Integrating Sustainability Initiatives in Corporate Strategy Can Drive Improvements In Investor Confidence and Profitability

For many years, leaders believed sustainability and profitability were mutually exclusive business goals. i.e. Businesses may only achieve one at the expense of the other. Milton Friedman’s premise that profits are the ‘only business of business’ fortified this belief.

Businesses of that era persisted with high-priced, low-quality goods. But the results were short-lived.

– Environmental degradation

– Consumer mistrust and

– An untenable market

Forced businesses to take another look at their approach.

So what stands in the way today? Why can’t businesses integrate sustainability into their corporate strategy?

Sustainability And Financial Wellbeing

Are corporate sustainability and financial wellbeing mutually exclusive?

HBR cited research by Oxford University and Arabesque University that concluded otherwise: They discovered that “90% of 200 studies analyzed concluded that good ESG (Environmental, Social and Corporate Governance) standards lower the cost of capital.”  Further, “88% show that good ESG practices result in better operational performance.”

The same studies quoted 80% showing a positive correlation between stock price performance and positive sustainability practices.

Employee Engagement and Improved Productivity

Good sustainability programs address all stakeholders, not just the external ones. So it’s not surprising employees respond to the impact of a well-designed program. There’s evidence that an internalized sustainability movement improves employee morale and productivity.  The Society of Human Resource Management, reported a 55% difference in morale between companies with strong sustainability programs against those with poor ESG implementation. Even loyalty scored better, at 38%. Millennials, in a study by Deloitte, indicated a strong commitment to work for organizations with a strong sustainability program. Focusing on robust environmental goals led to a 16% increase in employee productivity as well.

Sustainability Programs And The Cost Of Talent

While many organizations decry the rising cost of retaining top talent, or replacing it, research into sustainability again proves there’s an easy way to control it. CSR initiatives lower the incidence of employee attrition, by 25-50%. In the long-term. Replacement costs can go down by 90%-200% of an employee’s annual salary, depending on the position.

Employees are inclined to be a part of an organization that does good for the community. Sustainable businesses strive to create shared value. And with this approach, all stakeholders including employees feel more aligned with corporate strategy.

Changing Consumer Preferences

From sustainable sourcing to fair pricing, what consumers want has changed as dramatically as how they want it. With more choice, price is no longer the only determinant of consumer preference.

Nearly 58% of respondents in a US-based consumer survey said they considered a company’s environmental record when purchasing goods. Generalized, this number shows the preferences of over 68 million Americans.

From the other end–corporate scandals emanating from abusive manufacturing practices, violations of labor or environment laws, and irresponsible leadership have made product boycotts successful. These boycotts have inflicted long term damage on business reputation, sales and market position. Inadvertently, the failure to integrate sustainability into one’s corporate strategy gives competition “brownie points” over erring businesses.

Securing The Bottomline

According to a 2012 MIT Sloan study, nearly 48% of business executives have revamped their business model to integrate sustainability. Of these, 46% of executives reported that sustainability helped them improve their triple bottom line.

Sustainability And Efficient Financial Operations

A mindful approach towards:

– Consuming natural resources

– Reducing waste

– Focusing on preventive healthcare and

– Physical and mental health

Feeds directly into working capital.

It results in more efficient capital management, process redesign, shortening processes and reducing costs for the long term. This works well in boosting investor confidence, a group that always desires more efficient returns on its capital.

Sustainability In Practice

Integrating sustainability creates a virtual cycle between businesses and their stakeholders. For instance, when Nike introduced its Flyknit Line, it helped strengthen the brand and produced 80% less waste. Known for countless innovations, 3M introduced Novec suppression fluids, which became in effect, a substitute for hydrofluorocarbons.

Consumer goods have also blurred the line between cause related marketing and corporate philanthropy with their corporate sustainability campaigns:  

Water-efficient detergents

– Global handwashing campaigns

– Battling infant mortality

– Establishing esteem and dignity for women at work

Each one becomes an example of how good social behavior contributes to a strong bottom line for consumer goods.

Lasting, Long Term Gains

Business benefits of integrating sustainability occur at several levels. Businesses will now be hard-pressed to define reasons for not introducing sustainability. Corporate sustainability has come a long way indeed.

References

  1. https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability
  2. https://www.questforum.org/wp-content/uploads/2016/10/9-unexpected-benefits-of-sustainability.pdf
  3. https://www.pwc.com/gx/en/services/sustainability/responsible-corporate-strategy.html
  4. http://www.pgsadvisors.com/2013/08/5-key-steps-to-a-sustainable-corporate-strategy/
  5. https://www.environmentalleader.com/2016/03/6-benefits-of-becoming-a-sustainable-business/
  6. https://www.ey.com/en_my/assurance/how-an-integrated-sustainability-strategy-can-help-you-stand-out
  7. https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/documents/11-0066_advsustainhr_fnl_full.pdf