It won’t shock you to learn that switching to more sustainable business practices is good for the planet – but until quite recently, the benefits for business have been more difficult to discern. After all, it can feel like smart operational changes are kept between your business and… well, the environment.
But that’s changing. Greener business decisions are not just a marketing ploy: they matter to employees and investors; they make your business strategy future-proof and demonstrate your alignment with modern consumers. And the demand for transparency means nobody can cut unsustainable corners.
In this article, we’ll look at why sustainability is becoming such a key factor in companies’ success and long-term future – and how this can benefit the planet, too.
#1. Investors Care About Sustainability
Sustainable businesses are an attractive bet for investors, and the proof is out there already. Investment funds explicitly mentioning environmental, social and governance (ESG) practices tripled from 2015 and 2019, and 2020 has been a watershed year.
In the first quarter, ESG investment more than doubled its year-on-year growth, while in July, the Calastone Fund Flow Index (FFI) found record inflows of £362m into ESG equity funds. That’s especially impressive when you consider the lackluster demand for active funds in general since the pandemic.
Pre-pandemic, investors needed to consider the impact of climate change on global supply chains in many industries. Environmental risks can equate to business risks when products, production methods, and transport are impacted by environmental degradation and diminishing resources.
In 2014, British supermarket chain ASDA revealed 95% of its fresh product lines were threatened by climate change. In another example, the world’s largest beer brewer, Anheuser-Busch, suffered due to drought in the US Pacific Northwest, causing barley’s price (a key ingredient in beer) to escalate. In contrast, rising electricity prices meant there was less aluminum available for their cans.
Building a sustainable business model demonstrates that your strategy is future-proof, which is understandably attractive for investors.
In 2020, that demand for durability skyrocketed – and whereas in past times of crisis, when investors would retreat into tried-and-trusted safe havens such as gold, now they’re turning towards sustainable funds: ESG policies have outperformed benchmarks for several years. They’re the new logical, safe step.
Explaining why sustainable and socially responsible investing is on the rise, Harvard Business School professor George Serafeim told the Wall Street Journal, “People are looking for resilience. They are looking for companies that can weather the short-term storm and are positioning the business for long-term success.”
#2. Consumers Care About Sustainability
ASDA’s 2014 revelation about threatened product lines is something of a harbinger to the early months of 2020, as the pandemic disrupted global supply chains and exacerbated consumer panic buying in supermarkets. Could the disruptions of everything recently, from daily routines to our security and health de-prioritize sustainable shopping for consumers? Short answer, no.
If you think back, 2019 may have been the year when climate activism went mainstream:
- Approximately 6 million people in more than 180 countries marched in climate change protests;
- Greta Thunberg’s “Fridays for Futures” school protests went global;
- The Extinction Rebellion added urgency to policy discussions with civil disobedience.
Environmentalism has emerged as a value that people physically demonstrated on a mass scale.
Those values have stuck fast. Even now, consumers are making sustainable choices where they can. One example of this is cutting down single-use plastics; in a 2020 survey, 85% of respondents expressed a commitment to turn down plastic utensils. The willingness to use reusable drinkware rose by 37% and reusable shopping bags by 21%. Sustainability remains a priority.
Companies that can facilitate a sustainable choice for their customers are the ones that feel the most benefits. It’s no longer enough for companies to talk about their own values: customers want companies to help them live theirs. Those who can, with complete transparency, see customer loyalty rates of 94%.
One example I’m interested in is using paper straws instead of plastic straws for drinks. Plastic straws are difficult to recycle and contribute to plastic waste in the ocean while manufacturing them requires oil. Conversely, paper straws are safer to make, don’t harm the environment, and a high-quality spiraled design makes them structurally sound, lasting up to 3 hours when immersed in liquids.
The benefits are manifold: the consumer feels their values align with the company’s, the product delivers a good experience, and fewer plastic straws enter landfills.
#3. Policymakers Care About Sustainability
Two large sustainability proposals bracketed 2019; a group of legislations named “The Green New Deal” in the US that calls on the federal government to curb fossil fuels and greenhouse gas emissions, and the European Union’s Green Deal, supporting the EU’s aims for a climate-neutral economy by 2050.
The scale of this thinking is welcome. According to the International Climate Emergency Forum, at least 749 municipalities in 16 different countries, representing more than 138 million people, declared climate emergencies in 2019. The UN reported one climate crisis-related disaster per week. Unsurprisingly, concern about climate change reached record highs in the UK and US, tripling the 2016 figure.
Enter public health crises; While global greenhouse emissions dropped significantly during the lockdown, the full, long-term impact of the virus on attitudes towards climate change is arguably more determinable through the shape of governments’ stimulus packages to boost the economy post-pandemic. And so far, there are glimmers of hope: The EU’s Coronavirus recovery plan states that 30% of its €750 billion stimulus package be spent on actions that purely tackle climate change.
Research by McKinsey suggests this could hopefully prove part of a trend: they found that environmentally-friendly packages stimulate growth and create jobs as effectively as, or better than, neutral or harmful ones, meaning governments shouldn’t need to compromise economic priorities for environmental ones.
It would come amongst climate-responsible policies such as the EU banning single-use plastics by 2021, the UK bringing forward its pledge to ban fossil fuel vehicles to 2030, France pledging €15bn to tackle climate change, China’s pledge to become carbon neutral before 2060.
#4. There’s Nowhere to Hide
Time is running out for businesses who don’t adopt sustainable practices, as increased global connectivity and the demand for transparency means companies operate in a global fishbowl, where any non-eco-friendly flaws are more discernible and criticized than they’ve ever been before.
One example of this is non-governmental organizations (NGOs) using modern technology and social media platforms to expose questionable business practices and hold companies accountable for the damage their operation does to the environment. This was the case for Lumber Liquidators, a US hardwood flooring company. A tip from an NGO led to a federal investigation, with its share price dropping 13% on the day of the raid.
It’s not just NGOs. Anticipating the demand from investors for tools that help provide information about companies’ operations and their effect on the environment, Global Forest Watch provides high-resolution imagery to give real-time visual insights on deforestation. At the same time, Carbon Tracker estimates the utilization of global fossil fuel power plants.
As technology improves, this transparency and demand for accountability are only going to increase. In its report, Innovation for the Earth, PwC looks towards a future where sensors, drones, and advanced satellites can communicate and compare data, meaning it would be instantly possible to discern where any product’s raw materials come from, leaving polluters nowhere to hide.
Conclusion: Sustainability Is No Longer an Option – It’s a Necessity
Obviously, taking steps to care for the planet has benefits for the planet and our natural environment, and humanity as a whole. But it’s also a huge opportunity for businesses who get it right, too.
Spurred by investors’ willingness, support by policy, and positive reception from customers, sustainability-led businesses can spur innovation, inspiring new products and services that pose less risk to the environment, or enable others to reduce their carbon footprint. They’re also, by nature, more future-proof, minimizing the reliance on price-volatile energy resources and resilient supply chains.
Since the onset of the coronavirus pandemic, you’d be forgiven for thinking attitudes towards sustainability had eased into a lower priority – but it’s simply not the case. From tackling plastics in the ocean and assessing climate change as a systemic financial risk, the 2020 reports are very much in, and switching your business to sustainability benefits everything from national security, media, health, food, and energy, to environmental justice.
This article was previously published at TYB