What is the business case for sustainability?
24 January 2022 at 4:53 pm
Put simply, sustainably oriented businesses do better than their less sustainably minded competitors, writes Dr Kaushik Sridhar, who looks at the primary stakeholders that businesses should collaborate with when it comes to sustainability issues.
People and institutions want their work, their investments and their patronage to align with their values. Making that level of sustainability an integral part of your culture requires infusing every business practice and process with an awareness of your environmental and social responsibility.
Sustainably oriented businesses do better than their less sustainably minded competitors. To generate this transformation, collaborate on sustainability issues with your major stakeholders, as well as your employees, investors and customers.
The primary stakeholders you want to engage fit into nine groups in three categories:
- Direct impact stakeholders which include consumers, customers and employees.
- The enabler impact group which has suppliers, investors and communities.
- The indirect impact category which includes NGOs, governments and media.
Increasingly, consumers make purchase decisions based on their values – including environmentalism – by figuratively voting for products and services with their wallets. To meet the need to adopt and practice sustainable behaviours, consumers and businesses must shift to a perspective of “mindful consumption”, a purchasing philosophy prioritising the planet’s health.
Consumers position themselves on a continuum of greenness. “Dark green” consumers conduct research and pay more for sustainable offerings; “non-greens” don’t factor environmental issues into their purchasing decisions. “Light greens” fall in between. Smart companies such as Patagonia and Whole Foods dominate the sustainable consumer segment.
To resonate with your consumers, share your sustainability story. Your messages must be authentic and truthful. Explain that your product or service delivers value in addition to being the green choice. Consumers want to know the “full life cycle impact” of green items, including the use of environmentally responsible production processes and material, as well as the materials’ ultimate disposability. For decades, businesses encouraged consumers to consume. Some millennials work against this trend by deciding to consume less than previous generations.
Collaborating with customers
Customer-oriented businesses gain a competitive advantage from forming partnerships with suppliers who focus on sustainability. For example, environmentally conscious consumers shop at Whole Foods Market because it stocks items from companies that produce organic, non-genetically modified organism (non-GMO) foods and Fair Trade products. Stores can promote products that address sustainability goals. For instance, IKEA quit offering incandescent light bulbs and endorses the use of energy-efficient LED bulbs. In 2010, Walmart announced its intention to work with its supply chain to reduce its carbon footprint by 20 million tons by 2015.
Becoming increasingly sustainable is the only way a business can both create a lasting competitive advantage… and preserve its own longevity in the face of evolving global challenges.
Similarly, you can collaborate with like-minded retailers, schools, universities and government organisations through conferences and events that highlight sustainable products and services. Join forums and programs – such as the Forum for the Future and the World Wildlife Fund – to improve sustainable practices across your industry. Engage employees by encouraging suppliers, partners, investors and customers to share their best sustainability practices. Establish shared sustainability strategies with your suppliers and educate your consumers about your sustainability practices. Participate in community outreach programs that address environmental issues.
Engaged employees are more productive, have better attendance, stay on the job longer and sell more than their disconnected colleagues. Sustainability facilitates employee engagement because people want to work for companies that fulfil their values, including protecting the environment. Millennials cite sustainability practices as a deciding factor in choosing where to work. Today’s best companies recognise that doing “good” is more beneficial than doing “less bad”, and actually creates more measurable financial value.
Secure support from upper management to link your firm’s eco-friendly initiatives to its core strategies. Invite employees to participate in developing sustainability programs based on issues that matter to them. Walmart employees can customise individual environmentally conscious plans via the company’s “My Sustainability Plan” framework. Google’s employees can use green transportation, choose among responsibly sourced foods in the cafeterias, and reuse and recycle materials. Recognise and reward employees who demonstrate a commitment to sustainability.
Significantly reduce your costs and boost your sustainability by continually assessing your supply chain’s green practices. Collaborating with your suppliers can produce greater returns for you and them. Successful business-supplier partnerships reduce environmental harm, are more cost efficient and improve product quality. Ask your suppliers to suggest improvements that align with your mutual business and sustainability goals. For instance, the German conglomerate Siemens helped the city of Istanbul improve its water system.
Individuals and institutions want to invest in a manner that is consistent with their specific beliefs and values. Establish sustainable procurement policies for your suppliers and develop a “supplier sustainability code of conduct” to outline labor, environment and management standards. Include a “zero-tolerance list” to set benchmarks suppliers must meet. Monitor supplier compliance and track performance. In 2000, IKEA introduced IWAY, a code of conduct outlining its sustainable values. IKEA requires suppliers to follow these standards and employs auditors to verify their performance. Today, 18,000 registered secondary suppliers comply.
Investing in communities
Stakeholders increasingly pressure businesses to be socially and environmentally responsible. A firm’s corporate social responsibility (CSR) programming should embody its commitment to improve the world while pursuing profit for its shareholders. Progressive leaders view CSR as a morally sound path to a competitive edge. Firms that practice CSR win customer loyalty, attract investors, retain workers and generate more profit. Successful community programs tackle social issues, revitalise neighbourhoods, help the environment and protect natural resources.
Unless we, as a human race, change our consumption patterns, there will not be enough resources on this planet to meet human needs.
Green-focused companies support a variety of community programs, including “signature projects” that arise from the core of their business or employee-initiated team projects. For example, Coca-Cola and Pepsi, both of which use vast amounts of water, support clean “water neutral” projects. Each brand conducts education and outreach programming to help local communities. The Grameen Bank, which gives microloans to low-income groups, lifts recipients out of abject poverty while generating respectable financial returns.
People and institutions want their investments to align with their values. In the US, one of six investment dollars is designated for socially responsible investing. Financial institutions rely on sustainability rating agencies to facilitate their investment decisions. Morgan Stanley created the Institute for Sustainable Investing platform to help clients incorporate green values into their portfolios. Companies seeking socially responsible investment money can highlight their eco-friendly processes and activities to draw potential investors. Companies can tackle sustainability issues in revenue growth, productivity, costs, supply chain risks and reputation pitfalls. To quantify the progress of your initiatives, show how these changes contribute to your company’s health.
Companies that build media partnerships and outreach campaigns can educate consumers about environmental threats, problems and possible solutions. You want to convey your sustainability strategies, successes and challenges so that they resonate with consumers. In 2009, for example, Starbucks sought input from patrons about the waste created by disposable cups. Customer input gave rise to the idea of reusable “Karma Cups”. Starbucks began rewarding consumers who brought in non-disposable coffee cups. The only path remaining in today’s market to achieve long-term success is to fully embrace sustainability.
To address the knowledge gap between what US adults believe about climate change and the science that supports it, some environmentally minded companies have used their media campaigns to educate the public. For example, in India, the media provided positive publicity for the 2014 Clean India campaign, educating the public and encouraging participation. In another example, Mullen’s Mediahub conducted an environmental impact audit on Timberland’s media plan for its high-end Earthkeeper boot – a product “designed with sustainable materials [and] targeted at outdoor enthusiasts and environmentally-conscious consumers.” The company purchased wind power credits to offset the campaign’s electricity consumption.
Government’s role in sustaining the environment includes setting short-term goals that prevent long-term destructive consequences. Governmental entities can establish standards and regulations against destructive or self-serving activities. Examples include the minimum wage, emission limitations, land-use regulations and the US Federal Trade Commission’s Green Guides.
Governments can provide rewards, such as tax credits, for environmentally aware practices and can encourage a long-term focus on sustainability by developing human capital, providing incentives for private investment, funding infrastructure and promoting common sustainability metrics.
Governments and international agencies also can work with developing nations to help mitigate the harmful impact of climate change by providing technology and financing. Business can encourage or discourage government activities by exerting marketing pressure to influence public opinion. Industry group lobbyists can help mould legislation. Public and private entities can work in partnership to address societal and environmental issues.
Partnering with NGOs
NGOs are not for profit groups formed around public interest issues. A social NGO focuses on human issues and addresses how business activity affects society. An environmental NGO deals with ecological concerns and collaborates with other types of institutions. NGO-corporate partnerships can boost a company’s public image in resource stewardship and community development. NGOs also act as trusted advisers, providing expertise, lobbying government, sharing networks, and developing standards and certifications.