Measuring the ROI of Sustainability
It’s official, companies are still struggling to effectively measure the Return on Investment (ROI) of their Corporate Responsibility & Sustainability (CRS) programmes.
This won’t come as a surprise to many but was confirmed in a 2017 trends survey and report carried out by Ethical Corporation. One of the standout findings was that 55% of companies are not measuring the ROI of sustainability initiatives, even though 74% of some 2,500 respondents stated that their CEOs see the value of sustainability. This strikes me as quite precarious if you’re an in-house sustainability professional. It also suggests that in many companies this area is still seen as philanthropic spend or a nice to have and not as a critical component for future success.
So why is this such a problem? According to a 2016 report published by Bain & Company (Achieving Breakthrough Results in Sustainability), based on a survey of over 300 large companies engaged in sustainability, 98% of sustainability initiatives fail. And it’s little wonder if there is no effective way of measuring and quantifying the true benefits to the business. Sustainability shouldn’t be any different to any other function. Yes, it’s absolutely about shared value (societal and business), but they drive each other. Investments, in particular larger and more sustained investment, require a rock solid business case and ongoing tracking that demonstrates, in Pounds and Pence, that it is adding value to the business. So unless a company can move from anecdotal to quantitative evidence, the relevance and integration of sustainability is likely to be limited. It means making the case for the significant long-term investment that is required for meaningful change will be at best challenging and it will put existing programmes at risk over the long term. And if we need a reminder of the kind of investment required to drive meaningful change, Mars offered it last year with their announcement of a near £1 billion investment to tackle new and stretching science-based targets as part of their approach.
What’s the answer?
There’s no shortage of quantitative evidence that CRS is of significant value when it’s managed as integral to the business. Project ROI, a 2015 study, is a good example finding that it could increase: sales revenue by up to 20%; customer satisfaction by up to 10%; productivity by up to 13%; and decrease employee turnover by up to 50%. It certainly catches the eye and is essential evidence for building a business case. But how does a company go about tracking it for themselves?
Some things, such as direct costs savings from efficiency improvements, are easier to measure and relatively common-place. They can provide quick evidence as part of a basic cost-benefit analysis but are likely only to result in incremental changes and impact. But they only tell a small part of the story. Remember that greater and sustained investment inevitably requires more justification, so the big money depends on more interesting and effective ROI measurements:
- Brand ROI – companies successfully integrating sustainability into their operations attract more customers who spend more with them. Gains can be measured according to loyalty, spend and share price and brand value as Customer Satisfaction and Customer Lifetime Value.
- Talent ROI – sustainability is increasingly seen as an essential factor for talent attraction and satisfaction. Employing the best who will stay for a long time and give their all. Gains can be measured according to employee engagement, satisfaction and productivity.
- Reputational ROI – sustainability now epitomises a company’s reputation. Measuring the financial ROI on reputation can be achieved through a survey-based measurement or through analysis of earned media – the value of content generated by editorial, digital or word of mouth. This includes social media monitoring tools which can be particularly effective with the right customer base.
These are less tangible and therefore more challenging to measure and track, but by no means impossible. A focus for our approach to sustainability ROI is to partner with a measurement consultancy – Brightblue Consulting – which uses data to build models to analyse KPIs and quantify the effect of a programme or programmes. Working with them and our clients, we aim to model out the contribution of the sustainability approach/initiatives to overall brand, talent and reputation value.
If you’re interested in these services, then please get in touch.
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