The vast majority of companies see sustainability as mission-critical, with climate change at the core of priorities, but far fewer have actually implemented sustainability strategies.
The thing that is holding them back is that they have not developed a business case for sustainability. The business case is the “holy grail” that enables sustainability strategies to be scaled up.
A clear business case for sustainability is vital. Companies engage in sustainability when they see a positive business case for action – when the increased profits from an investment outweigh the costs. These mechanics are deeply rooted in the corporate DNA and help companies to meet their fiduciary duties to shareholders.
When sustainability initiatives yield extra profits, the trade-off between doing well and doing good disappears, and companies’ management, stakeholders, and shareholders join forces to push the sustainability agenda.
When sustainability yields profits and societal objectives are aligned with market objectives, the formidable forces of capitalism can be unleashed and sustainability can scale. This vision is at the core of Michael Porter and Mark Kramer’s Creating Shared Value concept, where companies generate positive economic value by addressing societal problems that intersect with their business.
A paradigm shift is already under way as ESG is becoming a more standardized and objective measure of sustainability
With a positive business case, sustainability is not just corporate social responsibility but enlightened self-interest. The business case for sustainability is also helpful for investors as it provides a quantitative and objective picture of what a company does on sustainability rather than what it says.
So, how do you make the business case for a sustainability strategy? There are some key arguments that can be deployed, based on three pillars:
If anyone remains unconvinced by these business case arguments, in the long run the choice will be made for them by external forces. Sustainability will no longer be a “soft” concept and companies will no longer be able to cherry-pick impacts.
A paradigm shift is already under way as ESG is becoming a more standardized and objective measure of sustainability. Financial analysts are increasingly equipped with the tools and metrics to compare sustainability performance against peers, and over time, and can now reward or punish sustainability performance immediately. We are moving away from self-reporting. Technology advances enable the use of sophisticated algorithms to collect, track, and analyze complex ESG data that will paint a more accurate, less voluntary picture of a company’s true performance.
This transformation offers both opportunities and risks. In this new normal, companies need to properly account for all material impacts, and previously unpriced dimensions such as CO2 emissions or water pollution must be fully accounted for when making business decisions, so these costs are becoming part of the business case for sustainability.
Understanding and pricing those impacts may be tedious and costly, requiring new risk management approaches and tools. A case in point is climate change: the Taskforce on Climate-related Financial Disclosures (TCFD) recommends that companies should measure, price, and manage both physical risks – e.g., risks from more extreme weather patterns – and transition risks – e.g., risks from changes in consumer preferences or climate regulation.
Many tools and approaches have been developed to meet this need. The Capitals Coalition, for example, proposes a valuation approach and a decision-making framework to identify, measure, and value impacts on natural, social, and human capital.
But the consequences of inaction are severe, and many have already paid the price. In 2019, California’s largest utility, PG&E, was forced to file for bankruptcy after dramatically underestimating the increased risk of wildfire due to climate change.
You need to ensure that your company avoids being next.
27 November 2023 • by Michael Skapinker in Sustainability
The Church of England has moved away from engagement and sold its fossil fuel shares, but to whose benefit? The shares have most likely been bought by investors who care little about...
Audio available
How companies understand their sustainability-related governance may hold the key to meeting climate goals and thriving in a net-zero economy ...
15 November 2023 • by Frédéric Dalsace, Goutam Challagalla in Sustainability
The future lies in creating positive value equations for customers, showcasing how sustainability enhances traditional product benefits....
As temperatures hit 53C in Furnace Creek in California’s Death Valley, it’s clear we need to act – and fast. Edoardo Chiarotti argues that companies need to pay a ‘vegetation debt’ to...
Explore first person business intelligence from top minds curated for a global executive audience