5 Reasons Why Sustainability Makes Business Sense
We all know that businesses have a key role to play in reducing our global carbon footprint. And it is becoming increasingly apparent that they shouldn’t wait to be regulated into a net zero future. Instead, they need to embrace their own sustainability pathways.
But crucially, sustainability is also a business opportunity, enabling companies of all sizes to build competitive advantage, meet their customers demands, and be more attractive employers. Let’s take a closer look at what benefits your business can reap from implementing a sustainability strategy.
1. It helps to build competitive advantage through value creation
First and foremost, embedding sustainability into your business strategy can help you stand out from the competition.
The Global Sustainability Study 2021, conducted by Simon-Kucher & Partners, reveals that 85% of people globally have shifted their purchase behaviour towards being more sustainable in the past five years. Deloitte’s research revealed that 28% of consumers have stopped buying certain products due to ethical or environmental concerns.
All of these studies demonstrate sustainability’s increasing importance in the purchase process and the role it plays as a key differentiator in the overall value proposition. It also reveals that focusing on sustainability can significantly increase your brand’s value.
But consumers are not the only stakeholders to bear in mind. You also need to consider your supply chain and your vendors. As sustainability becomes more embedded into corporate strategy, it’s important to show the impact of your sustainability commitments to everyone you work with. And if you’re a large multinational company, you may find yourself paving the way for sustainability strategies in your sector.
The key is credibility. Your consumers and prospective business partners will likely be aware of ‘greenwashing’ — marketing which is deceptively used to prove that your products or services are environmentally friendly. It’s not enough to claim that your brand uses eco-friendly materials, helps communities or uses renewable energy. When you’re implementing a sustainability strategy, stand yourself apart from the competition by clearly showing the impact of your strategies and reporting on them in an accessible way.
Platforms such as Pledge can support you to effectively understand and manage your climate impact.
2. It makes you stand out as an employer
2021 has been described as the year of the ‘Great Resignation’ — a year in which employees across the world quit their jobs at historic rates. And it looks like the trend is continuing into 2022. The pandemic has fundamentally changed the way that many people think about their work and high salaries are no longer the main driver when it comes to selecting jobs.
A recent survey of US employees has revealed that nearly 40% of employees have chosen a job because of company sustainability. In the UK, a 2019 Totaljobs survey, showed that millennials (soon to be the largest part of the workforce) would be willing to take a pay cut of up to £11,400 if it meant working for a company which helps the environment.
So having a sustainability strategy in place can stand you head and shoulders above the competition when it comes to attracting top talent, particularly in industries such as transportation, in which there’s often a negative association when it comes to climate.
3. It supports you to drive business efficiency and reduce risk
According to 2020 research by MSCI, companies with high ESG scores, on average, experienced lower costs of capital compared to companies with poor ESG scores in both developed and emerging markets during a four-year study period. The cost of equity and debt followed the same relationship.
A study by McKinsey has found a significant correlation between a company’s resource efficiency and the strength of its financial performance. It also discovered that reducing resource costs can improve operating profits by up to 60%.
Crucially, many large businesses are realising that investing in sustainability also reduces their risk exposure. They’re deeply aware of the costs of not being sustainable.
Frank Appel, CEO of Deutsche Post DHL Group, a German multinational package delivery, has said: “There is no way around sustainable logistics in the future. For all our products we are offering our customers the option to compensate for emissions by supporting carbon emission reduction projects in several countries around the world.”
4. It helps you to attract new investors
Over the past decade, the number of investors looking to put their money into socially responsible business has grown exponentially. The Principles for Responsible Investment (PRI), which brings together 2,300 institutional investors, managing more than US$80t in assets — clearly reflects this trend. Its signatories pledge to integrate ESG factors into investment decision-making, believing that it can reduce risk and increase returns.
Doug Johnston, who leads EY Climate Change and Sustainability Services in the UK, says that: “The fundamental ESG narrative is that climate change and other key ESG issues are now recognised as key determinants of future value creation.”
5. It helps you meet the latest sustainability regulations
Effective management of environmental issues can also ease regulatory pressure on businesses. Those companies that implement environmental social governance (ESG) strategies are likely to be better placed to deal with new sustainability regulations that come into force. And worldwide, such legislation is likely to be increasingly imposed by governments. As an example, in October 2021, the UK government announced that listed firms will be required to disclose climate-related financial information. And in March 2022, The U.S. Securities and Exchange Commission proposed rule changes that would require registered companies to include climate-related information in their registration statements and reports.
If you fail to take adequate steps towards sustainability, your business won’t just be susceptible to regulatory risks, but you will also likely have to pay more for insurance.
Embrace Sustainability Now and Reap The Business Rewards
As the above points illustrate, building a sustainability strategy for your business doesn’t mean putting profitability on the back burner. In fact, the opposite is true. Embracing sustainability now can set you up for future success when it comes to investment, compliance with new regulations and recruitment of a stellar workforce.
And perhaps the better question that we should ask ourselves is: “What’s the cost of not taking action?” Not only would we risk losing prospective business partners and employees, and missing out on investment, but we’d also start lagging behind when it comes to consumer appeal. Sustainability bolsters the bottom-line and corporate reputations. This is why it should be deemed mission critical.
We’re still at a relatively early stage in the business sustainability journey, which is why, from a business perspective, it’s more important than ever to be an early adopter. As McKinsey points out, leaders in the net-zero transition will be the companies that recognise new possibilities for value creation and make credible efforts to pursue them.
If you’re interested in taking the first step to understanding and managing your climate impact, Pledge can help.