Making sustainability a priority is not easy, especially in the early days of a company. According to the U.S. Small Business Administration’s Office of Advocacy, only half of new businesses survive past the first five years, and only one-third make it past 10 years. When a new company is focused on keeping its business alive, other considerations such as sustainability may get little attention.
A recent report from the Pacific Basin Research Center in Orange County, California, suggests that executives increasingly are working with government and nongovernmental organizations (NGOs) to help adopt sustainable business practices. There are many potential benefits to these relationships: enhanced reputation and credibility, access to technical expertise, long-term stability, higher employee engagement, new market opportunities, and better regulatory preparedness, among other benefits.
It is important to understand the differences between these two types of collaboration, and how to best approach them to increase the chances of success. Getting it wrong can waste resources, attract negative media attention, and ultimately lead to a failed project.
A simple analogy helps explain the main differences in these relationships. Imagine you are driving a car. There are rules of the road that need to be followed. Otherwise, you can get fined or lose your license. Other conditions can facilitate or restrict the drive, such as weather, construction, and traffic congestion.
As this analogy applies to companies’ sustainability efforts, the rules of the road represent government regulations, and the driving conditions represent NGO concerns. The rules must be understood before getting behind the wheel, but they usually don’t change much. NGOs’ concerns require more constant attention, as these “driving conditions” change often and need to be planned for and managed. Partnering with an NGO is like enabling a GPS to help you plan the best route.
To understand the best approach to each type of engagement, we spoke to members of the Environmental NGO-Corporate Partnership Taskforce, funded by the Pacific Basin Research Center. A list of standard questions were emailed in March 2014, and the responses were manually codified to identify patterns. Taskforce members are leaders from Walmart, Procter & Gamble, Sempra Energy, the U.S. Government Accountability Office (GAO), the U.S. Environmental Protection Agency (EPA), and No Barriers USA, an education nonprofit.
A pitfall to avoid when working with government is the appearance of working too closely together. For example, with the U.S. EPA’s National Environmental Performance Track program, launched in 2000 during the Clinton administration, businesses were rewarded for strong environmental performance and compliance. For some critics, a controversial element of the program was giving members low priority for routine inspections (although all businesses went through a rigorous screening process before being admitted).i In part because of this, the program was ended early in the Obama administration.
The best engagement is when government convenes industry players together to address a specific issue or when government participates in a broader initiative led by industry. The former reduces the transaction cost of stakeholders coming together and addresses a social need where government might not have the resources to do so. The latter adds legitimacy and technical expertise, enhances visibility, and ensures efforts are better aligned with legislation.
It is also wise to avoid overly close alignment with NGOs, which ultimately serve a different purpose and are accountable to different stakeholders. Each partner needs to maintain a healthy tension by providing constructive criticism and addressing potential issues before they become burdensome. This allows each organization to achieve outcomes that otherwise would not be possible on their own.
There are two examples that illustrate these principles. First, there is the Tropical Forest Alliance 2020 (TFA 2020), a consumer goods consortium that emerged from the United Nations Conference on Sustainable Development, or Rio+20, in 2012. Companies like Unilever, Proctor & Gamble, and Walmart created a global network for action on deforestation, focusing on the sourcing of paper and pulp, soy, palm oil, and beef. The initiative attracted established NGOs and several national governments. The governments help legitimize the effort and, in return, are involved in reshaping the industry.
Second are the CDP, the largest global database for corporate self-disclosure on climate change, water use, and forestry management. Its voluntary framework helps organizations prepare for changing conditions. In late 2014, the EU’s European Council required larger listed companies to disclose their environmental and social impacts (or explain why they do not have such policies). Of the 6,000 companies that were affected, 1,000 were already disclosing this information through CDP and were well prepared for these regulatory changes.
Although integrating sustainability into a business can be difficult, government and NGOs can help make it easier. This can be done by inviting government to broader initiatives, partaking in activities convened by government, and pursuing moderately intensive NGO partnerships. Some startups may think it’s too early in the life of their business for these engagements, but we argue it is much easier to do this during the formative years of a business than when it becomes more established. With these approaches, a business can build government and NGO collaborations that are made to last.