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Sustainability in the Business World

Sustainability in the private sector is primarily driven by the need to manage risk and mitigate the effects of the changing climate. With climate change mitigation being one of the leading issues on the global development agenda in the last decade, sustainability has also become an important component of business development strategies.

During the past decade, companies have faced a wide range of environmental risks across their supply chains such as droughts, heat stress and floods. According to an article by The Guardian, organizations have long been at risk from climate change impacts such as disruptions to business operations, increased costs of maintenance and materials, and rising insurance prices. Such risks have a significant impact on organizations because they affect investment decisions, stakeholder and customer behavior, and government regulations. This is why the proper management of an organization's energy, emissions, natural resources and waste has a substantial effect on supply chain efficiency and long-term viability.

As a result, companies are including the issue of climate change in their corporate agenda. Instead of a 'wait-and-see' approach, organizations have become more proactive as they pay more attention to the risks, threats and consequences of climate change.

Importance of Sustainability in the Corporate Realm

Multinational companies around the globe acknowledge that integrating sustainability into their agendas helps prepare their businesses to better anticipate and plan for the long-term effects of climate change, including the effects on their stakeholders' expectations. According to a McKinsey survey, 76 percent of CEOs believe that strong sustainability performance helps boost the long-term performance of their businesses. In addition, strategically integrating sustainability principles in businesses is also connected to improved brand reputation and brand value. This was supported by an empirical study conducted by The Guardian which shows that organizations with high sustainability and environmental performance create more value for their stakeholders. These organizations gain more competitive advantage as they continually attract and retain more committed employees and loyal customers compared to organizations that do not have sustainability high on the agenda.

Understanding the need to be sustainable and climate-resilient is critical for businesses in order to capitalize on the environmental conditions that are shaping the corporate realm today. By addressing an organization's environmental risks and natural resource constraints, new opportunities present themselves as businesses learn to develop new products, services, business models and strategies.

Furthermore, embedding sustainability in the corporate agenda helps strengthen stakeholder relations and increases an organization's bottom line. Another study from the Harvard Business School shows that sustainable companies have better chances of improving and increasing their profit margins. The report indicates that during a span of 18 years, highly sustainable companies dramatically outperformed ones with low sustainability in terms of stock value and other financial measurements. The annual above-market average return for the highly sustainable organizations was 4.8% higher than their competitors. The high-sustainability companies also performed much better in terms of returns on equity and assets.

Sustainability and Stakeholder Engagement

Organizations are working under a complex array of environmental risks that can cause unpredictable outcomes to their businesses. Addressing the complexity of their working environment by pursuing organizational sustainability will help reduce operational costs and bring more sustainable products and services to customers and consumers.

According to a report by the Network for Business Sustainability (NBS), companies can reduce their own environmental risks by aligning their sustainability goals with the expectations of stakeholders such as governments, civil society organizations, suppliers, investors and consumers. Stakeholder engagement has also become crucial for organizational stakeholders such as shareholders and investors as they consider environmental, social and governance (ESG) factors when analyzing investment decisions. The increasing demand from investors has prompted organizations to voluntarily disclose their environmental data, such as their emissions-reduction initiatives and emissions-reduction targets through integrated ESG reporting.

The report encouraged integrating sustainability information into standard business processes and reports. Several studies have displayed the positive relationship between ESG and stock performance. A Harvard Business School working paper affirmed that sustainable companies have a tendency to gain higher stock performance, lower volatility and a greater return on assets and equity. Another investor survey conducted by PwC last year also shows that ESG factors enhance investment value. The survey indicates that 80 percent of responding investors included ESG factors and sustainability issues in their investment strategy.

Best Sustainable Business Practices from Leading Organizations

The sustainability agenda has already altered the global business landscape as it brought about change in both corporate and stakeholder behavior. With the growing demand from consumers to produce more sustainable products and services, and the increased pressure from investors to report ESG performance, organizations worldwide are now upping the ante on their sustainability strategies.

Ceres, a non-profit organization on sustainability leadership, recently made a list of companies leading the way towards sustainability in its respective industries:

  • 1. Stakeholder Engagement – PepsiCo
    Food and beverage company PepsiCo has been actively engaging its investors with its sustainability strategy and goals since 2010. During its annual shareholder meeting, PepsiCo discloses climate change, water scarcity and public health issues that represent core sustainability challenges in its annual financial filings. During its most recent shareholder meeting, the company presented its Performance with Purpose sustainability strategy and goals.

  • 2. Supply Chain Management – Ford Motor Company
    The Ford Motor Company is leading the way towards sustainable supply chain operations, as it has successfully applied sustainability principles down to their supply chain and factory floor. Having established requirements for their suppliers, Ford gathers information on climate risks and greenhouse gas (GHG) emissions from their suppliers as they work together to establish GHG emissions reduction and energy efficiency targets.

  • 3. Sustainable Product Innovation – Nike
    Global sports apparel company Nike has successfully integrated sustainable product innovation in its product portfolio, which includes new product innovations like the FlyKnit running shoes. The FlyKnit shoes create two-thirds less waste in production than their counterparts. Aiming to raise the bar higher on sustainable design, Nike created the MAKING app in 2013, which discloses data on its Materials Sustainability Index to the consumer. This app allows designers in the industry to make more sustainable design decisions and, ultimately, lower-impact products.

  • 4. Investor Dialogue – Starbucks
    Starbucks, the world-famous coffee company, has been very attentive in responding to the sustainability-related concerns of its investors. During their 2013 shareholder meeting, CEO Howard Schultz described the company's efforts to engage with the local communities and their suppliers in order to accelerate investments in sustainable farming and reach Starbucks' goal of ethically sourcing 100% of its coffee beans by 2015. Schultz also outlined efforts to help coffee growing communities mitigate climate impacts and ensure stable coffee supplies.

  • 5. Sustainable Design – Dell
    Computer technology company Dell is fully committed to reducing the social and environmental impacts of its products. Dell’s sustainable design program includes the use of alternative and recyclable materials in their company's product and packaging design. The company also made improvements in energy efficiency and end-of-life product recyclability. In addition, their Legacy of Good Plan shows the company’s commitments to reduce the energy intensity of its product portfolio by 80 percent by the year 2020. This sustainability commitment will translate to significant environmental savings, as well as cost savings for its consumers.

FirstCarbon Solutions’ Sustainability Solutions

FirstCarbon Solutions is a leading sustainability solutions provider with expertise in climate change and carbon management, as well as experience in identifying and mitigating environmental risks. FirstCarbon Solutions helps organizations understand the business drivers for carbon management and provides best-practice examples for incorporating climate mitigation strategies into their business agenda. As various industries and governments around the globe deal with the challenges brought about by climate change, FirstCarbon Solutions develops solutions that support environmental regulatory programs across the entire organization.