Does it Pay to be Sustainable?

This article explores some of the reasons why companies avoid implementing sustainable initiatives, and provides direction for those on the fence.

The first question that comes to mind when a business is deciding whether or not to implement sustainable initiatives is: what will this cost us? Many unsustainable businesses believe that if they implement such initiatives, they will incur more costs than they will reap benefits. As defined in the Brundtland Report, a green business is “any organization that participates in environmentally friendly or green activities to ensure that all processes, products, and manufacturing activities adequately address current environmental concerns while maintaining a profit.” This means that a green company is one that meets the needs of the environment without disregarding the monetary needs of the company. If a certain decision will hurt the company in both the short and long run, they can choose not to implement sustainable initiatives without being ethically irresponsible. To be successful in their implementation, companies can apply the following 3 principles:

• It incorporates principles of sustainability into each of its business decisions & has made an enduring commitment to environmental principles into its business operations;
• It is greener than traditional competition; and
• It supplies environmentally-friendly products or services that replace demand for non-green products and/or services.

The failure to manage and improve our current environmental state threatens to overwhelm not just a few countries or any one continent, but the entire planet. Environmental and developmental barriers are not separate issues, but are inescapably tied together. The world cannot possibly continue to develop while the environment and its resources continue to deteriorate. In order to continue to build upon global and individual economies, and to build back after the many impacts of the COVID-19 pandemic companies around the world must make significant changes – especially those making the largest contributions to pollution and waste. In the short run, taking action might cost a business more money than they are making, but in the long run, it will make a difference for the environment, the industry, and the company. By incorporating principles of sustainability into business decisions and committing to environmental principles, a business can appeal to a a different and exceedingly growing market. Emerging into these markets will pave way for new opportunities and allow those who adopt green business principles to become the new, innovative, and socially-conscious leaders of their industries. In order to successfully advance in solving global problems, we need to develop new methods of thinking and doing, to elaborate upon moral and value criteria, and of course, new patterns of behaviour for both businesses and consumers.

In 1999, the Harvard Business Review published Bringing the Environment Down to Earth by Professor Forest Reinhardt. In this article, Reinhardt states his belief that the question isn’t actually “does it pay to be green?”, but rather “under what circumstances do partial kinds of environmental investments deliver returns to shareholders?” The simple answer is: product differentiation. The idea of product differentiation is to transform a product or service to become more environmentally-friendly throughout all stages of production, transportation, and consumption. Efforts such as these can raise costs for a business, but may also enable them to command higher prices, to capture additional market share, or potentially both. By differentiating their products, companies can emerge into new markets, and if they manage to be the first company to make the specific product or service more ethical or sustainable – they can profit by the change before other companies in their niche have time to follow suit. According to 2019 data from Statistica, approximately 42% of survey respondents stated they avoided the use of plastics where possible, and 28% buy from brands that promote sustainable practices. When a company supplies a sustainable alternative, they are essentially redefining the market. In this process of redefining the market, the companies are rewriting the competitive rules in their markets through the redefining of their business model, through cost reductions in cost, rethinking traditional notions of property rights, obtaining the resources to manage risks, the resources to obtain research capabilities, and being able to attract and acquire the necessary managers, scientists, and engineers for the change. By redefining the market, businesses are also able to attract more investors; by presenting the company’s sustainability performance to investors, some will be more likely to invest than they would have been previously. Generally speaking, people like to invest their money into company’s or projects in which they can make a profit and help make significant social changes. If a company can both efficiently and effectively make this switch in their environmental performance as a business, they’re likely to impress investors more than a company producing the same product or providing the same service without the added benefit of the social and environmental responsibility that goes along with it.

According to the Brundtland Report, “Economics and ecology must be completely integrated in decision making and lawmaking processes not just to protect the environment, but also to protect and promote development. Economy is not just about the production of wealth, and ecology is not just about the protection of nature; they are both equally relevant for improving the lot of humankind.” In order for the global community to continue to create, to want, and to be satisfied, industries must find alternative ways to run themselves and provide goods and services to the masses. If this is not done we will simply continue to develop and consume until we exhaust all our resources; leaving nothing left to use or any way to successfully satisfy customers. The global economy will crash and the entirety of planet Earth will be unusable and uninhabitable if we continue to consume and produce as we do now.

Overall, there are definitely financial costs to transforming your current business into a more sustainable one. However, due to the various opportunities this process provides – if done successfully – a company can reap a number of benefits such as improved public perception, better employee retention, a new or wider customer base, and more.