Sustainability has gained critical mindshare among corporate leaders, employees, consumers, investors, regulators, and other stakeholders. The drumbeat is growing louder for increased corporate accountability, especially for streamlined, formalized corporate sustainability disclosures.
Steve McNally
This spring, the Securities and Exchange Commission will likely release final rules requiring companies to describe their climate risk strategy, including plans to achieve any targets set to curb such risks, and to disclose greenhouse gas emissions with independent attestation of such data. Likewise, the International Sustainability Standards Board plans to release its global sustainability and climate risk reporting requirements in June.
But whether your organization is subject to mandatory reporting requirements or not, it’s always a good time to explore what sustainable business means to the organization.
CFOs, in conjunction with the CEO and other business partners, are charged with creating economic value — ethically, responsibly, and for the long term.
Consider the harvesting of olives, a staple in many diets. In many countries, even though mechanical harvesting exists, farmers harvest olives by hand. They understand that while mechanical harvesting could make gathering the crop easier and lead to higher profits, it would likely damage or destroy the olive trees. So, they sacrifice current-year profits for long-term value, benefiting all stakeholders.
Sustainable business management reflects this concept of optimizing the current year’s harvest to preserve the orchard. We have an opportunity to review current operations and, by doing so, simplify, streamline, and build-in best practices. By ensuring practicality in policies and procedures, businesses can operate more efficiently and effectively (a.k.a. sustainably). This can lead to increased capacity at a lower cost.
Sustainability initiatives must make good business sense, of course, or they aren’t sustainable, are they? Here are some practical ideas for making your business more sustainable.
Analyze machinery and equipment to identify which assets consume the most energy. Clean equipment and perform preventive maintenance, optimizing performance and extending lifespans. For example, reduce the operating pressure of air compressors to the level needed, and monitor for any leakages. Shut off machinery and equipment when not in use. Finally, consider investing in new, more efficient assets. For example, new heating and cooling systems are much more efficient than those 10+ years old. Similarly, a new blow-molding machine or filling line may offer greater capacity, create less scrap, and be more energy efficient.
Replace fluorescent light fixtures with more efficient LED lighting products. Use motion-activated lighting, especially in large production or warehouse environments with limited foot traffic. Convert to high-efficiency motors with variable-frequency drive technology. Use smart power strips, unplug idle electronics, and use energy monitors to track usage and identify changes that may indicate an issue.
Monitor water usage, conducting routine checks with water pressure and water flow meters to identify leakage in pipes, joints, or valves. Install water savings equipment such as high-pressure, low-volume taps and high-efficiency toilets. Invest in water recycling technology. Determine best-practice cleaning techniques. Consider reverse osmosis for water purification.
Design packaging to use less material (e.g., lightweight plastic bottles) and use only packaging needed to protect the product. For B2B shipments, use simple, corrugated boxes or totes versus decorative packaging. Reuse or repurpose boxes, barrels, and pallets. Maybe key customers can break down and efficiently return gaylord boxes for reuse. Or maybe, barrels or gaylords can be repurposed to collect scrap generated during the production process. Purchase high-volume materials in gaylords or bulk rather than in standard cartons. Finally, leverage SKU rationalization to reduce warehousing costs, packaging costs, and inventory obsolescence.
Consolidate customer orders to enable full-truckload shipments. Analyze shipping destinations to determine the most efficient trucking lanes. Use flatbeds and tankers for high-volume material shipments when possible. Determine if rail is a more efficient option than trucking for long hauls. Finally, consider co-locating with critical suppliers. A beverage manufacturer, for example, may negotiate with its bottle supplier to set up an onsite blow-molding operation, reducing the cost of sourcing these bottles and mitigating the risk of empty bottles being damaged in transport.
Educate your team on recycling best practices. Put well-marked recycling bins in convenient locations. Incentivize solid waste recycling, setting monthly targets and hosting fun employee challenges. Create a space for collecting reusable packaging, boxes, and stationery items. Host periodic “swap days” to find a new home for unwanted items. Default copiers to print double-sided, and promote a paper-conscious policy, minimizing what needs to be recycled.
Consider investing in a solar field, wind farm, or biogas facility. While I worked at Campbell Soup, we partnered with a third party that built a 24,000-panel solar array on 60 acres adjacent to our operations. Based on estimates at the time, the solar array would reduce the site’s electricity costs by $4 million and eliminate 250,000 metric tons of greenhouse gases.
CFOs are well-positioned to see the bigger picture, understand the ins and outs of their companies, and map the best path to success. Thus, you can and should play a pivotal role in determining what sustainable business management means for your organization by:
Ensuring sustainability-related investments are aligned with the organization’s overall purpose and strategies and setting aside funding for such investments.
Making decisions based on the best available information, including ROI analyses beyond the simple investment cost.
Creating effective processes to gather, process, summarize, and deliver sustainable business information.
Building trust and confidence in the quality of such information by implementing appropriate internal control over it (see COSO’s newly released sustainability reporting guidance for insights on how).
Developing the team’s fluency in the language of sustainability.
Steve McNally, CMA, CPA, is CFO of The PTI (Plastic Technologies Inc.) Group of companies and chair emeritus of the Institute of Management Accountants.
