Understanding how sustainability has evolved into a critical strategy for profitable growth
Sustainability, a term we use to describe business programs, products, and practices centered on environmental and social concerns, is frequently viewed as a luxury investment or a public relations tool. That viewpoint, we believe, is cynical and increasingly untenable.
?With a lot of considerations to be made, when it comes to sustainability issues, it can range from rising raw-material prices to new regulations.
?Furthermore, the recent COVID-19 pandemic disrupted supply chains. It emphasized the importance of developing a more resilient industrial model, but disease and pandemics are not the only stressors. Drought, crop failure, wars, and transportation crises contribute to rising global food insecurity, necessitating greater efficiency in transporting food from surplus to famine areas.
?Besides that, today's green consumers, particularly millennials and Gen Z buyers, want to feel good about what they eat rather than guilty - people are becoming more aware of the link between our food system and environmental health. Sustainability aids in reaching tomorrow's consumers rather than just surviving in the present. Indeed, a growing body of evidence suggests that sustainability initiatives can assist in the creation of profits and business opportunities.
?This article will discuss opportunities in sustainable development with long-term plans other than investment. We will also be talking about the growing utility of incorporating sustainability to increase profits after suffering losses due to COVID -19.
Measuring impact – The struggle to find metrics to measure their long-term activities.
?Although many businesses recognize the importance of sustainable activities for long-term growth, they struggle to identify metrics to assess them. Finally, the World Economic Forum announced metrics for stakeholder capitalism in September 2020.
?The WEF's International Business Council, comprised of over 120 global CEOs, developed the standards to improve how companies measure and demonstrate their contributions to creating more prosperous, fulfilled societies and a more sustainable relationship with our planet.
What does the introduction of Stakeholder Capitalism mean for businesses? Let’s have a look:
?Every company must have a clear purpose and disclose comparable data on diversity, pay equity, health and safety, training, employee turnover, and supply chain practices.
?Further, Stakeholder Capitalism is driven by investors, customers, employees, and other stakeholders, but proposed WEF standards can also guide governments worldwide that embrace ESG disclosure requirements.
?However, nearly half (48 percent) of respondents in a McKinsey survey stated that the emphasis on short-term earnings performance is incompatible with sustainability initiatives.
?According to the McKinsey report, leaders pursue sustainability because they believe it has a material financial impact. In a world where scarce resources expose companies to high costs and unforeseeable risks, the value at stake from sustainability issues can range from 25 to 70 percent of earnings.
?In another McKinsey report, it revealed that a $1 investment in a value-weighted portfolio of high-sustainability companies in 1993 would have grown to $22.60 by the end of 2010, compared to $15.40 for a portfolio of low-sustainability companies.
?The high-sustainability companies also outperformed in terms of return on assets (34 percent) and return on equity (34 percent) (16 percent). According to the report, "creating a corporate culture of sustainability may be a source of competitive advantage for a company in the long run."
?Between 1995 and 2012, such investment grew by 486 percent in the United States, outpacing the broader universe of managed US assets, which grew by 376 percent. More than $13 trillion is invested globally in assets under management, including ESG metrics.
?Is it worthwhile to be environmentally conscious?
?Some executives may question the financial decisions made about short/long term sustainable investments and the value they provide.
?OECD Ministers agreed in May 1998 that achieving sustainable development is a top priority for OECD countries. They urged the development of a strategy for climate change, technological advancement, sustainability indicators, and the environmental impact of subsidies. In 2001, a report with policy recommendations was expected. This mandate is addressed in the report Policies to Enhance Sustainable Development.
?Such government policies can encourage long-term initiatives. This can also help shift consumer attitudes toward "greener" products and encourage more consumption of "greener" products.
?Similarly, according to a study by CSB Research, sustainability-marketed products delivered 54.7 percent Consumer Packaged Goods (CPG) market growth (2015-2019) despite accounting for only 16.1 percent of the category in 2019, an increase of +2.4 percentage points over 2015. Sustainability-marketed products grew 7.1 times faster than non-sustainability-marketed products.
?Despite the COVID-19 pandemic, the market for sustainable products is expanding. A 2020 Accenture global survey showed that shoppers "have dramatically evolved," as 60% reported making more environmentally friendly, sustainable, or ethical purchases since the pandemic began.
?The market share of sustainability-marketed products is distributed along a scale based on perceived category functionality or efficacy. As a result, the percentage of sustainability-marketed products increased even in low-share categories.
Price is a significant consideration for many FMCG providers. Consumers, however, want brands to help them live more sustainably and may be willing to pay a premium for this service.
?Moreover, most developing countries lack statistical capabilities and hence are unable to meet the SDGs' expanding demand for data. In addition, most developing countries lack the developed infrastructure necessary to enable internet use, networking, computing, and database management systems.
These barriers prevent communities from improving the quality of their lives and create a vicious circle of poor economic development, resulting in low access to reliable energy services. This circle could be broken by establishing energy policies that emphasize revenue generating from energy efficiency operations.
One way to accomplish this is by first enhancing the living conditions of the poorest for them to be later able to care for their surroundings. Unless such measures are implemented soon, not only will efforts to achieve sustainability fail, but poverty in many parts of the world may also worsen.
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?Alternative investments, transitioning from immediate monetary returns
?According to the McKinsey study, more than 90 percent of interviewed companies could point to a specific event or "trigger" that prompted them to pursue sustainable development, such as consumer pressure or a rise in commodity prices. Furthermore, initiatives to create sustainability within the organization or local communities are critical.
?For example, the Unilever Sustainable Living Plan, launched in 2010, aims to reduce its environmental impact while expanding primarily in emerging markets, which already account for 57% of its revenue.
?Unilever advanced its vision by making inroads into key Asian markets such as Indonesia and India. The best way to accomplish this is to harmonize the sustainable sourcing codes of the food and beverage industries and forge them into a single standard capable of having a large-scale impact. This can be accomplished by enhancing transparency with stakeholders.
?Unilever has been at the forefront of driving industry-wide change to ensure a sustainable future for palm oil for more than 15 years.
?Unilever sustainably sourced 99.6 percent of our core volumes of palm oil and palm kernel oil by the end of 2020, with 94.3 percent coming from a variety of physically certified sources: RSPO Mass Balance, RSPO Segregated, or an equivalent standard that is independently verified by a third party. In addition, the purchase of RSPO independent smallholder certificates accounted for 5.3 percent of our volume.
?Furthermore, Unilever committed in 2020 to achieving a zero-deforestation supply chain for crops with high deforestation risk by 2023. (palm oil, paper, board, tea, soy, and cocoa). This includes increasing traceability and transparency using emerging digital technologies, empowering farmers, and smallholders, and collaborating on the ground with industry, NGOs, and governments.
?The world will move forward with sustainability
?Sustainability provides an intriguing avenue for identifying product innovations that use fewer resources or address specific social needs. Redesigning products and services with a focus on sustainability can significantly boost profits. Sustainability, due to its cross-functional nature, brings different divisions together and provides a common motivation; the result can be new, profitable ideas.
?Almost half of those polled in the McKinsey report (44 percent) cited business and growth opportunities as a reason to start thinking about sustainability. A variety of new business models that incorporate sustainability are emerging. Electric utilities, for example, are looking into ways to make money by assisting customers in reducing their energy consumption.
?Unilever, for example, changed the shape of deodorant to use less plastic and developed a concentrated laundry product that significantly reduces the use of water—innovations that they would not have discovered if they had not been thinking about sustainability.
?Looking ahead in the long run, ESG will become more prominent.?Businesses must recognize sustainability as a means of increasing revenues, creating long-term value, and surviving in the face of rising consumer demand.
?We recognize that to achieve a global step-change in environmental, social, and economic development, the Sustainable Development Goals must be viewed holistically and as a proxy for establishing an inclusive, equitable, green, and profitable marketplace where sustainable principles drive growth, and thus cannot be dismissed entirely.
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