Sustainability for businesses: beyond eco-efficiency and reputation

Author: Alessandra Martorana, Member of the OCS Media and Research Team

Businesses today are operating in an environment of increasing and sustained public attention to issues of sustainability and climate change, and there is strong scientific consensus on the direct links between business activity and environmental impacts, creating pressure for businesses to make changes to their practices and culture. Schaltegger et al.,[1] state that ‘no sustainable development is possible without a sustainable development of corporations’.

Since the 1990s, the emergence of ‘eco-efficiency’, a term coined by the WBCSD and referring to ideas describing how business can create more goods and services while using fewer resources and creating less waste and pollution, has encouraged businesses to invest in sustainability as a cost-cutting measure. Research has supported the potential gains of eco-efficiency and WWF and CDP[2] have reported that if businesses cut carbon emissions by an average of 3% annually, they'd save up to $190billion in 2020 alone. Some companies have made significant financial gains through sustainable cost saving measures: Dow Chemical invested less than $2 billion since 1994 to improve its resource efficiency, resulting in savings of over $9.8 billion from reduced energy consumption and water waste[3].

Businesses have also long recognized the reputational benefits of being sustainable: Project ROI estimates that a top level corporate reputation for responsibility and sustainability can account for 11% of a firm’s value. The damage that a bad reputation in this area can have is also clear - after Volkswagen’s emissions scandal broke the resulting share price drop resulted in a loss of almost $28billion in market value[4].

While many businesses have been open to investing in the benefits gained by cost-efficiency and a sustainable reputation, they have often resisted further calls to change based on assumptions that investing in sustainability can only bring limited returns. However, businesses need to look beyond these arguments as increasing research is showing the multifaceted ways in which being sustainable can pay.

Goldman Sachs[5] have reported that companies that the leaders in sustainable, social and good governance policies have a 25% higher stock value than their less sustainable competitors, and The Economist Intelligence Unit[6] has found that share price losers are 2.5 times more likely not to have anybody in charge of sustainability. It is clear that being a leader in sustainability not only drives environmental benefits but also serves the financial bottom line of many businesses. Investors are paying attention to these findings and there have been dramatic increases in socially responsible and sustainable investment - this type of portfolio now totals more than $2 trillion in the US[7].

Beyond a company’s reputation with consumers there is also a market opportunity for sustainable products. 54% of consumers want to buy more sustainably[8]. However, Young et al.,[9] describe an ‘attitude-behaviour gap’ where 30% of consumers report that they are very concerned about environmental issues but they are struggling to translate this into purchases. Focusing on sustainable products may create new revenue streams for businesses, securing customers that have greater brand loyalty, are willing to pay for more expensive goods and who purchase more.

Another argument for sustainable business is that as regulation increases it makes sense to get ahead of the game. There has been a 300% increase in the number of climate change bills proposed between 2003 and 2008 in the US[10], and water usage as well as product and packaging labeling are emerging as the next wave of regulatory focus. Focusing on sustainability can improve regulatory relationships and can go towards mitigating any sanctions that may be placed on businesses.

Research also finds that getting employees excited about creating products and services that help customers reduce their environmental impacts will engender an extremely loyal workforce and may even help recruit and retain better talent. A 2016 Deloitte[11] study found that millennials are more likely to stay with employers when they feel a strong connection with their employer’s purpose. Similarly, a study by the Society for Human Resource Management[12] found that morale was 55% better in firms with strong sustainability programmes, employee loyalty 38% better, and workforce productivity increased by 21%.

It is clear that a commitment to a sustainable purpose can benefit businesses in a number of ways, while at the same time serving the financial practicalities required for such investment. The recognition of such benefits is undoubtedly valuable in encouraging businesses to fulfill obligations demanded of them in order to address key environmental challenges such as climate change.

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[1] Schaltegger, Stefan and Lüdeke-Freund, Florian and Hansen, Erik G., Business Cases for Sustainability: The Role of Business Model Innovation for Corporate Sustainability (2012). International Journal of Innovation and Sustainable Development, 2012, Vol. 6, No. 2, pp. 95-119. Available at SSRN: https://ssrn.com/abstract=2010510

[2]http://www.wwf.ca/newsroom/?uNewsID=13081

[3]https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-business-of-sustainability-mckinsey-global-survey-results

[4]https://www.theguardian.com/sustainable-business/2015/oct/29/corportate-social-responsibility-volkswagen-commit-forum-project-roi

[5]https://www.unglobalcompact.org/docs/news_events/8.1/Goldman_sustain.pdf

[6]http://graphics.eiu.com/upload/sustainability_allsponsors.pdf

[7]https://www.unilever.co.uk/sustainable-living/sustainable-living-news/unilever-unveils-new-tv-and-digital-bright-future-campaign-in-the-uk.html

[8] https://natcapsolutions.org/wp-content/uploads/2017/02/businesscasereports.pdf

[9] Young, W., Hwang, K., McDonald, S. and Oates, C. J. (2010), Sustainable consumption: green consumer behaviour when purchasing products. Sust. Dev., 18: 20–31. doi:10.1002/sd.394
[10]http://www.gmaonline.org/downloads/wygwam/sustainability-balancing.pdf

[11]https://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-millenial-survey-2016-exec-summary.pdf

[12]https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/documents/11-0066_advsustainhr_fnl_full.pdf