andquality, extreme weather – and social andregulatory responses to all – will challengemarkets and businesses in the 21 st Century. For business, these trendsraise questions about the long-termaffordability and availability of products

that rely on finite resources or agriculturalcommodities that face dual stresses ofclimatic change and the nourishmentdemands of what will soon be 9 billionpeople. Climatic strains such as extendeddroughts and rising sea levels also posethreats to the economic and politicalstability of the markets for companies’goods and services.

Over the next decademega-trends like globalization,e-commerce and informationtechnology will continue to placea higher priority on foresight,innovation and adaptation – byboth companies and the

consultants that seek to servethem.”

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Energy & Environmental

Business Consulting

2) Energy Dynamics . Risingpopulations, expanding middle classpopulations and increased urbanizationwill increase demand for modern energyservices and the resources upon whichthey rely. These demands will haveconsequences for national and worldeconomies, geopolitical relations as well

as the environment.

3) Information Flows and Expectations for Radical Transparency . Thecombination of changing stakeholderexpectations (including those ofgovernments, customers, investors, civilsociety and capital markets) and thepower of social media will have impactson corporate governance andtransparency; if social media can bringdown non-responsive/non-strategicgovernments, corporations too have

vulnerability.4) Social Megatrends . Changingdemographics and consumption,urbanization, population aging,deteriorating air and water quality withresulting health impacts, the liberalizationof autocratic economies – and the socialand political responses to all – will changemarkets and demand new businessstrategies.

5) The Market Push: Governmental Response . Governments around theworld will respond to these globalchanges. Environmental regulation, tradepolicies, incentive structures, performancestandards and disclosure rules arealready business-impacting; theirbusiness relevance will only increase.

6) The Market Pull: Response of Global 100 . Governments are not alone inresponding to these global changedrivers. Many of t he world’s largestmultinational corporations are putting newdemands on the companies in their supplychains far faster than governments areable to craft regulations. By acceleratingefforts to manage the impacts of planetaryconstraints on long-term commoditysupplies, global mega-corporations yieldas much or more influence asgovernments on companies who seek todo business with them. These leading

corporations see many of the socialmegatrends as market opportunities, andthey are increasingly demanding: supplychain transparency, commoditytraceability, product life-cycle impactanalyses, and dramatically increasedaccountability for how products are made,shipped and sold.

Some of these trends and forces arecreating new markets and businessopportunities; others present strategic riskto business models and markets. Asuccessful global change advisory firmmust stay ahead of current thinking andunderstand the forces that willfundamentally change the world in whichbusiness must operate over the nextdecade. Only in this way can a firmprovide the greatest value to clients – andcompete among the growing legion ofconsultants offering the “next generation”of “sustainability” services.

Expanding Client Needs

A full understanding of the fundamentalchanges that will be impacting businessesover the next decade foreshadows theservices companies will require. It mightbe that these needs will be met by anincremental evolution of currentsustainability-type consulting services.On the other hand, it is likely that theservices that companies will need to dealwith dynamic global change will outgrowtoday’s “sustainability” label . To someextent the debate will be only semanticand mostly relevant to how consultantsmarket their services. Regardless oflabels, and moving beyond “leaders” to a

RadicalTransparency

SocialMegatrends

PlanetaryConstraints

EnergyDynamics

Market Pullby Global

100Companies

GovernmenResponse



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Business Consulting

much broader set of companies, clientsare likely to need help in a growingnumber of areas, including (but not limitedto):

Global Change Strategic Opportunity Assessment and Risk Mitigation . Companies will need to re-assess

strategic opportunities and risks inbusiness strategies and product/servicesofferings presented by global changedrivers. Risk management will likely bethe increasingly core driver of strategy,though branding, reputationalenhancement, new market access andcost-savings will continue to be important.The assessment must look beyondcompany footprints, governance practicesand direct impacts to a dynamic lookupstream, downstream, and “side -stream”(new business relevant stakeholder

impacts) at core business risk andsuccess factors.

Performance Assessment. Companieswill need an expanded ability to measureperformance, establish baselines, setoperating goals, implementorganizational/operational systems,develop and track internal reportingsystems, benchmark against peers – across the scope of operations, supplychains and their products’ lives – and todo so across a growing set of business-relevant metrics.

Metrics Development. Just as traditionalbusiness performance and businessdecision-making is measured and madeaccording to well-understood metrics, theincreasing business relevance of non-traditional factors will demand new metricsto measure performance and makedecisions. In the current “sustainability”context, even leading companies struggleto compare sustainability-related spends,for example, to other uses of capital.Companies need better ways to comparenon- financial “apples” to traditionalfinancial “oranges” when they both impactvalue. Evaluation of return must includeglobal change risk reduction values thatcan be directly compared to traditionalfinancial metrics ( e.g., revenuegeneration). Such metrics are beingdeveloped in a piecemeal fashion and

companies will need help in adopting bestpractices.

Transparency, Reporting and Communication . Companies will needassistance in external communications,reporting and transparency strategiesaimed at both non-financial and traditional

financial stakeholders. Integratedreporting of performance is a likely newmajor trend in such transparency.

Identification of and Strategic Management of Stakeholders . Globalchange will make clear to a growingnumber of companies that they have alarger universe of business-relevantstakeholders that must be identified andmanaged. Strategic management ofstakeholders can enhance corporatecredibility and social licenses to operate,

provide expertise and insights intobusiness improvement, and reduce risksto reputation and market share.

Strategic Understanding and Management of Government Relations. How companies manage global changewill be influenced and informed by theactions of governments. Companies mustadapt to and sometimes seek to influenceregulatory actions. In many jurisdictions,governments will increasinglyseek input from andresponsible participation ofthe private sector inaddressing pressing globalchange challenges. Just asbusinesses must seegovernment as a keystakeholder, governmentpolicies are increasinglylooking at the private sectoras important stakeholders insolving public policy needs.

Capabilities Companies will Expect

Global change consulting firms need toprovide a wider range of expertise andservices to meet the demands ofcompanies over the next five to ten years.The boutique firm will have to expandcompetencies, become more global, andincrease analytic capabilities. These

Just as traditionalperformance is measuredaccording to well-understoodmetrics, the increasing businessrelevance of non-traditionalfactors will demand new metricsto measure performance andmake decisions.

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Business Consulting

evolving client needs will demand thatglobal change consultancies, through firmpersonnel and/or alliances, be prepared tooffer a broad set of capabilities andexpertise, including:

C-Level Access and Credibility : Firmsmust have senior members who have

access to and credibility with C-level oreven Board-level client decision-makers.

Energy Expertise: Consultants will needbroad and deep energy expertise,including knowledge of technology,regulatory market structures,environmental footprints, environmentalattribute markets, cost structures, supply-side constraints, energy commoditymarkets, and demand side managementpractices and incentives.

Land Use, Agriculture, Waste and Water Expertise : Natural resource andwater scarcity, changing water resourcedistribution, increasing demands forpotable water, and changing coststructures for resources will presentgrowing challenges for businesses. Firmsmust have relevant capabilities in marketanalysis, life-cycle analysis (LCA),substitution and efficiency options,technology development, wasteminimization and end of life strategies.

Policy Expertise : Public policy globallyimpacts business strategy and execution.Energy and environmental policies inparticular will evolve in reaction to globalchange and consultants must offer best-in-class policy insights, analysis andadvocacy services.

Expertise in Performance Measurement and Reporting (Traditional Financial and Non-financial ): Firms must be onthe cutting edge of rapidly developingmetrics to measure and report on today’s“sustainability” key performance indicators(KPIs) and be ahead of the curve onintegrating these and developing metricsinto traditional financial reporting.

Leading Edge Knowledge of Technology. Clients will need access toand understanding of the availability andproven market use of the technologies

needed to adapt to global change,including new IT tools.

Stakeholder Expertise and Credibility : The increasing business relevance ofpreviously more peripheral environmentaland social matters makes strategicstakeholder relations of increasing

business value. The firm must haveaccess to and credibility with keyNGO/stakeholder groups in order todeliver competitively valuable informationand/or coalition strategies to their clients.

Communications Skills : Whetherservicing this function itself or workingwith incumbent corporate communicationsteams and public affairs consultants,clients will need strategic communicationsand social media skills. We have seenhow technology and social media can

bring down non-responsive governments;corporations too face new vulnerabilities – as well as opportunities.

Understanding of Corporate Finance and Capital Markets : Few thingsthreaten the long-term viability of a niche“green” consulting firm than having lessthan a full understanding of corporatebudgeting, capital deployment decision-making, financial performancemeasurement and reporting, and the roleof equity analysts and capital markets.Certainly these aspects of corporategovernance are changing; firms must begrounded in traditional practices whilecounseling on dynamic change.

Core

Competencies

Global Scope

Analytics

• C-level access and credibility• Energy• Land use, agriculuture, waste and

water

• Government, regulatory, and policy• Stakeholder credibility• Communiciations

• Performance measurement andreporting

• Finance and capital markets• Leading edge technological knowhow



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Evolving Market Strategies for Consultancies

Global change consultants will need tomove beyond today’s current coreofferings and client developmentstrategies to be successful in an evolvingand increasingly competitive market. Afew key strategies include:

Expanding Market Beyond “Leaders”/Moving Beyond “Green .” A significant portion of the higher profilesustainability successes have been bycompanies now widely recognized asleaders. Some followed a visionary CEO(Interface Carpet), others saw thepotential for rebranding and new markets(GE), and others, who may have startedfor reputational or defensive reasons,became leaders by demonstrating costsavings and competitive advantage (Wal-Mart).

Going forward, however, the successfulconsultancy should not just sell “green”;they must sell strategic value creationconsulting services over a more broadlydefined set of non-traditional factors to amuch broader set of companies – including those that today might beconsidered the laggards in terms ofembracing today’s sustainability agen da.

Leading the Collaboration Movement.While many responses to the globalmegatrends discussed in this documentwill have competitive benefit, manycompanies are moving rapidly in pre-competitive forums to collectively manageglobal change risks. Consulting firms mustbe deeply connected within and betweenorganizations, serving as a compass in arapidly shifting landscape to help clientsnavigate decisions on when tocollaborate, how to leverage key forumswithout compromising competitiveadvantage, and why such collaboration isbeneficial.

Helping Companies Demonstrate Value of Risk Mitigation and Long-term Value Creation Strategies to Analysts,Ratings Agencies and Underwriters.Leading companies have derived newrevenue or market share through

“greener” product offerings and they havereduced costs through efficiencyinvestments. While such progress isusually touted in a “CSR” or “s ustainability” reports, the bottom linecontributions to company performancewere reported on traditional financialreports using traditional financial metrics.

The universe of those who do not believein the business relevance of the social,planetary, and political drivers describedabove is shrinking under the weight ofrapid global change and the success ofthe relatively small but important segmentof true leading companies. Currentcorporate practices of managing forquarterly performance will be increasinglyin conflict with strategic value creation andrisk mitigation. The most impactful set ofbelievers that corporate value is directly

tied to global change strategy andadaptation might soon be the analystcommunity, underwriters and ratingsagencies.

More so than the most brilliant of journalarticles or sustainability treatises, thiswould drive change in corporate behaviorand force resolution of the tensionbetween planning for and investing instrategic risk mitigation or value creationand managing to quarterly performancemetrics.

Quarterly earnings calls will not become athing of the past, but analysts willincreasingly ask questions about strategicrisk and use new metrics and integratedreporting tools to evaluate company value.Consultancies must be prepared to assistin this change.

Offering Strategy, Market Analysis and Deal Diligence Services to Asset Managers, Private Equity and Strategic Investors. Many of the same forecasting,risk assessments, energy market insights,technology expertise and understandingof non-traditional value measurementsthat will benefit corporate planning andresource allocation are also skills that willbe needed by investors consideringtransactions impacted by energy,environmental and social drivers. Asuccessful consultancy can expand its



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Business Consulting

services to private equity investors andinstitutional asset managers.

* * *

Green business evangelists have longargued that sustainability should be a corebusiness strategy for brand differentiation

and value creation. Green consultantshave helped achieve great progresstoward proving this point with leadingcompanies around the world. Butarguably, the green consulting businessmodel is self-limiting. As sustainability andits metrics for value become more main-stream and more like other core businessrisk mitigation and performance practices,

the self- branded “green” consult ing firm islosing ground to conventionalconsultancies long-accustomed tomanaging mainstream business needs.

But we are not at the end of history forsustainability. To the contrary, the globalchange forces that will shape the next

decade of business will require more thanever the foresight and insights of the type ofinnovative thinkers and practitioners whohave put “sustainability” on the map.

But the next leading consultancy will neednew skills and, maybe, a new name.

strategies february 2012

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