The Business Case for Sustainability

Michael Rockwell

Michael Rockwell

Guest Writer

According to the Net Zero Tracker, 804 of the 2,000 largest publicly-traded companies have announced goals to reduce their business emissions to zero. Although companies can be quick to announce ambitious climate goals, Boston Consulting Group found that only 11% of companies have actually reduced their emissions in line with their announced targets. For those entities on track, their sustainability goals are giving new meaning to the phrase “sustainable competitive advantage.” As companies elevate sustainability from greenwashing to core capability, they continue to unlock significant cost savings, better value for customers, and improved capabilities using green technologies. Sustainability is building traction for customers, businesses, and society as an economically viable path to greater returns for people and the planet alike.

Cost Savings with Circular Economies

The cost-saving potential of sustainability initiatives is extensive and is only getting better with time. While the view of sustainability as philanthropy for PR stunts and fundraiser campaigns persists, the root of nearly every sustainability initiative is something any business can get behind; efficiency. A central framework integrating itself into a sustainable business is a circular economy. Circular economies aim to shift business processes from a traditional take, make, and waste product lifecycle to a more circular model. Circularity is rooted in designing waste out of supply chains, circulating materials through efficient recycling, and shifting from resource extraction to environmental restoration. These objectives have proven to deliver the dual value of minimizing negative environmental impacts while boosting operational effectiveness; saving money while restoring the environment. 

Global carpet and flooring manufacturer Interface has been an unexpected leader in the business-enhancing transition to circularity. In an industry rooted in petroleum-intensive products like plastic carpets and rubber floor tiles, founder Ray Anderson started their sustainability journey back in 1994 after reading Paul Hawkens’ “The Ecology of Commerce.” Since then, Interface has reduced its market-based greenhouse gas emissions by 96%, reduced waste to landfill by 85%, and currently uses 50% recycled or bio-based materials, all while doubling sales. They were the first carpet manufacturer to use recycled nylon, design glue-free installation methods, and are now the world’s first carbon-neutral flooring manufacturer. The interface continues to successfully design circularity into their company from the bottom up,  bringing confidence that even the most carbon-intensive industries can use sustainability to drive profits.

As a part of the Ellen MacArthur Foundation’s Circular Economy 100 program, Dell Technologies has been integrating circularity into its operations for nearly a decade. Dell was the first company to offer a computer with certified closed-loop recycled plastics and incorporate over 4 million pounds of plastic recycled from used electronics per year. They have avoided 31 million pounds of packaging through design efficiencies while incorporating innovative carbon-neutral packaging made from mushrooms and wheat straw for the remainder. Dell has the world’s largest takeback program to recycle used electronics in over 78 countries as they build out a closed-loop, waste-free process for plastics and other materials. Redesigning their company to minimize waste and recover valuable materials in their product lifecycle has helped Dell save significantly on material costs for both their products and packaging, savings they can pass on to their customers and shareholders alike.

Regarding the value of environmental restoration, the Aquiares Estate of Central Costa Rica has grown its business and community through responsible coffee cultivation for over 130 years now. As the largest continuous coffee farm in Costa Rica, they have operated carbon neutral since 2016. Aquiares found that coffee plants shaded by native rainforest trees yield better coffee, are more resilient to heat waves, and suffer from fewer pests. In this way, rainforest conservation has become directly linked to the success of their coffee production and the economic prosperity of the community of over 2,000 working on and near the farm. Costa Rican rainforests have been circulating energy and recycling nutrients through ecological economies for millennia. Aquiares helps envision the value of applying these lessons to our industrial economies as well. 

Unlocking Customer Value

A primary pressure for companies to make the sustainability pivot has been shifting consumer values and increasing demand for sustainable business practices. In a 2021 study, Simon-Kucher & Partners found that 85% of people globally have become more sustainability conscious in their purchasing in the last 5 years. This shift seems to be driven by younger generations as over 50% of Gen Z shoppers report a preference for sustainable brands. More than 34% of consumers are willing to pay a premium of 25% more for sustainable products. Demand is highest in younger generations pushing demand growth for sustainable products. As future generations become more sustainability-minded, companies able to align their values and meet, this new demand will become increasingly successful.

As the sustainability-minded consumer gains relevance in today’s marketplace, so does the sustainability-minded employee. An IMB study released earlier this year found that employees are 67% more willing to apply for and accept a job from an environmentally sustainable company. With only 21% of respondents considering their current employer to be sustainable, this creates a large gap to be filled. Additionally, McKinsey found that companies developing successful sustainability programs can attract better talent and retain it longer. As employee values change and sustainability becomes more mainstream, the need for companies to follow suit to attract talent grows.

In a post-pandemic world recovering from the great resignation and the aftermath of quiet quitting, employee management is more important than ever. Employee turnover is expected to rise significantly in 2022, while replacement can cost companies millions of dollars per year, roughly 1/2 to 2 times employees’ annual salary per replacement. MarshMcLennan found that companies with higher sustainability scores also scored higher in employee satisfaction and retention. People want to work for a company that treats them well and do work they believe in. As Millenials and Gen Z will make up 72% of the global workforce by 2029, companies able to appeal to their values will have a strategic advantage in hiring the best talent. Sustainability is an increasingly important issue to both consumers and employees, giving companies appealing to these values an advantage over those deferring their sustainability action.

Climate Tech Benefits

As humanity ushers in the 4th industrial revolution there is a need for advanced technology to change the way we interact with society and the world around us. Green technology and the so-called “climate tech” sector grew 210% last year, with $87.5 billion in 2021 alone. PwC found that 14 cents of every venture capital dollar in 2021 went towards climate tech innovations, including sustainable aviation fuel, carbon capture, carbon-neutral construction, and more. From greener energy generation to sustainable transportation, investments in climate tech are already paying off for the companies willing to take the leap.

With the drastic energy price swings that seem to define 2022, many companies are looking to transition from volatile fossil fuel prices to more stable and cost-effective renewable energy sources. Amazon is leading the charge as the world’s largest global renewable energy purchaser with over 379 solar and wind projects in 18 countries generating over 18.5 gigawatts of electricity. As they vertically integrate their energy supply through renewables, Amazon is really investing in energy independence and price stability. They are set to reach their 100% renewable energy well ahead of their 2025 goal. In the last ten years, the cost of solar has come down by a factor of 10, while wind has dropped by a factor of 3, making these energy sources comparable or even cheaper than fossil fuel grid energy. As renewable technologies gain traction and the economy of scale benefits improve, the cost benefits of renewable energy will help more companies develop cheaper, more stable, and more sustainable energy sources.

Electric vehicles (EVs) are another green technology promising to help companies upgrade their fleet while downgrading their carbon footprint. New electric vehicles are experiencing overwhelming pre-orders, sometimes twice as high as the supply. Global car manufacturers have dedicated over $47 billion to EV production as annual sales growth holds steady at 30-40% per year.  The U.S. Department of Energy has found EVs to be 40% cheaper to maintain and over 50% cheaper to fuel on average. These cost benefits have caused some of the largest companies in the world to invest heavily in fleet electrification. From Walmart’s partnership with Electrify America to create charging infrastructure to Amazon’s order of 100,000 electric delivery vans from Rivian, major players are turning to EVs to upgrade their fleets and benefit from the cost-saving potential. Successful green tech acts as proof that companies no longer have to choose between environmental impact and ROI; we can now save the world and make money doing it.

The Time is Now

Climate change has already begun to disrupt global business. Whether it’s disrupted supply chains due to natural disasters, raw material shortages from drought and extreme weather events, or PR nightmares as customers demand adequate response to social and environmental harm. In these changing times, businesses already investing in sustainable practices and green technology are best able to adapt to these new challenges and take advantage of the opportunities they present. As governments falter on climate goals and obligations agreed upon through the Paris Agreement, the role of regulation in driving climate goals is expected to only grow over time. Sustainability is a profitable new strategic competency increasing operational effectiveness while maximizing value creation. Sustainability pioneers driving the sustainability transition are gaining a first-mover advantage while the laggards pay the price of inaction. As sustainability follows the innovation curve from a promising concept to an economically viable reality, the business case for sustainability has never been stronger.

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