Convince the CEO: why businesses need sustainability
I’ve heard the endless stories of having to convince departments chairs, CEOs, and managers to invest in sustainability. The struggle of explaining how sustainability, which seems like a money pit at first, can actually be profitable is not uncommon. But in my experience, convincing the CEO is an essential role and duty of the sustainability manager. Though at first the conversation may seem like an uphill battle, it doesn’t have to be. I embarked on an MBA during COVID-19, to merge both sustainability and business, to better communicate with C-Suite executives on why they need to invest in sustainability now. Below are data-driven reasons why multiple aspects of an organization must full embrace sustainability.
Sustainability
To truly be able to convince the CEO, it is important to first understand exactly what “sustainability” means. This term goes beyond being green or only relating to the environment. The term “sustainability” is used to describe the nexus of people, planet, and profit; the three P’s of sustainability. For something to be sustainable, the initiative or project must align and balance these three components.
The Three P’s of sustainability; people, planet, profit.
Why should companies prioritize sustainability?
Companies should prioritize sustainability to support human health, economic development, innovation, natural resources, and future generations. Sustainability is built into society today and many people may not even see it. For example, driving less not only decreases air pollution, but also greenhouse gas emissions, and road work. Sustainability is all around us and has been utilized for generations. Sustainability can be implemented in all levels of our lives from an individual-at-home use, to community wide scale, in the office, or joined global efforts.
In a recent report for the UN Global Compact, 84 percent of the 1,000 global CEOs surveyed agreed that business “should lead efforts to define and deliver new goals on global priority issues.” But only a third said “that business is doing enough to address global sustainability challenges.” To further drive the importance of sustainability in businesses, below outlines a list of results-based reasons why sustainability benefits the CEO’s goals and objectives.
How does sustainability help the CEO?
Increase shareholder value
It has been found that industries that integrate higher CSR numbers output higher shareholder value. The first study to research the causal relationship between CSR and financial engagement found that CSR initiatives decrease operating costs and improve operating performance.
Forty-eight percent of all personal investors in an IBV survey already take environmental sustainability into account in their investment portfolios and a further fifth (21%) surveyed say they are likely to do so in the future.
59% of personal investors surveyed in the IBV study expect to buy or sell holdings in the next year based on environmental sustainability factors.
According to research by Deutsche Bank, which evaluated 56 academic studies, companies with high ratings for environmental, social, and governance (ESG) factors have a lower cost of debt and equity; 89 percent of the studies they reviewed show that companies with high ESG ratings outperform the market in the medium (three to five years) and long (five to ten years) term.
The Carbon Disclosure Project found something similar. Companies in its Carbon Disclosure Leadership Index and Carbon Performance Leadership Index, which are included based on disclosure and performance on greenhouse-gas (GHG) emissions, record superior stock-market returns. Companies in the Carbon Disclosure Leadership Index substantially outperformed the FTSE Global 5004 between 2005 and 2012.
Increase profits
McKinsey found that there is a causal relationship between sustainability and increased profits. This is due to sustainability initiatives can focus on resource conservation. In this study, there was strong evidence that being more efficient at utilizing resources was a strong indicator of superior financial performance overall. Of the study, they found a significant correlation (95 to 99 percent confidence) between resource efficiency and financial performance.
Enhanced Brand Image and Reputation
The Forbes Journal states,
A recent report published by Shelton Group reveals that it’s important for brands to take a stand on social issues. “Brands & Stands: Social purpose is the new black” found that not only do consumers support corporate activism (86% want companies to stand for social issues) but also that 64% of them are likely to buy from such companies.
According to Nielsen’s 2015 Global Corporate Sustainability Report, 66% of consumers would spend more on a product if it came from a sustainable brand. Up to 73% of the surveyed millennials had a similar view.
More New Customers
In the recent IBV survey, 55% of consumers surveyed report sustainability is very or extremely important to them when choosing a brand – 22% higher than consumers surveyed pre-COVID-19 pandemic by IBV. Slightly more than six in ten consumers surveyed said they are willing to change their purchasing behavior to help reduce the negative impact on the environment, with consumers surveyed in India (78%) and China (70%) being the most willing.
Improve employee retention and recruitment
Human resource departments are dealing with a talent gap facing them due to sustainability. A global survey from IBV Institute for Business Value (IBV) states,
71% of employees and employment seekers say that environmentally sustainable companies are more attractive employers
More than two thirds of the full potential workforce respondents are more likely to apply for and accept jobs with environmentally and socially responsible organizations while nearly half surveyed would accept a lower salary to work for such organizations.
The first study to research the causal relationship between CSR and financial performance found that companies that prioritized CSR had happier employees.
Common Misconceptions
Myth #1: Sustainability is too expensive.
Often money is brought up when discussing sustainability initiatives. However. the cost of implementing sustainability initiatives is no longer a valid excuse. We have had enough time as a global world to innovate and implement new sustainability initiatives and they prove to not only reduce costs time and time again, but even gain profits.
Example #1: Reusing towels saves more than water.
Clarion Hotels cut their hotel operators’ annual energy costs by simply asking guests to hang up their towels to dry and forgo daily sheet changes. This cutting water use saved the hotel brand about $17,250 a year.
Example #2: Ditching paper towels is cheaper.
It is now becoming the norm to ditch the paper towels and implement the dryers, which saves the cost of paper towels and the expense of sending garbage to the landfill. Soldier Field, home of the Chicago Bears, made the adjustment and cut carbon emissions by 76% per use. In retrospect, a football stadium can save more than $12,000 a year over the cost of paper towels.
Example #3: Beer with less water use.
Lagunitas Brewing Co. developed a 7 gallon high strength waste water treatment system which filters each gallon of beer. The byproduct, methane, is used to produce electricity. The estimated savings accounts for more than $1 million a year on utility bills.
Myth #2: Implementation
As a whole, sustainability is a daunting concept and there is often much to be done. Often companies have nearly ten to thirty different sustainable projects they want to achieve. This is a bit too much.
To combat this, it is important to start small. Identify 3-5 sustainable opportunities and start there. After that, one can break down those opportunities into bite size chunks that are realistic. Especially given a company’s size, too much change can cause havoc on an environment. It is best to start small, as even the smallest changes can make the biggest impact.
Strategy #1: Purchase carbon offsets to reduce greenhouse gas emissions.
Strategy #2: Implement resource saving technologies such as LED lights bulbs and automatic lights for energy conservation, and specialized faucets for water conservation.
Strategy #3: Reduce, reuse, and recycle. Any leftover office supplies or electronics can be sold, donated, or even repurposed in the same company. This adds value to the circular economy.
Strategy #4: Purchasing new materials with sustainability and life cycle assessments in mind.
Strategy #5: Host a bi-annual volunteer engagement event for employees to give back to the community.
Myth #3: Sustainability takes too much time.
The book, Drawdown by Paul Hawkins, showcases a list of 100 ways to be sustainable. These solutions can be utilized on a personal level anywhere up to a corporate level. Not everyone’s context is the same, so what might work for one person won’t always work for the other. It is important that the company picks a strategy that works for them then grows it from there.
