BP Drops the Ball, Nike Scores
The World Cup. The BP Oil Spill.
Both are reverberating around the world. But in one, you have a company who responded poorly to risk. In the other, you have one meeting it head on -- a soccer header if you will.
What exactly do the World Cup and the BP oil spill have in common?
Let's start with the oil spill, which has sliced about $90 billion off BP's share value to date -- the largest-ever financial meltdown from an environmental mishap.
And it's only one example of recent hidden risks that are increasingly bubbling into corporate bottom lines and making shareholders testy about companies' untracked social and environmental challenges. Massey Energy's stock has been in free-fall since its April coal mine disaster.
So where's the World Cup connection?
Nike -- and its athletic clothing line made from waste by-products. That's right. Those brilliant Nike jerseys sported by a number of teams, including Brazil, Portugal, Netherlands, USA and Australia, are made almost entirely from plastic bottles rescued from landfills in Japan and Taiwan.
You see it's all about hidden risks and companies' responses to them.
While BP and Massey are burying their heads in the sand, Nike is meeting its environmental and social risks head on. Even better, it's turning those risks into opportunities.
Nike is one of a growing number of companies that are responding to environmental and social challenges. In a new Economist survey, more than two-thirds of global executives say there's a strong long-term link between sustainability and profitability.
But the complex challenges our planet faces require far deeper actions from companies. The shortcuts and poor decision-making that marked the BP and Massey disasters show that many companies aren't prioritizing environmental and social factors across their businesses. Short-term profit and myopic attitudes on long-term risk and opportunity still rule.
Investors have been prodding companies for years to get real about these risks. Shareholder resolutions on issues like climate change, water scarcity and workplace safety have been rising in number and attracting record support.
It's time for companies to get proactive about these risks and recognize that embracing sustainability full throttle will make them more successful in the globalized 21st century economy.
Ceres has produced a roadmap to help companies achieve this goal. It includes 20 key expectations for governance, disclosure, stakeholder engagement and performance.
Here are some key highlights:
Governance: Sustainability begins with board oversight and a commitment to build management systems that embed sustainability practices. A specific board committee should have clear authority to review and make recommendations on pressing challenges and long-term strategies.
Nike's Corporate Responsibility Committee, for example, has been very forceful in responding to hot-button issues like supplier labor practices and climate change. The committee had a pivotal role in creating the sustainable design group, "Nike Considered Design," which is bringing shoes and athletic clothing to market made from waste by-products.
Engage Stakeholders: Companies need to open their doors to key stakeholders and incorporate their perspectives into risk management and strategic decisions. Those with tunnel vision like Massey Energy will not succeed. In a 24-hour wired world, employees, NGOs, community groups, suppliers and consumers can bring valuable insights and ideas -- or unwanted scrutiny -- to environmental and social challenges. It is more than just a coincidence perhaps that BP's disastrous oil spill came just a few years after the company called it quits on engaging proactively with Ceres and other stakeholder groups.
Bringing top-level executives into stakeholder dialogues is especially important. Timberland CEO Jeff Swartz engages with stakeholders on quarterly conference calls focused on specific sustainability topics. Dell CEO Michael Dell was integrally involved in a comprehensive engagement process that led to Dell's strategy to become the greenest company in the tech industry.
Disclosure: Companies should disclose sustainability performance and impacts with the same rigor that they track and disclose revenues and profits, because what gets measured gets managed, and what gets disclosed gets done. Baxter International, for example, has been issuing Environmental Financial Statements since 1994 that track the business impacts of environmental programs, including income, savings and cost avoidance.
Performance: This means demonstrable improvement in energy efficiency, a lower carbon footprint, minimal water use. It means eliminating hazardous waste by using closed loop manufacturing systems that recycle and reuse water and other raw materials. Many companies are seizing these opportunities with bold projects at individual facilities -- projects like Frito-Lay's planned zero emissions potato chip plant in Arizona; Genzyme's new LEED-certified headquarters that has cut sick time and increased employee productivity.
What's missing is scale. Innovation to scale performance improvements across entire business models, across all products and services -- is what will put companies and our global economy on a truly sustainable path. Scattered shoots will not do.
To achieve that scale, companies and investors ultimately need clear policies that discourage high-polluting technologies and encourage clean technologies.
The global economy will never be free from all environmental mishaps, but companies can do more to eliminate them and improve their overall stewardship of the planet and its people. The top performing companies of the 21st century will be those that recognize these challenges, and invest and act now.
As BP has learned, underestimating 21st century risks can put a company's entire future in doubt.