In addition, recent high profile cases—ranging from cookie and candy brands to children’s book publishers—show the risks to brands from biodiversity and forest impacts in the supply chain. With biodiversity and ecosystem impacts becoming more transparent and understandable to consumers via social media, there is an increasing need for consumer-facing brands to get out in front of this issue.

The palm oil industry is perhaps the most salient example of an industry facing this challenge today. Driven by the demand for consumer goods ranging from cosmetics to food and bio-diesel, the rapid expansion of palm oil production is causing irreversible damage to ecologically complex tropical rainforests. It also represents the greatest single threat to orangutan survival[3].  With China’s palm oil demand forecast to grow at 12% annually for the next 10 years, estimates show that an additional 12 million hectares of oil palm plantation are needed to meet forecast demand by 2050[4]. Thus, forest conversion to palm oil is going to be a continuing threat to species like the orangutan.

Companies engaged in the growing, processing, marketing, distribution, and use of palm oil are under increasing pressure to manage their business, or supply chain, impacts on biodiversity and critical habitat.  A clear starting point for those palm oil producing companies and consumer-facing brands using palm oil ingredients is to develop a pro-biodiversity strategy that embraces measures to control deforestation and to reduce conversion of tropical forests for palm oil production.

Recognizing the need for new models to align biodiversity conservation goals with business ones, New Forests – a company seeking to create pioneering investment models around biodiversity conservation – has focused its efforts in the Malaysian state of Sabah where there is a political commitment to creating a kind of ‘eco-Silicon Valley’ for biodiversity investment.  Numerous organizations including New Forests, Marks & Spencer, Itochu, GIZ, Sime Darby, IKEA, WWF, and the FACE the Future are experimenting with new models to finance tropical rainforest rehabilitation and conservation across Sabah.

Without new and commercially viable business models for conservation, increasing demand for palm oil production will destroy more of Sabah’s rainforests, ultimately diminishing their biodiversity and species habitat.  As part of the Sabah State Government’s decision to seek new models of conservation finance, New Forests proposed a commercial biodiversity investment model for the 80,000-acre Malua Forest.

Located on the island of Borneo, Malua is an integral part of the 240,000-hectare Ulu Segama-Malua Forest Reserves, one of the largest and most biodiversity-rich blocks of natural forest remaining in Sabah. Malua has been logged for at least 50 years but still retains extraordinary biodiversity, including the highest density orangutan population measured in the region.

New Forests proposed to create the Malua BioBank based on the U.S. model of regulated endangered species and wetlands banking instruments.  A key strategy was to unitize the rehabilitation and conservation management of the Malua Forest Reserve in a way that could be integrated into the palm oil supply chain.  In this way the model presented a countervailing option to the status quo: consumer brands could become the primary sponsor of biodiversity conservation, rather than the primary threat. Critically, the model needed to be a positive economic solution and not be seen as a burden on the palm oil industry. In Indonesia and Malaysia every $1 investment in palm oil is yielding a $2.30 rise in regional per capita incomes[5], so a viable conservation solution should support rather than confront the industry.

Creating the Malua BioBank as an eco-investment, New Forests and the Sabah Government are now piloting the biobank model based on the commercial value of conserving Malaysia’s globally significant forests. This ground-breaking agreement means the Sabah State Government will receive revenues comparable to those that could be earned from continued forest-based logging or oil palm plantation concessions, in order to maintain the Malua Forest under “conservation use only” status.

The Malua BioBank issues Biodiversity Conservation Certificates (BCCs) – credits representing the quantified and unitized forest biodiversity and species habitat protected or enhanced by the project.  Each BCC equates to a 100-square meter area of Malua rainforest that is restored and managed according to the Malua Conservation Management Plan. A total of 3.4 million Malua BCCs, valued at $10 each, are issued and registered with the Markit Exchange Registry.

Funders receive one BCC for every $10 they contribute to the project—and acquiring Malua BCCs can be a key part of a corporation’s biodiversity neutral strategy for palm oil. Investing in the Malua BioBank undeniably establishes a brand’s pro-biodiversity credentials.

Most major consumer goods companies are members of the Roundtable on Sustainable Palm Oil (RSPO), an important multi-stakeholder effort to establish standards for and generate a supply of sustainably produced palm oil.   Acquiring BCCs builds on RSPO initiatives and boldly moves beyond minimum discretionary compliance. Right now there is no better way for brands to differentiate around biodiversity, than to demonstrate strong and clear commitments to “no net loss of biodiversity” or “net biodiversity gains.”

From a marketing perspective, embedding conservation actions into the product supply chain to achieve no-net loss for biodiversity, ecosystem or species habitat is very progressive and will garner considerable Social Brand Capital, i.e. the loyalty value that consumers and other supply chain stakeholders attribute to a brand as a result of the its direct ownership of tangible conservation outcomes. The companies that execute a pro-biodiversity strategy will find that embedding critical biodiversity conservation in products can have negligible costs yet offer potential to build competitive advantage and drive sales.

The emerging market for biodiversity offsets that conserve, restore and enhance biodiversity and species habitat – as is happening in the U.S. – also turns potential environmental liabilities into financial eco-assets. For example U.S. federal law mandates that developers who impact wetlands must offset the ecological damage by purchasing credits from accredited wetlands mitigation banks in their region. ChevronTexaco received approval in 2005 to convert a tapped-out Louisiana drilling site into a 2,800-hectare wetlands mitigation bank. Generating these credits for the U.S. wetland mitigation banking market, and targeting to sell them at market prices ranging from around $20,000 to $25,000 per wetland/acre, a project like this can turn a liability into an asset potentially worth up to $150 million for Chevron.

For those leading brands using palm oil that are increasingly being linked to rainforest loss, embracing the RSPO option fails to bring a completely satisfactory solution. Forests are fundamental to the Earth’s “ecological infrastructure” and when a tropical rainforest is destroyed it is irreplaceable. So while RSPO will systematically reduce the negative impacts of palm oil, it cannot recover the forest ecosystems and critical habitat already lost.

One solution is for corporations to create a Biodiversity Balance Sheet.  In simple terms, a hectare of oil palm plantation produces 100 tonnes of crude palm oil over its twenty-year productive life.  If one Malua BCC were acquired and retired for each tonne of crude palm oil, that would ‘square the biodiversity ledger’ by rehabilitating and endowing one hectare of the Malua Forest conservation for each 100 tonnes of crude palm oil used by a corporation (see diagram).  Effectively the palm oil purchaser becomes the sponsor of forest conservation, rather than the driver of forest loss.

The solution for these companies, in addition to any RSPO and certified sustainable palm oil (CSPO) sourcing commitments, is to be transparently accountable by recording their palm oil usage (applying a 5 tonne palm oil yield per hectare per year) and then systematically sponsor the equivalent amount of biodiversity banking. The accounting is straightforward and can be easily monitored and audited by third parties such as the Forest Disclosure Footprint.

The Malua BioBank represents the first opportunity to sponsor and embed biodiversity into consumer brands.  The goal is to eventually replicate the model across a range of critical ecosystems.  In a world heading for a population of 9 billion and a $100 trillion gross world product, these eco-innovations offer a much needed solution.

For further information please contact Malua BioBank Marketing at maluabiobank@newforests-us.com.

In 2008, K-C research engineer, Rob Gusky, enlisted a small group of employees in Neenah, Wisconsin to ride bikes to work, inspiring people to sign on both to save money amidst record-high U.S. gas prices and improve their health and reduce environmental impacts.  One of the 2008 participants become a key stakeholder and was instrumental in obtaining sponsorship of K-C’s Scott® Brand for 2009.  This support enabled an improved website, publicity via direct employee emails and articles in K-C’s internal employee newsletter, and the recruitment of over 50 volunteers at local sites.  This resulted in rapid growth to over 700 employees at 90 locations in 16 countries.   The internal program has continued to grow and in 2011 had impressive measurable impact with K-C employees logging 357,739 miles.  Now entering its fifth year, this program has proven to be a tremendous platform for sustainability education, engagement, and team building that has touched thousands of K-C employees globally.

These positive results inspired Gusky to propose development of an external program with a plan to offer it free to all Wisconsin residents.  The Scott® Brand agreed and in 2011 a pilot program was launched in partnership with the Bicycle Federation of Wisconsin.  With a stretch goal of 1 million miles, the program exceeded this by 20% and had participation from over 4500 Wisconsin residents.

The success in Wisconsin led to a bigger vision: Taking the challenge to the national level. K-C’s senior leadership endorsed this vision and sponsorship transitioned to the broader Global Sustainability and Health Services teams.

We’re excited to announce that on May 1 Gusky’s program will be launched nationally as the National Bike Challenge. Sponsored by K-C along with NGO partners the League of American Bicyclists, Bikes Belong, and Endomondo, the Challenge aims to inspire and empower millions of Americans to ride their bikes for transportation, recreation and better health.

The Challenge is open to employees at any company, and we hope CEF members will take advantage of the opportunity in the context of their own sustainability engagement efforts. Getting involved is simple, free, and can be done at the individual and/or organizational level: people just sign up as individuals or as teams/organization, log their miles, share stories, and encourage others to join. Riders will compete for prizes and awards on a local and national level, including a Grand Prize trip through California wine country from Trek Travel.

The Challenge begins May 1 and continues through August 31, 2012 and is a great way to get the employee engagement wheels turning in your company. Join us!

We can’t.

Mainstream business analysts pay scant attention to sustainability, even though it is nearly certain to have growing impact on core sector strategies.  Issues such as globalization or even productivity investments like ERP systems still command more analyst attention.  Company attempts to communicate their strengths on environmental, social and governance issues to their sector specialists are often met with indifference.

Perhaps mainstream analysts believe the contribution of sustainability to financial performance is marginal at best (or even negative), though increasingly studies point out that sustainability leadership shows a distinctly positive correlation with above average financial performance.  True, these more nuanced analyses are new, but the problems go deeper.

While many corporate executives now define sustainability strategy as  a set of initiatives aimed at reframing and redesigning core business processes in a manner that yields both tangible and intangible short and long-term business benefits, most investors and mainstream analysts think of sustainability as synonymous with social responsibility.  From years of experience, investors have learned, and we agree, that it is quite hard to establish a relationship between a firm’s social responsibility performance and business results. Hence, sustainability’s limited mainstream appeal.

Even as Socially Responsible Investing has adopted the newer ESG (Environmental, Social and Governance) formulation hoping to firm up the strategy’s perceived value with the mainstream, investors have difficulty relating scores on literally hundreds of policy, process, and behavioral factors to material impacts on growth, productivity and risk – the mainstream issues. Corporate social responsibility reports often come packaged with a wealth of data about impacts and great examples of various improvements programs. However, it remains quite challenging for an analyst to determine the scale of business benefits currently achieved or anticipated and how any of it impacts competitiveness.

We take nothing away from the important work being done by firms and reflected in the ESG data they provide.  We fully endorse current work defining ‘shared value’ and other notions of sustainable capitalism that the ESG data helps support. But for those companies hoping to realize a ‘sustainability premium’ in their market value or gain mainstream analyst recognition for enhancing the competitiveness of their firm, considerably more focus needs to be applied to communicating the business upside of sustainability.  In the past, it has taken this sort of recognition of business value to have a transformative effect on top management’s funded priorities and then across the enterprise.

So here many of us sit – trying to solve what we have termed the ‘sustainability conundrum’. Until evidence linking firms’ sustainability strategies to material impacts on financial performance is broadly available and accepted by the financial community, sustainability will remain of interest only to a relatively small niche of values-based investors. And until sustainability appears to be of more interest to mainstream investors, corporate leadership teams will delay investing fully in efforts to consistently drive, report and communicate positive financial gains from sustainability strategy execution, even in cases where such gains already exist.

In almost every business sector, it is possible to define a new revenue category — growth from products or services that have been designed (or redesigned) to achieve their inherent purpose while also meeting some (internally or externally defined) high level of sustainability performance. Just providing a quarterly update on sales of these designated products, as GE does with its fast growing multi-billion dollar Ecomagination portfolio, offers important insight into how a firm’s product strategy is changing, and creating new sources of competitive advantage.

Similarly, sustainability strategies have made notable contributions to firm productivity.  Numerous case examples describe big savings in areas like energy, waste and water. Yet relatively few firms report quarterly (or annual) savings and other total bottom line impacts from the entire portfolio of sustainability driven productivity improvements. Doing so would more clearly signal potential cost structure advantages that should accrue to sustainability leaders.  Firms like 3M and Dow Chemical, to their credit, have tracked and updated such savings totaling in the billions of dollars over time. Though many firms provide glowing examples, it would be guesswork at best for an analyst to estimates of the benefits for a given period.

Risk attributes, though sometimes harder to dollarize can also be quantified to a significant extent, such as analysis of resource risks in company operations and supply chains, from rare earths to the rising price of energy. UPS’s simple scorecard of annual changes in sustainability risks such as CO2 (or Energy) per Delivered Package, carries huge information about UPS’ risk management capability.  Moves such as those Apple has made recently to list and assess their suppliers publicly are unprecedented, but are critical to minimizing potential risk to value from negative changes in stakeholder perception.

Were firms better able to report the materiality of their sustainability strategies in terms of revenue growth, productivity and risk management, we have little doubt that sustainability leaders might find themselves enjoying a market premium often awarded to other business innovators. Maximizing the opportunity requires firms to systematically capture and report the sustainability driven business impacts they are seeing already, or aim to generate, as well as a strategic scorecard defining their exposure to material sustainability driven risks.

As the practical benefits become clearer to analysts, they will begin to internalize the importance of this new kind of efficiency and innovation strategy.  Sustainability will become a differentiator.  Leaders would earn a ‘sustainability premium’ for their shareholders. This would incent others to better define and execute their strategies, and create a positive dynamic, whereby sustainability leaders derive maximum business benefit from successfully addressing our critical global sustainability challenges. The market would help raise the bar for all. In many ways, the winners are already starting to emerge, but the opportunity for others not yet fully engaged in this new paradigm remains clear.

Activating this positive dynamic requires going beyond discussing ESG and getting down to the basics of sustainability driven impacts on growth, productivity and risk.  It’s hearing “Your S/GPR this quarter was very strong.  How do you see it for the coming year?” that will let us know we’re on a roll.

David Lubin was formerly Co- Chairman and Managing Director of Renaissance Worldwide, and serves as Chairman of the Sustainability Innovators Working Group at Viridis. He is currently Managing Partner of InnovatorsAlpha, an investment advisory. Contact: mr.davidlubin@gmail.com.

Cary Krosinsky, Senior Vice President, Trucost Plc, Adjunct at University of Maryland Smith School of Business & Columbia University’s Earth Institute & Editor, Evolutions of Sustainable Investing. Contact: nocda@yahoo.com