How Sustainability is Driving Business Value

I’ve had the good fortune to work for some wonderful organizations in higher education and in the corporate world in my 10+ years managing sustainability. As a sustainability professional, it doesn’t get much better than working for a company like Fetzer Vineyards, where I worked as director of sustainability. It's a company that has been a sustainability leader in the wine industry for decades. Fetzer the first winery in California to operate on 100% renewable energy, the first zero waste certified wine company in the world, the first carbon neutral certified wine company in the US, a certified B Corp and 100% of their vineyards are certified organic.

In addition to their sustainability leadership, during my time at the company we saw growth every year and received numerous awards and recognition for the quality of the wine that was produced. In fact, Fetzer’s number two brand, Bonterra, won one of the most prestigious awards in the industry by receiving the Wine Enthusiast American Winery of the Year award in 2016.

I mention this because there's long been this thought that generating profit and generating positive environmental and social impacts cannot go hand-in-hand - you can't have them both. Today we know that this just isn’t true. We're seeing companies all over the world that are not only doing well and doing good, but they're doing well by doing good. In other words, sustainability is driving value for their business and becoming a key to their success.

I wanted to talk a little bit about the mounting evidence and research that is showing how a demonstrated commitment to sustainability drives business value.

Evolution of Corporate Responsibility

To frame up what brought us to where we are today, let’s start with a brief overview of the evolution of the corporate responsibility movement.

Corporate Philanthropy – In the 1980’s we had corporate philanthropy, which was a bit of a response to the environmental movement of the 1970’s and the bad PR that many large corporations were receiving regarding their social and environmental impacts. Companies were creating foundations, they were donating to charities and they were doing good works projects in their communities.

Corporate Social Responsibility - In the 1990s, this turned into corporate social responsibility when companies began taking these good works projects they were doing in their communities and beginning to focus these types of efforts within their own company. This is when the term “Triple Bottom Line” became well-known as companies were focusing on People, Planet and Profit.

Corporate Sustainability - In the 2000's, this turned into corporate sustainability. Companies were realizing they could create a competitive advantage with a focus on sustainability. They started hiring sustainability consultants and developing departments focused on sustainability. And now most major corporations have departments or staff that are in charge of managing sustainability.

Corporate Regenerative Development – What we are seeing today from the leaders, and will see more into the future, is corporate regenerative development. This is really the next step in the evolution of corporate responsibility where companies are moving from sustainability to regenerative development, meaning they're not just sustaining the environment or sustaining their community, they're actively regenerating, restoring and revitalizing. Instead of trying to just be less bad as a company, they are actually focusing on positive impacts and trying to be more good.

Companies Doing More

Every day it seems there are more and more examples of companies of all sizes that are doing great work and setting ambitious sustainability goals. Walmart has a goal to reduce a gigaton of greenhouse gas emissions within their supply chain. Kroger has a goal that they want all stores to be zero waste by 2025. KFC has a goal that all consumer facing packaging will be recoverable or reusable by 2025. Ikea has a goal to become a net exporter of renewable energy by 2020. We're seeing with RE100 over 207 large corporations that have established 100% renewable energy goals.

We are seeing momentum building in one of the most exciting movements in the business world - the B Corp movement. Certified B Corps represent people using business as a force for good in the world. These B Corps are businesses that have met the highest standards for social and environmental responsibility, including some large companies like Patagonia, Ben and Jerry's and Danone North America. There are now over 3,111 certified B Corps around the world and there are now 34 states that have been passed benefit corporation legislation to create a new type of business - a business that is legally required to consider its impacts on the environment and society right along with its economic impacts.

We're seeing businesses lead not just by what they do, but by what they say. From businesses taking stances on social issues like Nike and Gillette, to the 2,100 businesses that are saying “We're Still In.” In reaction to the U.S. pulling out of the Paris climate agreement, over 2,100 businesses and hundreds of cities and universities around the country are proclaiming that they are still working towards the goals of the Paris agreement and that they see it as being important for their business and for the economy.

As companies strive to meet net zero carbon targets, the focus is shifting towards reducing the carbon footprint of product packaging. Innovative carbon management software procurement and operational carbon accounting databases are being employed to analyze and reduce the environmental impact of packaging materials. This is more than just a trend; it's a crucial step towards a net zero future. By investing in sustainable packaging solutions, companies are not only mitigating environmental risks but also meeting consumer demand for responsible practices, thereby adding another layer to their sustainability-driven business value.

Why are all these businesses so focused on sustainability and creating these ambitious goals? There are many reasons and they all boil down to the fact that a long-term commitment to sustainability creates business value.

Consumer Demand

More and more consumers, mainly led by younger folks, are purchasing sustainable products and looking to support companies that share their values and beliefs. This is a growing trend in Millennials, Gen Z and Gen X consumers. In 2017, Neilsen reported that U.S. consumers spent $128 billion on sustainable products, which is a 20% increase from 2014. In that same three year span, the growth of non-sustainable products was 5%. Another Nielsen study surveyed over 30,000 people around the world on their purchasing habits. 81% of respondents said it's extremely or very important that companies implement programs to protect the environment and 73% said they would change their consumption habits if it was harmful for the environment.

Investor Demand

Obviously, the consumer is one of the most important stakeholders for businesses in any industry. Another important stakeholder that is really pushing the sustainability movement forward is the investor community. More and more investors are looking at the sustainability performance of the companies that they're investing in and asking for more transparency and more action. We're seeing an incredible rise in the ESG movement in recent years. ESG is the incorporation of environmental, social and governance performance, along with financial performance, when making investment decisions. BlackRock is a company that manages $6.4 trillion in assets, which makes it the largest asset manager in the entire world. BlackRock’s CEO, Larry Fink, puts out a letter every year to the investment community. In 2018, Larry said, “Within the next five years, all investors will measure a company's impact on society, government, and the environment to determine its worth.”

This is a look at the growth in the ESG movement. As you can see, there was around $2 trillion being managed incorporating ESG from 1999 to 2012. Then, from 2012 to 2018 this jumped up to $10 trillion.

The investors obviously know something about sustainability. They understand the importance of sustainability for the long-term health and success of the businesses that they invest in.

So, what are some of these real proven benefits of sustainability?

Employees

By 2020, according to the Millennial Impact Report, nearly half of the U.S. workforce will be millennials. Just as the millennials and other young folks want to purchase from and support companies that share their values, they also want to work for those companies. The employees want to have purpose and meaning in their work. A company with a comprehensive approach and commitment to sustainability, a mission to make the world a better place, is what they're looking for.

Once these individuals are employed, how do you engage them? Sustainability can really increase employee engagement by making these employees an active part of that mission and engaging them in sustainability initiatives. The organization that's done the most research on the impacts of sustainability and employee engagement is the National Environmental Education Foundation. They've done a number of studies with Pricewaterhouse Coopers, and the most recent study says conclusively that sustainability leadership leads to increased employee engagement and it has a direct positive influence on nearly every aspect of employee engagement including alignment, pride and discretionary effort.

Mitigating Risk

Sustainability can help reduce risk in a company. I’m not just talking about climate related risks, supply chain disruptions, water shortages and all these environmental risks, but also public relations risks. A proactive approach to sustainability is going to help companies avoid those PR-related risks in a world of rapid transparency where information is shared at an instant across the world. Sustainability also helps mitigate regulatory risks. We have cities, counties and states around the country that are developing climate action plans and developing new policies and regulations to reduce greenhouse gas emissions. For example, California passes the AB 1826 a few years ago that has put increased demands on businesses to divert organic waste from the landfill. On January 1st, 2019, a new component to that law was implemented requiring any business in California that produces over one dumpster of waste per week to have organic waste recycling in place.

Reduced Operating Costs

The most straight forward benefit of sustainability, and the easiest to understand and quantify, is the reduced operating costs. When a business is reducing waste, reducing energy, reducing water use, reducing greenhouse gas emissions, operating more efficiently, obviously they will be saving money. William McDonough is a sustainability and circular economy thought leader, architect and author of the books Cradle to Cradle and The Upcycle. McDonough will tell you that there is no waste in nature. When we look at nature, there is absolutely no waste. Everything has value and everything has a purpose. McDonough points out that waste is really just the result of design flaw. We need to rethink and redesign the way we make our products, rethink the way we operate our facilities and rethink the way we operate as a society. Sustainability is all about eliminating waste and maximizing efficiency, which of course leads to cost savings.

Driving Innovation

Using sustainability as a lens to look at your business can lead to innovation in your business and creating new ways to get things done. A focus on sustainability in all aspects of a business can lead to process changes, new products or services, the use of new technology, the creation of new technology, new management techniques and other innovations. A Deloitte report entitled Sustainability Driven Innovation, studied hundreds of companies and labeled them as sustainability leaders and innovation leaders based on a number of criteria. The study found that a company labeled a sustainability leader was 400 times more likely to also be labeled an innovation leader.

Sustainable Companies are Higher Performing Companies

So, what does this all kind of lead to? Increased employee engagement, recruitment and retention, reduced risks, driving innovation and reduced operating costs. It all leads to higher performing companies and that's what the overwhelming research shows. Sustainable companies are outperforming other companies.

Neilson reported U.S. companies with a demonstrated commitment to sustainability we're growing at a rate of 4% over the past year. This is compared to a growth rate of less than 1% for companies without demonstrated commitments to sustainability. The UK reported that United Kingdom certified B Corp's are growing 28 times faster than the national average. Unilever reported that they're sustainable brands are growing 50% faster than their traditional brands.

The University of Oxford conducted a literature review of over 200 studies where they looked at the relationship between sustainability performance and financial performance. The findings of their review included:

• 90% of the studies indicate that sustainability leadership leads to a lower cost of capital

• 88% of the studies indicate sustainability leadership leads to increased operational performance

• 80% of the studies show that sustainability leadership leads to better stock performance

It has become clear that sustainability must be an important component to any business strategy in the coming years and decades to ensure long-term health and success. As the information and research on this topic continues to come out, the business case for sustainability will only become stronger.