Getting to the core of sustainable solutions

Boardroom spoke with four organisations putting sustainability at the heart of what they do: Tourism Holdings Limited, Air New Zealand, Meridian Energy and New Zealand Post.

Sustainability is not just a green issue; it’s about how businesses plan for the long term. The United Nations World Commission on Environment and Development defined sustainability as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Business does not stand alone from the rest of society, and as UK economist John Kay told attendees at the 2017 IoD Leadership Conference, business needs to prove its worth beyond making profit.

A sustainable business takes a much wider view of its operations than just profit and assesses its activities alongside the communities it serves, the environment it draws its resources from and the people who give their energy to the business. Simon Harvey, executive director of business advisory Proxima, says there are two main challenges facing New Zealand businesses committing to sustainability.

The first relates to New Zealand’s relative immaturity on the issue, Harvey says, which requires seeing sustainability as deeper than stereotypical issues like energy efficiency, recycling and philanthropic activities.

“This sort of response, which is concerningly common, is like driving slower to save petrol without realising that you’re actually heading in the wrong direction.

“... sustainability is not about tying ‘green ribbons’ on the business..."

“When properly understood, sustainability is not about tying ‘green ribbons’ on the business but about managing and protecting its licence to operate and sustaining its ability to create value in the future,” says Harvey.

The second major challenge is leadership

“Leadership is fundamental to addressing this challenge and unlocking the potential opportunity, for two reasons. First, leaders need to take a future-focused approach, which involves some degree of taking a ‘leap of faith’. Second, very few sustainability issues are easy fixes. If they were, they would have been solved already.”

Taking the long-view

Meridian Energy has long walked the talk as a sustainable business. The NZXlisted power company produces 100% renewable energy, but chair Chris Moller says their view on sustainability is much wider than that.

"It’s about long-term plans over short-term plays, of striving to do the right thing by people and the planet."

“We believe sustainability is a lot more than just the environment. It’s about the value of collaboration over conflict. It’s about long-term plans over short-term plays, of striving to do the right thing by people and the planet, which encompasses our team, customers, communities, New Zealand and even beyond that. At the end of the day, you have to believe that will create shareholder value as a listed company, and it does.”

The belief that sustainability is valuable is absolutely central to the way Meridian operates.

“It’s not just philanthropic. It’s actually core to our brand. It’s core to our customers. It’s core to the future belief of what the organisation is about. Leading investors realise that, by driving sustainability, there is actually a direct link to the consumers who buy our goods and services and spend their money with us. There is no disconnect between sustainability and shareholder value; it is all part of a wider strategy, but at the same time [it’s about] being a good citizen.”

Tourism Holdings Limited (thl) chair Rob Campbell says businesses are moving from having a short-term view to a long-term one and recognising that sustainability is a necessary part of that equation. Businesses operating in a sustainable manner are not throwing money away; the principles of a sustainable business are not in opposition to a profitable one.

“It’s not sustainability or, it’s sustainability and,” Campbell says.

“In my view, the only route to longterm success for a business is one that is sustainable. If you think it’s a trade-off, then you will probably always trade off. At thl, the board recognises we have to divert some resources, but we’re diverting them towards business success.”

In 2014, thl committed to review their business plans and strategy against The Natural Step sustainability framework and this year released their first sustainability report to talk about their progress. Saskia Verraes, Group Lead – Strategic Initiatives at thl, explains they began with their Kiwi Experience business, which was able to adopt sustainable practices that led to revenue growth and a reduced carbon footprint.

“If we want to have any sort of company in the next 25 years, we need to look after the business, look after the community and look after the people who work for us. That’s the approach we take. We have to take full responsibility for everything that we offer. At the same time, we still have to deliver shareholder value,” says Verraes.

“Without the experiences, there is no shareholder value so there is no point in saying we will just create revenue and not look after the rest. It is overall sustainability. That includes climate change, freedom camping, safe driving, looking after the communities we send our customers to and the same thing with our crew. That’s where we set our targets.”

New Zealand Post chair Jane Taylor says taking a sustainable approach can be beneficial to the long-term reputation of your organisation. It influences how you conduct your business, how your treat your customers and staff and the values your business embodies.

“Reputation is an outcome that is really determined by how well business meets society’s demands in the conduct of its business activities. Reputation ultimately determines your business’s competitiveness and long-term viability. Building trust and confidence in the company’s brand is key.”

Taylor has focused on getting sustainability embedded into New Zealand Post’s business strategy by organising the sustainability programme around Post’s six capitals (environment, expertise, finances, relationships, people and networks).

“This is good for business, it’s not a ‘fluffy’ irrelevant thing that sits out to the side, and it’s certainly not a cost. It delivers benefits.”

“Unless you actually integrate sustainability into your core purpose and strategy, you’re probably not achieving anything but a little bit of window dressing. You might be doing some good, but unless you are embedding its principles into the business, you are not going to create longterm value and you’re not going to change mindsets and you are not going to create long-term value. “This is good for business, it’s not a ‘fluffy’ irrelevant thing that sits out to the side, and it’s certainly not a cost. It delivers benefits.”

Connected to the community

“If you look back at companies that have really stood the test of time, it is those companies that really engage with the society they live in. It’s about understanding and responding to the holistic world that a company operates in, because businesses just don’t exist in a vacuum,” Taylor says, when considering New Zealand Post’s view of sustainability.

Having existed for more than 150 years, the company has always been very aware of its place in New Zealand, Taylor adds.

“I grew up in a small rural New Zealand town where the post office was the core of essential services and a central meeting place for the community. That’s historically been a part of the way New Zealand Post operates, so it is very aware of its relationship with society.”

Air New Zealand CEO Christopher Luxon says sustainability is part of the fabric of Air New Zealand and reinforces the link between the airline and the country its name represents.

“We know our success is inextricably linked to a flourishing New Zealand, just as New Zealand’s success depends on a thriving airline."

“We know our success is inextricably linked to a flourishing New Zealand, just as New Zealand’s success depends on a thriving airline. This awareness underpins our work to hardwire sustainability at the heart of our business.”

The airline also sees collaboration as a key to tackling the issues New Zealand faces. Some of their partnerships include collaboration with the Department of Conservation and iwi partners to improve biodiversity on New Zealand’s Great Walks.

Meridian Energy has a number of wellknown partnerships, including with the Department of Conservation to protect the kākāpō. They are important partnerships and reflective of something much wider than gaining good favour from the birdloving public, Moller says.

“When we invest in something like that, it’s not just because it’s nice, it’s because we think it’s important to New Zealand communities and to us as one of New Zealand’s listed companies.”

Luxon says its focus on sustainability has had an impact internally and drives home the value in standing for something greater than building revenue.

“Sustainability is incredibly positive for our people, our brand and relationships with customers, our suppliers and investors. I also firmly believe people want to be part of an organisation where their work has a purpose beyond profit. Research shows Millennials, now the largest generation in the global workforce, want to be connected to a purpose and to feel proud of their contribution.”

Sustainability issues are not simple fixes, and Luxon says their sustainability agenda is long term. For an airline, one very large sustainability challenge is reducing its carbon footprint. The airline is ready for the challenge, aspiring to be the world’s first fuel-efficient long-haul oceanic operator.

It flew one of the aviation industry’s first biofuel test flights in 2008. It continues to support work in this space, currently alongside Virgin Australia, to strengthen the commercial case for investment in biofuel.

Driven from the top

Moller says the belief at Meridian Energy that sustainability is the way forward is non-negotiable, and the culture of the organisation reflects that belief.

“That is right from the top – from the board. You have to act in an authentic way and act with integrity. You have to lead by example, and it’s got to be actions, not just words. Examples are obviously very tangible to people, but I think symbols are also important in demonstrating commitment to sustainability.”

Meridian is one of only three New Zealand companies listed on the Dow Jones Sustainability Indices (DJSI), and the company must meet the standards every year to stay on list. It's not a tick the box exercise, Moller says, as the bar is raised every year. They have also adopted the UN Sustainable Development Goals and have reported against the goals most relevant to their business as part of their recently released integrated report for 2017.

Luxon says the involvement of the Air New Zealand board is crucial. “Their advice has been invaluable: from guidance on how we deliver on our targets through to supporting our decision to locate sustainability within our strategy division – a move that has ensured sustainability is integral rather than an add-on.”

Among its responsibilities, the board meets annually with Air New Zealand’s Sustainability Advisory Panel, made up of leaders in the space including Sir Rob Fenwick. The influence of the board is felt outside of the airline too as board members work to encourage the other organisations they are involved in to take steps towards sustainability.

Sustainability is about future-proofing our organisations and being part of driving for solutions, Luxon says, adding that “as business leaders, we need to make sustainable growth mission critical”.

Taking the lead

Knowing that the board has created a priority for sustainability is important to making changes at thl, Verraes says. It takes courage to go down a new route, find new ways of doing things and pitch ideas that might be a little out of the box. Knowing the board and executive are aligned on this issue means sustainability really starts to be embedded within the organisation and empowers staff to act.

“You can’t just focus on revenue growth, you have to do it in a responsible, ethical way. It has definitely helped to have both Grant [Webster, thl CEO] and Rob very vocal about being behind this journey, putting on their thinking caps and trying to create a priority for it while at the same time we have an enormous number of other priorities to try and meet our revenue targets.”

“It is an issue that needs board leadership,” says Campbell.

“Leadership of the chair is important because the chair does significantly set what the board discusses”.

Campbell says one factor in producing the thl sustainability report was putting accountability on the board. The goals set are challenging, such as a 20% reduction in greenhouse gases by 2025 and zero infringement notices for illegal freedom camping for thl customers by 2020. But these are challenging issues and need the involvement of everyone in the organisation. Campbell says taking ownership is what it takes, because it takes a lot of work to go from having a board that is supportive of sustainability to one that translates its support into action.

“My personal view is that business needs to play an active role in sustainability – not just be a complier but be a leader. We’re happy that the report is out and we’ve made ourselves accountable, but we are only just on the road.”

Ultimately, says Campbell, the journey to more sustainable business is part of a wider shift in mindset as directors recognise the power business has to make a difference.

“I think business is learning a lot about its role in society and how positive that can be.”

Five points on sustainability

Simon Harvey gives some pointers for boards thinking about how to make sustainable thinking part of their practice.

1. Goal setting. Identify a set of bold North Star goals that truly describe what measurable and tangible success looks like as a genuinely sustainable business. This involves taking a whole-systems perspective, understanding the relevant issues and then making firm commitments to address the sometimes difficult yet material challenges like carbon neutrality, eliminating polluting emissions, zero waste or creating net social value – challenges that the company may not yet know exactly how it will solve.
2. Committed leadership. Working towards achieving the bold goals will require good leadership and innovative thinking, with unswerving support at board and executive levels.
3. Empowered implementation. Making sure a capable, well-resourced, wellsupported and enabled champion has a mandate to implement initiatives towards the bold goals and is incentivised to succeed.
4. Purposeful collaboration. Develop partnerships and alliances to solve the more difficult problems based on a shared common interest and complementary capabilities.
5. Measure, review and report – honestly. Measuring the right things on the right, material issues is important for credibility and accountability. Providing disclosure about past performance and future progress towards the bold goals is a powerful way of building trust with key audiences.

Published in Boardroom Oct Nov 2017 issue