There is now plenty of evidence to show that engaging in responsible business practices can boost profits and benefit firms in other intangible ways.
“To be honest, the question isn’t really why a company would pursue sustainability, but why you wouldn’t,” says Andrew Winston, author and founder of Winston Eco Strategies. “Businesses that embrace managing their environmental and social impacts strategically outperform. They cut costs, reduce risks, drive innovation and build brand value.”
Strategies for sustainability
The magnitude of the money being poured into sustainable business practices shows the trend can no longer be dismissed as a feel-good exercise. Sustainable investment across the globe rose above USD 30 trillion in 2018, up 68% since 2014 and more than tenfold since 2004, according to the Global Sustainable Investment Review.
In a landmark letter to CEOs in early 2020, Laurence Fink, the head of USD 6 trillion investment firm BlackRock and UPM’s largest shareholder, argued sustainability was now a key issue for investors. “Each company’s prospects for growth are inextricable from its ability to operate sustainably,” he wrote.
Steps toward a sustainable business model can take a variety of forms, from changes to supply chains, like those made by retail giants IKEA and Walmart, to the adoption of science-based targets on greenhouse gases, or more concrete moves, like delivery firm FedEx’s gradual conversion of its vehicle fleet to electricity.
“Sustainability efforts touch all aspects of the business, from operations, to procurement and supply chain, to R&D, to diversity and inclusion,” says Winston.
Perhaps most importantly for businesses, it is becoming clearer and clearer that sustainability also creates value. “There is a positive, causal link between sustainability and financial performance,” says Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship at the London Business School. “In other words, the integration of environmental and social issues into the core of what a company does is directly linked to financial performance.”
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This value creation can come from sustainable practices facilitating growth, reducing costs, minimising regulatory risk problems, increasing productivity, optimising investment and fostering greater innovation. Academic studies show there is a relationship between greater sustainability and higher credit ratings.
Companies investing in sustainability tend to be more transparent, have higher levels of disclosure, and are more engaged in long-term thinking, according to Ioannou. “And,” he adds, “the markets are able to see through what you say if what you say does not follow through with implementation.”
It is a widely-held myth that investing in more sustainable practices is something that only pays off in the long term – there are significant savings to be made immediately. “In terms of capital outlay… making operations more efficient can save money very quickly, like, say, a lighting retrofit or installing tech to make buildings smarter,” says Winston.
A host of other benefits
In addition to the financials, sustainability provides a whole series of more unexpected bonuses for companies – in fields from reputation and human resources to regulation.
In particular, there is a growing pool of data to suggest young people – whose futures are directly impacted by climate change – increasingly factor sustainability into their job choices. In other words, when a company embraces sustainability, it paves the way to hiring the best young talent.
A study last year by employee feedback company Peakon found that Generation Z (born between 1996-2015) is “the only generation to reference social concerns within employee comments.” And known leaders in sustainability, like consumer goods giant Unilever and clothing brand Patagonia, receive thousands of applications for every vacancy. Unilever is the most in-demand employer in its sector in the 50 countries where it operates.
At the same time, interest in sustainability – from all different age groups – means companies with sustainable business practices enjoy better community relations, increased levels of trust and higher levels of brand loyalty. “The leaders get more access to new markets, and can get things done quicker,” says Winston. There are more and more examples of sustainability clauses being an integral part to contracts and tenders.
The weight of the arguments in favour of sustainability mean everything is pointing in one direction: companies that build concern for the environment and social commitment into their business models will be the norm. While there is much left to do, a lot of progress has been made. Corporate sustainability reports and greenhouse gas targets are common, and the latest trend in reporting is transparency in climate-related financial disclosures – the material financial impact of financial risks and opportunities.
The commercial advantage to be reaped by adopting sustainability looks set to continue being a powerful driver of change. “The pressure on companies to go down this path is rising fast among stakeholders – customers, communities, employees, and increasingly investors. Those who don’t embrace it will quickly be irrelevant,” says Winston.
Read more about UPM’s responsibility here.
Text Howard Amos