A new strategic management tool: the Embedded Sustainability Index®

G U E S T  A R T I C L E

As I substantiated in my book Sustainable Leadership[1], just like  human beings, organizations have Basic Needs that they need to address if they want to legitimately survive. One very specific is the following: “the need that their activity generates value for their stakeholders because an organization is not an actual being per se: a corporation is a legal fiction. It’s therefore the need to provide services or products that are useful and of good quality, generating shared prosperity and social wellbeing in the long run, taking charge of their own responsibilities for environmental stewardship while being transparently accountable towards their stakeholders.

Corporate Social Responsibility (CSR)

The approach that many organizations have first tried has been CSR, a communications approach, basically. This is the “glossy report” strategy, where companies have thrown billions literally in the face of their stakeholders to try to showcase their purported goodness. Quite often (albeit not always) the most irresponsible and unsustainable businesses have had the edge in this game, because of their financial and “political” power. The credibility of this approach is currently in a deep crisis, although still widely practiced. Sorry to be so blunt, but let’s be honest…

Going Green

Then there has been the “be green” approach: all the effort concentrated on the more or less real “environmental friendliness” of products.  Greening is admittedly a sounder way to try to address the rising environmental risk and expectations from stakeholders. However, the analysis of some case studies interestingly shows that even companies that have developed excellent innovations using thorough Life Cycle Assessments gave up at some point because they could not get a direct market advantage from listing in their range some “green” products. One of the problems of the “green” focus is that it tends to address the environmental issue in old ways, like: “we have extra costs by being green, therefore we must get a bonus overhead to offset them”. This does not work anymore. Why?

[1] https://www.amazon.com/Sustainable-Leadership-Fioretto-Federico-ebook/dp/B015ZMSY8C

Embedded Sustainability

There are already companies around that implement the strategic approach of embedded sustainability.  They accurately balance their inputs and outputs while pursuing radical innovation of their entire business models to become truly sustainable: environmentally, socially and financially. They are now competing on the market with better products or services at a lower price. Sustainability is not just being “environmentally friendly”, much less generically “green”. Paradoxically, sustainability conceived in the primitive and partial way of “eco-friendliness” is unsustainable.

With the third approach, embedding sustainability in the core business and in every process, a company embraces bold objectives and rethinks all of its business model and Value Chain, ready to reinvent itself in any way that is needed. Such a company can innovate up to the point of recycling all of its products, or make them from 100% renewable resources, or become one day a service provider instead of a product seller. All the while reducing its footprint, the company can move towards the carbon neutral, increasing revenues, profits and employment. Too good to be true? Well, today there are many success stories to say that it is possible.

But companies need help to develop a clear strategy of embedded sustainability and achieve the circularity of processes. Their leaders are usually caught up in the day to day running of their businesses, not having time to develop visions. Moreover, some fall into the “reporting frenzy” and get lost among innumerable “lagging indicators”, i.e. pointers to the past, missing the target-setting opportunity. Even the best reporting frameworks, e.g.the Global Reporting Initiative are made up of “lagging indicators”, deriving from financial reporting structures. Lagging indicators, at most, tell you what has happened in the past; and that, if you change nothing, there is a high probability that the past will repeat itself. Nothing about why it has been so, or what to change to get desirable outcomes.

Embedded Sustainability Index

The Embedded Sustainability Index® is instead a tool mostly based on “leading” indicators, i.e. indicators of the future. In comparison to other pure assessment tools, the Index adopts an original approach. It tests the company on “Precursors of Best Practices”, i.e. the pillars supporting the strategic thinking and decision-making processes in the company. The output generated by the Index algorithms indicates how much sustainability is currently embedded and where the company is heading The Index also highlights what priorities are most urgent. The creators of the Index have chosen to use Precursors and not specific Best Practices for two reasons: one is that this approach leaves more room for Industry specificities. The second is that, while sometimes the Best Practices themselves may become a “tick-the-box” exercise, their Precursors connote the organization’s deep culture and its ability to adapt its operational practices to changing circumstances over the long term.

In the Index, Precursors are juxtaposed to a range of characteristic Risks. On this side, the Index verifies the relevance for the company of a selection of typical factors, e.g. volatility of the price of commodities, waste management, logistics, human resources or capital, selected after two years of research and experimentation. These Risks represent uncertainty that the strategic application of embedded sustainability can keep under control and transform into opportunity. The Index algorithms allow Exsulting’s experts to obtain an in-depth view of the strengths and weaknesses of the company, both at the time of evaluation and in perspective. For this reason the tool is much more than just a metric of sustainability, positioning itself instead as a strategic support to the entrepreneur.

After the first phase of static self-evaluation[1], the platform allows the experts to weigh the interdependence and the interconnections among the 36 Index factors, giving a precise portrait of the individual company while maintaining the global score as a significant benchmark. In further stages of implementation the Index supports the elaboration, design and assessment of improvement measures for all of the 36 factors, that will be implemented accordingly to the company’s resources and strengths. A second level structure of the process sets KPIs for the factors and for the specific measures put in place to improve the score. This level is designed to support the company in the complex but highly rewarding journey to sustainability; and to share its progress with its stakeholders. Overall, the Embedded Sustainability Index® is a very flexible tool that is adaptable to a huge range of companies; and in almost any industry, provided the company is willing to open up and disclose its values and practices without reticence. In this case, the final outcome is a more effective company strategy, stronger resilience and a brighter future in this challenging times for the business world.

© Federico Fioretto – Exsulting 2018

[1] The Index can be calculated for free at this link: https://exsulting.com/en/esindex

About the author:

Federico Fioretto is the Founder and Managing Partner for Exsulting and Co-Founder of the Embedded Sustainability Index. He blogs in both English and Italian. For additionally details, see Federico’s English website at http://federicofioretto.biz/en/blog/ or his profile on Linked In at http://linkedin.com/in/federicofioretto.

Book(s) from the author

Copyrighted Material: This article has been produced with permission from the author. Title picture is not associated with the original writing and provided by our sponsor designplex.ca.

Submit.Guest.Article.banner.jpg

[sm_smlts_fancybutton size=”small” color=”orange” url=”http://asqottawa.ca” icon=”image: house”]ASQ Ottawa[/sm_smlts_fancybutton]