In the previous post we covered the topic of consumer expectations, and how sustainable small businesses can leverage on these expectations to create a competitive advantage in the market. Digging deeper into expectations, today we will explore how to be the Cinderella for potential decision makers and investors.
We must begin with the idea that even if today, your initiative does not require any external investment and you intend to keep it that way, the exercise in anticipating this will create a strategic mindset within your organization, no matter how large or small.
So, the piece of advice here is to be strategic about your agenda towards sustainability and demonstrate that through regular, structured reporting. This is arguably the most difficult, however, in my argument today, the most important part of this series.
During the EU Green Week 2020, one of the sessions was on how we can incorporate a sustainability mindset in the business decision making process. The panelists agreed that there are certain areas such as natural capital, that are extremely challenging to measure and embed into business reporting. This is attributed to the lack of consideration on this type of capital in a linear economy, where natural capital does not come at any cost nor is it considered to bring any tangible savings and benefits by using less. As a result, larger corporates for years have seen this at most, as a philanthropical effort that will gain them access to their social license to operate.
In the recent years, companies have started to find ways in helping their decision makers, investors and consumers understand what the economic expenses and gains are from natural capital. One of the pioneers in trying to put natural capital on the P&L is the Kering group, with Puma at the time as their piloting brand.
They claimed that through a strategic and systematic approach in quantifying the impact behind each raw material they use, they were able to identify focal points that would amplify their impact and create downstream savings to their operations at the same time. Check out the Kering group’s environmental profit & loss methodology and the data behind it here and get inspired.
Why does it matter to be able to measure these efforts for small businesses that do not have the reporting needs of large corporates? Some reflections based on observations of successful and unsuccessful attempts are:
1. It’s important for investors to be able to understand how efforts in reducing impact to nature bring value to the company and what are the returns. This needs to be more than just an effort of doing good, people that place trust (and money) in your organization will need to be able to understand and visualize in their own way of thinking, how sustainable this company is both operationally and financially. Apart from an emotional connection, this is an effort to quantify how these efforts link to tangible impact or results demonstrate that this business has a competitive advantage over others because you know what you are doing, and each step is based upon a clearly identified strategy.
2. Being able to quantify and measure the impact allows for smaller businesses to learn to zoom in and focus their resources on changes that may give larger impact and break the big sustainability dream into smaller, actionable pieces that could be measured.
This is part of acknowledging that a business cannot possibly be the role model in achieving no or little impact in every area. Since the human and capital resources are not unlimited, it is important to place them in the right area that does the maximum good possible, one step at a time.
3. Teams work best when there is a clear goal, where their performance can be measured and benchmarked as they progress. This is true even for small teams! We have all had or know people that have to work under tremendous pressure of meeting KPIs (Key Performance Indicators). Some theories claim that this makes “high performing teams”. Whilst this is quite subjective, what is true is that clearly identified and articulated objectives make teams work more efficiently because employees know what they are expected to achieve and by when; or at least, have something concrete to chase after.
It is incredibly challenging to come up with objectives to measure achievements in managing natural capital, and many businesses may be inclined to go back to measuring sales and cost savings. Putting the team (no matter how large or small, even if it’s just a one-man operation) to work on writing down its sustainability strategy, and ensuring that this links to everything else that the company does, creates a vehicle to help move these agenda forward within the company, creating clear expectations and goals.
Companies that can find ways to properly identify, and measure efforts in sustainability can truly embed them into their decision-making process, from management to operations. Whilst today there is no clear standard reporting framework that unifies the way we measure and disclose this information, it is a good way to track progress and is worthwhile doing at your best effort.
4. Making this available to customers gives them an additional reason to build trust with smaller brands and understand the work behind it. Perhaps very little people go and read a company’s sustainability strategy and annual report before making a purchase (I do!), but it pays to always have one, and make it available to the public as you never know will be reading it.
Have you ever read Maggie Marilyn’s sustainability strategy report? It is not placed in a hidden place on the bottom of their website like many companies do, nor do they drown you with jargon and complex figures, just open it and you’ll be positively surprised!
Being able to present this to a future investor, will demonstrate the tangible efforts that your brand makes towards the established values and provides the opportunity to link them with any economical benefits or potential that the company has.
If you ever need help formulating your report, or creating the structure for the first time, setting up the right data and metrics to do so could be tricky. Get in touch, perhaps we can help.
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