Why measuring ROI of sustainability is essential
As a Corporate Responsibility and Sustainability (CRS) professional, it’s a nagging concern of mine that companies continue to struggle to effectively measure the Return on Investment (ROI) of their CRS programmes.
It’s a challenge we hear frequently from our clients and was confirmed in a 2017 trends survey and report carried out by Ethical Corporation. One of the most significant findings was that 55% of companies are not measuring the ROI of sustainability initiatives, despite 74% of 2,500 respondents stating that their CEOs do appreciate the value of sustainability.
Does this suggest that many companies still view CRS as a ‘nice to have’ but not – as we know it – a critical component for future success?
And why should this lack of ROI measurement cause concern? According to 2016 research by Bain & Company (Achieving Breakthrough Results in Sustainability), 98% of sustainability initiatives fail – something that comes as little surprise if ROI is not fully understood. Despite sustainability success factors often being derived from shared value aims, I don’t believe sustainability should be different to any other business function where investment decisions are judged and tracked according to how they add value to the business. The risk of business value remaining unproven or untracked is that these investments are likely to be the first to go if business efficiencies are required.
What is more, larger and more sustained investment tends to require greater justification and so this lack of ability of companies to quantify sustainability ROI may help to explain why sustainability investment tends to be low, ad-hoc and/or incremental – particularly when compared to marketing budgets for example. This in turn can limit the relevance and integration of sustainability in the business. Yet if businesses are going to achieve the meaningful changes that are required in the face of major environmental and social change – in areas such as building resilient business models and the low carbon transition – this will require much greater investment in sustainability than many companies are currently used to. Mars offered a reminder of this last year with their announcement of a near £1 billion investment to tackle new and stretching science-based targets as part of their approach.
A key to effective sustainability is ROI measurement
There is no lack of quantitative evidence showing that CRS offers value when managed as integral to the business. A 2015 study, Project ROI, is a case in point, showing that it could increase the following: 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%. Such thought-provoking results are essential evidence for developing a business case. But how might a company track such information independently?
Certain paybacks are easier to measure, such as direct cost savings from efficiency improvements. They can give instant evidence as part of a basic cost-benefit analysis, but they just tell a small part of the story. There are three far more interesting and effective ROI indicators that CRS increasingly contributes to:-
1. Reputational ROI
Sustainability now characterises a company’s reputation. Measuring the financial ROI on reputation can be achieved using a survey-based measurement or via analysis of earned media, the value of content generated by editorial, digital or word of mouth.
2. Brand ROI
Companies that successfully include sustainability in to their operations attract more customers who spend more with them. These can be measured according to spending, loyalty, share price and brand value as Customer Satisfaction and Customer Lifetime Value.
3. Talent ROI
Now more than ever, sustainability is increasingly being seen as an essential factor for talent attraction and satisfaction: employing the best individual(s) who stay for the long haul and give their all. This can be measured according to employee engagement, satisfaction and productivity.
With the right data and tracking, it is perfectly possible to model out the contribution of sustainability to the overall brand, talent and reputation value, providing a much truer measure of sustainability ROI.
And the size of the prize?
Greater sustained and optimised investment leading to meaningful change.
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