When Unilever launched a dishwashing brand that used a water-conserving technique to develop it, total sales of its entire “eco-friendly” category outpaced other brands in its portfolio. In the same vein, Finland’s leading petroleum-refining company, Neste, changed tracks to renewable fuels and sustainability-related products, which is now earning the company more than two-thirds of the total profits.
What is the key takeaway? That sustainability is no more just a “good to have” concept, but a carefully thought-out strategic move based on market research and mapping of customer behavior. It is increasingly becoming a part of the business bottom line.
A growing number of consumers are proactively adopting a sustainable lifestyle, choosing brands that have ethical or environmentally sustainable practices and values. Some choose to no longer purchase certain products if they have concerns about a brand’s environmental sensitivity. In the face of this trend, moving to sustainable practices as a go-to-market strategy makes perfect business sense. If we consider Deloitte’s latest survey into consumer attitudes and behavior around sustainability, more than 40% of users are only purchasing products from environmentally conscious companies. This trend has accelerated in the last two years of the pandemic.
Due to the recent pandemic, consumer awareness regarding ESG standards has only been growing. Tomasz Mikolajczyk and Michel Groenendaal throw light on the course of ESG metrics in the upcoming future in #procurement space- https://t.co/T5YVBz5GkO#SpendBytes pic.twitter.com/iEYXMWzkIL
— Infosys BPM (@InfosysBPM) July 5, 2022
No wonder the founder of the world’s leading apparel maker, Patagonia, committed all future annual profits of the company to combat climate change. Willful actions towards the environment and climate like these are making selling with conscience a compelling business mandate. Business sustainability is a growing concern for strategists and investors alike, looking to blend economic profit and social good.
Simply put, if a company wants to continue to be relevant in the market at large, embedding sustainable practices will be critical going forward. It must become an important spoke of effective corporate strategy and branding practices.
Sustainability for organizations plays out across three areas: environmental, social and governance. ESG, in short. According to McKinsey, global investment in sustainability topped US$30 trillion in 2020, up 68% since 2014, primarily driven by heightened ESG focus from corporations, investors and executives.
Many players in the industry are now publishing integrated annual reports by combining environmental, social and financial data. Integrating sustainability into business strategy, however, is not an easy task by any means. From translating sustainable metrics into relevant business objectives to finding a common ground between sustainability imperatives and business models, integrating sustainability into corporate strategies is a complex and tricky task.
The first step in this endeavor is to map sustainability objectives with overall business objectives, including financial metrics. Resilient and sustainable businesses have objectives spelt out clearly for the entire organization to understand and imbibe, stringently track ESG KPIs and proactively report on the outcomes and impacts.
[Sustainability] is increasingly becoming a part of the business bottom line
Then there are three levels of activation to ensure that sustainability is integrated with businesses to prove tangible benefits:
- Compliance: Creating effective measuring and monitoring parameters to adjudicate the impact of a business on the environment is imperative for the success of sustainability initiatives.
- Process optimization: Identifying gap areas in processes concerning ESG metrics and finding ways to embed new business models that are more environmentally friendly is important.
- Differentiation: With users across sectors demanding environmental sensitivity from the corporate world, being sustainable as a company can be an effective differentiator to acquire new business.
We at Infosys BPM, as a responsible organization, are committed to driving a sustainable business with focused action. Resource efficiency and circularity are the foundation of our sustainability program. In the last few years, we have not only reduced and optimized energy and water consumption, but also made a societal change by migrating nearly 200,000 rural households to sustainable cooking methods, under our carbon offset program, helping reduce deforestation and air pollution.
In our experience, this commitment to ESG standards can aid better cash flow in the following ways:
- Top-line growth: ESG principles can open new markets to tap into, and playing to popular consumer sentiment can also improve customer retention and thus revenue per customer.
- Reduced costs: It can effectively reduce excesses and thus operational costs. Cost benefits can reach up to a whopping 60%, according to McKinsey.
- Increased employee productivity: A strong ESG standing can help companies attract and retain the best talent, improve motivational factors, and improve overall employee productivity.
- Optimize investments: ESG adherence can effectively enhance returns on investment and improve the optimum allocation of resources into functions that align with future objectives.
On an operational level, embedding sustainability in business processes precipitates resilience. It enhances an organization’s ability to weather a storm, be light-footed in pivoting when required and quickly move on to creating and leveraging new opportunities.
As per an informed observation by McKinsey, resilient companies generated a higher shareholder value compared with their lesser resilient peers, for the entire lifecycle of a crisis. In the economic crisis of 2007–09, resilient companies sustained shareholder returns of more than 20% and continued to grow the advantage in the recovery period.
The resilience of the companies also prepared the ground for more sustainable practices in the financial sector, such as cash reserves, flexible cost base, profitability for financial strength and divestments and reinvestments for a lean and agile organization.
The onus lies with business leaders to figure out the right balance between short-term and long-term priorities to create sustainable value for stakeholders
Likewise, during the pandemic, resilient companies generated 10% more shareholder returns compared to the rest and instituted the new normal of hyper digitization, hybrid work models work-life balance, and most importantly, sustainability.
To be able to achieve the desired levels of sustainability, and thus resilience, we as business entities must view ourselves as part of a larger ecosystem –customers, vendors, suppliers, employees– and as factors impacting this. It requires us to move beyond the typical risk management measures and consider disruptions to the elements of the ecosystem at large. Global frameworks, such as the Corporate Social Responsibility (CSR) framework, ethical business practices, and United Nations sustainable development SDG goals are a good place to start.
Today’s leaders are faced with an incredible opportunity to carve out a new future for their businesses by importing the principles of sustainability into their strategy. Amid this growing focus on people, the planet and profits, the onus lies with business leaders to figure out the right balance between short-term and long-term priorities to create sustainable value for stakeholders.
In the words of celebrated economist Milton Friedman, who opined on the importance of sustainability decades ago: “It may well be in the long-run interest of a corporation to devote resources to providing amenities to the community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill . . . or have other worthwhile effects.”
The future is surely green, and not with envy.