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With the climate crisis affecting almost every aspect of our lives (and threatening our very survival), the need to take action has become more dire than ever. In response, corporations all over the world are actively embracing sustainability and circular business models to decrease their carbon footprint and keep our planet healthy.
Despite all the momentum surrounding the efforts, a major barrier still remains - the belief that sustainability isn’t profitable. This can be a powerful deterrent for companies whose ability to compete, grow and thrive is dependent on corporate gains.
Like most impactful growth and innovation, working towards sustainability does take effort. It requires commitment, consistency, stakeholder buy-in and a complete cultural transformation that can’t be achieved overnight. However, research shows that it’s well worth the effort. An analysis of over 200 academic studies showed that solid environmental, social and governance (ESG) practices led to:
In addition, 37% of businesses report profit from sustainability and fewer declines during times of crisis than their counterparts. It all boils down to one inevitable conclusion: Sustainability is not only profitable, it’s essential to the long-term success and competitiveness of your business.
What exactly is corporate sustainability?
Corporate sustainability creates long-term value through business strategies focused on positive social, environmental and economic outcomes. Some of its key strategic principles include transparency, employee development, and resource efficiency. In a nutshell, sustainable development entails:
“meeting the needs of the present without compromising the ability of future generations to meet their own needs.”
Environment, social, and governance (ESG) criteria is an umbrella term used by companies to help further their corporate sustainability practices. It breaks down a company’s performance into three pillars:
- Environment (aka planet) - a company’s impact on the planet.
- Reducing carbon output
- Minimising the use of resources like water and energy
- Switch to environmentally friendly packaging
- Social (aka people) - relationships with customers, employees and suppliers.
- Treating employees fairly
- Being a good community member
- Delivering on promises to customers
- Governance (aka profit) - leadership, profitability and shareholder rights.
- Transparent accounting and policies
- Giving shareholders a vote
- Alignment between leadership, management and end-users
Conscious investors, customers and employees are also increasingly considering a company’s ESG standards to decide whether or not to work for or do business with them (but more on that later).
How corporate sustainability creates value
Investing in sustainability isn’t just an ethically and socially responsible way to do business, it’s also a highly efficient way to drive growth and innovation. Let’s take a closer look at some of the ways it can help create real value for companies (yes, that includes profits).
Risk management and future-proofing
The sustainability movement of the last few years is no trend. In fact, its impact will eventually be comparable to the industrial revolution or the arrival of the internet. Companies that haven’t taken steps to operate more sustainably might not be feeling the consequences yet, but the lack of action might have a devastating effect in the future due to:
- Rising global economic pressures
- Rising resource prices due to scarcity
- Fast-growing customer segments demanding high ESG standards
As governmental policies, customer standards, and general practices evolve in the next few years, companies that haven’t made a move towards sustainability run the risk of:
- Damaging their reputation and image among customers
- Having to recall products that aren’t compliant with general ESG standards
- Fines, penalties, lawsuits and other legal liabilities
- Having to make reactive and expensive policy changes
According to McKinsey, the value at stake can be anywhere from 25 to 75% of a company’s earnings. Proactive companies that are gradually shifting their practices will avoid these risks and be ready to compete in the new corporate landscape.
Example:
Ørsted
Ørsted is a multinational power company based in Denmark. Just 10 years ago, they were still using coal and were responsible for over half of Denmark’s CO2 emissions. Since then, they’ve switched their focus to wind, solar, and bioenergy plants, with their efforts resulting in:
- Recognition as a leader for climate action by the CDP
- Ranking as the world’s most sustainable energy company in Corporate Knights’ 2021 Global 100 index
Impact: The shift to more sustainable practices is not only benefiting our planet but has ensured the survival and profitability of Ørsted for years to come.
Branding
A growing number of customers are demanding environmentally friendly products and services. Globally, about 45% of consumers report a high interest in environmentally responsible brands and over 85% report a preference for “green” products.
Companies that adopt sustainable practices can strengthen the value of their brand by sharing their efforts with customers:
- Forging deeper connections
- Boosting loyalty
- Gaining a competitive edge over their non-sustainable counterparts
Companies that make sustainability a core part of the business and branding can also attract investors and employees interested in working towards the good of the planet.
Example:
Unilever
Unilever has a line of purpose-led sustainable living brands that includes household names like Ben & Jerry’s, Dove, Knorr and Lipton (among others). In 2019, CEO Alan Jope described their level of success:
“We believe the evidence is clear and compelling that brands with purpose grow. Purpose creates relevance for a brand, it drives talkability, builds penetration and reduces price elasticity. In fact, we believe this so strongly that we are prepared to commit that in the future, every Unilever brand will be a brand with purpose.”
Impact: Unilever’s purpose-led, Sustainable brands are growing 69% faster than the rest of the business and delivering 75% of the company’s growth.
Innovation
Although corporate sustainability is often looked at under a different lens than innovation, in many ways it’s the same thing: experimenting with new ways to grow, compete and create value for customers. Companies across every industry are reimaging and redesigning their business models, supply chains and offerings to make them more planet-friendly. Many of the efforts have led to drastic profit increases, more diversified portfolios and significant cost reductions.
Examples:
United Airlines
In an effort to reduce its fuel consumption, United Airlines embarked on a mission to make its planes lighter. Here’s what they were able to achieve with just a few creative changes:
They made the in-house magazine lighter by changing the paper.
Impact: 170.000 fewer gallons of fuel and almost $300.000 saved in fuel costs per year.
They removed duty-free carts from international flights.
Impact: 1,4 M gallons of fuel saved and over $2,3 M in reduced costs per year.
They removed some of the beverage options from certain flights.
Impact: Savings of over $673.000.
These efforts combined will result in 30.000 fewer metric tons of CO2 each year (the equivalent of taking 6.400 cars off the road).
DuPont
Since 2011, DuPont has invested over $879 M in offerings with quantifiable environmental benefits - and the investment has paid off.
Impact: $2 B in annual revenue for products that reduce emissions and over $11 B in
revenue from nondepletable resources.
Final thoughts
For years now, forward-thinking businesses have seen sustainability for exactly what it is: an opportunity to expand, future-proof and innovate. The time to question whether or not it should be a core part of your corporate strategy is all but over. The more relevant questions now are:
- How will you go about setting and reaching your sustainability goals?
- What sustainability priorities are most important to your business?
- How will you measure the success of your efforts?
- What strategic partnerships or collaborations can you engage in to meet your targets faster?
As is the case with most innovative change, becoming a sustainable company begins at the top with corporate leadership. Your energy and buy-in will help create a culture of sustainability throughout your entire organisation. You’ll be glad you made the move because, at this point in time, sustainability is synonymous with future profits.
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Are you a corporate entrepreneur looking to expand your sustainability efforts through venturing? We can help you leverage your corporate assets to create a pipeline of successful, sustainability-focused ventures.
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