The concept of sustainability has evolved significantly over the past few years. It is no longer just a trendy buzzword but has become an essential element of business models.
Major multinational companies such as IKEA, PepsiCo and Amazon lead sustainability transformation by setting ambitious goals and implementing new initiatives. IKEA aims to make 50% of non-renewable material out of recycled material by 2030. It has launched new services to give furniture a second life by refreshing, reselling, and recycling. PepsiCo's ‘Performance with Purpose’ initiative is geared toward a healthier future and Amazon`s commitment to becoming carbon neutral by 2040 demonstrates the substantial shift in the sustainability paradigm. However, this change was not an overnight success but a meticulous journey influenced by many precursors.
Three main domains have driven the shift toward sustainability: government, investors and the public.
1. How governments are driving sustainability through regulation
Government policies and regulations have played a significant role in setting the direction for sustainability development. The European Green Deal, was introduced to boost sustainability transformation and make the EU climate neutral by 2050. The Carbon Border Adjustment Mechanism (CBAM) was adopted to put a fair price on carbon-intensive goods imported into the EU, avoid the risk of the so-called carbon leakage, and incentivize cleaner production in non-EU countries.
2. How investors influence sustainability through reporting standards
Investors are also pushing public companies through ESG reporting and rating, assessing how companies have integrated sustainability practices into their daily performance and measuring the non-financial impacts of business operations. We can also see the increase of new green financial instruments companies use to help the planet while improving their bottom lines.
3. Public pressure spurs sustainability growth
Public pressure pushes industry leaders to develop sustainability strategies and pledges toward achieving net zero targets. Sustainability has been incorporated into purchasing behavior, and various market research proves that sustainable consumer goods are growing faster than non-sustainable goods. This trend is especially popular among the younger generation, attaching more importance to sustainability and prioritizing sustainable practices and lifestyles.
Understanding key perspectives of sustainability
Sustainability is a vital issue that will continue to dominate the business landscape. As consumers, investors and other stakeholders demand more responsible practices from companies, it’s essential for organizations to understand the impact of sustainability on their operations. To do so, they must consider four key perspectives: risk management and compliance, top-line contribution, cost reduction, and brand reputation.
Risk management and compliance is key
One of the critical perspectives for companies to consider is risk management and compliance. With the unfolding climate crisis, companies face increasing pressure to take bolder actions regarding risk management to tackle this issue and remain in business for the long run. As such, regulatory compliance is becoming more important for organizations. Those who embrace it can also find opportunities to experiment with technologies, materials and processes to develop more creative, innovative, and sustainable solutions. By doing so, organizations can create and deliver more value, invent new business models and drive profitability.
Importance of sustainability for top-line growth
Another perspective that organizations must consider is how becoming more sustainable can contribute to top-line growth. When an organization improves its products and services to make them more sustainable, it can open up new markets and receive a premium for its products. An excellent example of this is the Dutch company DSM, which has shifted from a chemical business, to a nutrient based company that applies bioscience in its products to address the world’s biggest challenges while simultaneously creating economic, environmental and societal value.Moreover, as consumer behavior shifts across different generations, companies prioritizing sustainability and integrating it into their entire value chain can gain a significant advantage. Younger generations, in particular, are placing more importance on sustainability and prioritizing sustainable practices and lifestyles and they are increasingly willing to pay more for sustainable products.
Improving profitability and reducing costs
Another essential aspect of sustainability is how it can positively influence organizational profitability and reduce costs in the long run. Amid the environmental crisis and geopolitical tensions, companies are rethinking their approach to cost efficiency. They have realized that if they implement energy, waste and water-efficient measures, it will improve their profitability.
Developing sustainability positively influences brand and reputation
Finally, developing sustainability practices can impact an organization’s brand reputation and increase exposure. Employees are increasingly interested in working for companies that do meaningful things and contribute to the environment. Therefore, sustainability is inextricably linked to the employee value proposition, which can help companies win and retain the brightest people in the war for talent.
Sustainability is an inseparable companion to the corporate prosperity and is associated with significant economic benefits. In the second part, we will explore how organizations can facilitate sustainability transformation in your organization.
If you want to dive deeper into the sustainability world, watch the on-demand webinar Planet, People and Profit: The Role of Data and AI to Drive Sustainability to explore how to implement a sustainability strategy that will help improve the bottom line with a competitive advantage, revenue, and profitability.
This blog is written by: Olivier Penel, Head of Global Advisory at SAS and Brecht Seifi, Analytics Advisor and EU Technical Account Manager at SAS
