The Business Case for Sustainability

It’s 2017, and times are strange. While America’s leadership has fallen under some truly gross cronyism, globally, businesses small and large are moving towards a more responsible type of governance. Integrating sustainability into the culture and strategy of a business is not only beneficial to the planet, but is critical for a bottom line and continued successful growth. Gone are the days of narrowly-focus businesses that can happily function solely for shareholder return with no regard for greater environmental or social impacts. This isn’t a happy hope from an optimistic environmentalist, but rather is a growing reality.

Businesses today are finding themselves in a position where they can capitalize on social and environmental ventures and transform themselves into industry leaders. Opportunities for ‘greening’ your operations are endless, and quite simply, remaining oblivious to the risks of ignoring environmental and social externalities is becoming more and more expensive.

 

WHAT is a Sustainable Business Model?

Traditional business model = Focus on generating economic profit only to satisfy a single stakeholder - the investor/shareholder.

Sustainable business model = Focus on creating environmental, social and governance value in the long term in addition to economic profit. The Triple Bottom Line approach: "People Planet Profit", satisfies the needs of multiple stakeholders

WHY Should a Business Prioritize Sustainability?

There’s countless reasons for a business to prioritize sustainability, here’s a few...

Reputational Risk

With today’s social media presenting constant reputational threat, it seems that companies today are able to get away with less than ever before. Damage to a companies reputation based on an environmental or social crisis can be incredibly costly and challenging to come back from (think BP oil spill of 2010, Nike’s child labour PR crisis, or any of Nestlé’s public disasters like this one)

 

Shareholder Demand

I work for a company that advocates for responsible investing from Canadian institutional investors, including Canadian pension funds. This represents a HUGE amount of money (think billions) being invested in companies based both on shareholder return, but also on impact.

Shareholders are becoming increasingly informed and are becoming more engaged with companies to act responsibly.

Stacks of research show that, in fact, shareholders DO care where their money goes, particularly in a time where awareness around issues like climate change and poverty are so significant. Shareholders are beginning to ask important questions to big climate offenders, and whether or not companies engage with shareholders in discussion is an increasingly important issue. Divestment in oil and gas companies is growing and refusing to engage with shareholders on important issues leaves them open to some serious risk.

ExxonMobil’s shareholder engagement struggles is a great example of this.  Surely, after-all, #ExxonKnew.

 

Resource Risk:

Natural resources are becoming increasingly scarce as the population of Earth grows, along with the demand for ‘first-world’ luxuries. The amount of available natural resources is sloping downwards, while demand is sloping upwards, creating a funnel. 

Ignoring environmental risk by refusing to acknowledge this reality will only hurt businesses, as every industry on earth relies on natural resources.

Again, oil companies may be left with stranded assets as more and more people divest, whereas a brewery may face hardship during a drought if they have not tightened up water usage.

This report from the Pembina Institute can shed some light on stranded assets and what that means for investors (particularly Canadians invested in oil sands). Integrating sustainability into your business plan will not only reduce environmental exposure, fines, and abatement costs but will often save you money now (think reduced cost for energy, waste disposal, packaging, water treatment, etc).

How to ‘green’ your business operations and save money > HERE

 

Carbon liability risk

This is an example of one of the MANY specific environmental risks. For example, we can look at fossil fuel stock as an issue of carbon liability.

A recent Corporate Knights assessment of 45 stock exchanges on sustainability disclosure revealed that only 59% of large listed Canadian companies disclose carbon emissions, which is clearly not aligned with growing demand from investors for public carbon performance metrics. Legislature and business norms are increasingly demanding that polluting industries (and all industries) disclose greenhouse gas emissions in sustainability reports. NOT disclosing these metrics is likely illegal, and certainly would increase reputational risk for both the public and prospective shareholders.

British Columbia has a carbon tax, and a case is currently being presented for a federal price on carbon. This obviously increases costs of operations for polluting industries and means that they will become financially responsible for their negative environmental impacts… as they should be.

 

Employee Demand

Quite simply, great companies attract great employees. Today’s top graduates are looking for meaning in their work, and are overwhelmingly attracted to sustainable companies over ‘soul-selling’ to corporate giants who lack a sense of societal value creation. Many of us want to feel like we have accomplished something positive with our time and have contributed to the world in some way. Embracing sustainability is a way to attract bright, talented young employees that are more likely to invest in their work and stay for longer.

 

Take a Look at Nike

Most of us know that Nike suffered a pretty substantial reputational problem in the early 2000s after facing a scandal surrounding their use of child labour. This was a pivotal moment for the company who saw its stocks fall 15% following the scandal, and incited an identity crisis for the brand. What the company did after-the-fact, however, has transformed Nike into an industry leader for responsible business.

While those of us who study sustainable business are aware of their current contributions, many consumers still associate Nike with child labour and sweatshops. This speaks to the importance of avoiding reputational risk from the beginning and being responsible for both your supply chain and in-house operations.

The company immediately admitted wrongdoing and committed to improving their operations and supply chain. Today, Nike is an industry leader in cutting-edge corporate sustainability, with an innovative sustainability plan focused on transforming the energy, emissions, and waste associated with its products.

Take a look at what Nike is doing here