the work
Another aspect of Rigby’s WEF presentation focused on trying to come up with a standard set of metrics that could be used to measure a company’s progress or, perhaps, as a way to compare one company’s efforts to another.

Kurt Salmon Associates, however, may have come up with part of the solution. KSA is one of the first firms to come up with a way to measure one company against another in its retail practice. “Companies really wanted a way to measure themselves against their peers,” says Bob Copeland, a principal with the Consumer Products & Retail Practice. “We’ve always done that with something we call the Act Vertical Index, which measure the retailers that are best in class by merging the art and science of retail and synchronizing the supply chain both internally and externally.”

A few months ago, KSA added a sustainability component to the index, which measures firms on a one-to-five scale—with five being the best. “The low end of the scale is a sort of the compliance and regulatory, then it moves into things that are green but also have cost benefits to a company, such as reducing packaging or transportation,” Copeland says. “The next step beyond that are things that are perceived by the consumer as green, and the final step is actualization, or what we call the “save-the-world approach.” Very few companies score fives on the index. “The outdoor companies— the Patagonias and The Timberlands tend to lead the way,” he says.

For clients a little further along, KSA also has a Sustainability Index, which digs one or two levels deeper than the Act Vertical Index. “We’re just trying to provide some benchmarks, a way to see where you are and what work still needs to be done,” Copeland says. “It’s really a way to set strategies and priorities. There are so many different areas of sustainability to focus on [that] it can be overwhelming for a retailer.”

Those areas of focus vary by industry, sector, firm type and where the work is being done. Many firms, for instance, have done a lot of their initial sustainability work in Europe since the continent was out in front of the Unites States in terms of its government compliance and regulations. That European work has leveled off as of late, just as U.S. companies have begun to ramp up on the regulatory front.

“On the legal and regulatory side, companies are going to have to address this sooner or later,” says IBM’s Pohle. “Despite the fact [that] companies want to look at sustainability as a growth opportunity—and they should be looking at that way—they’re going to have to move on the legal and regulatory front first. So, that’s a natural opportunity for us.”

It’s also a natural fit for PricewaterhouseCoopers. “The United States is very much driven by regulation and the EPA standards,” says Bob Dennis, U.S. sustainability lead at PwC. “Stronger regulatory drivers will allow us to do more compliance work, which is one of the historical strengths of the firm.”

But not all the opportunities are in Europe or the United States. At Accenture, van’t Noordende sees sustainability business coming in from all over the globe—with a heavy focus on the emerging markets. “We’re seeing a lot of interest from the emerging markets of Latin America, Russia, Brazil, India and China,” he says. “Believe it or not, consumers in these markets are more interested in climate change than [those in] Europe and North America. And companies in emerging markets have a better opportunity for rapid change because they’re not dealing with the legacy systems already in place in the U.S. and Europe.”

While the regulatory work may be the most likely engagement at the moment, there are plenty of other opportunities out there for firms. “What I see happening right now is companies looking to get past the regulatory and compliance aspect of this,” Epstein says. “The companies that get it are beginning to look at the growth that can come about as a result of sustainability.”

And that growth can be measured in many ways. At A.T. Kearney, it can be leveraging the firm’s natural strengths on the supply-chain side. “Companies need a lot of help here, and it’s something we know very well,” Mahler says. “On a typical engagement, we’ll talk to the client about any number of aspects of sustainability, but typically, the supply-chain work is what results in the longer engagements.”

And more and more, Epstein says, consumers are holding companies responsible for their supply chain and demanding firms weed out social and environmental issues before they buy from the company. “This is something companies never had to deal with until recently,” Epstein says.

The consumer aspect to all of this can be confusing, he says, since they often send mixed messages. “For instance, if you provide consumers green products that are of equal price and equal quality, they’ll buy them. That is clear. The evidence is not so clear on how much benefit you get for being a green company in the first place.” It’s the “Wal-Mart syndrome,” he says. “Wal-Mart has had a lot of issues around corporate social responsibility, but people still flock to Wal-Mart. Why? It’s because of the cheaper prices. Consumers are more sensitive, but I think there’s still a large percentage of the population who are going to remain price sensitive, especially in an economy like we see today. I don’t think we’re at the point where consumers are going to buy green, no matter the cost.”

Kimberly Cray, a manager and member of the Consumer Products & Retail Practice at KSA, says, “What we’re seeing is there is a smaller percentage of consumers who are diehards and will pay more, but the rest don’t want to pay for more, and we’re really not sure which way this is going to trend.”

This disconnect has been recognized at Bain, which does specific work around the consumer-engagement aspect of sustainability. “I think consumers want to do the right things but are confused; therefore, what they say and what they do aren’t always in line,” Rigby says. “CEOs are trying to do the right things, too, but there are a lot of mixed signals out there.”

Another potential pitfall is the marketing of any sustainability effort. “Most CEOs are scared to death to start with this as a marketing initiative because the fear of being accused of green-washing, and consumers are so quick to spot hypocrisy these days,” says IBM’s Pohle.

responsibility vs. profits
CEOs are also proceeding with caution when they’re working sustainability into their long-term business plans. One of the biggest sustainability challenges for CEOs, Epstein says, is around strategy, specifically about how a firm goes about balancing paradox of trying to simultaneously improve social and financial performance.

“CEOs understand why sustainability is important, but it’s very hard to get this done when they’re constantly pushing their people to make more money,” Epstein says. “CEOs have performance goals around profits, and they’re wondering just how they can support both. This is happening everywhere, and I think it’s an amazing opportunity for consulting firms.”

PricewaterhouseCoopers sees those opportunities. “The biggest challenge to our clients is understanding the longer-term strategic direction of sustainability to all of their stakeholders and the longer-term financial impact of sustainability to their overall financial performance,” says Fred Cohen, North American lead, sustainability, at PwC. “We spend a great deal of time with that topic on the table.”

Companies are facing increasing political and societal pressure to balance sustainability while delivering shareholder value, says BCG’s Martén. “But companies must balance an appropriate level of commitment with strategic timing,” he says. “Failing to act could place a company at a significant strategic disadvantage.”

Bain also recognizes that struggle. “Almost always, the first conversation I have with CEOs is about the struggle between a company’s responsibility to the world versus a company’s responsibility to shareholders,” Rigby says. “They want to know how to pursue what they know is the right thing in a way that is also a financially attractive thing. The executives have good motives, but they want to know how to go down this road in a way that shareholders will applaud the effort rather than question it.”

What’s the solution? “Almost always the answer is to eliminate waste,” Rigby says. “It’s always a good payback and usually has the best return on investment for firms.”

That’s certainly true at Kurt Salmon Associates, where Cray says reducing waste and cost is always the easiest sell. “A lot of times, that’s the entry point into a sustainability engagement,” Cray says. “A lot of our clients care more about the cost side of it, and that comes down to efficiencies in the supply chain. That’s work that we’ve always done historically anyway.”