Environmental strategy matrix
Can a company do well by doing good? This is a question that often comes up when talking about solutions to environmental issues. The traditional notion in business used to be that environmental interests and profits are on opposite sides of the balance sheet. Expenditures on environmental items were treated as losses to be controlled and minimized. It is difficult to explain the flaw in this logic when speaking in terms of parts per million or exposure odds ratios. Instead, business leaders want to hear proposals with return on investment in line with financial objectives.
Luckily, there is a growing body of literature describing how environmental programs can be aligned with business interests. Recently, Daniel Esty and Andrew Winston have presented a framework that visualizes how companies can use environmental strategy to gain competitive advantage in their book Green to Gold.
To start off, let’s refer the two-axis continuum above. The horizontal axis represents time on the planning horizon. Going from the short-term to the long-term, the uncertainty of the outcome increases as we plan into the future. The vertical axis represents the upside and the downside considerations. The idea being that a good strategy will work by either minimizing downsides and benefiting from increased upside opportunities.
Traditional approaches towards environmental initiatives fall largely in the bottom left corner of cost control. Programs that reduce injuries and associated losses have an immediate positive impact to the bottom line. Further out on the planning continuum are the more indirect benefits of risk reduction. These are often difficult to predict but can pay off big in the end. Some examples of risks to minimize include avoiding environmental or human health catastrophes. The potential costs of these events could be devastating.
On the upside of environmental strategy there is a similar break down by planning horizon. On the more immediate side is increased revenue than can be realized by reacting to consumer demand, such as recent consumer concern over worker conditions in developing countries. Fair trade and sweatshop free certified products provide an opportunity for increased sales among conscientious consumers.
The longer term upsides of a good environmental strategy are a bit more difficult to measure but can offer a huge pay-off for the investment. Examples of these intangibles include increased brand value and employee loyalty. As the economy becomes more service-driven, the best companies are realizing that one way to build competitive advantage is to attract and hold onto the most talented employees. A demonstrated commitment to progressive environmental initiatives is one more selling point to offer when recruiting.
In conclusion, this framework provides a tool for presenting initiatives from a perspective that business managers will understand and appreciate. Instead of seeing these programs as red line items that bite into the bottom line, the business case can be made to demonstrate the value added. By speaking a common language we can make the case that a company can do well by doing good.
– Kevin Banahan
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Can a company do well by doing good?
Environmental strategy matrix
Can a company do well by doing good? This is a question that often comes up when talking about solutions to environmental issues. The traditional notion in business used to be that environmental interests and profits are on opposite sides of the balance sheet. Expenditures on environmental items were treated as losses to be controlled and minimized. It is difficult to explain the flaw in this logic when speaking in terms of parts per million or exposure odds ratios. Instead, business leaders want to hear proposals with return on investment in line with financial objectives.
Luckily, there is a growing body of literature describing how environmental programs can be aligned with business interests. Recently, Daniel Esty and Andrew Winston have presented a framework that visualizes how companies can use environmental strategy to gain competitive advantage in their book Green to Gold.
To start off, let’s refer the two-axis continuum above. The horizontal axis represents time on the planning horizon. Going from the short-term to the long-term, the uncertainty of the outcome increases as we plan into the future. The vertical axis represents the upside and the downside considerations. The idea being that a good strategy will work by either minimizing downsides and benefiting from increased upside opportunities.
Traditional approaches towards environmental initiatives fall largely in the bottom left corner of cost control. Programs that reduce injuries and associated losses have an immediate positive impact to the bottom line. Further out on the planning continuum are the more indirect benefits of risk reduction. These are often difficult to predict but can pay off big in the end. Some examples of risks to minimize include avoiding environmental or human health catastrophes. The potential costs of these events could be devastating.
On the upside of environmental strategy there is a similar break down by planning horizon. On the more immediate side is increased revenue than can be realized by reacting to consumer demand, such as recent consumer concern over worker conditions in developing countries. Fair trade and sweatshop free certified products provide an opportunity for increased sales among conscientious consumers.
The longer term upsides of a good environmental strategy are a bit more difficult to measure but can offer a huge pay-off for the investment. Examples of these intangibles include increased brand value and employee loyalty. As the economy becomes more service-driven, the best companies are realizing that one way to build competitive advantage is to attract and hold onto the most talented employees. A demonstrated commitment to progressive environmental initiatives is one more selling point to offer when recruiting.
In conclusion, this framework provides a tool for presenting initiatives from a perspective that business managers will understand and appreciate. Instead of seeing these programs as red line items that bite into the bottom line, the business case can be made to demonstrate the value added. By speaking a common language we can make the case that a company can do well by doing good.
– Kevin Banahan
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