This article is the second in our Sustainability Series, where we will be examining aberrations and inconsistencies in ESG ratings, what it means for a company to be sustainable, and what you, as an individual, can do to lead a sustainable life.
Here’s a challenge: Visit the websites of top oil producers and try to find a company that doesn’t prominently broadcast its “commitment” to sustainability on the homepage. It’s harder than it sounds. Even Peabody Energy, with the highest emissions per capita, has a website tab about sustainability. ¹
Greenwashing permeates every industry at this point and companies are jumping on board the trend. There’s a lot to critique about greenwashing and ESG, but, all things considered, do companies have the choice not to be sustainable?
The simple answer is no, unless the company doesn’t plan on sticking around much longer. Let’s look at 7 Reasons companies should opt-in to sustainability.
Though it seems like just a phase, sustainability is a long-term trend with deep-pocketed investors. Bloomberg reports that Global ESG assets are on track to exceed $53 trillion by 2025.² Investors, particularly Millennials, are increasingly turning towards sustainable investment strategies, including divestment and inclusion/exclusion. Where there are sustainable stocks, investors will follow.
The finances of a company can be seriously impacted by sustainable practices. Studies show that compliance with sustainable practices can lead to lower costs of capital, equity, insurance, and debt.³ Companies with little to no compliance pay higher credit spreads on their loans⁴ and have lower credit ratings.⁵
Sustainability planning drives companies to look inward to identify what does (and doesn’t) matter along the value chain. Self-reflection can highlight and remedy areas of weakness. Think of it like company therapy, working out problems to improve business.
Sustainable practices can help companies tap into new markets and expand into existing markets. According to research by Forrester, 68% of consumers plan to increase their efforts to shop sustainably and 61% actively seek out energy-efficient labels already.⁶ Meanwhile, Deloitte found that 28% of consumers stopped purchasing certain brands due to sustainability-related concerns.⁷
The adoption of sustainable principles can enhance public opinion and boost a company’s reputation.⁸ Marketers across the globe have noticed this, hence the greenwashing frenzy. As millennials now make up >50% of the working population and Gen Z enters the workforce, companies must seriously consider how to capture these sustainability-minded markets.
There’s a lot of risk assessment and management in sustainable planning. We’ll see an increasing number of sustainability laws and regulations in the coming years, and companies that preemptively plan accordingly will save themselves a headache when that day comes. Already, with current laws, noncompliant companies can suffer restrictions on advertising, incur fines and penalties, and face the consequences of a tarnished reputation.⁹
Sustainability isn’t just damage control. Companies who preemptively draft sustainable business models can actually have greater strategic freedom, earn subsidies, and government support. For instance, the US, UK, and EU already provide a number of tax breaks and credits for companies using renewable energy and adopting sustainable development strategies.
No longer the niche topic it once was in the 1970s, sustainability has entered the mainstream. Today, sustainability is equated with standard best practice, thanks, in part, to the digital age heightening transparency of companies’ activities. And with transparency comes great responsibility.
The role and purpose of companies is shifting to accommodate the greater responsibility placed on the shoulders of companies. Business sustainability considers the Triple Bottom Line (TBL) of people, planet, and profit when accounting for impacts both in the present and future. But here’s the thing. Even if we were to just look at the singular bottom line of profit, a sustainably-minded company would still come out ahead. Putting profits above everything else is no longer profitable, as we increasingly define success by impact.
Though more companies are adopting TBL frameworks, much of the economy still tends to focus on profit as the primary bottom line. However, the fact that profitability is becoming increasingly intertwined with sustainability indicates that we have reached a major turning point. And this is only the beginning, as renewable energy prices plummet, fines and regulations skyrocket, and public opinion embraces sustainability on a global scale. Long story short, due to its linkage with profitability and the seven aforementioned reasons, sustainability is no longer something that companies can opt-out of.