As many companies turn towards sustainability in their business strategy, this model becomes more accepted and preferred. But what does sustainability in business actually mean, and how can it benefit your business? Let’s answer these two questions together.
What Is Business Sustainability?
Since there isn’t a strict definition of sustainability, many people have formed different interpretations of this concept. In the board sense, sustainability means fulfilling your needs without endangering future generations. Thus sustainability includes solving environmental, social, and economic issues. For example, sustainability strategies are focused on preventing further climate change, depletion of natural resources, addressing social inequalities, etc.
What does this mean for the business world? Simply put, sustainable businesses are those that implement strategies focused on resolving the above issues. They embrace the concept of social responsibility (meaning they can be held accountable for their actions). These companies know that the only way to achieve ethical economic growth is by looking after their impact on society and the environment.
In the practical sense, corporate social responsibility means implementing changes within the company’s business model, from the manufacturing operations to the supply chains. It’s a simple model called the Triple Bottom Line. In addition to one bottom line (profit), there should be two more: people and the planet. If a company focuses only on finances without thinking about its social and environmental impact, it can’t see the full cost of doing business.
Let’s elaborate on these three elements a bit:
- Profit. Every company, of course, keeps track of its profit margin and uses the usual accounting tools (such as financial statements, monthly reports, etc.) to measure its profitability. Profit is the driving force of a company, but it shouldn’t be the only one.
- People. A sustainable business makes sure that employees are treated with dignity. People in the entire supply chain need to have good working conditions and satisfying wages. Companies that don’t care about employees draw their profits from unethical practices and exploitation of labor. In modern society, profit shouldn’t be put before the people because nothing is more valuable than human life.
- Planet. A sustainable business is environmentally conscious. Limited natural resources and our planet should be protected for future generations. An eco-friendly company focuses on reducing its carbon footprint, conserving water and electric power, recycling, reducing waste, using renewable energy (solar panels instead of fossil fuels, for example), and other sustainable practices. No amount of profit can compensate for the destruction of our planet.
Why Does Every Business Need a Sustainability Mindset?
With the oceans filled with plastic, the increasing climate risk, and other concerns, it’s clear why we need immediate change. Beyond making a positive impact on society and the environment, sustainability can help businesses succeed and be profitable. Nowadays investments are made by taking into account organizations’ impact and sustainability practices. Factors such as carbon footprint, water usage, and employee diversity can determine whether one person should invest in a certain company or not.
Companies with high ESG ratings (more on those later) have lower debt and equity. This means that sustainability initiatives have given companies a competitive advantage and improved their overall financial performance. These companies will get more public support, and the employees will strongly be motivated to work, which boosts productivity, performance, and hence the profit.
Brand Purpose
Brand purpose stands for the company’s beliefs and values. It’s their mission and statement on how they’ll make a difference in society. Sustainability should be the core value of each brand’s purpose. People are becoming more aware of the importance of sustainability, so more and more consumers are choosing brands that “give back” and help the people and the environment.
So, basically, if one company doesn’t adapt, it will be left behind by companies that fully embraced the shift towards sustainability. Failing to manage environmentally harmful actions will destroy shareholder value. The customers will move on, and the profits will go down.
You should look at the opportunities that the green revolution brings. It’s not a threat to your business; instead, it’s a chance to create a purpose for your brand and influence the lives of people throughout the world. You can become the business that’s helping people and saving the environment! Who wouldn’t choose to do business with a company like that?
Sustainable Business Practices
There isn’t one right way to become sustainable. It’s more like combining different practices to form a sustainable business strategy. First and foremost, companies have to follow the existing regulations in waste management, pollution, energy efficiency, human rights, and labor laws. Then, they can implement additional sustainability changes and improve their operational efficiency and the overall impact on the community.
A lot of company executives know that sustainability is important, but only a few incorporate it in their business strategy. This has to change! Talking about issues doesn’t help if no action has been taken. Promising solutions and not delivering is very dangerous. It leads to misleading consumers and damaging the community.
Each business should promise to implement the practices it can deliver. If you’re not able to transfer to 100% renewable energy, say it openly. Transparency is so important! Be honest and say that your mission is to cut energy spending and slowly move towards renewable energy. Set clear and realistic goals (for example, “50% of our energy spending will be from renewable sources”) so you’ll be able to achieve them.
Here are some examples of companies that are moving towards sustainability:
- Dell, a manufacturer of computer equipment, has promoted an efficient recycling program for its products. The company accepts computers, printers, and monitors (from any brand) for safe disposal.
- Google supports and funds green energy projects, such as installing windmills and solar panels.
- Pepsi and Coca-Cola have both developed ambitious long-term strategies by focusing on water stewardship.
- Car manufacturers like Honda, BMW, and Toyota have moved towards energy efficiency and pollution reduction. These efforts aren’t enough to reduce the industry’s overall footprint, but some goals have been set. Tesla, for example, has shown a good example. Electric cars produce a lot less CO2 than gasoline-powered vehicles. Just imagine what can happen if we power these cars with solar energy!
- Starbucks has promoted recycling and started programs such as bean-to-cup with the idea to inspire consumers to use their own reusable cups.
These efforts aren’t nearly enough, but they’re a good start. By looking at these examples, other companies will see the need to embrace corporate responsibility and sustainability so they can stay competitive. Innovation in sustainability will happen once business leaders take into account the increased demand for ethically and socially responsible initiatives.
Environmental, Social, and Governance (ESG) Criteria
ESG standards are used to keep track of corporate sustainability efforts. They help investors evaluate companies so they can decide which one they should invest in. Environmental criteria measure the company’s impact on the environment. It’s about monitoring a company’s influence on issues like climate change, waste management, air pollution, and others.
Social criteria are used to monitor the company’s relationships with people, whether those are employees in the company, suppliers, customers, or marginalized groups in the local community. The company should have high standards for employees’ health and safety. It has to make sure the business model is based on equality and respect for everyone. Helping local communities is also a plus and increases the ESG rating of one business.
Governance criteria are used to examine the company’s leadership. All sustainability efforts from individuals won’t be enough if business leaders and higher management don’t set examples. Keeping track of the business environment, performing internal controls, and limiting executive pay can hugely influence operation efficiency and improve the company’s sustainability practices. The company should be transparent about its practices, and stockholders should be informed about important issues and concerns within a company.
By checking ESG criteria, investors can avoid unethical companies and reduce their financial risk. In the 21st century, nobody wants to invest in an unsustainable company. At the beginning of 2018, investors held $11.6 trillion in assets chosen according to ESG criteria, which was up from $8.1 trillion just two years earlier. And the number just keeps rising!
Where Can Your Business Start?
Every beginning is difficult, so that’s why we said you should set realistic goals for implementing sustainability in business practices. You can’t do it all at once! You need to create strategies that can work for your unique business. How can you do that? For starters, look at these three segments of sustainability.
Risk Management
Businesses should identify and control threats to their earnings. Major risks come from socially irresponsible and environmentally dangerous behaviors. For example, public backlash after uncovering inhumate work conditions and sweetshops in the clothing industry led to a dramatic drop in sales, loss of stock value, and decreased profits. As we said, corporate responsibility goes beyond profits but also takes it as a huge factor. So, that’s another reason why companies need to align their profit goals with their environmental and social policies.
When you’re defining your business strategy, look at the opportunity cost. Imagine what you can lose and gain from the alternative approaches. For example, if you don’t implement some sustainability practices, you might lose the potential revenue to a competitor that has made sustainability changes. You’ll lose a competitive advantage over others, and customers will choose products and services from a more responsible business. Or if nobody in your niche has started with sustainability models, you can become the leader and draw the customers towards your brand.
Encouraging Innovation
To implement sustainability models and cut resource spending while keeping productivity high, companies need to be creative. Sustainability-driven innovation can refer to designing greener products and packages, improving the supply and manufacturing chain in an ethical way, forming new policies on waste management, etc.
Brainstorming ideas with your team will help you figure out how your unique business can move towards a sustainability model. Encourage your employees to think creatively and critically so they can come up with innovative solutions that benefit everyone.
Building Customer Relations
Loyalty is so powerful and can greatly influence your financial performance. Once consumers find a sustainable brand, they’re more likely to purchase their products and services from them exclusively. Sustainable businesses should then nurture good customer relations.
Community engagement, volunteer activities, and charity work can also be a part of your sustainability programs that will encourage customer loyalty and good public relations. You have the ability to impact your local community and improve the lives of your friends and neighbors. On top of that, you’ll increase the profitability of your business. It’s a win-win situation!
Challenges Around Sustainability
Implementing a sustainability strategy and holding a competitive advantage over other businesses ain’t easy. It requires participation from everyone in the company, from employees to executives. The mission (moving towards sustainable business models) has to be clearly stated so it can be followed. It should become of of the company’s core values!
Note that the sustainability model offers long-term gain, not short-term profits. Investing in resource efficiency might seem expensive in the beginning, but it’s much better for companies in the long run. Take solar power as an example. Installation and maintenance of solar panels can be expensive, but it will provide “free” energy once installed. As more time passes, the company will hugely reduce the impact on the environment. By using renewable energy, the company will also save money on electricity bills.
Conscious consumers support these efforts, so sustainable companies get more growth opportunities. It’s so important for consumers to boycott unethical companies and support sustainable businesses! However, people must learn to see through fake advertising some companies are using. Greenwashing and woke washing are terms used to describe these negative marketing practices. Some organizations spend more time and resources to present themselves as eco-friendly and socially responsible than on minimizing their negative impact on society and the planet! They’re misleading conscious consumers that want to support really ethical brands and sustainability practices.
Women Leading the Green Revolution
Women are taking a stand not only to fight for social justice and gender equality but to fight for our planet too. Women leaders should be the main force that drives green policies with sustainability practices. Our company’s goal is to provide women with the tools necessary to take the leadership role and guide us to a green future.
The activist Greta Thunberg has inspired all of us to make the world a better place and fight harder against climate change and other environmental issues. We also learned a lot from Jacinda Ardern, New Zealand’s leader. She successfully combated the pandemic while also keep the economy and the environment in balance.
Not only in politics, but we also have strong female leaders in business too. Lots of women have started their own eco-friendly business or have taken over a company to implement green policies. They play critical roles in improving green technologies and eco-innovations. So let’s support them and empower them to do so much more!
Final Thoughts
Hopefully, this article answered your question about sustainability initiatives in business so you can try to implement changes and become the new leader in innovations.
