In today’s corporate landscape, there is an overwhelming consensus among executives that sustainability is no longer an option but a necessity, with a staggering 90% of business leaders acknowledging its importance. The scope of sustainability reaches far beyond the realms of environmental and social well-being; it serves as a blueprint for generating prosperity while ensuring the endurance of organisations. In this feature article by the Green Business Bureau, we present a compelling case for embracing business sustainability. We elucidate how adopting a sustainable business model offers an array of advantages, including the creation of business value, meeting customer needs, responding to investor demands, attracting top talent, reducing operational costs, enhancing brand reputation, and uncovering new opportunities.
Understanding Sustainable Business
To truly comprehend the concept of sustainability in a business context, we must view it as an organisation designed to operate indefinitely, maintaining a specific rate or level of productivity. Yet, achieving this sustainability remains a formidable challenge, and its definition has evolved over time. While the term has, at various points, encompassed concerns such as climate change, poverty alleviation, and gender equality, the emergence of Environmental, Social, and Governance (ESG) criteria has sought to provide a clearer framework for assessing business sustainability.
Originally devised for investors, ESG criteria have since expanded their utility to encapsulate the essence of business sustainability. The specific criteria set forth by the ESG framework aim to establish environmental, social, and governance systems that are truly sustainable. In contrast to the earlier shareholder-centric approach championed by economist Milton Friedman, which advocated profit maximisation at the expense of environmental and social consequences, the ESG and sustainable business models call for a fundamental reimagining of business rules.
The Business Case for Sustainability: A Confluence of Environmental, Social, and Economic Systems
At the core of the sustainable business and ESG frameworks lies the idea that long-term business success hinges upon the health of environmental and social systems. Various models have emerged to illustrate the intricate interplay between economic, societal, and environmental components. These models underscore a fundamental point: a robust economy cannot be sustained without thriving social and environmental systems.
The conventional path of adhering to Friedman’s shareholder theory, prioritizing profit above all else, poses a grave risk to human stability and security. The rampant depletion of finite resources, excessive waste generation, and the relentless emission of greenhouse gases are pushing our planet to the brink. The consequences are dire, with adverse effects on human stability and security.
Our Reality and The Looming Crisis
- 1937: Global population stands at 2.3 billion, atmospheric carbon at 280 parts per million (ppm), with 66% of wilderness remaining.
- 1960: The world’s population rises to 3.0 billion, atmospheric carbon reaches 310 ppm, and wilderness decreases to 64%.
- 1997: Global population surges to 5.9 billion, carbon levels soar to 360 ppm, and only 46% of wilderness remains.
- 2020: A global population of 7.8 billion coexists with atmospheric carbon at 415 ppm, and just 35% of wilderness endures.
Our Future Under the Current Trajectory
- 2030: The Amazon rainforest faces catastrophic degradation, losing its capacity to self-sustain.
- 2040: The Arctic ice cap is set to disappear in summer, accelerating global warming.
- 2050: Coral reefs become extinct, and fish populations plummet.
- 2080: Pollinating insect populations decline, affecting agriculture and making weather increasingly erratic.
- 2100: Global food production faces a crisis as soils are exhausted, and the planet warms by 4°C, triggering a sixth mass extinction event.
Under the current trajectory, human security and stability are at risk, as profitable exchanges cannot emerge from impoverished and despairing communities. Thus, the question of “why is sustainability important in business?” becomes more of an imperative than a choice.
The Benefits of Sustainability: A Win-Win Proposition
Each business wields the power to generate solutions and drive sustainable change, provided it has a robust economic foundation to support such transformation. The sustainable business and ESG model do not undermine the significance of a healthy bottom line. Rather, they focus on optimizing business strategies for the environment, human society, and economic prosperity. An increasing body of evidence suggests that an effective sustainability strategy not only enhances profits but also uncovers new avenues for growth.
A Sustainable Business Creates Business Value
The UN Global Compact-Accenture CEO Study on Sustainability reveals that 84% of global CEOs believe businesses should lead efforts to address global priority issues, such as environmental damage and poverty alleviation. Companies that embraced this challenge reaped the rewards, with research by Deutsche Bank indicating that firms with high ESG ratings outperformed the market over the medium and long term. Similarly, a Morningstar report from 2021 shows that companies with top ESG scores outperformed the broader US market by 33.3% over one year. A 2020 Accenture study further affirms these findings, reporting that companies with high ESG ratings enjoy average operating margins 3.7 times higher than lower ESG performers.
Sustainability creates business value by focusing on strategies that foster longevity. These strategies leverage the interconnectedness of environmental, social, and economic systems to create self-sustaining and resilient business models.
A Sustainable Business Meets the Needs of Customers
Consumers are increasingly demanding that corporations drive positive environmental and social change. A report by Cone Communications states that 63% of Americans want corporations to play a role in this transformation. Furthermore:
- 87% of American consumers support brands advocating for causes they care about.
- 76% expect companies to combat climate change.
- 73% would boycott companies showing disinterest in addressing the climate crisis.
The rise of millennials, the largest generation in the workforce, further underscores the importance of sustainability. Studies indicate that millennials are twice as likely as baby boomers to alter their consumption habits to reduce their environmental footprint. Generation Z, the succeeding generation, shares similar values, with 74% willing to spend more on sustainable brands. These trends reveal that creating a sustainable business aligns with the values and preferences of the majority of consumers.
A Sustainable Business Meets Investor Demand
In 2020, 85% of investors factored in ESG criteria in their investment decisions. Additionally, 91% of banks monitored the ESG performance of their investments. These trends are mirrored in a 2021 EY Global Institutional Investor Survey, where 74% of institutional investors stated they were more likely to divest from companies with poor sustainability performance. Moreover, 90% indicated that they would consider a company’s sustainability performance when making investment decisions.
Prominent institutional investors like BlackRock, State Street, and Vanguard have introduced their guidelines in support of ESG frameworks and standards:
- BlackRock advocates that companies they invest in publish disclosures aligned with ESG frameworks to manage ESG risks effectively.
- State Street has developed the R-Factor score, a system based on ESG frameworks.
- Vanguard publicly supports ESG investments.
Larry Fink, CEO of BlackRock, the largest asset manager globally, has also highlighted the link between sustainability and long-term profitability.
A Sustainable Business Attracts and Engages Top Talent
Nearly 40% of millennials have chosen employment based on a company’s sustainability credentials and are willing to accept lower pay to work for an environmentally responsible
