Why Sustainability Is Becoming Big

Evidence is mounting that companies with lower greenhouse gas emissions perform better on average. But why?

August 3, 2016

Overview In recent years, there has been a global shift toward more environmentally sustainable ways of working. The world’s biggest companies are also increasingly disclosing their greenhouse gas emissions and other energy metrics – and being judged on them by consumers – with 71% of the world’s top 500 companies opting to externally audit their environmental impact numbers. Although most countries don’t yet require companies to disclose such information, this is likely to change. China has recently issued a draft environmental tax law, and the U.S. has announced plans to cut carbon dioxide emissions; both are aimed at encouraging businesses to become more green and proving that to the government. The E.U.'s Directive 2014/95/EU entered into force in December 2014, requiring companies with more than 500 employees operating in the E.U. to report on a range of non-financial (including environmental and sustainability) issues by the end of 2016. While there is some debate on the business benefits of shifting to a more sustainable model, evidence is mounting that companies with lower greenhouse gas emissions perform better on average. So is being environmentally friendly about good PR — or just good business? In-Depth Tracking your company’s environmental impact The challenge in assessing both your businesses’ environmental impact and the potential benefits of becoming more sustainable is in working out the true extent of your operations. While some aspects are relatively easy to identify — amount of recycling, office energy efficiency or the number of flights taken by employees, for example — the connections among our increasingly globalized supply chains and business operations can make monitoring broader ramifications incredibly complex. Though there are no universal standards for environmental business reporting and impact analysis, there are a number of initiatives under way to encourage more transparency and provide guidance: • The United Nations Global Compact devotes three of its 10 principles to environmental issues and boasts more than 10,000 corporate signatories. It promotes taking a precautionary approach to environmental challenges, encourages businesses to promote environmental responsibility and is pushing for the development and adoption of environmentally friendly technologies. • The Global Reporting Initiative has produced guidelines for sustainability reporting that have now been adopted by more than 7,500 companies. With 30 environmental indicators, the focus is around energy, biodiversity and emissions. • The Carbon Disclosure Project offers guidance on the kinds of data needed to identify ways to reduce negative environment impact, with more than 5,000 corporate signatories by the end of 2014. • The Leadership in Energy and Environmental Design program takes a more focused approach, offering guidance and certification for the development and running of more environmentally friendly buildings. Operating in more than 30 countries, and with 20,000 organizations signed up, LEED-certified buildings are not only better for the environment but also more cost-effective because of the reduction in energy use. The benefits to the bottom line Analyzing your environmental impact may not yet be universally mandated, but it can be worthwhile. The detailed analysis of the true costs that thorough environmental reporting necessitates can not only help you avoid being accused of a “greenwashing” PR exercise but can also help identify potential savings. The guidelines provided by these organizations can serve as a handy blueprint for identifying more sustainable ways of working. With energy price volatility “the new normal,” making your operations more energy-efficient and less wasteful can reduce the unpredictable impact of shifts in costs. At the same time, the cost of installing on-site sources of renewable energy is decreasing as technologies improve. Some governments offer subsidies and tax breaks to implement renewable energy, and others (like the U.K.) even pay for renewable energy generated. Even without subsidies, installing renewable energy sources can prove to be a good investment, depending on your location. In the U.S., solar panels may still be expensive to install, but they tend to pay for themselves within 10 to 20 years. Making your supply chain more sustainable is also a sensible long-term investment, albeit considerably harder to develop. When Puma became the first company to publish the cost of the carbon emitted and water used throughout its supply chain back in 2011, it helped identify ways to reduce water, energy and fuel consumption by 60%, resulting in potential savings of millions of dollars. You may not need to invest as much as Swedish furniture giant Ikea with its plan to invest €1 billion in projects to encourage sustainability, or Google with its $2 billion investment in solar and wind projects. With the climate challenge too big for any one company (or country) to tackle alone, every little bit helps — and, at a big enough scale, even the smallest changes can make a huge difference. The starting point of identifying ways to reduce your environmental impact and maximize your efforts’ business benefits is understanding what you’re currently doing through detailed analysis and reporting. Only then can you identify what you can do and what impact this can have on both your business and the planet. Talking Points “The fact is… big businesses assess risk and opportunity at a global level, which means that their actions can reverberate across the planet. They develop systems that not only scale up, but require stability and continuity to be good investments.… These days, it is Big Business – not governments or consumers – that is stepping up… because they know their own corporate futures are at stake.” – National Geographic “Understand that for markets to grow, and for your own future prospects to be successful, it makes sense to integrate, in your strategic thinking and operations, environmental, social and governance issues” – Georg Kell, executive director, UN Global Compact “Planners, presidents and prime ministers might sign sweeping ‘deals’ but the CEO is where the real power lies, and they will not move a muscle unless change makes sense financially – nor should they.” Robert Clarke, entrepreneur-in-residence, School of Business and Entrepreneurship, Bath Spa University “The challenge is to distinguish between the (environmental, social and governance) factors that have a material influence on company performance and those that do not. But the data that companies currently report are inadequate to enable investors to make this distinction.” – Laura Tyson, Haas School of Business Further Reading