Sustainability today: the four drivers
- Sustainability can drive efficiencies and lower your costs
Increasing numbers of companies have found that reducing their waste, their energy use or their reliance on costly natural resources has a beneficial impact on their P&L figures. Take the example of Walmart. Between 2005-2015, the company applied efficiencies to its logistics through better routing, truck loading, driver training and advanced technologies, resulting in 15,000 metric tons of CO2 emissions and savings of nearly $11 million.
- Consumers are demanding more from corporations
Consumers, and millennials in particular, are demanding more scrutiny and action on sustainability from corporations. Furthermore, social media enables the naming and shaming of brands that fail to live up to their sustainability credentials on a scale never seen before. The brighter side to this is that consumers are increasingly willing to pay more for products from companies that have clear commitments to social and environmental causes. Unilever, for example, has seen its Sustainable Living Brands delivering 75% of growth for the company in 2019.
- Investors are scrutinizing ESG risks when deciding on where to put their capital
Increasingly investors are placing a strong focus on the sustainability and ESG performance of their potential investee companies. What they look for is safe bets and megatrend opportunities: those businesses with credible sustainability credentials are viewed as low-risk and future-proof investments. Overall, companies with better sustainability performance face on average 10% lower cost of capital. With capital on the line, it literally pays to show up on sustainability in meaningful ways.
- The emergence of robust Environmental Social Governance metrics is set to create greater transparency
Frameworks such as the International Financial Reporting Standards (IFRS) provide a standardized set of accounting principles through which companies can disclose their financial performance. Extending accounting standards further to gauge material societal impacts, the World Economic Forum (WEF) is working with five leading standard-setters – CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) – to establish metrics and methodologies to standardize reporting under the umbrella concept of ESG. ESG is fueling the adoption of sustainability metrics because it has an impact on accounting, can drive regulation and enables comparisons between competitors.
As consumers, we want clear sustainability commitments from the brands and corporations we trust and, as employees, we want to work for organizations that are striving for a sustainable future. Businesses are responding to this. The following decade will offer breakthroughs as economic, social and planetary recovery are all tackled by more businesses committing to sustainable business strategies. That potential future offers us all some much-needed hope.
In part two of the series, we will outline what constitutes a sustainable business, offering a roadmap to embedding it within your company and offer examples of companies that have profited from their sustainability strategies.