Sustainable SAM in Brief:
- We have passed the tipping point of interest in sustainability
- Sustainability and other good behavior metrics now need to be reported
- That means your strategic accounts will no longer be satisfied with bland statements of intent from your company
- Sustainable SAM will be a key differentiator soon
Background to Sustainable SAM
I was interviewing the Head of Sustainability at a global hospitality company recently when she told me an incredible fact: “In the past 12 months, for the first time, more investor funds have gone into proven sustainable companies than into non-sustainable companies.” So, if you are working in a company that has not proved itself sustainable to investors, you are in the wrong half of where the investor money is going.
If you want to see an example of this transition, consider Blackrock, one of the world’s largest investors with $8.68trillion in assets under management at the end of December 2020. In his 2021 letter to CEOs, Blackrock’s CEO, Larry Fink, talked about the fact that the pandemic had, accelerated the tectonic shift to sustainable investing with a near doubling of its investments in this area compared to 2019.
Why is this?
Investors recognize that climate change is investment risk. They understand that companies serious about dealing with climate change are a better bet than companies that do not. Moreover, there is increasing evidence that companies like Pepsi and Unilever provide better returns on top of the sustainability agenda. So, it is not because investors have suddenly become environmentalists but because sustainability makes hard business sense.
The rise of the Greta Thunberg generation is also focusing minds. It is estimated that “about $68trillion of wealth will change hands in the next twenty-five years as the baby boomers die” (Reimagining Capitalism by Rebecca Henderson, page 147)
Finally, the dramatic increase around the world in Government intervention in sustainability is also a key factor. For example, the UK Government has committed itself to legally binding targets in its 2008 Climate Change Act. It will showcase its efforts at the COP26 UN Climate Change Conference in Glasgow, Scotland this November. In December 2020, the European Union agreed on a EUR 1.82trillion Green Deal to support a green recovery. In February 2021, U.S. President Joe Biden announced a $2trillion Green New Deal.
These combined forces from investors, customers, and governments have created a perfect storm of sustainability change heading our way.
Understanding what we are talking about
Before we consider how sustainability affects the demands from your strategic accounts, it is worth considering what we are talking about. The world of sustainability is a large and complex area with many different views and measurement systems.
Fortunately, there have been two significant steps forward in this arena. Firstly, much work has been done on Environmental, Social, and Governance (ESG) metrics. Secondly, in September 2020, the World Economic Forum and the world’s biggest accounting firms agreed on a common approach to ESG and, therefore, a common way to measure sustainability (Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation). They agreed on four areas (or “pillars”) of measurement based on Principles of Governance, Planet, People, and Prosperity. Note that this goes far beyond just the green agenda of helping the environment.
In addition to this, many experts like Professor Steve Kempster, co-author of “Good Dividends: Responsible Leadership of Business Purpose,” claim that you cannot become a sustainable company without having Purposeful Leadership at the top.
That leadership will have to strike the right balance between short-term profits and long-term sustainable growth.
Therefore, we have created a 6P Model that we find helpful in explaining sustainability to our clients (see below). Sustainability is not just about being “greener.” It is a comprehensive approach aimed at challenging companies to grow in a good way that enhances the planet and delivers broader prosperity, happier employees, and more sustainable profits. We call this Good Growth, and our view is that the best firms should aspire to be a Good Growth Company.
The 6P Good Growth Model
The rise of sustainability in your strategic accounts
As I write this, I am aware of several initiatives underway to assess suppliers’ sustainability better. The United Nations is sponsoring an initiative to develop a common supplier framework in the health industry. Procurement functions in different companies are looking at how to apply ESG metrics to their key suppliers. The UK’s Chartered Institute of Purchasing & Supply encourages its members to conduct ethical and sustainable procurement. Individual companies, like Unilever, have warned their suppliers that supplying a sustainability plan will no longer be enough. As part of the tendering process, suppliers need to demonstrate real commitments to hard targets, which will be tracked.
This is happening because their investors and their customers are asking the leadership teams of your strategic accounts about what real actions they are taking to improve their supply chain. Indeed, if they are reporting on broader measures of greenhouse gas emissions, they will need to know the emissions of their suppliers to complete the report.
Broader measures could be ‘Scope 2’ reporting of greenhouse gas emissions from energy purchased; and ‘Scope 3’ reporting of greenhouse gas emissions from the whole upstream and downstream value chain.
These reports will be scrutinized for signs of progress or regress, with significant ramifications on customer demand, brand valuation, and the share price.
How these changes will affect how they buy from you
Strategic accounts will be looking for the following items from their key suppliers:
If it has not happened already, expect to see more of these issues written into RFPs. You should also expect the minimum (order qualifying) criteria to rise as well. Vague answers to specific questions like, “When will your organization achieve Scope 1 Net Zero GHG emissions?” will not be acceptable. Suppliers that do not pass the minimum tests will not make it to the final selection.
Your Response: Developing Sustainable SAM
These emerging trends mean that sustainability needs to migrate from something on your radar to an integral part of your business and your account development process.
You will need to have:
- Well-thought-out plans, with specific targets and timescales, for how you will improve the sustainability of your whole organization and your supply chain in the future. This should include innovative ideas to collaborate with the account to reduce the environmental impact of your joint relationship. This may include the redesign of products, services, and account support to reduce carbon emissions. These organization-wide (enterprise-level) plans should be integrated with individual account plans.
- Evidence that there is a real commitment from the top to deliver these plans. This should include details about who has responsibility for sustainability in the company, who that person reports to, and how the account manager reports to them. Ideally, this should be a full-time position reporting directly to the CEO, whom the account manager can call for expert guidance and support.
- A detailed set of metrics that you will use to measure progress. These metrics should be defined, explained, and justified (e.g., based on independently approved measurement standards like The Sustainability Accounting Standards Board) and applied at an account level.
- Robust procedures and systems are in place to track progress using the metrics. Ideally, this should collaborate with an independent auditor (e.g., one of the big four accounting firms). The auditor must be able to inspect individual account relationships upon request.
To get all this done, sustainability needs to be coded into your SAM blueprint. The dirtiest accounts need to be de-prioritized in your strategic account selection process. The goals, objectives, and strategies for individual accounts need to be re-appraised. The account plans need to be revised. The IT systems need to be re-engineered to gather new data. The account managers need to be trained in sustainability. The account review system needs to be re-wired with different auditors. And more. This will not be easy, but those that succeed in achieving Sustainable SAM will gain a big advantage over those that flounder.
Let’s look at water, surely a commodity if ever there was one. Corporate buyers in the hospitality industry are susceptible to the unit cost of buying water. High volumes and bulk discounts have been the norm for decades. However, a small British firm called Life Water is growing nicely without being forced to cut costs. It packages its water in an innovative can that is 100% recyclable and contains zero plastic, unlike some of its competitors’ single-use plastic water bottles. In addition, it also acts to improve access to clean water. For every unit sold, it contributes to clean water projects around the world. It was voted Best Sustainable Beverage Brand in 2019, and a corporate buyer I was interviewing was very impressed with them. He is responsible for an annual spend of around £1billion and is moving more spend their way.
So, with a focus on sustainability, the actual cost of the product is less important than the value of the relationship to the buyer. From the supplier’s point of view, that means more revenue from the account. For both sides of the relationship, it means a better long-term collaborative partnership.
Indeed, if you already have good collaborative relationships with the accounts, then you can leverage them in new ways to discuss how you can collectively improve the sustainability of your whole supply chain and the entire industry. There is broad recognition that the only way to reduce global warming is to take broad collaborative action. Therefore, Good Strategic Account Management has a crucial role in driving real cross-enterprise sustainable change.
Is achieving Sustainable SAM an easy path? No. Is it a risky path? Yes.
However, the risk of not changing is even greater. Investors are encouraging change because they see the journey to sustainability as reducing the financial risks of climate change.
As a strategic account manager, account director, or program leader, you need to learn about this subject. You need to become competent in it. That does not mean you need to go off and do a master’s in sustainability. You do not need to be the expert in the room. It would help if you were confident in conversations about this subject. Those conversations will become more frequent and more important over the next few years.
The good news is that you should also already be a good change agent. You will be well-used to using all forms of legitimate and illegitimate power to influence others to move business relationships in the right direction. It would help if you now upgraded to change leadership. If you have not already done so, read Leading Change by John P Kotter and practice the art. You will then be well-equipped to make a real difference.
As someone already working across functional, organizational, and geographic boundaries, let’s be frank about this, you can make a significant difference.
Help to change the future and enjoy helping to save the world.
First published in “Velocity” Volume 23, Issue 2, 2021 by the Strategic Account Management Association.