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How can your business benefit from climate action — short and long term?

Climate actions are not just expenses, but a valuable investment. Learn how exactly your business can profit from sustainability.

Anna Esakova
Anna Esakova
August 13, 2020 | 6 min

The idea that sustainability can go hand-in-hand with business benefits is called shared value. But this is not just an appealing theory, it is a direct correlation proven by several studies. Companies with a high level of sustainability have much deeper stakeholder engagement and outperform companies with a low level of sustainability, for example, in terms of the stock market and accounting indicators - this is the unambiguous result of an empirical study that compared 180 companies over 18 years.

Investors look for sustainability

92 percent of institutional investors want companies to identify and report ESG factors that materially affect their business performance.

The LFCA sustainability clause, implemented by over 30 leading European VCs, shows that investors are willing to include sustainability in their term sheets and shareholder agreements when concluding deals with startups. Some VC funds even conduct detailed due diligence check-ups regarding the fulfilment of ESG requirements.

Employees choose sustainable companies, work there longer and with higher productivity

21st century employees are focusing more on their job’s purpose and company missions (Whelan & Fink, 2016). Companies that invest in sustainability initiatives tend to create sought-after workplace culture and employee engagement. In addition, companies who embed sustainability in their core business strategy treat employees as critical stakeholders, just as important as financial shareholders. Employees appreciate such an attitude, are proud to work there, and feel part of a broader effort.

HBR shared another study that showed that employee loyalty was 38% higher in companies that implement sustainability efforts, compared to the ones that are not concerned about sustainability. Furthermore, firms that have adopted environmental standards have seen an increase of 16% in their workplace productivity. Sustainability is an important part of non-financial motivation for employees.

Implementing sustainability can have a great impact not only on employee engagement, but can also help you to recruit the talent that you want. Many firms now realize the importance of attracting and retaining highly-skilled employees as a necessary component of their competitive advantage. For example, visionary firms such as IBM and Microsoft are putting information in their recruitment material touting their responsibility towards both natural and work environments, as well as their diverse workforce, in order to attract a larger number of prospective job applicants. Nowadays more and more companies communicate their sustainability priorities in job offers. Indeed, our member companies receive positive feedback from applicants for their sustainability ethos.

Customers care about sustainability and may look to prioritize it over price

Making your products more sustainable can influence the price. In some cases, upping the sustainability can reduce the cost, causing a double positive effect. In other cases, it will make your products more expensive.

Businesses can be skeptical about consumer interest in sustainable products and afraid that customers will stop buying from them, switching to cheaper competitors. However, some empirical studies show that this is not actually true for many markets and product categories. Consumers and customers pay attention to the sustainability efforts of a company and factor this information in to their purchasing decision (Choi & Ng, 2011).

A real shift is occurring in the minds of consumers. Today’s consumers expect more transparency, honesty, and tangible global impact from companies. And they have a choice of a whole range of sustainable, competitively priced, high-quality products. In fact, one study found that among numerous factors surveyed, the news coverage regarding environmental and social responsibility was the only significant factor that affected respondents’ evaluation of a firm and their intent to buy their products. In fact, Unilever claims its ‘brands with purpose’ are growing at twice the rate as the others in their portfolio.

Nearly two-thirds of consumers across six international markets believe that they ‘have a responsibility to purchase products that are good for the environment and society’ — 82% in emerging markets and 42% in developed markets. In the food and beverage industry, a growing number of consumers are considering values beyond price and taste in their purchasing decisions, such as social impact and transparency. Consumers are actually voting with their dollars — against unsustainable brands. Products that had a sustainability claim on-pack delivered nearly $114 billion in sales, up 29% from 2013. Most important, products marketed as sustainable grew 5.6 times faster than those that were not. In more than 90% of the consumer packaged goods categories, sustainability-marketed products grew faster than their conventional counterparts.

From their side, companies can charge higher price premiums based on positive corporate responsibility performance, even reaching up to 20% according to some estimates. Moreover, it has been shown that overall sales revenue can increase up to 20% as a result of transparent corporate responsibility practices.

If you are part of the LFCA you are already climate neutral or working towards it. These efforts can be shown on your website by integrating the LFCA badge to show your customers that you are owning your social and climate responsibilities.

Suppliers offer better cooperation terms

Companies that are engaging in sustainability usually have better relationships with their suppliers in the long term and are therefore able to secure the most favorable dealings. (Eccles u. a., 2014).

The media and NGOs keep an eye on your business reputation

Another critical stakeholder, especially for B2C companies and well-known brands are the media and NGOs. The reputation of a company is an important asset that can be enhanced by participating in sustainable practices. For example, Greenpeace has launched several watchdog campaigns targeting firms such as Shell and Nike, which has led directly to a change in their policies. For these companies, this caused high costs and a risk to their reputation until the issues were resolved (Lynch-Wood, Williamson, & Jenkins, 2009).

The media has many leverages to influence customers’ loyalty. Your products are less prone to a customer boycott caused by media investigations and publications if you minimize risks in advance by implementing sustainability (Sen, Gurhan-Canli, & Morwitz, 2001).

Governments will become more restrictive on carbon pollution — it’s just a matter of time

If you want to avoid paying high carbon taxes or fees in the future, reducing carbon emissions now is the best way to avoid these higher costs. Governments are already taking action. By 2014, about 40 national and over 20 sub-national jurisdictions had already implemented or scheduled emissions trading schemes or carbon taxes (World Bank, 2020).

In the near future, compensations for the carbon emissions that cannot be reduced will be perceived as a regular business cost. At the moment, while it is still voluntary, you can have time to adapt your business in advance and be in a far better position than competitors.

Remember the first-mover advantage. Investing ‘ahead of the curve’ in sustainability, before it is required by legislation, may enable firms to build brand advantage, or to create relationships and assets that will serve them well as the world shifts (Henderson, 2015).

It all starts with your personal commitment and values

One important driver and success factor in pushing for more sustainability within a company is the commitment of its Leaders (BSR & Globescan, 2017; Eccles u. a., 2014). This is one of the reasons why LFCA requires them to make a personal pledge before being able to join up with their entire company. Also, in our experience, change is much more quickly executed if a leadership team is supporting the mission.