In broad brush strokes, elements supporting the business rational for sustainability can be categorized into two basic areas: cost savings and enhanced brand reputation.
Business should be especially cognizant of the savings that can be realized by operating sustainably. Reducing reliance on fossil fuels and saving energy are not only good for the environment, but those savings drop straight to the bottom line. Similarly, anything a business can do to eliminate waste and use materials more efficiently can create cost savings both in terms of purchased materials as well as avoided costs affiliated with disposal of waste. Regardless of the size or type of company you work for, material and energy savings are typically easy to quantify and monetize. These are the sustainability no brainers.
There are additional benefits to be reaped when companies focus on environmental and social responsibility efforts. For example, enhanced brand reputation strengthens customer loyalty and can drive preferential purchasing behaviors. Given an equal playing field on cost and service, customers will more often choose products because of sustainability promises. Responsible companies also want to buy from responsible suppliers.
Numerous case studies also show the positive impacts of employee engagement. Simply put, people want to work for companies that they can be proud of. Some experts claim this is especially true for younger generations. Employee satisfaction leads to more productivity, less turnover and allows companies to attract the best talent. While the reputational aspects are harder to measure and track in financial terms, metrics such as turnover or results from employee satisfaction surveys can help track the internal effects of a comprehensive sustainability strategy.
An investment in sustainability — people, planet and prosperity — is not only a form of corporate philanthropy, but is also core to how a company can succeed and prosper as a business. It can be an important part of an overall business strategy. And for good reason.
Sustainability has become an important factor in business strategies. Large multinationals and mid-sized companies are increasingly taking a long-term view toward managing environmental and social risks. Many companies recognize that by addressing environmental and social issues they can achieve better growth and cost savings, improve their brand and reputation, strengthen stakeholder relations, and boost their bottom line. Strategic integration of sustainability prepares companies to better anticipate and understand long-term trends and the effect of resource use, and to address stakeholder expectations. According to a 2011 McKinsey Survey, 76 percent of CEOs consider that strong sustainability performance contributes positively to their businesses in the long term.
Companies are capitalizing on local conditions and shaping their business strategies to accommodate constraints on natural resources in a way that allows them to develop innovative new products, services, and business models. This also provides opportunities to bolster their growth, profitability, and added societal value.
The business case for sustainability is also connected to improved reputation and brand value. The more a company proves to stakeholders that its business is driven by strong sustainability policies, the lower the risks associated with that company. In contrast, weak environmental, social, and governance (ESG) performance can negatively impact a firm’s reputation, which in many cases can be costly. British Petroleum (BP) is a good example of how a company’s brand value can be affected by poor sustainability policies.
Investment in resource efficiency is important for small and large companies. It helps them strengthen their competitive advantage. Studies have shown that improvements in resource efficiency in energy and water have led to significant cost savings and lower environmental impact. DuPont, for example, has cut costs by $2 billion in the last 10 years by investing in energy efficiency equipment while reducing greenhouse gas emissions by 75 percent. Another good example in reducing operational costs and environmental impact is Kuybyhev Azot in Russia. Companies are working with suppliers to become more resource efficient and environmentally sustainable. For example, Wal-Mart is aiming to save $3.4 billion from reducing supplier packaging by 5 percent by 2013.
There is a correlation between good environmental and social performance and financial performance. According to a Harvard Business School study that tracked performance over the last 18 years, companies with strong ESG performance outperformed companies with weak ESG performance, as measured in accounting terms. The study found that performance was stronger in sectors that were significant users of natural resources, where brand and human capital were particularly important and where the companies competed on a business-to-consumer basis.
The growing demand by consumers and investors for sustainable products and services, coupled with increased scrutiny and reporting on corporate responsibility, are driving companies to pay greater attention to their ESG performance. According to McKinsey’s global survey of 7,751 consumers, 87 percent are concerned about the environmental and social impacts of the products they buy and 54 percent are willing to pay a premium for products that are sustainably manufactured.
The success of a company is inextricably linked to the success and sustainability of the communities in which they operate. The Coca-Cola Company helps illustrate how companies are integrating sustainable development objectives into their core business strategies, thereby benefiting the communities and local economies in which they operate.
The Coca-Cola Company played an important role in the sustainable development of communities in Zambia through the value of goods generated, jobs created, and its positive impact on the supply chain. Coca-Cola procures approximately 25 percent of inputs from local smallholder farmers. Remaining inputs are purchased from companies based regionally. Smallholder farmers play an important role in growing the sugar that is used in Coca-Cola products. In the case of Zambia, sugarcane workers are among the most vulnerable to labor violations due to the lack of formal contractual arrangements to protect their rights, and the low-paid/seasonal nature of their work. For this reason, Coca-Cola introduced an audit program to assess whether supplier and bottler workplaces uphold internationally recognized labor and environmental standards. Through its local partners, Coca-Cola introduced programs to support HIV/AIDS services for its employees and their dependents free of charge, including education and awareness-raising programs, voluntary testing and counseling, and free antiretroviral drugs.
Since Coca-Cola uses water as the primary ingredient in its beverages as well as in its manufacturing activities, the company’s most significant impact is on water resources at the agricultural stage. Therefore, Coca-Cola required its suppliers to promote better management practices and design strategies that help Coca-Cola reduce the environmental impacts of its supply chain. By 2015, Coca-Cola’s main supplier in Zambia will become 25 percent more water efficient. Through the Coca-Cola Foundation, the company invested about 1.3 million in community development programs that include sustainable management of water and watershed resources, installment of waste, and sanitation facilities.
A focus on sustainability should be part of a company’s vision: sound economic growth, driven by private sector development, is crucial to poverty reduction. Business should be committed to ensuring that the benefits of economic development are shared with the poor and vulnerable, and that development takes place in an environmentally and socially sustainable manner. A sustainability strategy should be focused on transforming markets, driving innovation, and adding value to all involved companies by helping them improve their business performance.
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