Companies that rely on out of date, caustic economic modeling rather than engaging in embedded sustainability may find themselves limiting their future profits and positive market perception. This can lead financial institutions into the situation of overexposure to unsustainable investments as marketplaces move to a sustainable global economy. They should also be concerned about future vulnerabilities, as the need is exposed for a longer-term and more holistic approach to financing sustainable assets.
Equally, from a procurement paradigm, there is comfort in dealing with a highly sustainable and transparent supplier because it mitigates risk by reducing the potential for unknown, underlying future vulnerabilities related to being unprepared in social and environmental areas. It is important to avoid being associated with a company of negative, out of date, old school ideas – which in itself, creates fear to purchase for the sagacious buyer.
Therefore, the cost of delay in embedding sustainability is steep, both in terms of operations and lost market position. On the other hand, companies who are ahead of the curve have been able to tailor strategies to the new environment and have taken a financial lead on competitors who have, or are still, ignoring the shifting marketplace.
And, with businesses learning to deliver higher quality, more efficient products and services from a more efficient and optimized base of resource utilization, sustainability addresses the triple bottom line of environmental, social and economic concerns:
Environmental – reducing emissions and bio-diversity impact.
Social – training and improved team cohesion of the human capital; further combined with societal improvement through investment in communities.
Economic – extended competitive advantage and value, long-term economic growth through improved trust, ethicises, operational optimization and innovation.
The practice of half hearted, window-dressing, sustainability engagement will be a danger to an organization’s economy and reputation, eroding trust and competitive advantage.
Indeed, with society demanding a repair of trust as one of the many results of the recent recession, sustainability is a wonderful opportunity for business, the environment and society to benefit, because sustainability connects and exposes the interdependence of structure, conduct and performance. This allows the company embracing sustainability to reap rewards of positional advantage by conferring and living by the unique benefits delivered to them.
Sustainability, furthermore, breaks the cycle of typical strategy setting which applies much emphasis on the status quo, simply gathering metrics extrapolated from the last three or five years. Sustainability is about gathering the backward looking metrics but then turning to face forward, seeking insight into cost reduction and the process of optimization for the future.
Nonetheless, it is easy to think success will just continue. The challenge is to watch for signs to the contrary and use those signs as the catalyst for change. Winning, like sustainability, is a journey and not a destination, and sustainability enables and drives a cycle of continual improvement, allowing an organization to be clear on where it is on the strategic journey. The journey includes focus on protecting the strongholds, giving vision on how competitors are reacting, evoking thought about how to create – and not just capture – value as the market matures, looking at how much risk there is in the supply chain, and lastly, considering how much will it cost to not develop a sustainability strategy.
The cost of doing nothing is greater than the cost of engaging
Sustainability as a strategy is about optimizing resource use and allocation and understanding what is working and what is not. But what does “working” really mean? Sustainability breaks down what is working, so an organization can see what it actually looks like, what it means and what costs can be stripped out and processes optimized.
Additionally, some of the world’s largest institutional asset managers are publicly demonstrating their commitment to investing in companies that are deemed socially, morally and environmentally responsible and adhere to the United Nations Principles of Responsible Investment. This was aptly put by Aviva Investors London CEO Paul Abberley: “Markets are driven by information. A lack of information as a result of limited or non-disclosure of ESG (Environmental Social Governance) data makes it difficult for long-term investors such as us to assess the wider ESG risks and opportunities associated with a company.”
There is repeated evidence of a positive relationship between sustainability performance and stock returns. Furthermore, results suggest that companies that adopt higher, more stringent criteria have a higher valuation than those that use less stringent ones. So, this suggests those who attain a higher GRI or CDP rating are increasing their value over competitors of lower ratings.
Through the integration of sustainability, companies, governments, and NGOs are able to make a choice to move away from outdated business and economic modeling, thereby avoiding leaving themselves exposed to vulnerabilities in ensuing years.
Christopher Gleadle is author of Sustainable Growth Through Sustainable Business and CEO of Sustainable Viability.