ROI of Sustainability

May 13, 2020 10:08:12 AM

Sustainability

In businesses and corporations, sustainability is often seen as an expense.  Some may even call it superfluous or unnecessary from a financial perspective.  The truth is that significant benefits can result from sustainability, and high functioning programs can bring substantial and meaningful positive change across an organization, including the area of dollars and cents.  This is key because businesses strive to remain profitable, and as an investment, sustainability needs to prove that it is an one worth making.

Return on investment, or ROI, is a profitability measure that evaluates the performance or efficiency of an investment in the form of returns or benefits.  The benefits of sustainability can be realized in many different ways:

Brand – Consumers vote with their dollars and sustainable brands perform well and often better than counterparts.  The top three most valuable sustainable brands in the world, Unilever, Patagonia, and IKEA (source) all have seen strong consistent revenue growth with heavy investment in sustainability. These and other sustainable companies are growing faster than competitors and are capturing market share as consumers take preference in buying their products (source). Particular products with a strong sustainability story, such as replacing a potentially harmful ingredient, also have been shown to have great market returns.

Product & Process Improvements – A very tangible example of where cost savings and sustainability efforts go hand in hand is in more efficient products and processes. Sustainability life-cycle assessments bring the full scope of products under review including sourcing, supply chain, ingredient transparency, manufacturing, packaging, and end-of-life options.  Using less and using better ingredients can bring savings across product lines.  Furthermore, delving into circular economics can create exponential value.

Energy & Resources – This would include the physical space in which we occupy and what we utilize within that space. A more obvious example would be improvements to buildings and office space to become more energy efficient and provide cost savings such as USBGC’s LEED, but this can also include smarter commuting options and office waste reduction.

Employee – Employees enjoy working at companies with strong positive social missions such as sustainability because it supports their personal principles. They are more engaged and are more efficient and productive.  From this, recruiting costs are reduced because a sustainable brand attracts talent and supports employee retention.  Cutting down cost-per-hire and replacement costs can significantly improve the bottom line.  

Risk Management Companies have impacts on their customers, employees, communities, other businesses, governments, and the environment.  Sustainability helps ensure these are positive impacts and reduces risks of negative consequences.  Potential consequences could be damaged brand, recalled products, health and human hazards, environmental factors, fines, and other lawsuits or liabilities. Choosing to use more sustainable chemicals, for example, reduces risk of current liability and the need for expensive sudden reformulation in the future.

Investability Businesses with sustainable attributes often get the attention of investors.  Properly implemented sustainability can be financially lucrative and of less risk.  Many investment strategies exist here, but for example, to help identify opportunities, a standard in the marketplace is the SASB which is accounting and reporting standards for sustainable businesses.  These standards more efficiently promote connections with investors and allow direct comparisons of companies and their sustainability efforts for investing opportunities.   

To receive the benefits of sustainability, the appropriate level of execution and investment must be made. It is also a long-term investment, and as a business function, it can effectively impact most of the organization. 

When evaluating, as with any investment decision, initial steps for a sustainability program would be planning and research.  Understand feasible levels of investment, areas of focus, expected benefits, ease of implementation, as well as any opportunities and risks.  The result could be a solid business decision as well as a sustainable one that yields financial and eco-friendly gains.

Need help with planning and executing your sustainability efforts? Click here to learn more. Having trouble getting started? Check out our Sustainability Plan Template to kick off your sustainability journey!

 


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