The Organizational Value of Environmental Sustainability
| By 3P INSIGHTS |
In both global and local economies, organizations that neglect environmental sustainability initiatives may be overlooked and left behind.
Public policies and regulations that require increased environmental and social protection from corporations have been growing in complexity, number, and stringency over the last few decades. Business compliance with environmental public policies and their regulations has been the prevalent response from firms to protectionist pressures. However, many firms now realize that sustainability has benefits that extend beyond legal and regulatory compliance, including monetary savings from efficiencies and less waste, as well as increased goodwill from stakeholders. As explained by Leigh Stringer, author of The Green Workplace, organizations are looking for ways to save financial and environmental resources through a number of practices, such as green procurement strategies, recycling campaigns, work from home policies, carpooling programs, and new building technology.
Increased Revenues and Reduced Costs
Studies show that corporate efforts to improve a firm’s environmental performance can increase revenues and reduce costs. In terms of increasing revenues, improvements in a firm’s environmental reputation can help them capture a growing market niche consisting of environmentally conscious consumers. “Going green” may also help firms differentiate their products from competitors. According to a 2017 report published by the Business & Sustainable Development Commission, the United Nation’s Sustainable Development Goals (SDGs) could generate $12 trillion in business revenue and savings across four sectors by 2030: food and agriculture, cities, energy, and health and well-being. The report also estimates the creation of 380 million new jobs linked to the four sectors due to the alignment of business strategy with the SDGs.
Research suggests that better environmental management can also help firms reduce costs by improving risk management, reducing capital and labor costs, reducing the amount of waste, and reducing energy and materials costs. For example, Stringer explains that operating costs for a green building may be up to 10% lower than non-green buildings, yet the difference in the average construction costs between green and non-green buildings is nominal. Green buildings are also more attractive to buyers and renters, since they are associated with lower operating costs. For the real estate industry, this means that green facilities may be less expensive to operate and easier to lease.
Switching to renewable energy options can also help firms save. Consider a few examples offered by O.C. Ferrell, John Fraedrich, and Linda Ferrell in their book, Business Ethics. UPS spent $70 million to develop an infrastructure that would allow the company to use propane – a cleaner fuel – for its delivery vehicles. By investing in more fuel-efficient delivery, UPS was able to align its sustainability agenda with its strategic goal of cost-effective efficiency. New Belgium Brewing gets 100% of its energy from renewable sources (i.e. wind power) and its facilities use natural lighting as much as possible. Although switching to renewable energy sources can be costly in the short-run, the switch should ultimately reduce costs in the long-run. Moreover, by adopting initiatives that go beyond current legal policies and regulations, firms may avoid expensive compliance costs of future environmental regulations.
Stronger Stakeholder Relationships
Stronger stakeholder relationships may result from better environmental management as well. For example, a study conducted by the Economist Intelligence Unit that surveyed over 1,200 senior business executives between 2005 and 2007 found that firms with the highest share price growth were those that paid the most attention to sustainability issues. Shareholders indeed appear to be attracted to companies that adopt a longer and more comprehensive strategic view of their business as it relates to environmental, as well as other social factors. According to Stringer, stakeholders are more interested in firms that are taking action at the corporate governance level, as opposed to the benefits of only green marketing.
Investors are also becoming more concerned with understanding sustainability-related business opportunities and firms’ sustainability risk profiles. According to an article co-authored by Sahba Sobhani of the U.N. Development Programme and Robert de Jongh of Deloitte Consulting, socially responsible investing has reached over $6 trillion per year in the U.S., increasing by more than 76% since 2012. Globally, the socially responsible investing industry exceeds $21 trillion. Firms that are weaving social impact into their core business strategies are experiencing greater access to diverse sources of financing, from impact investments and philanthropic grants to partial credit guarantees. Moreover, the authors project new impact investing to reach $400 billion in 2025.
Firms with better environmental performance may have better access to capital, since banks often have experts evaluate the environmental performance of potential borrowers that at least partially determines whether to grant business loans. Indeed, banks may recognize poor environmental management as a business liability. Major money managers in public markets are including environment, social and corporate governance (ESG) in wider portions of their portfolios.
Workers Care About Environmental Impacts
According to a recent survey of 1,000 employees working for large firms, more than 70% of respondents said they prefer to work for a firm with a strong environmental agenda, with a sizeable portion of respondents stating they would even take a pay cut to do so. Interest in sustainable businesses was most prominent among the Millennial generation. Approximately 40% of Millennial respondents stated they chose a job because the employer performed better on sustainability than other organizations and approximately 70% said they are more likely to stay with a company that has a strong plan for sustainability.
An older report from Bain & Company found that of approximately 750 employees surveyed across Brazil, China, Germany, India, the UK and the U.S., roughly two-thirds said they cared more about sustainability at the time of the survey than they did three years prior. Of those surveyed, about the same amount placed extreme importance on sustainable business. Interest peaked among employees ages 36 to 40, who would be in their early to late 40s today, demonstrating strong interest in sustainability among Generation X.
Consumers Care Too
The market opportunities associated with sustainable products and services cannot be overlooked. Younger consumers are particularly attracted to firms that are socially responsible. In the 2006 Cone Millennial Case Study for example, nearly 70% of the 1,800 Millennials surveyed said they considered social and environmental performance when deciding where to shop. A 2013 social impact study conducted by Cone Communications found that 91% of global consumers believed “unequivocally” that firms must address environmental issues and 90% stated they would switch to products produced in a more socially responsible way as long as price and quality were similar. Global research published by Price Waterhouse Coopers (PWC) in 2015 found that 78% of customers were more likely to purchase goods and services from firms that have signed up for the SDGs.
According to Sobhani and de Johng, the emergence of a “new middle class” in the global economy has created dramatic shifts in consumer preferences toward “responsible” products, leading to new markets poised for growth. It appears that the organizational value of environmental sustainability has never been higher.
3P INSIGHTS is a consulting firm that offers training, speaking and support services to help organizations attract and retain diverse talent, create inclusive workplaces, become better environmental stewards, and improve their overall social, environmental, and economic impact.
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