The Business Case for Sustainability

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The Business Case for Sustainability

  • The Business Case for Sustainability Key drivers for a business to embrace sustainability, with case study examples of companies realising the benefits from sustainable business practices.
  • Date: Jan 10, 2018
  • Category: Sustainability

Sustainable business is smart business. A strategic approach to long-term material risks and opportunities can make companies more resilient, more innovative and more attractive to investors, customers and potential employees. This article sets out the key drivers for sustainable business success.

Businesses do not operate alone. They both have an impact on, and are impacted by, their wider social, economic and environmental context. An understanding of these impacts, and the stakeholders who are impacted, is vital to understanding the business case for sustainability. Every organisation is unique. But each should be able to articulate a clear commercial rationale for taking action on responsibility and sustainability issues.

Mapping the Business Case

Sustainability issues present both risks and opportunities to companies. By minimising and mitigating risks, while maximising and leveraging opportunities, companies can create long-term business value.

There are four broad benefits from sustainable business practices:

1Reputation & relationships

Taking action and engaging audiences can build trust and enhance brand value. This can help to attract and retain customers, employees and investors as well as strengthen license to operate in the eyes of regulators and local communities.

2Cost savings & efficiencies

Measures such as reducing waste, cutting energy and greenhouse gas emissions and improving worker safety can all help cut costs and improve the bottom line.

3Risks & resilience

Minimising vulnerabilities and anticipating upcoming issues help to improve business resilience. For example, anticipating and managing shocks from natural disasters such as floods can help reduce supply chain risks. Similarly, engaging proactively with regulators and non-profits can help prepare for future regulations (perhaps ahead of competitors) or respond to campaigns that risk harming reputation.

4Innovation & insights

Pioneering new products, services and business models through the lens of sustainability can grow sales. For example, selling products that bring a social benefit – or re-configuring distribution channels to reach marginal groups – can create a social impact as well as new opportunities for market expansion.

The following examples below illustrate how companies are realising some of these benefits in practice, while also creating positive economic, social and environmental impacts for their stakeholders.

Nestlé Malaysia – Cost Reductions Through Water Efficiency

In its 2016 Nestlé in Society Report,Nestlé Malaysia identifies water scarcity as one of its top priorities, presenting a significant risk both to its own operations and local stakeholders: “Water is one of our most critical resources, the scarcity of which will have a drastic impact on quality of life as well as on our business operations.”

Nestlé has established a global Commitment on Water Stewardship, through which it commits to ensuring that its operations use water efficiently and do not compromise the right to water of local communities.

In Malaysia, Nestlé is making significant investments in environmental efficiency. In particular, it invested nearly RM10 million in 2016 on upgrading its water recycling processes. It is also working to raise awareness among factory staff, optimising its factory processes and engaging with vendors, suppliers and farmers to encourage water conservation.

These initiatives allowed Nestlé Malaysia to reduce its water usage per tonne of product by 7.6% in 2016 compared to the previous year, exceeding its reduction target of 4%. By reducing reliance on municipal water supplies, the reduction in water use benefits Nestlé Malaysia in two key ways. Firstly, it represents an immediate improvement in cost-efficiency. Secondly, it allows Nestlé to demonstrate its commitment to water stewardship in Malaysia, helping to secure its license to operate in the longer-term.

Nike – Supply Chain Resilience and Reputational Benefit

In the early 1990s, sportswear company Nike was accused of systematic, abusive labour practices among contractors in Indonesia. The company’s reputation took a hit when it became the target for widespread negative press coverage and protests. In 1994 alone, well-respected publications including Rolling Stone, The Economist, The Boston Globe, and The New York Times released “sweatshop” reports, implicating Nike and other companies.

By 1998, the company faced real financial consequences: falling stock prices and weak sales. Nike’s chairman and chief executive, Philip H. Knight was forced to acknowledge: “The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse. I truly believe that the American consumer does not want to buy products made in abusive conditions.”

However, by 2016 Nike was named by Reputation Institute as one of the world’s most reputable companies. Its stock price today is more than six times higher than its high of $9.36 in the 1990s. The key to its recovery was effective stakeholder engagement, targeted action and transparency.

Following the CEO’s admission of the problem, Nike engaged with an array of organisations and allowed labour and human rights representatives to join factory inspections in Asia. It also donated $7.7 million to create The Global Alliance for Workers and Communities, which undertook research and engagement with 4,000 workers in Nike contract factories in Indonesia to understand their attitudes and aspirations.

Nike has continued to increase transparency, publishing a full list of its supplier factories (now published as an interactive online map ) and listing identified labour abuses. Since 2014, it has conducted trials of worker engagement and training approaches in Indonesia, tested different compensation models in Thailand, and rolled out technologies including smartphone apps to more than 30,000 workers. Combined, these actions have enabled it to improve worker livelihoods while increasing resilience in its supply chain.

Maybank – Innovating New Lending Products

As Malaysia’s largest financial services group, Maybank describes how it is developing a world-leading approach to sustainability. Following the introduction of its Responsible Lending Guidelines in 2015, Maybank carried out a review of its approach to assessing environmental, social and governance (ESG) risks in its lending practice.

In its 2017 CDP submission, Maybank sets out the particular sustainability risks and opportunities which are driving this process. It identifies both “increased consumer demand for sustainable products and services” and “strong investor demand” for investments in companies “which demonstrate accountability in sustainability actions and integrate ESG elements into their financial analysis and decision making”.

Maybank’s existing programmes include investments in low-carbon products through Malaysia’s Green Technology Financing Scheme, and a commitment to creating “easy access” and “hassle-free” products for small- and medium-sized businesses – helping to drive growth in developing markets. Looking ahead, Maybank is identifying opportunities to further develop the environmental and social impacts of its lending – helping it to develop new products and reach new markets.

Author

Charlie Ashford, Corporate Citizenship

Charlie Ashford is a Consultant at Corporate Citizenship. He has worked in the sphere of corporate sustainability for over five years, with particular expertise in ratings and rankings, socio-economic impact measurement, human rights and environmental impacts. He has a BA in Economics from Cambridge University.

  • Tags : Sustainability, Business Case, Risk, Opportunities.

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