What is sustainability in business?Posted on: April 14, 2022
Environmental sustainability is becoming increasingly important to customers around the world. Sustainability in business is also important to those who run companies and to their employees because a business’ sustainability efforts are often a key factor in attracting and retaining talent. In a 2017 survey carried out by McKinsey, 70% of respondents said that the companies they work for had a formal governance of sustainability in place. In a 2019 study by Deloitte, 93% of business leaders said they believe companies are not just employers, but stewards of society. In the report, 95% of respondents also said that they were planning to take stronger stances on large-scale issues in the coming year and devote significant resources to socially responsible initiatives.
As the world witnesses more extreme weather events such as the heat domes that brought heatwaves to the Northern Hemisphere in the summer of 2021 and deadly floods that affected locations from Germany to all over Asia, the effect of human activities on the speed of climate change is becoming harder to deny. Businesses are realising that they won’t be able to operate in a volatile world with diminishing natural resources. Part of their responsibility as an organisation is to mitigate the negative effects that business may have on the environment, communities, and society at large.
Most companies have a corporate social responsibility (CSR) initiative in place and want to promote the positive impact of the work that they do. This can include utilising sustainable materials, decreasing environmental impact, lowering carbon emissions, ensuring ethical supply chains, committing to renewable energy, and improving energy efficiency. Each sustainability strategy should be unique to each business, based upon the products or services that the company offers, and encompass larger business goals and organisational values.
How important is sustainability in business?
Sustainability initiatives are now generally seen as compatible with profitability and sometimes as integral to profitability because they take a long-term view rather than a short-term one that simply looks at the bottom line. Environmental, social and governance (ESG) is an aspect of business that can attract shareholders and stakeholders when carried out effectively. ESG is also consistently used by investors when considering the ethical stance and sustainability practices of an organisation. Investors will look at factors such as a company’s carbon footprint, water usage, community development efforts, and board diversity.
The three Ps of the triple bottom line – people, profit, and planet – have been around since the 1990s but for many, they are only now beginning to make real business sense. Ensuring that a business strategy is grounded in a sound approach to corporate sustainability can even give a company a competitive advantage. In an article published by Forbes in 2021 entitled Empowered Consumers Call for Sustainability Transformation, it’s claimed that 2020 marked a turning point for many. Not only did coronavirus highlight the possibility of more zoonotic viruses jumping between species as human industry continues to encroach upon the natural world, but in the USA there were rampant wildfires throughout California and record-breaking floods in the Midwest that created $95 billion of damage.
A 2020 BCG survey of more than 3,000 people across eight countries found that 70% of survey participants were more aware now than before Covid-19 that human activity threatens the climate and that in turn, degradation of the environment threatens humans. Three-quarters of respondents said environmental issues are as concerning as, or more concerning than, health issues.
Business models that take an authentic approach to environmental sustainability, whether through green products or sustainability efforts will inevitably appeal more to an increasingly discerning customer.
How to achieve sustainability in business
There are many frameworks available offering guidance on how to implement sustainable business practices such as the United Nations’ Sustainable Development Goals. The UN also supports the Ellen Macarthur Foundation’s Global Commitment for a circular economy for plastics. Plastic packaging is often designed and created without consideration of its life cycle or questioning whether components of the design are really necessary. Other important questions to ask around packaging include, can an item be re-used or easily recycled? Is it possible to use recycled plastics rather than virgin plastic in single-use products? Not only does this reduce plastic use but also reliance on fossil fuels as plastic is a by-product of the oil industry (although bioplastics are increasingly being used by businesses).
In 2010, Unilever launched its 10-year Sustainable Living Plan. The ambitious goals of the plan included doubling Unilever’s revenue while halving environmental impact; sourcing 100% of raw materials sustainably; and helping more than a billion people to improve their health and well-being. The then CEO, Paul Polman, said in 2016 that “70% of our shareholders have been with us for seven years, and 85% of them say that sustainability is very important. They know that you need to have a responsible contract with society to take costs out of your system, to lower risk, to attract the right people.” Polman is very much seen as one of the more proactive business leaders of recent times.
Unilever worked with NGOs such as WWF and Oxfam to measure the effectiveness of its sustainability goals between 2010 and 2020. It consistently scored well according to its sustainability reporting throughout the decade. However, there is some criticism that the metrics that constitute ‘sustainability’ were actually created by Unilever itself. Like many large multinationals that feel the pressure to be transparent about their sustainable practices, Unilever falls short on various fronts including environmental reporting, palm oil, human rights, workers’ rights, supply chain management, irresponsible marketing, animal rights, animal testing, factory farming, anti-social finance, and political activities.
How to promote sustainability in business
Products that are clearly sustainable products will speak for themselves. Because business sustainability has become fashionable to some extent, it’s important not to make false claims or ‘greenwash’.
Annual reports now often have a sustainability or impact section and rather than being a stuffy business document for shareholders, businesses should think about how these reports can engage with stakeholders and customers.
Stepping up sustainability in business with an MBA
Sustainable development is key to business staying afloat and building a sustainable future for all. As the business world navigates increasing unpredictability, both established and new businesses have to consider risk management and sustainability programs that are flexible and adaptable. From lowering greenhouse gas emissions to ensuring operational efficiency, built-in sustainability is not just about regulatory moves towards net zero in 2050, but about future-proofing business.
Find out how to study part-time while you continue to work and apply what you learn with a 100% online MBA from the University of Wolverhampton. If you’re interested in how sustainability can help drive business and impact positively on returns, discover more about gaining an MBA Finance.