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November 19, 2024
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What is sustainability and how does it impact business?
It seems that every business from the big conglomerate to the local mom&pop shop has a company sustainability statement. This is not just some business fad that will go away in a few years, it’s been here since at least the 1970s with the dawn of the very first Earth Day, and it’s been gaining popularity with governments pledging to take action for the planet with the UN’s Sustainable Development Goals.
But what does it mean for business? Read this short piece on how sustainability can drive the development of science and business if it continues to grow hand in hand, according to leading business publications.
In Daniel Thomas Mollenkamp’s article for Investopedia, the main questions are what is sustainability, and how does it come in contact with business?
Sustainability has many definitions depending on the context, but in a general sense, it means the ability to maintain a process over time. In business, it’s broken into three concepts: economic, social, and environmental sustainability.
“This view of responsibility encourages businesses to balance long-term benefits with immediate returns, and the goal of pursuing inclusive and environmentally sound objectives.”
Even if sustainability is objectively better in the long run, there are three main challenges that companies face when trying to turn green. The first one is that it’s hard to understand the impact of a single company, the second one is that you can’t accurately rank the environmental impact of some activities, and the third one is the difficulty of predicting the reactions to changing incentives.
Doing good not only feels good, but it can also drive business growth, Alexandra Spiliakos writes in her article for the Harvard Business School Online. Sustainability in business is not a trend, in fact, many studies show that companies that “do good” get to “do well” economically. This is known as a shared value opportunity.
To know If a company is doing good, sustainability must answer the effects business has on society and the environment, ensuring that their operations and short-term profits don’t end up being a liability in the long run. That’s why every big company is chasing the ESG (environmental, social, and governance) metrics to lend credibility to their efforts.
“Sustainable businesses consider a wide array of environmental, economic, and social factors when making business decisions.”
According to McKinsey, “companies with high ESG ratings have a lower cost of debt and equity.”
In an article published at the end of December 2021 in the Harvard Review of Books, Andrew Winston argues that sustainability became the norm that year. He points out that historic events forced companies and governments to grapple with how environmental and social inequality can impact and destabilize business as it does society.
The motors keep heating up as more than 3,000 companies committed to net zero through long and short-term actions with science-based targets, a thousand more than when he wrote his piece.
“No business leaders seriously doubt that sustainability should be on the agenda, and companies are moving from incremental improvements to bolder, systemic approaches that create a net positive impact on the world.”
A thing of note is the social causes that seem to be ramping up support on the corporate side. Diversity, inclusion, and racial inequalities have been targets of several companies as they’ve built funds and pledged to “match our words and actions to the values of equity and inclusion we have always prized,” in Apple CEO Tim Cook’s own words.
Still, he says that this didn’t come out of nowhere. Instead, it’s just a build-up from some of the news that happened during 2021, including the COP26 meeting in Glasgow, supply chain flows, push for electric vehicles, etc.
Meanwhile, Deloitte published a long-form article by Gordon Grundmann, Dr. Florian Klein, and Frederik Josten, detailing how businesses can get ahead of the curve by focusing on sustainability in the different stages of business.
For them, something that businesses must understand is that sustainability is a changing process in which the strategy must always be changing through foresight. That is, in other words, an extraordinarily complex challenge. But there are many benefits to companies and consumers, as a study showed that 67% of participants are willing to pay more for sustainable products.
“From globally rising inequality and social fragility to the lack of access to clean water, sanitation, healthcare, and education, or the increasing speed at which biodiversity is being lost—the topics are as diverse as they are crucial.”
People are looking for sustainable solutions, as they understand that the very reality of the future, as we think about it, is in constant change thanks to environmental and social disruption. Still, the authors are realistic in that strategic foresight is not becoming an oracle, but it can help to consider diverging yet plausible futures and their strategic game plans. Meaning that this evolution of risk mitigation is vital for development.
Sustainability is more than a trend in business, and its impact goes from the environment to the social inequities that can disrupt the way to progress. Most companies nowadays have made it a central part of their strategy, committing to net zero goals, and customers have noticed it. Consumers not only know about which companies are trying to mitigate climate change, but they’re also willing to pay up for goods and services that are sustainable. This correlates with the shared opportunity of “doing good and doing well”. Still, companies should not lose sight of the fact that what’s sustainable today can be an outdated practice tomorrow, as the parameters keep changing as science keeps advancing.
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