The preservation of our environment and the prosperity and health of our society are both global and local concerns. But are they concerns of the 21st Century Business? Increasingly, the answer is emphatically yes. In this blog post, we will consider the driving forces behind organizational investments in sustainable practices, as well as the enabling analytics that help them get the most return for their green.
Over the past few years, research has shown that environmentally friendly behavior among consumers has increased. The public is modifying behaviors around such activities as transportation patterns, household energy and resource use, and consumption of food and consumer goods, in order to minimize the effect on the environment.
A 2010 article entitled ‘Backing your Beliefs’ highlighted the recent growth in “socially responsible investing” (SRI). "The global phenomenon of environmentalism and social justice is starting to grow, so people realize there is money to be made by investing in companies that cater to those industries or companies that are on the cutting edge of those philosophies.”
So just these two quick examples show us (1) consumers are increasingly considering the environment as a factor in their buying decisions, and (2) investors are paying attention to corporate behavior.
The practice of sustainability varies as widely as our globe is varied by nationalities, corporations, non-profits, individuals, and geographies. So how does a business leader consider sustainability among all the other competing priorities of the organization?
First, you have to have a clear understanding of the terms and then define what it means for your business. The most common definition of sustainability comes from the 1983 United Nations Bruntland Commission . In their report, they cited:
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
Organizations have used this framework to focus on issues that are critical for continuation of their business, such as energy management, water quality and availability, diversity and gender equality in the workforce, reduced waste in production and/or supply chains, and compliance with environmental regulations, particularly those that require measurement and management of greenhouse gas emissions.
Next, you need to approach the management of sustainability in the context of those organization-specific focus areas. And for each one, apply the right business analytics to drive real change.
This is the four step model that I usually review with customers to give perspective on the phased implementation of business analytics to support sustainability initiatives.
1. MEASURE performance. Establish a set of key performance indicators that are aligned with initiative and programs. These indicators should not only be interesting, they should be important. Business analytics play an important role in ensuring quality of the data integration process. Analytic rules can flag data that is outside of statistical norms, incomplete, or erroneous. SAS has seen a rise in sustainability reporting , as organizations communicate performance according to industry-accepted or organization-specific standards. Once current performance is identified, trend analysis and correlation analytics can be applied to identify areas for improvement.
2. REDUCE consumption /cost/emissions /waste. Answer the question of “why” and model the alternative scenarios that may produce a measurable improvement on performance. Some organizations, even public sector, have set emissions reductions goals. The Municipality of The Hague, for example, is ambitiously planning to be “climate neutral” by 2050. Over 670 universities in the U.S. have pledged to reduce their impact on the environment. Business analytics applied to the practice of energy and emissions management is the best way to determine how your organization will meet those goals. In particular, what-if forecasting is a valuable decision support tool in this phase.
3. OPTIMIZE processes to increase efficiency without impacting environmental or social performance. Particularly for resource-intensive organizations (industrial manufacturers, transportation, power generation, etc), business analytics can enable strategic growth in demand for products and services while balancing resource consumption.
4. EXTEND sustainable practices throughout supply chain, data center, and financial markets. Lessons learned in data capture and analysis can be applied to specific areas of the business that may pose a larger risk profile or have a more significant impact on sustainable performance. Business analytics can be applied to understand supplier’s sustainable performance or the future value at risk of carbon credits on the market. Particularly for high energy consumers such as the data center, forecasting future energy needs based on predicted levels of demand is a critical decision input when considering consolidation, virtualization, or expansion.
I have found that this framework is useful in thinking about how to systematically approach the management of sustainability practices within your organization. However, each organization must decide how much to tackle and how quickly. For a consumer products company who wants to bring an eco-widget to market, it might be very important to get to the “Extend” activities rapidly. For an organization with voluntary carbon reduction goals, your corporate objectives may be met within the “Reduce” phase. In fact, some companies have perfected their reduction analyses within their own operations before offering them as a service to others.
Whatever your approach, be assured that business analytics plays a key role in delivering the insights that will drive sustainable performance. Why am I so confident? Because in each situation where executives have been presented with data on environmental performance relative to their peers or other industry benchmark, the first questions they ask are: Can we improve? How do we get there? Can you quantify the costs and benefits? Unless you are willing to risk the shareholder’s capital by relying on spreadsheets and emails, I would advise establishing a business system you can trust.
