Sustainability | Bottom-Line Benefits Of Sustainability

A mounting body of research indicates that more companies are incorporating sustainable practices into their business model, enabling them to take an environmentally friendly approach while also benefiting on an operational and commercial basis. These sustainability efforts can yield crucial cost-savings by reducing waste, raise a company's profile and spur innovation.

"'Sustainability' and 'going green' are buzzwords that get overused, but many business owners are discovering that looking at their operations through a green lens can help them reduce costs, rethink long-held business practices and open doors to new opportunities," the New York Times explains.

According to a late-2010 survey of large and medium-sized companies from global tax advisory firm KPMG , 62 percent of businesses already have an active sustainability program in place, up from just over half in February 2008, while 11 percent of companies are currently developing one. Twelve percent of firms expect to create a sustainability program at some point in the future, and only 5 percent claim they have no plans for such a program.

As in previous years, respondents said that the two largest factors driving the development of sustainability initiatives are regulatory requirements (42 percent) and brand enhancement (41 percent). However, sustainability efforts are increasingly being adopted due to their influence on the bottom line, with 29 percent of firms citing risk management as a major sustainability driver and 27 percent citing cost reductions.
"The demand and preference for sustainable business processes is becoming part of the business environment," Yvo de Boer, a special adviser to KPMG's Climate Change and Sustainability practice, said in an announcement of the results . "Businesses may initially react to this in the same way that they will react to any other signal from their markets. But once they begin to look at their operations through the lens of sustainability, most find that the commercial benefits are obvious and the sustainability agenda takes on a life of its own."

Traditionally, businesses have been reluctant to adopt sustainable practices due to the financial burden involved, but the latest findings show a different mentality spreading through the business world. According to KPMG, 61 percent of businesses agree that the benefits of investing in sustainability outweigh the costs. This sentiment is even more prevalent among larger companies, as 72 percent of firms with annual revenues of $5 billion or more agree the benefits more than make up for the costs.

There are several advantages imparted by corporate sustainability initiatives. Seventy-two percent of firms with sustainable practices have improved energy efficiency in their global operations, 69 percent have reduced costly packaging waste and 67 percent have cut their greenhouse gas and other pollutant emissions. These measures have led to significant reductions in energy costs, more efficient use of resources and improved relationships with customers and suppliers.

According to a report last year from McKinsey , improvements in energy efficiency could produce savings of more than $1 trillion through 2020 in the United States alone. Given the current trend of rising energy and materials prices, the potential savings could be even higher.

Moreover, many companies have found that sustainability programs have boosted innovation and opened up new markets. KPMG found that 44 percent of executives consider sustainability a source of innovation, while 39 percent said it is a source of new business opportunities. Corporate sustainability has shifted from being a risk- and compliance-based requirement to a driver of business expansion.

Despite these advantages, there are still major challenges to the adoption of sustainable practices.
A recent report from the Economist Intelligence Unit (EIU) indicates that 44 percent of executives believe their immediate financial goals are an obstacle to sustainability. The report claims this is a missed opportunity, as only 14 percent of managers see a link between sustainability and short-term profit, even though some sustainability initiatives pay off in under a year.

Another important barrier is a lack of reporting on the results of sustainability programs. According to the EIU study, only 18 percent of companies that employ sustainability practices publish their yearly targets and performance, and only 19 percent of firms in developed countries plan to launch sustainability reporting in the next two years. Just 18 percent of large firms put out an integrated annual report on their sustainability metrics.
"[W]here companies need help is in assessment and evaluation of their programs, benchmarking against emerging industry standards, verification of the quality of their information systems and guidance on how to take commercial advantage of the incentives on offer from governments," Ted Senko, KPMG's Global Head of Climate Change and Sustainability, said. "This skepticism is something we need to change by providing better information. Reporting on sustainability is not just showing good corporate citizenship — it is a route to more efficient and better-run corporations."

Although reporting and initial investment costs remain significant hurdles, the adoption of sustainability programs continues to increase as more companies commit to reaping the rewards of eco-friendly business.
In a late-2010 survey from sustainable consulting group BSR , when asked which areas sustainable companies show the most leadership and which areas will drive ongoing business success, both questions yielded the same top answers: creating innovative products and business models designed for sustainability (40 percent leadership, 66 percent business success); measuring and demonstrating positive social and environmental impacts (39 percent for both); and responding promptly and effectively to accidents, product quality issues and other incidents (35 percent leadership, 39 percent business success).

"When the recession hit with full force two years ago, we urged our members to stick with sustainability as a key to achieving long-term business success," BSR President and CEO Aron Cramer said in an announcement of the findings . "It's very encouraging to see that, even in a world still marked by instability and change, they're staying the course."