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Circular Economy, Sustainable Finance

Why Businesses Have To Care About Sustainability

Global Initiatives | Jun 12, 2020

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Image from Unsplash by Roberto Júnior

This article was produced and published by Dora Hoong from Global Initiatives. 

In the recent decade, ‘sustainability’ has been the latest buzzword in business trends. Across industries, we see companies incorporating sustainability in their manufacturing, services, and merchandising operations

However, to this day, many companies are still responsible for unsustainable business practices, be it inhumane labor or environmentally harmful practices. 

Like it or not, the validity of a business lies in its bottom line, duly informed by Peter Drucker. To make sustainability a norm in the business world, it has to come with some form of competitive advantage. Many companies don’t see it, but it does.

Sustainability in the eyes of consumers

Time and again, global companies have been exposed for unsustainable practices and one such instance was the Raza Plaza disaster that led to the death of over a thousand people. 

The factory manufactured goods for huge brands such as Primark and H&M and the tragedy sent shockwaves across the globe, causing a shift in consumer awareness. 

More than ever, consumers are concerned about the origins of what they are buying. Was it ethically produced? What are the working conditions like? Was the environment harmed in the making of this product?

Reputation is a huge part of running a business; that takes decades to build, but minutes to destroy. A consumer survey by Nielsen confirms that businesses run the risk of damaging their reputation when they fail to interweave sustainability into their operations. 

Consumers place significantly greater importance on the societal and environmental impacts of a company and this has been reflected in an increased demand for transparency. 

Transparency and sustainability are intrinsically linked. Without transparency, there is no way of knowing just how sustainable a product is. Although the lack of transparency from businesses may not have been a huge issue in the past, it surely is now. 

Image from ScanditImage from Scandit

This is especially true in the fast-moving consumer goods (FCMG) industries.

There has been an increasing demand for sustainable food, with consumers willing to pay more for food products that have more detailed product information or switch to brands that demonstrate greater transparency in their product information. 

This is true of the fashion industry as well.

Over time, sustainability is expected to play an increasingly crucial role in dictating consumer choices, and ignoring these calls for transparency and sustainability will leave the company with a competitive disadvantage, regardless of industry.

The Rise of Sustainable Financing

Companies that have clear sustainability-related initiatives and strategies have been found to perform better financially. Also, a commitment to sustainability is an indicator of strong leadership. 

In turn, investors are increasingly scrutinizing the sustainability strategies of companies, with more than a thousand committed to taking ESG issues into account when making an investment decision and, divesting itself from companies that do not meet a certain sustainability standard.

Evidently, the sustainability of a company’s operations is becoming an important factor to consider for investors and business leaders choosing to refuse these issues surrounding sustainability will ultimately be doing a disservice to the bottom line of their companies. 

The Search for Talent

Similarly, sustainability is becoming a key component for companies in the hunt for talent. For example, a company’s stance on sustainability plays a pivotal role in attracting employees.

A significant proportion of employees value societal impact over salary when applying for jobs and a company that fails to attract such employees is closing out a significant proportion of the talent pool. 

The Bottom Line

Consumers, employees, and investors now view sustainability as a differentiation factor in businesses. Given that these are some of the key players that drive businesses and their profits, failing to understand the need to take action on this would cause companies to fall behind competitors. 

Ideally, sustainability-based efforts in companies should stem from genuine concern for the environment and society. While this is definitely true to a certain extent in some companies, the same can’t be said for the majority.

After all, the survival of a business lies in its profits, and it would be hard to convince corporations of the importance of sustainability if it does nothing for their bottom line. 

Even from a purely economic point of view, sustainability is a crucial part of running a business. Corporate leaders have to understand this and in turn, translate this into concrete efforts that lead to real, impactful change in the way we currently function.

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