Sustainability: The New Normal

Long being perceived as a nice-to-have and not a must-have, sustainable practices have moved from the margins into the mainstream.

Sustainability has never been higher on the agenda of both corporates and consumers than it is today. Sustainable agriculture, energy and tourism have long been in the mainstream, but today sustainability can be seen in everything, from finance and consumer goods, to education and transportation. Companies that are able to accommodate a more conscious view are seeing the benefits as more and more consumers are basing their buying choices on the sustainable practices of a brand and its products, with many companies doing what few thought possible – being sustainable and profitable.

Pull Factors

A large number of surveys, including studies done by Nielsen, Deloitte and McKinsey, show that new generations of consumers, particularly millennials, are willing to pay more for products and services seen as sustainable or coming from companies that are responsible and ethical. They expect companies to protect the environment, prevent exploitation and treat business partners and employees fairly. Beyond consumer demand, cost savings are one of the key reasons why businesses are adopting sustainability programmes.

Cost reductions can result from improving operational efficiency through better management of natural resources such as water and energy, as well as minimising waste. Sustainability is also increasingly determining companies’ purchasing decisions and the requirements they are placing on their suppliers. Companies and products without sustainable attributes will simply not be part of the deal.

Contrary to popular belief, there is a strong link between sustainability performance and financial performance as a study by Arabesque Asset Management and the University of Oxford showed. In their review of some 200 studies on sustainability and corporate performance, they found out that 88% of them show that good sustainable practices result in better operational performance; while 80% show that stock price performance is positively correlated with good sustainability practices. The financial risks of ignoring sustainability are high: BlackRock, the largest asset manager in the world, recently sent shockwaves through the business world when it announced that if firms want to continue to receive its support, they needed to think beyond profits. Instead, the company said, they need to think about the contribution they make to society.

A $12 Trillion Opportunity

Corporations across the world have aligned their sustainability programmes with the UN’s Sustainable Development Goals (SDG), a set of 17 goals pertaining to social, economic, environmental and governance issues. Consulting firm Accenture found that 87% of big company CEOs believed that the SDGs provided a genuine opportunity to rethink their approaches to sustainable value creation. International bodies such as the Global Reporting Initiative, the UN Global Compact or the World Business Council for Sustainable Development (WBCSD) are preparing tools and global benchmarks that help companies come up with business solutions that are as good for society and the environment as they are for the bottom line. The WBCSD alone has more than 200 members, including global corporations such as BASF, Bayer, BMW, Canon, Ford, Philipps, Total, Unilever, Volkswagen and many more. They all stand to gain at least $12 trillion a year in market opportunities by adopting sustainable practices and contributing in other ways to achieve the SDGs, according to the Business and Sustainable Development Commission.

The Circular Economy

Many believe that one of the biggest barriers to sustainability rest in the current linear ‘take-make- waste’ economic model. Experts advocate a shift to the concept of a circular economy – a restorative, zero-waste economic model in which resources are used to maximum capacity and natural systems are regenerated. But the circular economy is anything but theoretical — startups and big companies alike are already forging new business models and developing products that are ‘made to be made again’. Economic activity is driven by the reuse, repair, remanufacture or recycling of used products. Apple, for instance, is working towards making products using only renewable resources or recycled materials, while BMW does not consider end-of-life vehicles as waste to be disposed of, but rather as a secondary source of raw materials. Entire countries are backing innovative companies in their efforts. Germany, France, the UK, the Netherlands and Finland are just a few examples of countries that have launched plans and detailed roadmaps linked to the circular economy.

Better is not Good Enough

Sustainability is more than a very significant trend; increasing numbers of companies are placing sustainability at the heart of their business strategies. There is widespread agreement that the next phase of sustainability is right upon us and that it will be shaped by corporate decision-makers that are willing to change the market and set new global standards. For instance, instead of reducing the carbon footprint, they go carbon neutral and eventually go carbon negative. Not doing no harm is no longer sufficient, companies must actually do good.