Sustainability is more than just a hype word or trend, and businesses that realise this have a greater competitive edge than those who ignore it. Linn Endresen discusses how sustainability in business improves performance, increases profits and builds a trustworthy reputation for your company.
Sustainability is good – not just on paper
The last decade was all about the hype of technology. Now we see that sustainability is one of the biggest trends of 2020 (besides the dread of the ongoing corona pandemic), and this megatrend isn’t about to die out. In the past, words like sustainability have long been convenient add-ons that sound good on paper, but that didn’t necessarily mean that companies were following through with it.
Well, times have changed. And businesses have started to realise, that besides the obvious benefits for the environment, there is great value in incorporating sustainability initiatives throughout their business and supply chain.
But how should businesses go about it? And is it essential or is that just the talk of diehard environmentalists, Greta Thunberg supporters and millennials who know nothing about the harsh realities of life? I beg to differ. It is time to get with the times and look at what your business can do to embrace it – and yes, you will profit from it. In this article, I will discuss some important factors to ensure sustainability and why it is a must today.
Why is sustainability so important for business in 2020?
There are many reasons why businesses should make sure to incorporate sustainability. Studies clearly show that sustainability is not only beneficial for the environment, but it also affects the very structure of businesses and how they make their daily profits.
A Guardian article claims that “more than 50 studies (PDF) from the likes of those wild-eyed environmentalists at Goldman Sachs show that the companies that are the leaders in environment, social and good governance policies are financially outperforming their less sustainable peers. Sustainability is better business – and we can prove it.”1
“Sustainability efforts lower costs and lead to higher profitability.”
Jeffrey Stern, Professor at NYU and CEO of Sustain Natural, agrees that sustainability is good for business. In an interview with Business Insider, Stern says that “executives tend not to understand that sustainability will improve financial performance — they think it has to be a trade-off between being a good citizen and maximizing profits. But those can be the same.” Let’s have a look at some of the benefits you will receive by doing something about it.
1. Lower costs and increase profitability
Firstly, sustainability efforts lower costs and lead to higher profitability. In fact, research by WWF and CDP showed that, if businesses cut carbon emissions by an average of 3% annually, they’d save up to $190bn in 2020 alone, or $780bn over ten years.1
In a GreenBiz article, Peter Seligman explains:
Simply replacing outdated computers and installing energy-efficient light bulbs can save companies up to $1 billion, and some of the world’s biggest brands found that sustainable investments give them an edge in both product innovation and brand image. Then there are the tax benefits and sustainability tax incentives which the government offers companies to get them engaged in such initiatives.
-Peter Seligmann, ‘How Mars and Walmart illustrate the future of sustainability’2
2. Gain competitive advantages and improve product value
An Observer article notes that sustainability efforts can also help companies improve product value.3 You do this by enhancing relationships with customers who want to buy from socially conscious brands. When sustainability becomes imbued in an organisation’s culture, it attracts and retains talent that reflects these socially conscious practices. That creates a significant competitive advantage. And, it’s not just your business that benefits from sustainability. You’ll also be able to pass the sustainability message on to others.
Project ROI has delivered a comprehensive analysis of the financial benefits of sustainability programs. When done right, Project ROI concluded that “sustainable initiatives can increase sales revenue by up to 20 percent, increase market value by nearly 10 percent, lead to lower investment risk and cut employee turnover rates in half.”
“Sustainable initiatives can increase sales revenue by up to 20 percent.”
Other research adds to the benefits. As Professor at IMD Knut Haanaes points out, 62% of executives consider a sustainability strategy necessary to be competitive today, and another 22% think it will be in the future. These figures are from 2016 and are likely to have risen considerably since then.
3. Sustainability from the inside and out
So far, so good. But let’s explore what companies need to do to actually get there. According to a Forbes article by Jonquil Hackenberg, there is in fact more to sustainability in business than just recycling or fair-trade practices (as crucial as these are). It touches every part of a company, from its supply chain operations and talent practices to the physical workspace itself. Factors such as trust and transparency play a significant role in sustainability.
The first fundamental shift will be some of the world’s biggest companies actively transforming their supply chains to become “circular,” under pressure from ethically-minded consumers[…] With consumers now looking to the corporate world to help them reduce their carbon emissions and cut down on the plastic filling our oceans, in 2020, the onus is firmly on businesses.
In circular supply chains, having trust across the whole ecosystem is crucial for sustainability and ethical practices. Businesses must be trusted to source products ethically and treat every worker in that supply chain fairly. Meanwhile, consumers place their trust in businesses who are doing all they can to be sustainable–through actions, not just words.
-Jonquil Hackenberg, ‘2020 Will Be The Year Of Sustainable Business: Here’s Why’
Within the company, this includes more trust placed on each employee, allowing for more freedom and ownership. For instance, more flexibility in work hours and spaces (good news these days!) and allowing employees the opportunity to gain ownership within the company.
Management also needs to make sure that the strategy of the company and the sustainability efforts are aligned. Hackenberg elaborates:
To start making the right moves before it’s too late, businesses need to move from an “out of sight, out of mind” production model to being accountable for their whole end-to-end supply chain. This means no longer simply making shampoo and shipping it out in a plastic bottle, but being responsible for where that bottle ends up and how it gets there. Big companies will take more responsibility for the front end of their supply chain, too, with ethical sourcing and provenance of product also an important part of the puzzle.
Building socially responsible brands: Some examples
To add on to the already mentioned steps, one of the most challenging aspects of running a business is how to expand without using more natural resources.
If we take a look at the well-known brand Starbucks, the company decided that its desire to grow could not come at the expense of forests. To sell more coffee, they needed more beans. Typically, those beans would have been grown by clearing more forests. Seligmann describes in the Observer how, in applying innovation to its dilemma, the coffee brand developed a way to grow coffee without any deforestation.
The result was the Coffee and Farmer Equity, or C.A.F.E., program, a third-party verifier that ensures the company uses sustainable ingredients to brew each cup. Right now, 99 percent of Starbucks coffee follows C.A.F.E. methods, and the company’s continued popularity fuels these sustainability efforts, meaning every customer in that morning or afternoon queue has a hand in improving worldwide growing methods.
-Peter Seligmann, Think Small—Not Big—When It Comes to Sustainable Eating3
Another example is Walmart, a global company with 150,000 suppliers. As Seligman describes in Greenbiz:
When Walmart decided to migrate to sustainable practices, it told suppliers of its private-brand products to use 100-percent recyclable packaging materials and sustainable packaging methods. More efficient packaging also meant more products with which to stock Walmart’s shelves and create more profit opportunities.2
Remember to follow through
These are only two examples of how businesses incorporate sustainability initiatives, and most major organisations have already wrapped their heads around the importance of it. Professional communications and good intentions are no longer enough. As Prof. Haanaes argues:
Companies that stand out in the area of sustainability have evolved from knowing to doing and from compliance to competitive advantage. They also know the risk of getting this wrong. For instance, promising and not delivering, or addressing material issues without being solid on compliance.
Compliance in this case often relates to regulations in waste management, pollution, and energy efficiency as well as human rights and labor responsibility. Compliance is holistic, a “must do.” For competitive advantage, only a few material issues count.
Compliance is also an issue that concerns investors. Recent BCG/MIT data shows that investors increasingly shy away from compliance risks. A full 44% of investors say that they divest from companies with poor sustainability performance. This, again, goes to prove that sustainability in business is to be taken seriously and is, without a doubt, something that should be a top priority within any business today.
Conclusion: Sustain and prosper
What we see in 2020 is that businesses that have already embedded sustainability into their business strategies are much better off than those who haven’t. The key is to look over your own business needs and match it with what today’s smart and ethically conscious consumers are asking for.
Just like with overall strategy, there is no “one right solution” on sustainability. The best solution depends on the ambitions and stakes at each company. However, it’s important to align strategy with sustainability, where transparency is a pre-condition for assessing and improving sustainability practices.
And remember, sustainability isn’t something you acquire by yourself; it needs engagement and collaboration throughout the organisation. Start from the inside out and incorporate sustainability initiatives throughout your business model. Naturally, the environment will also thank you for it.
“44% of investors say that they divest from companies with poor sustainability performance.”
Even if you were to believe that this whole thing about climate change is a hoax, that doesn’t matter. If it is, sustainability in business will still benefit your company, and if it isn’t, then congratulations, you have just contributed to saving the world (while still earning money). Then we can argue about the science of climate change later. Sustainability is a major challenge, but in sum, it is worth it, and it will make a difference. In every aspect.
If you don’t know where to start, then feel free to contact us at Pagero. We can help your business become sustainable by digitalising and automating your business processes. By implementing our services, you will cut costs, increase profitability, save thousands of trees, increase transparency, as well as reduce unnecessary transports. Read more about Pagero and how we help businesses obtain a greener supply chain.
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