Investments in sustainability practices were initially driven by consumer demands that businesses practice environmental, social, and governmental responsibility. Now the initiatives are important strategies for increasing profits and brand value, and securing a sustainable business.
— By Andrew Hale
Some remarkable events are taking place today as businesses convert the cost of sustainability into an investment in new opportunities. Once considered an expense driven by marketplace expectations rather than a business case, business leaders are discovering the cost of sustainability initiatives is small compared to the benefits generated.
The benefits include reduced risks of operating disruptions, stronger and more reliable supply chains, more brand value, higher customer engagement and satisfaction, enhanced attractiveness to capital financers, and increased profits. Sustainability encompasses environmental, social, and governance (ESG) opportunities and concerns, and historically it has involved activities like increasing use of alternative energy sources and reducing water consumption to meet consumer expectations and governmental requirements.
As the principle of sustainability matures, businesses are finding these initiatives offer innovative ways to create shared value around the world.
Corporate sustainability efforts continue to be designed to minimize environmental, social, and governmental risks (ESG) while protecting people and the environment, but the companies have discovered the focus on ESG has also reaped numerous financial and other benefits.
Nestle is a good example. The company reduced the amount of plastic in its .5-liter water bottles by more than 40 percent. All the bottles are recyclable, and when recovered they are cleaned, dried, and melted into pellets that are reusable. The company also converted its cooling towers in its bottling plants to re-use water that was previously discharged which saves more than 55 million gallons each year. The thinner bottles and reduced water usage reduces Nestle’s packaging, utilities, and transportation costs.
Businesses are pressured now to reduce the amount of plastic used in their products because plastic pollution has become a major environmental and social threat.
The Netherlands biochemicals company Avantium is leading the investing in a pioneering project to make plastic from plant sugars rather than fossil fuels. The beer-maker Carlsberg has signaled support, as have Coca-Cola and Danone. The plant-based plastic will be able to contain carbonated drinks and decompose in one year in a composter, and a few years longer if left outside. The true end goal is for the plastic to be fully recycled.
Companies supporting this project with investment dollars are doing so for environmental and social reasons, but the businesses benefit in numerous ways. One major benefit is to secure the future of their bottled products as environmental damage is addressed through a reduction in the use of fossil fuels. Forward-focused business leaders who want to secure their supply chains in the future are investing now in sustainability projects.
There are many examples of companies that have discovered their ESG initiatives have benefited the business.
The Abbott story is very interesting because it involves helping dairy farms in Maharashtra, India, that are mostly operated by women who have limited decision-making. Abbot had opened a new plant in 2014 to manufacture nutritional products, but local suppliers were unable to produce the quality of milk required by Abbott. The company partnered with the India supplier Prabhat Dairy and the nonprofit TechnoServe, which looks for solutions to poverty, to find a solution. After learning the dairy farm owners and managers did not have business literacy and poor knowledge of good farming practices, Abbott began working with the female dairy farmers to address the knowledge gaps and help them earn more. In return, Abbot gained access to high-quality milk for its plant. The company also created a sustainable supply chain for its nutrition business in India.
The sustainability consulting firm Pure Strategies conducted a survey in 2017 of companies with revenues exceeding $250 million in the food and beverage, footwear and apparel, medical products, life sciences, appliances, electronics, home care and cleaning, cosmetics, personal care, and general merchandise industries. The results found that respondents gained about $800 million in increased sales and another $800 million in manufacturing cost savings. They also experienced additional earnings through productivity gains, risk reduction, and growth opportunities. The majority of companies planned to increase their sustainability budgets and to continue work toward building a circular economy.
Every Company in Every Industry Can Benefit
Every industry can benefit from adopting a culture of sustainability. According to a recent study, the financial sector can increase its brand equity value, an intangible asset with a number of behavioral drivers. The researchers investigated the relationship between brand determinants like ethical investments, firm behavior, sustainability scores or diversity measures, and brand value.
Recognizing the important relationship of new financial products and social challenges, five years of data was pulled from 1,100 published annual reports and it also included observations. The sample included the largest U.S. and European companies. The results found that the more important ESG factors are for a company, the higher the brand value. In addition, a more gender-diverse board of directors can influence brand value. The results found that an ESG score index increase of one unit would boost brand value by $648.2 million on average, and an additional unit of participation of a female director would increase brand value by $103 million on average.
Some of the ways companies have benefited through ESG initiatives have not taken a major change. Soldier Field in Chicago, home of the Chicago Bears, replaced its paper towel dispensers in restrooms with Dyson Airblade high velocity air hand dryers. The 1.5 million annual spectators never have to contend with empty dispensers or crumbled paper towels on the floor. Soldier Field reduced paper towel expenses by more than $12,000 each year and its carbon footprint. Each Airblade drying session generates 3.3g of CO2 compared to 13.9 g per drying session for paper towels.
Around the world, companies across industries have discovered that sustainability initiatives are good for the environment, people and communities. They are also good for generating brand value and increasing the bottom line.
Investing now in environmental and social sustainability initiatives drives business sustainability into the future.