Question

Evaluate the ways that sustainability can benefit from being more sustainable?

- What are the ways that a company can benefit from being more sustainable?

- How do companies suffer from not being sustainable?

Discuss how sustainable investments can improve financial performance. Provide specific example

Answer 1

Answer :

Six major advantages for practicing sustainability are:

• Improved brand image and competitive advantage
• Increase productivity and reduce costs
• Increase business ability to comply with regulation
• Attract employees and investors
• Reduce waste
• Make shareholders happy

Ways that a company can benefit from being more sustainable :

1. Improves Brand Image and Helps Get Competitive Edge

Being a sustainable business can improve your brand image. This is because today’s customers are more aware of environmental concerns. They are likely to buy from the organization that is known for practicing sustainability. This way, it also helps you get a competitive advantage. According to a survey by the Natural Marketing Institute, over 50% of consumers admitted that a company’s environmental practices influence their buying decision. No wonder why a big company like Colgate ran a public awareness campaign for water conservation during the Super Bowl. Auto company Honda is valued for optimizing fuel efficiency while consumer product company Unilever has started selling some of its products like PG Tips Tea in fully biodegradable tea bags. Spreading awareness and practicing sustainability not only builds up a positive brand image, but also penetrates at a deeper level to employees, their near and dear ones, and beyond. However, action speaks louder than words. Your business should do more than just preaching.

2. Increases Production and Minimizes Costs

The way you handle your energy, water and waste can help you save overhead costs. For example, if you replace your basic lighting with more energy efficient lighting, it will make a great difference to your energy bills. Similarly, getting your dripping faucets or taps fixed not only cut down your water bill but also saves a lot of water. This is because dripping faucets can waste nearly 10,000 liters of water a year. You can go the extra mile by installing geothermal heating and cooling systems at your workplace. Those efforts may seem expensive, but they will justify your investment in the long run.

3. Improves Employee Retention and Recruitment Rate

Employees want to work with organizations that support and operate corporate environmental programs. They don’t want to be associated with the companies involved in ecological disasters and community welfare scandals. According to a survey by Adecco, over 50 percent of employees feel that their organizations should do “GOOD” for the environment and communities. They want to stay with the company that cares. Bank of America has set a great example in this context by subsidizing their employees’ solar panel installations at home. Besides, the bank started offering an incentive when their customers buy an eco-friendly vehicle.

4. Helps You Comply with the Regulations

With climate change, global warming, shrinking water resources, and pollution, many state or federal agencies are imposing regulations to save the environment. This “strictness” is necessary as not all organizations are serious about the declining health of the environment. For example, most manufacturing plants don’t dispose of their hazardous waste appropriately. Then, there are companies who might be negligent towards their electricity or water usages. This is why such regulations are welcoming. Incorporating sustainability into your corporate practices will help you avoid penalties or hefty fines under your state’s environment legislature.

5. Helps You Attract Investments and Funds

Many financial and investment experts have found that organizations with sustainability plans are likely to attract investors more than those who don’t have. According to a 2007 Goldman Sachs study, companies known for environmental social policies have surpassed the general stock market by 25 percent with 72 percent companies getting ahead of their competitors.

How do companies suffer from not being sustainable :

Global warming is an example of what happens when we do not develop sustainably. Ignoring the issues of sustainable development has many possible consequences, such as rising sea levels, extreme droughts, erosion and loss of forests, increases in slum populations, species extinctions and collapsing fisheries.

Pushes Up the Price of Products

In some cases, the switch to using green materials can lead to higher costs in your production process or elsewhere in your facility. A furniture manufacturer who switches suppliers to buy only sustainably harvested wood will likely have to pay a premium price for his lumber. The larger costs either have to be passed along to customers in terms of higher prices or have to come at the company's expense in terms of a smaller profit margin on its products.

Going Paperless Means Data Risks

For some companies, a common method of going green is to minimize or even eliminate the use of paper. This can pose some disadvantages. For example, if employees lose or experience the theft of laptop computers, sensitive information that would normally be kept in a locked paper file could fall into the wrong hands. If companies don’t properly back up their computer files, a system crash could prove disastrous. Paper records, however "nineteenth century" they may seem, still serve as a valuable backup to the electronic documents that dominate record-keeping in the modern era.

Customer Backlash

Companies may intentionally or unintentionally make false claims regarding the environmental friendliness of their products, a process known as “greenwashing.” A product that insists it has "no added chemicals" for example, could be criticized for its choice of wording, since even naturally-derived ingredients consist of chemical substances. If consumers become aware that a company is engaging in greenwashing, the company may suffer harm to its credibility.

How sustainable investments can improve financial performance :

A growing number of large institutional investors today are incorporating ESG metrics into their capital allocation and stewardship criteria. This shift toward sustainable finance which has evolved beyond socially responsible investing to include asset management and ownership has profound implications for investors and companies alike.

Some of the largest and most influential institutional investors and asset managers are at the forefront of a powerful movement to add environmental, social, and corporate governance (ESG) standards to their criteria for capital allocation. As long-term stewards of capital, they recognize a mandate to consider whether the companies they own today will maintain a strong connection both with their customers and extended communities as environmental and social challenges increasingly impact the way we live and work. They also recognize that companies that commit to addressing these urgent issues stand to realize greater business opportunities in the future and thus will achieve higher returns for their long-term shareholders.

Two trending developments are motivating large investors to embrace sustainable finance and to engage directly with corporate executives and boards:

1. The ubiquity of information about corporate practices. This availability is shining a light on the roles that companies play in shaping the environment and making clear the pivotal role that the private sector will play in finding solutions—or not—to problems such as climate change. Much if not most innovation today occurs within the context of companies, whether startups or incumbents, adopting policies that deliver a positive impact. This is likely to remain the case.
2. The mounting evidence that addressing ESG issues does not hurt financial performance. In fact, companies that are proactive on issues such as diversity, climate stabilization, and consumer responsiveness can deliver substantial financial rewards.

Measuring the Impact of Sustainable Finance

Total societal impact (TSI) is a framework that companies and investors can use to diagnose specific levers that drive both total shareholder return and societal impact. BCG recently used TSI to study the relationship between, on one side, performance on ESG issues such as inclusive supply chains and environmental impact, and on the other, market valuation multiples and margins. BCG found that ESG metrics were statistically significant in predicting the valuation multiples of companies in all the industries it analyzed. Moreover, investors rewarded the top performers on specific aspects of ESG with multiples that were 3% to 19% higher, all else being equal, than those of the median performers. Top performers on some issues had margins up to 12.4 percentage points higher.

This contrast is likely to become more dramatic over time as sustainability considerations move closer to the bottom line at many companies. When Pacific Gas & Electric, the largest US utility, filed for bankruptcy in the wake of California’s catastrophic wildfires, it cited climate change as a material cause of its petition. It was the first time that climate change was specifically cited in such a context.