Sustainability in business has to do with the effect business has on the environment and the effect business has on society.
The equation for a sustainable business plan can include economic, social, and environmental practices.
An increasing number of companies are recognizing the need to join the sustainability cause. Not only because consumers’ expectations have changed, but because sustainability is a way to create long-term value and growth in an economic and social environment that is changing faster than ever.
From product development and manufacturing, to workplace and employment conditions, every company, no matter how small or big, has an opportunity to minimize its footprint and make a change towards a more sustainable future.
What is sustainability in business?
Most of the time, people think of sustainability as a practice that is related only to the environment, but it’s not just that. Sustainability in business has to do with the effect business has on the environment and the effect business has on society. The equation for a sustainable business plan can include economic, social, and environmental practices.
This doesn’t mean that sustainability strategies are the same for every business. Some focus more on their manufacturing processes, others on supply chain optimization, renewable energy, education, fair labor practices, community engagement, etc. Many times these choices are associated with the company’s essence, aside from the areas where they need to reduce their impact or can contribute the most.
Why should businesses bet on sustainability?
According to a study by McKinsey, businesses pursue sustainability practices because they have a material financial impact. “The value at stake from sustainability-related issues—from rising raw-material prices to new regulations—is substantial,” says the study. Based on research by Deutsche Bank, it found that companies with high ratings for environmental, social, and governance (ESG) factors have a lower cost of debt and equity and most of them outperform the market in the medium and long run. “Additionally, there is evidence that being more efficient at using resources is a strong indicator of superior financial performance overall.”
These practices are also an indicator of superior innovative capacity. Because sustainability practices require us to redesign many ways in which the world has worked till now, the result of sustainability can be new, profitable products that revolutionize industries. Think about footwear companies—Allbirds, UGGs, Puma, Nike—which have turned, increasingly, to sustainable products made out of sugar cane or recycled materials.
Evidently, sustainability programs not only serve on a social, economic, and environmental scale, but they are correlated with positive financial performance (to the point that they even play a role in creating it).
How does it work?
There are many factors that influence the success of a business’ sustainability program. But the most important one to consider, before anything else, is that for sustainability practices to work, they have to be placed at the core of your business strategy.
A study by BCG/MIT showed that, while 90% of executives believed sustainability to be important, only 60% of companies actually implement it in their strategies. The first step is understanding that sustainability is not separate from the economy, but actually an advantage to economic innovation and development. This is what the greenest CEO in America, Ray Anderson, calls the “false choice” between profit and the environment. Any company that sees itself growing in the future should understand by now that sustainability is here to stay.
According to the McKinsey study, aside from a sustainability philosophy, company success requires a structured program to improve performance. The second thing to understand is your company’s goals, and how these have an impact on the world, in order to define a clear, unique plan, which can also benefit your business. Analyze what matters to the entire value chain of your company, and identify the issues with the greatest long-term potential to set priorities and goals that are specific, ambitious, and, above all, measurable.
And, last but not least, is putting your program into practice at an organizational level. You should engage employees from all levels. There has to be clear support from leadership.
Things won’t change from day to night, but one thing is clear: from both a social and business standpoint, sustainability is worth it.