For a long time, the prevailing consensus on sustainability was negative. Often, business strategists and executives scorned sustainability, believing that, at best, it was barely profitable. Instead, many of them insistedgreen initiatives were nothing more than a marketing ploy: an appeal to environmentally-conscious consumers, a certain demographic that bought specialty foods and followed the latest green-living fad.
But to paraphrase one famous singer, the times they are a-changing. Today, more and more companies are embracing sustainability–not as a cynical PR stunt, but as an integral, key part of their business model. And this change isn’t limited to leaders at small, niche companies or managers at large corporations: instead, it’s increasingly common in both.
Let’s take a look at a case study, examine the link between sustainability and profitability, and explain how leadership can take concrete actions to green their business–in every sense of the word.
Going Green is Good for Business
Believe it or not, sustainability and profitability go hand-in-hand. One survey revealed that S&P 500 companies that include sustainability as a core part of their business strategy saw impressive benefits for their financial health. When compared to companies that did not incorporate environmental planning into their operations, those organizations with a sustainability focus reported higher returns on investment (anywhere from 18-67 percent), saw less volatility in earnings (as much as 50 percent), and stronger dividends (up to 21 percent).
But this study, conducted by nonprofit CDP, isn’t alone in uncovering the link between green business strategy and financial strength. In fact, such examples are plentiful: in 2015, UK department store chain Marks & Spencer saw a $225 million net benefit from simple changes, such as reducing packaging materials, food waste, and installing energy efficient technology (such as LED lights and water monitoring devices) in company facilities.
Moreover, consulting firm Pure Strategies conducted a large scale study of sustainability efforts at 153 companies, from multinational concerns like Johnson and Johnson to smaller corporations like The North Face. Researchers found that surveyed companies reported a total savings of $5-8 billion: of that number, some $800 million came from increased sales, with an additional $800 million in manufacturing cost savings. The remainder of the value came from risk reduction, productivity gains, and enhanced growth opportunities.
Case Study: When Companies Adopt Renewable Energy
Perhaps the most obvious area of cost savings may well be that of renewable energy, specifically solar panels. First, some background: though it was once more expensive, solar panels have finally arrived as a viable power source. In December 2016, the World Economic Forum reported that solar and wind power was either the same price or cheaper than fossil fuel-based energy. Solar, in fact, is the cheapest of all, coming in at approximately $64 per megawatt hour in India–half the price of a comparable, coal-fired power plant.
Given this economy of scale (home solar installations remain somewhat expensive in the United States), it’s interesting to see that large companies are driving solar adoption. One report found that of the Fortune 100 companies, 71 organizations implemented renewable energy goals. In fact, 22 firms have committed to powering all their operations solely with renewable energy, among them Wal-Mart and General Motors. Their enthusiasm is backed up by economics: in 2014, 53 Fortune 100 multinationals, including PepsiCo, Intel, Dell, and UPS, saved a total of $1.1 billion by transitioning from fossil fuels to green energy tech.
Leadership in a Time of Climate Change
Each year, the MIT Sloan School of Management conducts its Sustainability and Innovation Global Executive Study, which yielded some disheartening conclusions: Sloan staffers found that, despite widespread excitement from investors, employees, and consumers alike, executives have been slow to adopt sustainability-specific measures.
Just witness the disconnect between shareholders and managers: though 75 percent of investors believe sustainability improves revenue (and almost 50 percent cited poor sustainability as a reason to divest), only 60 percent of managers in publicly traded companies consider sustainability performance a key factor in investor’s decisions.
Yet this state of conflict is unnecessary. As JetBlue’s Sophia Mendelsohn explains, sustainability isn’t just a feel-good strategy; instead, it’s a problem-solving mindset that can tackle concerns from multiple parts of an organization–with one solution. As an example, Sophia points to going paperless, forsaking printed tickets or boarding passes, and instead allowing customers to check in via tablets and smartphone. By moving to an electronic solution, Sophia explains, an organization could satisfy several key players: management, whose goal is to create innovation; customer service, whose objective is to streamline processes; and accounting, whose aim is to save money and cut unnecessary costs wherever possible.
Though not every company has a dedicated sustainability leader like JetBlue, there are still smaller, effective measures that leaders can take in order to trim waste, green their company, and in the process, bulk up their bottom line. These include:
- Engage in systems thinking. Climate change will introduce new problems and crises–but also, new technologies and opportunities. It’s up to leaders to encourage employees and managers to take the initiative, coordinating across departments to alter previous, wasteful habits and protocols. One such example is going paperless; another could be as simple as switching to LED light bulbs, or as complex as installing (and maintaining) a solar-powered system for facilities. Whatever change occurs, systems must be carefully mapped beforehand; given the subtle, interconnected nature of organizations today, it’s possible to accidentally wreck a system by introducing small changes.
- Promote sustainability literacy. In a nutshell, sustainability literacy is a deep familiarity of emerging green technologies, changing environmental, social, and political trends, and their associated risks (and opportunities) for businesses. Towards that end, a grasp of current events is crucial (for instance, the still-underdeveloped nature of carbon capture technologies or the unlikely state that produces the most power from wind energy).
- A willingness to collaborate with other entities. In our hypernetworked world, collaboration is king. As such, it’s critical for companies to work with others (from competitors to nonprofits) to build a fertile ground for new ideas, as well as to set industry standards and best practices. Take the Sustainable Apparel Coalition, a trade group of fashion companies (including big names like Levi’s, Puma, and The North Face) that seeks to green global supply chains (which often use exploitative labor practices and harmful chemicals). SAC has even created the Higg Index, a benchmarking platform for member companies to share facilities and factory information–and reduce carbon footprint and waste.
Ultimately, climate change may well be the most serious existential crisis that humanity has faced–thus far. Yet the positive news is that sustainability, and making a dent in wasteful, carbon-heavy practices, is good business: it makes customers happy, yields substantial cost savings, and even contributes to the massive, ongoing struggle against climate change.