We believe that it is good business strategy for companies to lead the shift into sustainability.

A. A planet in social and environmental decline is bad for business
Businesses need a secure, predictable environment in which to operate. Extreme poverty, social inequity and ecological degradation create instability in the form of migrating populations, imperilled resource bases, and negative emotions - fear and anger - held by billions that destroy social capital.

To some extent, businesses are operating under these conditions today. If current environmental and social trends continue, they will become much worse in the decades ahead. Social and ecological entropy is a bad environment for business. 'No planet, no profits,' as the saying has it. Working to preserve global political stability and reverse environmental degradation is in business's long-term interest.

B. Operationalising sustainability is strategically advisable because it aligns business with consumers' values and beliefs

Over the course of the past decade, civil society has become a major presence in global governance. Its power has been greatly enhanced by the advent of the Internet and mobile communications, which have democratised access to information and enlarged the reach and access of international NGOs and other civil-society organisations. These same communication technologies also permit organisations and individuals to cooperate effectively in a decentralized manner, leveraging the voice of all the actors. Today business operates in a global goldfish bowl: it is virtually impossible for companies to keep their activities secret.

Today many people are sceptical of - or overtly hostile to - multinational corporations. There is a growing backlash to globalisation, which many observers equate with corporate power. A summer 2000 survey by Business Week magazine found that found that nearly three-quarters of the American public "think business has gained too much power over too many aspects of their lives." The past several years have seen widely publicised demonstrations against globalisation in Seattle, Prague, Quebec City and elsewhere.

As noted by the above-cited Environics survey, people are also increasingly demanding that corporations integrate issues of environmental protection and social justice into their core strategies. This shift in societal expectations is reflected by the year-2000 launch of the United Nations' Global Compact, which calls on corporations to "reconcile the creative forces of private entrepreneurship with the needs of the disadvantaged and the requirements of future generations."

If it ever made sense for corporations to engage civil society adversarially on these issues, that is the case no longer. With civil society having the power it does - including the power to restrict the corporate license to operate - the only sensible strategy is to engage the sector in a spirit of dialogue and collaboration. This means working overtime to ensure alignment between corporate goals and societal values. And that in turn means working side-by-side with civil society to restore our social and natural capital.

C. Operationalising sustainability offers a compass for navigating the New Economy
With the advent of the so-called 'New Economy,' the rules of engagement for business have changed dramatically. The old or industrial economy was characterised by isolation and non-integration among the various stakeholders. It assumed tension among the sectors: businesses viewed themselves as basically on their own and therefore felt a need to be in control. The New Economy model is much less Darwinian, much less 'us against them.' The essence of the New Economy can be summed up in one word: 'connected.' Today, individual enterprises have become participants in a complex and interconnected system whose interactions spin out business opportunity after business opportunity. At the heart of the New Economy is the metaphor of the web, and not just the Worldwide Web. The Value Web.

In the New Economy, corporate stakeholders are repositories of opportunity, not problems to be dealt with. The challenge for businesses in this new environment is to negotiate mutually beneficial arrangements with these stakeholders, whether they be other businesses, customers, or representatives of civil society. It becomes much harder for corporations to do this if they are perceived as trying to impose their will undemocratically out of the Old-Economy, 'us-versus-them' framework. Aligning with societal values - and at a deep, not 'greenwashing' level - opens the door to the innumerable profit opportunities that are embedded in the Value Web.

The rules have changed in the New Economy in another way as well. In the Old Economy, value was equated with physical stuff. Wealth came from owning oil or forests or ore and from having the manufacturing capacity to transform that stuff into end products. The New Economy decouples value from stuff. It is a knowledge economy and knowledge is immaterial.

The transition to a New Economy is not just a technological imperative brought about by information and communication technologies. Another imperative is at work as well - the sustainability imperative - and it too is taking us toward dematerialisation. For a culture that prides itself on efficiency, the business sector is shockingly profligate in its use of natural resources: 94 percent of all materials that go into making a product are discarded as waste during the manufacturing process. Our ecological crisis is such that this cannot continue. Business logic also demands that this waste and low productivity be addressed. Our industrial economy must use less stuff and it must use it more effectively. There are several ways to do this. It can make production processes more ecologically efficient. It can also transition out of products and into services. Instead of selling stuff, companies sell the services the stuff is intended to supply. Painted cars, not paint. Healthy crops, not pesticides.

Operationalising sustainability aligns companies with the New Economy. It does so by helping them migrate away from materials intensity and toward knowledge intensity. Du Pont, an Ecos client, has analysed its businesses in terms of their materials intensity and found that the businesses with the lowest materials intensity tend to have the best long-term growth potential. This is because they are knowledge-based businesses and that is where the future lies. Thus a principle whose origins are ecological - Use less stuff! - transmutes into a formula for success under the new rules of the New Economy.

D. Operationalising sustainability produces clear business benefits
Our analysis suggests that operationalising sustainability builds business value in four ways:

1. by reducing risk
2. by increasing capital efficiency
3. by improving margins
4. by enhancing growth.

Risk Reduction. Operationalising sustainability reduces two very broad types of business risk: 'content risks' and 'business process risks,' respectively.

Content risks consist of actual physical risks to human and environmental health. Examples include the dangers associated with endocrine disrupters, excessive water usage, and CO2 and other emissions to air and water. These are all environmental risks but other types of 'content risk' such as workplace safety are not strictly speaking environmental.

Content risks are best addressed by elevating safety to core-value status and then creating a safer environment by applying scientific, technical and management know-how.

'Business process' risks consist of threats to corporate image and reputation. As a risk category, it is growing steadily more significant as information and communication technologies grow exponentially in reach and power, allowing civil society to assimilate and respond to information in record-breaking time.

The best way to manage these business process risks is through communication and outreach, i.e., by participating actively and appropriately in the web of global dialogue and governance. This approach improves two-way communication and reduces the risk of unpleasant surprises. It creates a 'trust bank' that companies can draw on to gain support for new initiatives or when mistakes occur.

Capital Efficiency. Operationalising sustainability improves return on investment by substituting knowledge for material and by replacing products with services. This can reduce the amount of capital needed to generate a unit of earnings, thus increasing returns on invested capital.

Margin Improvement. Sustainability can help companies make more money by cutting costs or increasing price. The best-known strategy for doing this is eco-efficiency. It operates on a very simple principle: cut costs by using fewer resources. Existing production processes can be made more eco-efficient through such measures as reducing solid waste and decreasing water and energy consumption.

Increased prices can be achieved by adding 'sustainability value' to products. This is most relevant for niche products in relatively early-stage markets such as organic food and highly energy-efficient appliances.

The Cost-Effectiveness of Eco-Efficiency Many companies have saved money through production process improvements and product redesign: Perhaps the most famous example is 3M's Pollution Prevention Pays program, which since its inception in 1975 has reduced environmental releases by 1.4 billion pounds and saved the company $US750 million. At Dupont's polyester-films group, a billion-dollar business, films have been getting thinner (dematerialising), but because they have also been getting stronger and better, customers are willing to pay more for them per pound of product. For example, whereas a film that is 0.9 microns thick sells for $US170/pound, a 2-micron film fetches only $US30 a pound. Sony's ECO-TV is halogen-free, has no antimony trioxide, no PVC, uses less total material and 52% fewer plastics than conventional televisions, increases recycling capacity to 99%, and reduces costs of the cabinet by 30% and the speaker box by over 50%. Assembly time is reduced because it uses fewer parts. Contrary to the conventional view that environmental performance costs money, the ECO-TV has lower materials costs, is cheaper to produce, and has higher retained value due to end-of-life recycling.

Growth Enhancement. If margin enhancement is about 'doing current business better,' growth enhancement is about 'doing new, better things.' Operationalising sustainability can help businesses develop new products and expand their markets in such ways as:

• Supporting new-product innovation. A sustainability framework helps companies identify new product opportunities by defining future social needs through an analysis of clearly defined environmental and social trends.
• Providing a framework for expanding into new markets. A sustainability-oriented perspective incentivises companies to develop products for the roughly 4 billion people who have not been fully integrated into the market economy.
• Building brand and corporate reputation. By making a substantial public commitment to sustainability, companies increase their appeal to environmentally-conscious consumers.
• Motivating and attracting employees. People who believe their company shares their concern about sustainability-related issues will work harder and better than people who feel otherwise. Prospective employees are attracted to companies whose values they believe in.
• Delivering creativity and insight. Actively engaging stakeholders in ongoing dialogue produces perspectives and insights that can lead to dramatic innovations in product strategy.
• Building a leadership framework. A company that has established a reputation for leadership on sustainability-related issues can leverage that position in various ways, such as influencing the regulatory framework and becoming a preferred partner in commercial and non-commercial relationships.

Sustainability in the Service of Growth and Innovation Operationalising sustainability positions companies for the future, as the following examples show. Supporting new-product innovation: Shell Oil predicts that renewable energy will constitute up to 10% of global energy demand in the next 25 years and up to 50% by 2050. The company intends to invest $US500 million over the next five years to position itself to meet this demand. Providing a framework for expanding into new markets. Hewlett-Packard's World e-Inclusion Services initiative, launched in late 2000, is a multi-faceted program designed to cross the 'digital divide' and bring information and communication technology to the world's four billion poor. Building brand and corporate reputation. BP/Amoco has moved ahead of the oil-company pack by addressing climate change through such measures as introducing an internal CO2 trading system and making a substantial investment in renewable energy. This has significantly enhanced the company's corporate and brand reputation. Motivating and attracting employees. Patagonia places a strong emphasis on social responsibility in its operations. Employee retention is high compared to industry averages in both retail (turnover is only 20-30% a year versus a typical 100%) and administration (administrative turnover typically ranges from 3-5%). BP Amoco has found that its progressive stance on climate change has enhanced its capacity to attract top graduates. Delivering creativity and insight. At the carpet company Collins & Aikman, a gathering of ecological designers and other sustainability experts produced a wealth of usable ideas, ranging from establishing regional carpet-recycling facilities in inner cities to shifting its focus from 'floor coverings' to 'building systems.'

In addition to these anecdotal indicators, empirical evidence is mounting that operationalising sustainability creates shareholder value:

• A year-2000 report by business school professors at the University of Michigan and Harvard analysed 95 studies that examined how social and environmental performance affect financial performance. Three-quarters of the 95 studies found the relationship to be positive.
• Portfolios that track companies deemed to be superior sustainability performers have outperformed or equalled the performance of their investment benchmarks over the longest time periods for which data are available.

There continues to be a great deal of resistance in the financial and business communities to the notion that a seemingly do-good strategy like operationalising sustainability can actually create shareholder value. It will take time - and more evidence - to persuade them otherwise. But we are plainly headed in that direction.