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Innovative Organizations: Becoming Net Positive
by Stathis Gould, Head of Professional Accountants in Business and Integrated Reporting, IFAC | January 31, 2014 |
An increasing number of companies, including Coca Cola, British Telecommunications (BT), and retail organizations Kingfisher, Ikea, and PUMA are striving to become net positive, which means that they will give back when it comes to the critical environmental and social factors upon which their business models depend.
For example, for a do-it-yourself (DIY) business such as Kingfisher, timber is an essential raw material. Although it depends on a forest area approximately the size of Switzerland, it aspires to create more forest than it needs to develop its products. Beyond timber, Ikea strives for resource independence, by encouraging all waste be turned into resources; energy independence, by being a leader in renewable energy; and becoming more energy efficient throughout its operations and supply chain. Coca Cola aims to return as much water to nature as it uses in its products and their production.
Indian conglomerate ITC reports that it is net positive on 3 fronts: carbon positive, by sequestering or storing twice the amount of carbon dioxide emissions that it emits through, for example, farm forestry initiatives, which add to plantation sizes; water positive, by creating three times more rainwater harvesting potential than the net water consumed by its operations; and waste positive, by recycling its own paper and fly ash (a byproduct of coal combustion), as well as buying other company’s waste paper to use in its paperboard operations.
For many years BT has focused on reducing its environmental impact by measuring, reporting, and taking action on key indicators, such as energy, total waste, and carbon footprint. However, in the words of Kevin Moss, head of BT’s net good program, “we have reached the point where reducing impact by itself is no longer sufficient to bridge the gap between the challenges of a growing and increasingly affluent population, and the limited resources of the planet.”
Currently BT’s carbon emissions are roughly equal to the emissions its products and services help its customers avoid. Its 2020 Net Good goal is to help customers reduce carbon emissions by at least three times the end-to-end carbon impact of BT’s own business (a 3:1 goal). Meeting this objective involves innovatively helping customers cut their carbon emissions by using BT products, such as video conferencing that reduces the need for business travel and enabling data center and IT efficiency. Concurrently, BT is focused on reducing its own end-to-end carbon emissions by cutting carbon from its supply chain, operations, and products when they are used by customers.
Focusing on the most important impacts is critical on a journey to becoming net positive. PUMA is utilizing a profit and loss (P&L) methodology to establish how much it would need to pay for the services nature provides. A P&L methodology utilizes the essence of an accounting framework when monetizing environmental impacts. In 2011, PUMA became the first major company to release an environmental Profit and Loss (P&L) account and put an economic value on greenhouse gas emissions and water consumption (see PAIB Committee eNews July 2011 for more information). The process of valuing its environmental impact helps PUMA to direct its sustainability initiatives to make significant improvements in reducing its footprint and modifying its business model to support sustainable value creation. Tangible actions arising from the P&L include identifying more sustainable materials, investigating the development of broadly-accepted definitions of sustainable cotton and rubber, and looking for additional opportunities to reduce greenhouse gas emissions and other environmental impacts.
Becoming net positive is a significant step and an enlightening journey. The key success factors behind such initiatives include:
- providing vision, leadership, and commitment from the top of the organization to be sustainably successful;
- applying a financial mindset by establishing a business case and understanding of how sustainability actions contribute directly to business value, either through revenue generation, cost control, risk management, or innovation;
- setting aspirational and challenging goals and targets;
- connecting sustainability goals to strategy by identifying significant drivers and subjecting these aspects to a systematic management process involving setting and cascading targets and performance measures;
- collaborating closely with customers and suppliers;
- measuring the drivers of business externalities, such as greenhouse gas emissions and resulting impacts, including climate change (this involves data collection, analysis, and interpretation and integrating data requirements into management and/or accounting systems); and
- communicating with stakeholders through high-quality reports and disclosures.
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