How to make the business case for a sustainability strategy

With a positive business case, sustainability is not just corporate social responsibility but enlightened self-interest. The business case for sustainability is also helpful for investors as it provides a quantitative and objective picture of what a company does on sustainability rather than what it says.

How to build the business case

So, how do you make the business case for a sustainability strategy? There are some key arguments that can be deployed, based on three pillars:

• Cost reduction and operational efficiencies. Reductions in waste and the use of energy and costly natural resources directly impact the bottom line. For example, Wal-Mart set out to double its logistics efficiency between 2005 and 2015 through better routing, truck loading, driver training, and advanced technologies. By the end of 2014, it had improved fuel efficiency by approximately 87% compared with the 2005 baseline, resulting in 15,000 metric tons of CO2 emissions avoided – and savings of nearly $11m.
• Revenue uplift through premium pricing and new customer segments. The segment of environmentally and socially aware consumers is large and growing. Recent evidence shows they are not only willing to spend 6% more on products from companies with sustainability commitments and programs in place, but are 64% more likely to recommend companies with sustainable practices to friends and 63% more likely to try new products from these companies. Unilever discovered in 2019 that its purpose-led Sustainable Living Brands were growing 69% faster than the rest of the business and delivering 75% of the company’s growth.
• Lower capital costs and better access to financing. An increasing number of investors intentionally target companies with a strong sustainability performance, not only because they care but also because they have a fundamentally better risk-adjusted profile that makes them more “future-proof”. A recent study by McKinsey showed that 83% of C-suite executives and investment professionals would be willing to pay a median premium of around 10% to acquire a company with a favorable ESG profile over a negative one. And companies with better sustainability performance (as measured by their ESG score) face a 10% lower cost of capital on average.

Beyond the business case: the sustainable transformation opportunity

If anyone remains unconvinced by these business case arguments, in the long run the choice will be made for them by external forces. Sustainability will no longer be a “soft” concept and companies will no longer be able to cherry-pick impacts.

A paradigm shift is already under way as ESG is becoming a more standardized and objective measure of sustainability. Financial analysts are increasingly equipped with the tools and metrics to compare sustainability performance against peers, and over time, and can now reward or punish sustainability performance immediately. We are moving away from self-reporting. Technology advances enable the use of sophisticated algorithms to collect, track, and analyze complex ESG data that will paint a more accurate, less voluntary picture of a company’s true performance.