Contrary to what many executives still believe, research shows, according to a Harvard Business Review article, that incorporating sustainability into corporate strategy bears many advantages regarding a company’s performance. Key among these, are the following:
- Becoming more competitive through stakeholder engagement. Open, systematic dialogue with a company’s stakeholders (an inextricable part of any sustainability strategy) enables a company to foresee and be better prepared to deal with changes (economic, regulatory or other) as they occur and ensures smooth operation. According to a study of the gold mining industry (to take one example), stakeholder engagement significantly affects a company’s ability to turn gold into shareholder capital.
- Managing risks more effectively. In a study on climate change and corporations, with 8,000 supplier companies reporting on climate risk, 72% of respondents said that climate change was a source of risks that significantly affected their operations, profits or costs. Water scarcity is a similar source of risk. To address such risks, Mars, Unilever, and Nespresso invested in Rainforest Alliance certification to ensure, through sustainable farming, their uninterrupted, long-term supply of agricultural products.
- Promoting innovation. After finding out that U.S. households spend 3% of electricity budgets annually on heating water to wash clothes, Procter & Gamble launched, in 2005, a new line of cold-water detergents requiring 50% less energy compared to warm water washing.
- Enhancing financial performance and attracting investors. After reviewing the academic literature on business performance and sustainability, Arabesque and University of Oxford found that:
- good ESG (environmental, social and governance) standards decreased the cost of capital (according to 90% of 200 studies reviewed)
- good ESG (environmental, social and governance) practices improved operational performance (according to 88% of the studies)
- stock price performance was positively connected with good sustainability practices (according to 80% of the studies)
- Moreover, in a survey of over 200 institutional investors by EY in 2015, 59.1% of respondents considered companies’ nonfinancial disclosures as important, in their investment decisions (an increase from 34.8% in 2014).
- Creating customer loyalty. A number of studies show that today’s consumers, expecting companies to show that they care about their social and environmental impacts, increasingly turn to brands characterized by social and environmental responsibility. According to Unilever, its “brands with purpose” grow at double the rate as others in their portfolio.
- Attracting and retaining employees. Corporate sustainability initiatives offer employees a sense of purpose, make them feel valued stakeholders and increase engagement. According to a study, employee loyalty was 38% better in companies with solid sustainability strategies and programmes in place, compared to companies with poor sustainability performance.
This article was compiled using the “The Comprehensive Business Case for Sustainability” Harvard Business Review article. For the sake of readability, we did not use brackets or ellipses but made sure that the extra or missing words did not change the article’s meaning. If you would like to quote these written sources from the original please revert to the links below:
Michel Porter and Mark Kramer https://hbr.org/2011/01/the-big-idea-creating-shared-value