pollution, rubbish, waste

Why Sustainability Matters I – Profit & Potential for SMEs

Building your business in the new Post-covid world is going to be difficult – but can a sustainability approach make it somewhat easier, and for sure, more profitable?

This is the first of two short blogs dealing briefly with this subject and hopefully presenting you with a few options to consider.

pollution, rubbish, waste

I will not at this point go into the why’s and wherefores of sustainability from the point of view of the planet – those arguments are for another day and another place. I just want to make the point here that sustainability, simply from the management and financial points of view, can improve your company’s performance.

It has become apparent from discussions with various clients over recent years that, in general, the vast majority of SME owners simply do not know what they are paying for in terms of energy, water, waste management, facility management and similar from one end of the year to the next, much less, where there are opportunities to save on these costs. These costs are bundled and absorbed as ‘Overheads’ or similar without so much as a look – in essence, savings in these areas go straight to the bottom line – straight to the profit line.

In your business, how much would you need to sell to get 50USD additional profits to the bottom line … if you save 50USD on you electricity, waste or water bills for example – these savings are instant profits!

Sustainability allows you to consider raising your price and growing your margins
According to recent Nielsen market surveys, a certified sustainable company, have been enjoying  5% + YOY price increases.  Its non-sustainable competitors grow prices 1% YOY.  By not becoming a verifiable and certified sustainable company, you may be sacrificing margin. And, anecdotally, even in these pandemic times, it appears that the sustainability aspect of even larger corporations is becoming more significant in buying decisions – and the SME, being a supplier to the larger corporations, must also be verified sustainabile to make the whole system work!

Have you done everything to improve your 2020 margins?

CAPEX Considerations and Government Initiatives

In many jurisdictions there are incentives in place to facilitate the energy transition, CO2 footprint reductions, waste reduction, plastics reductions, facilities safety and sustainability and many other formats. These incentives come in the form of direct sales tax and VAT relief, direct grants and often accelerated capex write-offs – all of which help you recover your capital expenditure in executing the sustainability initiative – ON TOP OF THE OPEX REDUCTION IN ENERGY SAVINGS. It is a bit of a maze, but that is where a good energy and sustainability management advisor could be a sensible outsourcing decision for your organisation.

Outperform your competition – despite the operating environment

According to NYU/Stern, pre-virus, sustainable brands were growing 5.6x faster than their non-sustainable peers.  The gap has widened by 7% during 2020 in spite of the pandemic and researchers believe that this trend will continue to expand post-virus, as the global community is expected to demand more proof of sustainability from organisations.

Organisations benefit from making smart decisions and smart operational adjustments

In a recent BAR (Brazilian Administrative Review) study, Certified Sustainable companies enjoy +24.6% Net Income and +11% EBITDA gains.  Data shows there is nothing a business can do, that will have a bigger positive impact on combined increased revenues, lower costs, improved employee performance, enhanced brand image, profitability and valuation, then to become certified sustainable.

In short, costs go down; brand image, revenues, margins, profit and valuation go up; and employee retention, health and performance go up with a positive impact on HR and insurance costs generally. 

Despite the environment, do you want to be a market share winner, or loser, in 2020? 

A. T. Kearney, have identified that sustainable companies outperform their peers by +15% and that even the mining industry has taken on the not inconsiderable challenge of sustainability.

Unilever have identified a +$1 Trillion gap between consumers looking to move their business to becoming certified sustainable organisations….and this also includes certifying suppliers and their supply chain (You??) as sustainable.  Somebody is going to take this business.

Summary Benefits of being a Certified Sustainable Business

Overall, according to a Harvard Business Review report the following are the fundamental and tangible benefits to be gained when a business can demonstrate that it is a sustainable business:

  • 20% higher sales and margins through differentiation from competitors
  • 55% higher employee morale
  • 16% higher employee productivity
  • 38% higher employee loyalty
  • 50% lower employee turnover

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