By Richard Pallardy
Sustainability is no fad. In an environmentally conscious marketplace, it’s an essential element of business success
Joni Mitchell’s iconic 1970 song “Big Yellow Taxi” pleads: “Give me spots on my apples but leave me the birds and bees”. At the time of its release, this protest at the widespread use of chemical pesticides seemed like a Hail Mary. Would farmers and their counterparts in other industries really heed this call for a more ecologically friendly version of capitalism?
Now, more than half a century later, corporations are doing just that, having started integrating more sustainable practices into their business models. What’s more, they have found that – in an environmentally conscious marketplace – sustainability can actually be good for business.
Shel Horowitz, founder of Going Beyond Sustainability, a consultancy which guides businesses toward greener practices, traces the origins of this movement to the publication of Rachel Carson’s Silent Spring in 1962. This prescient volume detailed the alarming effects of pesticides on the environment and precipitated a groundswell of activism aimed at holding the industry accountable for its effects on the environment.
The voices of consumer activists remain an essential motivator today. Legislative efforts such as the UN Sustainable Development Goals, the 2021 Environment Act in the UK, and the EU’s Environment Action Programme have provided extra impetus. But in fact, many companies now undertake sustainable initiatives of their own volition. Taking responsibility, it seems, is just good business nowadays.
Across industries, sustainability is increasingly seen as a vital aspect of most consumer-facing businesses. Half measures are no longer cutting it.
“If it’s treated as nice-to-have, it fails. It’s ultimately not successful for the business, its reputation or its objective – financially, socially or environmentally,” says Noa Gafni, executive director of the Rutgers Institute for Corporate Social Innovation. And there is growing demand for accountability. Auditing bodies now play a crucial role in certifying sustainability initiatives, providing the public with an objective measure of their success.
“Greenwashing is real,” Gafni continues. “But companies are taking bigger steps to ensure that they aren’t doing that. They are partnering with external auditors to look at the places where they’re doing well and look at places where they can improve.”
“Consumers are becoming more sensitive to greenwashing. They will not hesitate to break off relationships with brands that do not take their stated commitments seriously,” observes Tara Milburn, founder of sustainable branding company Ethical Swag.
“Some companies will try to greenwash. They’ll try to avoid the certifying body,” adds Robert Bird, Eversource Energy Chair in Business Ethics at the University of Connecticut. “But the certifying body will find out what’s going on. They’ll make the problems public. Then the company improves. There is some cat and mouse involved, but there’s a long arc towards improvement.”
In practice, sustainability initiatives work best when they are distributed evenly across the value chain. “They should be implemented across all primary activities, as well as secondary activities including infrastructure, technological development and procurement,” says Juan Carlos Lascurain of Lascurain-Grosvenor Sports Brokerage, a firm which has previously assisted sports stadiums around the world in greening their operations.
“They absolutely cannot be siloed,” Gafni explains. “That’s the tricky part. When you’re trying to get something like this off the ground, it requires levels of collaboration that organisations aren’t necessarily used to. It’s important that they partner not only internally with different parts of the organisation, but also externally.”
Indeed, the effect of these initiatives is not solely internal; supply chain pressure has created a competitive marketplace in which suppliers vie to demonstrate their green credentials to their clients.
“Consumers are not just concerned with practices at the retail level, such as Nike stores or Apple stores,” Bird observes. “They’re also interested in Apple and Nike’s supply chains – the people they buy their supplies from, the people their suppliers buy their supplies from. Are these people given a living wage? Are they engaging in environmentally aware practices?”
“Every business has an upstream and downstream in their supply chain, where their business is the crux,” says Stacy Savage, founder and CEO at Zero Waste Strategies in Austin, Texas. “All the operational decisions that happen within that crux affect what happens upstream and downstream. The buyer really holds all the cards. If the current vendor can’t do what they’re asking, then they can always go and look for a new vendor.”
She cites the example of a business that expresses a desire to avoid the use of cardboard in its shipping operations. It could demand that its shippers use reusable, collapsible crates, reuse those crates itself, and ask that clients on the receiving end also reuse them.
If suppliers don’t get on board, says Simon Glynn, co-lead of consulting firm Oliver Wyman’s climate and sustainability platform, “they won’t get access to the best partners. They won’t get access to the best contracts. And they may be excluded from procurement opportunities.”
Still, value chain implementation varies by industry. “For a business without physical products, like a SaaS business, I would imagine that sustainability initiatives sit lower on the value chain,” notes Calloway Cook, president of Illuminate Labs, a certified B Corp which is required to meet certain environmental and social standards.
Location can also play a key role. As Lascurain relates, companies in northern Europe may have significant tax incentives and cultural motivation to take steps toward sustainability. Conversely, those located in the developing world may be more resistant. He confides that clients in South America have proven far less willing to adopt these measures – although when they have done so, they have proven successful nonetheless.
While companies established in recent years have tended to bake sustainable principles into their operations as a matter of course, sustainability can be more difficult for sprawling legacy corporations with operations that extend across the globe.
“Companies that are deeply attached to a product or service that is inherently unsustainable require a fundamental change in how they operate,” Bird cautions. “They are going to have the most difficulty making changes. Companies that are more B2B are also less likely to feel the pressure from consumers, and industries that have a very slim profit margin may not be able to invest in sustainable practices.”
But that does not mean that larger corporations are incapable of integrating sustainable practices into their value chains. Gafni cites the example of British consumer conglomerate Unilever. “Their former CEO Paul Polman was a driving force,” she says. “But their sustainability plan was also supported by people in middle management. It’s important that you not only have the vision from the top, but champions in different functional areas to understand how to get things done from a practical standpoint.”
This point – that leadership is important on all levels – is echoed by most people who work on facilitating sustainability in the corporate world. Directives from the top can certainly have a major impact. But so too can pressure from lower-level employees.
“It can come from all angles,” says Savage. “The biggest pressure generator is when you have a scenario where your employees say, ‘Hey, we have 3,000 employees and a cafeteria. Why aren’t we composting?’”
When these messages reach upper management and combine with external pressure from environmental advocates, they put pressure on middle management to implement real change. That, she claims, is where consultancies like hers can come in and help the often bewildered functionaries to implement meaningful alterations to a company’s practices.
Responsiveness to these demands translates into employee retention. Millennial and Gen-Z employees are insistent on seeing their values reflected in their employers. If they feel their values are in conflict, they will leave, taking their institutional knowledge with them and forcing their former employers to sink money into training new employees. Conversely, if they see that their employers are aligned with their principles, they will stay and reinforce them, contributing to the organisational knowledge pool.
But where should proactive leaders start? While the ultimate goal is sustainability across the value chain, waste management is perhaps the lowest-hanging fruit. “There’s a whole circular economy now. We’re moving away from a linear, destructive economy,” Savage says. “Instead, you transform your waste into a product.”
She suggests that the goal of these types of projects should be to at least break even. But sustainability can actually conserve money – and even be profitable.
“Focus first on things that are going to actually earn money quickly. And then, as those become successful, you can use them to fund some of the deeper, more complicated initiatives. Keeping profitability in focus means that these efforts are less likely to be the victim of budget cuts when times are tough,” Horowitz advises.
He cites the $31m energy-efficiency retrofit of the Empire State Building in New York City. “It was a three-year payback. That’s a 33% return on investment. A fast-food restaurant might have a margin of 3% to 5%,” he enthuses. The adjustments have created millions in annual savings, and the building has attracted a suite of deep-pocketed new tenants.
Environmental, social and governance (ESG) criteria are also a significant factor in attracting new investments. “ESG standards are now one of the top-five indicators to investment firms and shareholders as to whether your company will still be viable and relevant in the next 10 years,” Savage notes. “Many of these firms are shunning companies that aren’t making an effort to get ESG policies in place. That’s huge if you want to expand your business.”
“Once companies and their employees become habituated to a certain value or a certain norm, they will practise sustainably almost reflexively. And they won’t have to make the conscious decision as to whether or not it’s profitable,” says Bird.
In fact, many of the benefits of sustainable practices are somewhat intangible. “It changes your relationship with your customers,” says Glynn. “Imagine you were selling a commodity like steel. Well now you’re providing something really differentiated because you’re providing zero-carbon steel. You’re having very different conversations with your customers. You’ve got a much more strategic relationship with your customers. They are bonded in some way into buying from you because it’s a different product than just commodity steel. Decommoditisation doesn’t necessarily directly turn into a premium, but it turns into more stable relationships and customer loyalty and deeper customer collaboration.”
This ultimately translates into good corporate citizenship. Whether or not these projects make or save money, they are likely to have positive impacts on the world at large. And that’s something worth encouraging.
The business case for sustainability
Sustainability is by definition a long game. Superficial sustainability measures no longer cut it in a heavily scrutinised market. Slapping a green label on a product or service simply doesn’t pass muster anymore – not with consumers, not with activists, not with business partners.
By contrast, carefully considered initiatives that adjust practices across the value chain can have profound effects on business success. While decarbonisation may entail an initial investment, it more often than not means savings down the line – if not an actual profit.
Waste and energy use reduction are among the most easily implemented sustainability practices. The savings accrued by these easy initial steps can then be used to subsidise more difficult, industry-specific actions. What’s more, pressure on suppliers can help to facilitate a competitive market in which relationships between individual organisations are increasingly contingent on sustainable standards.
Perhaps most importantly, sustainability can be crucial in securing investments for business expansion. Environmental, social and governance criteria are now a major factor for many investors when deciding whether or not to divert funds to a particular organisation. Demonstrably sustainable practices are considered key indicators of future business success. They indicate a likelihood that a given organisation will be compliant with increasingly stringent environmental regulations, thus avoiding liability.
These commitments are also appealing to a vigilant consumer base which reacts poorly to unsustainable practices and rewards companies that can demonstrate their sustainable practices over time.
Millennial and Gen-Z members of the workforce often look for employers that share their purported values. A visible and verifiable commitment to sustainable practices can help companies attract and retain talent. Lower turnover means that human capital – the resources invested in training employees and the resulting repository of institutional knowledge – stays within the organisation. This can amount to significant cost savings in the long term.
As beneficial as sustainable practices may be to a given organisation, their benefits to the world at large are even more important. Corporate citizenship is now seen as an unavoidable responsibility. Just as individuals ought not to hope to accrue direct benefits from behaving with decency and consideration towards their fellow citizens, there is now an expectation that companies will do the same.
Will these behaviours affect the bottom line in the near term? Perhaps. Perhaps not. But pursuing practices that benefit the planet and its inhabitants will help to maintain a healthy ecosystem – for people, for other living things and for business as well.
Author: Richard Pallardy
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