The Critical Role of HR in Building Sustainable Companies

June 24th 2013

Sustainability is firmly on the CEO and leadership agenda today for two big reasons: (1) It pays and (2) there's no other choice. But it also needs to be on the HR executive's agenda – without HR support and leadership, companies won't create as much value as they could.

Consider the unavoidable environmental and social pressures that companies are facing today. Three mega-challenges in particular are changing business (and life) as usual: climate change, resource constraints, and transparency.

Extreme weather introduces enormous uncertainty into our economy, businesses, and communities – and costs us real money. The rise of the global middle class, particularly in China and India, is placing unprecedented demand on natural resources and driving up the price of nearly all inputs into our economy. And technology is enabling a new level of transparency about every product and every company's operations anywhere in the world (factory conditions in China or Bangladesh are no longer remote and unreported; they're front-page news).

Strategies and tactics that take these pressures into account create tremendous short and long-term value (this is the "it pays" part of the story). This isn't about social responsibility or philanthropy, but about straight-up business value.

Becoming more efficient by cutting energy, water, and other inputs saves a great deal of money – literally billions of dollars at companies such as Dow, DuPont, and Walmart. But the obvious benefits of eco-efficiency just scratch the surface of green value. Companies that take a hard look at their environmental and social impacts up and down their value chains also find tremendous opportunities to innovate. Companies as diverse as GE, P&G, and Toshiba are aggressively selling products that help their customers reduce their impacts, creating fast-growing revenue streams.

All of this value will sit untapped without deep employee involvement in the agenda. So there is a "softer", but no less real, value created by this work: operating in a way that helps solve the world's mega-challenges motivates employees deeply.

It's inspiring to work on something that's both profitable and for the larger good. Strategy guru Michael Porter, talks often about building what he calls "shared value" between a business and society and has said, "you get a tremendous burst of energy in the organization...people feel proud of what they're doing...they feel like they're really making a contribution...they're not just making money...they're making money AND..."

That "and" is critical and makes the difference between a workforce checking the box at work and one where people bring their whole selves to the job and care deeply about their efforts.

And engagement clearly drives business performance: a Gallup study showed that companies with the most engaged workers outperform those with the least engaged...by a lot: 16% higher profitability, 18% higher productivity, and 25% to 49% lower turnover (depending on the industry). That last one can save serious money. Software leader SAP calculated that a single percentage point increase in retention rates saves the company 62 million Euros ($81 million).

HR plays a key role in building and guiding this kind of engagement and helping employees find intrinsic or internal rewards from having a sense of achievement, being valued, or finding meaning in their work. But HR is also, more obviously, at the center of driving behavior in traditional ways through direct incentives such as recognition, awards, cash, and promotions.

Broadly speaking, HR helps guide the culture of every organization and builds the tools for changing and motivating behavior. The HR organization can make environmental and social thinking a part of recruiting, training, job descriptions, reviews, and bonuses and incentives.

With HR leading the way, a fully aligned organization will help solve our largest challenges and unleash new levels of motivation, excitement, and profit.

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The Critical Role of HR in Building Sustainable Companies
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