Balancing Sustainability and Profits For Your Business
Climate change is a global phenomenon that affects communities around the world. With a deluge of news articles, images, and documentaries revealing the ramifications of irresponsible business activities, among which are marine pollution, ecosystem losses, prolonged drought, and rising sea levels, climate change becomes a hot-button issue that companies must address immediately.
Thanks to stricter government policies and more importantly, a new breed of socially conscious consumers, workers, and investors, board room meetings across the globe start discussing ways to devise environmentally and socially responsible corporate strategies.
While there has been growing consciousness across industries to conduct sustainable business operations, some companies are unsure if sustainability practices can yield positive financial results. Unfortunately, sustainability is still mistakenly associated with unaffordability and high risk, since the most widely-discussed, successful sustainability projects are shown to require quite costly preliminary investments to kick-start.
However, being sustainable doesn’t have to come at the expense of profitability. A recent study conducted by non-profit CDP has found a link between business leadership on climate change and a company’s profitability. The study finds that corporations actively managing and preparing for climate change are able to secure an 18 per cent higher return on investment (ROI) as compared to those that aren’t—and 67 per cent higher than companies declining to disclose their carbon footprints.
But the question remains: if sustainability does not undermine profitability, how then can a company strike a balance between the two?
Being an Ambidextrous Organisation
According to Wenyu, Shan Ling, and Meiyun in their journal article on corporate sustainability, the key to balancing profitability and sustainable development is to adopt ambidextrous mind-set. Closely similar to its original reference on a person’s ability to function both hands equally, ambidexterity in management refers to a company’s ability to concurrently meet business demands while still being adaptive to changes in the environment.
By developing such a mind-set, a company can establish sustainability initiatives in areas with significant materiality to its business operations without straining their finances.
Being ambidextrous helps companies create more robust long-term strategic planning since they become more cognizant of the impacts of their business activities on their communities and the environment. This becomes even more important today since sustainability is as much as reputation management for brands as it is a business endeavour.
Millennial consumers are slowly overtaking the older generations as the biggest consumers in the market, and unlike their predecessors, they are more environmentally conscious about the products and services that they purchase. A survey of 4,000 US Millennials conducted by the Boston Consulting Group alongside Barkley and Service Management Group has found that more than half of surveyed millennials are willing to pay for environmentally sustainable products, and almost half want to make a purchase to support a social cause.
More Agile Supply Chain With Technological Innovation
Technological innovation allows companies to remain relevant in the ever-competitive market since it brings myriad prospective avenues to streamline value creation. By modernising their supply chain with new, better technologies, companies can lower their operational costs and reduce their energy consumption, industrial waste, and carbon footprints. This, in the long run, translates to higher financial returns.
Technological innovation in the supply chain is crucial as it accounts for more than 90% of companies’ environmental impact according to research by McKinsey.
A further breakdown of the study finds that supply chains in retail companies make up almost 11.5 times of each company’s impact. The result climbs to 19 and 24 times for household goods and beverage companies, respectively.
One excellent example, in which technological innovation contributes to corporate sustainability, can be found in our own backyard, here in Singapore. Ecolab—a global provider for hygiene, water, and energy technologies and services—developed and deployed 3D TRASAR technology to assist food manufacturers in maintaining food safety, quality, and consistency through online applications.
The 3D TRASAR technology helped a local manufacturer in nutritional products save 17,640 cubic metres of water per year by decreasing the intake of freshwater and discharge of used water. By reducing its water consumption, the local manufacturer benefits from leaner manufacturing processes while still producing high-quality outputs.
Impact Investing In Renewables
Enhancing revenue growth through sustainability can be achieved with impact investing. The synergy between impact investment and ESG (Environmental, Social, and Governance) planning enables companies to weather any market volatility and recession since they act as an overlay to dampen market shocks. Admittedly, impact investing is rarely seen as a lucrative option to generate profit since companies and investors face even greater risks of capital misallocations and lower market returns compared to conventional investments.
Fortunately, however, there are certain sectors, in which impact investing offers significant market returns, such as renewable energy. Even more good news is that impact investment in renewable energy allows you to tangibly assess the social, environmental, and business outcomes of your portfolio so that you can be more astute in your investment decision-making.
Deloitte Insights has found that the uptake of renewable energy, especially wind and solar energy sources, has rapidly swept across emerging and developed economies. With lower manufacturing costs and better, more efficient technologies, solar and wind renewables have penetrated the global market at an unprecedented rate.
Deloitte reported that by the end of 2017, a total of 121 countries had installed nearly 495 Gigawatts of onshore wind power—with China, the US, Germany, and India leading the charge.
The solar energy source has also experienced the same success—accumulating a total capacity of 386 Gigawatts across 187 countries—led by China, Japan, Germany, and the US.
With renewable energy sources expeditiously closing in from the fringes to the mainstream, impact investments in the sector enable companies to reap financial gains while still playing their part in environmental protection.
Spurring Long Term Growth with Sustainability
In conclusion, corporate sustainability doesn’t hamper a company’s ability to generate profit. On the contrary, sustainability initiatives offer creative and exciting opportunities for businesses to establish other revenue streams. However, balancing sustainability and profitability requires companies to think outside the box.
The most critical first step is that they must develop a mind-set that allows them to adapt to a changing environment without neglecting their profit-driven goals. Technological innovation plays a vital role in this regard since it helps companies reduce their energy consumption and operational costs while improving their productivity.
Furthermore, companies can also opt for impact investments in a renewable energy sector as their additional revenue sources to diminish our global dependency on fossil fuels. By synergising all three, companies can do their part in the worldwide fight against climate change while still making profits.
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