Sustainable business strategies in uncertain times

By Detlev Zwick, PhD, Associate Professor of Marketing, Schulich School of Business, York University and Merril Mascarenhas, CMC, Managing Partner, Arcus Consulting Group

Can a green strategy translate into a competitive advantage in these uncertain times? Over the past few years, we have seen an increasing number of businesses invest in sustainability initiatives across the value chain of their products and services. The motivation for these actions, in large part, stems from perceived shifts in customer preferences.

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Is your company prepared for a substantial escalation in operating costs due to new regulatory frameworks and carbon trading legislation? Read one of Canada's largest surveys of senior executives on climate change in 2007, 2008 and 2009. 

Most senior executives want to know what it will take to improve their business’ sustainability practices and cut costs. Drawing from interviews with over 2000 consumers and 1500 senior executives in October, 2009, the Arcus Green Marketing and Sustainability Practices Study offers five insights that may help businesses incorporate sustainability as a key driver in their growth strategies today and after the economy turns around. 

1. Awareness doesn’t always translate into action

 

It is clear that the recession is dampening green enthusiasm. The increasing gap between awareness and action on green issues is an indicator of how consumers view the environment. A surprising insight from the Arcus study is that even as consumers learn more about the ecological impact of their consumption choices, this does not always translate into greener choices. A significant shift has been that consumers are more knowledgeable about green issues but feel less empowered to make a difference.

The trend also indicates a shift towards a stronger correlation between value-based purchasing decisions and green behaviour over the past year. Hence, in uncertain times, it’s more important to ensure green products perform at or better than their competitors because green becomes less important as a purchase influencer. Deeper insight into the environmental impact across the entire life cycle of products and services can have a significant impact on the strategic choices organizations may take to engage customers in the future.   

 

2. Climate change isn’t a mainstream issue as yet

 

Although most consumers do not currently consider climate change to be a front-burner issue due to uncertain economic conditions, senior executives expect it to become a mainstream concern after the economy turns around.  The key question that senior executives are asking is what would be the long term cost if their organization does not adopt a sustainability strategy vs. the short term cost of adopting greener practices.

Although the business impact of the relation between climate change issues and corporate reputations may be difficult to quantify, companies in some sectors expect to lose market share if they are seen to be behind competitors in addressing climate risks.  A number of companies from a range of industries are already promoting themselves as environmentally friendly and, specifically, climate change-friendly. Those successful at convincing consumers of their efforts to mitigate climate risk have a higher expectation of increases in market share at the expense of those companies seen as lagging in commitment.

 

3. Prepare for higher operating costs from a multitude of regulatory regimes  

 

Companies expect to find themselves mired in a multitude of potentially conflicting regulations. In the absence of Canadian government participation in the Kyoto Protocol, some provinces have taken their own actions on climate change issues. As a result, due to potential of a variety of regulatory regimes, companies expect to find themselves forced to operate under different rules across provinces. They expect significant challenges to adapt standards throughout a company’s operations and are concerned about the risk exposure to unforeseen events that will affect their long-term planning for strategic decisions, like capital outlays. A strategic approach would be to prepare good-better-best scenarios that could impact a company’s business performance depending on diverse regulatory frameworks.

4. Keep up with the changing public mood

 

Attitudes of consumers to sustainable practices and green products are complex and have many variables that influence their perceptions such as convenience, value, less packaging and health. Consumers are notorious for espousing pro-environmental attitudes and intentions that never translate into changes in lifestyle or purchasing patterns. Business is reacting to reputation risk, not emerging business opportunities. Less than 5% of executives admit that their organizations monitor their overall carbon footprint and just 4% have a carbon reduction plan in place.

Although these numbers look set to rise rapidly, nearly one-half of firms have no intention of implementing carbon-reduction plans within the next three years. Consumer behaviour, environmental campaigns and investor demands are doing little to drive change in this area, although the investor community is starting to adjust. Senior executives recognize that niche markets exist for growth, but the major factor motivating business is reputational risk. They also believe that doing the “right thing” will translate into a competitive advantage. A big insight is that if you want people to act greener in these uncertain times, it's better to talk to them about saving money and health concerns, not about saving the environment.

 

5. Invest in a steep learning curve

 

Companies starting out on carbon reduction plan face a steep learning curve. The number of companies with plans to reduce their CO2 output is rising rapidly, with much experimentation taking place. Projections about cuts are balanced against the lack of experience and difficulties involved in establishing best practices in such a fast-changing field. Expectations about carbon offsetting, and even some basic unanswered questions about who is primarily responsible for regulating carbon, suggest a lot of effort will be required before effective policies are implemented. Arcus’ research indicates that by 2010, more than half of these executives expect these efforts to either impose no costs on their business, or else result in a net positive impact, mostly through savings on energy bills and increased sales for enhanced brands. Just 10% think it will have an overall negative impact on costs, with the balance unsure.

The Arcus study indicates there are four drivers of “Good for the Environment”- “Healthier”, “Saves Money”, “Save time” and “Reduces Waste”. The emphasis on “Saves Money” has increased dramatically this year at the expense of “Reduces Waste” and “Healthier”.  More affected are those sectors with relatively high price points and lower purchase frequencies such as home improvement and automotive sectors.  Green purchasing habits in some high purchase frequency categories like consumer products remain unchanged.

 

 

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Please contact Merril Mascarenhas, Managing Partner at (416) 710-2727 or merril@arcusgroup.ca for more information.