For larger corporations, and SME’s alike, taking a sustainability approach with environmental, social and governance programs may make the journey somewhat easier, and more profitable over the longer term. When it comes to managing and growing a business in the new Post-Covid world, sustainability matters.
This is the second of two short blogs dealing with the subject and hopefully offering alternatives.
The most widely known way that environmental, social, and governance programs (ESG) create value is by enhancing the reputations of companies—their stakeholders’ attitudes about their tangible actions—and respondents to a recent McKinsey survey agree.
There are many arguments as to why a company, particularly a growing small and medium enterprise should consider its position as regards environmental and social obligations and initiatives – indeed, becoming an environmentally sustainable entity could be one of the better and more profitable decisions that could be made in the current economic and social climate.
While I dealt with some of the financial benefits in Part I, there are also quite a number of intangible and less obvious benefits of being a sustainable company, least of all being the company owners perception of his own organisation and his legacy both as a company, and a leader both among his or her peers, and as contributors to the community over the long term.
This demonstration of leadership in addressing for example, energy and waste management, plastic waste reduction and generally working to provide a better environment for staff goes a long way in developing the perception of the developing brand both internally and externally among clients, customers and in the community at large.
Becoming a sustainable organisation today is simply perceived as THE RIGHT THING TO DO
New Customers and New Consumers
Unilever have identified a possible +$1 trillion gap between consumers looking to move their businesses to becoming certified sustainable organisations….and the availability therefore of certified sustainable suppliers. Somebody is going to thrive in this business environment.
The interesting thing is that for bigger brands, and indeed government, to be perceived as sustainable, it is imperative that their supply chain is also in compliance with their energy and sustainability objectives.
In the formal certification and vendor approval process, supplier materials, waste and energy sustainability and facility quality management are also coming under increasing scrutiny as compliance, if not certification, against formal standards such as ISO 50001 and ISO14001 are increasingly seen as positive differentiators.
This +$1 Trillion (and growing) in consumer/corporate spending, referred to earlier, are, like it or not, looking to move to certified sustainable companies. Government, in securing funding for stimulous grants and incentives, particularly post-covid, are committing to a more sustainable commercial future, particularly in the context of climate change.
In the era of sustainability and a circular economy, this incentive based environment will be fertile ground for any competent, innovative and certified sustainable organisation looking to grow market share or enter new markets. By the same token. one can expect that business will be lost by non-certified sustainable organisations who fail to “go with the flow”.
MIT and Boston Consulting Group have both identified that the biggest challenge to any size of organization is competitive differentiation. Nielsen have identified sustainability certification as a top competitive differentiator with +-80% of consumers, particularly millenials, wanting to buy from a company that is certified or perceived to be sustainable and environmentally “friendly”. They also recommend that companies, “develop a compelling sustainability value-creation story for investors”
How will you differentiate your company in 2020 … and beyond?
- Cone Communication / Ebiquity as early as 2015 identified that 84% of consumers seek certified sustainable companies. They further went on to report that while global consumers had high demands for companies to address social and environmental issues, they also understood that they also carry an obligation to make changes as well.
- NYU/Stern, pre-virus, sustainable brands were growing 5.6x faster than their non-sustainable peers. The gap has widened by 7% during the virus and researchers believe it will continue to expand post-virus, as the global community is expected to demand more proof of sustainability from organisations.
- Forbes, 88% of consumers want organisations to prove their commitment to sustainability.
Do you want to INFLUENCE THE LARGER BUYING GROUPS?
As early as 2017, for Forbes, the largest buying group (the 19 – 39 year olds) disbelieve 99% of all traditional advertising – anything a company says about itself or its products, without a 3rd party verifying same, is rejected as a false claim. Further, before visiting a company or purchasing a product, they review a company’s environmental standing online and 9 out of 10 (87%) of them will then purchase from, and remain loyal to, a company that has proven its environmental integrity.
Human Capital and Talent Retention
Apart from being THE RIGHT THING TO DO, sustainability also brings tangible benefits to human resources and human capital assets in the organisation, even a small but growing SME.
Data from numerous sources show that there is little a business can do to have a more positive impact increasing revenues, reducing costs, improving employee performance, enhancing brand image, profitability and ultimately, valuation, than to become a certified sustainable business.
Per NYU/Stern, sustainable brands are growing 5.6x faster than their non-sustainable peers. Researchers believe the gap between certified sustainable brands and their non-certified competitors will expand, as the global community continues to seek, and reward companies with their eyes on the future, their communities and their legacy. In their assessments, they refer to a Return on Sustainability Investment (ROSI) methodology as used by both corporate leaders and investors to bridge the gap between sustainability and ESG initiatives and financial performance.
Employee performance improves many human factors including morale, productivity, empathy, mood and general health where a verifiable and honest approach to sustainability and the environment exists by increasing a sense of ownership and confidence in the company and the brand.
The conventional wisdom that employees often make the best ambassadors for a company and THE BRAND, should for most, indicate the importance of having a structured approach to sustainability. This strategy becomes effective if only to enable owners and management to communicate the company philosophy, both internally to staff, and externally to clients, customers, stakeholders in the community, and of course government.
Numerous studies have concluded that sustainable organizations can attract and retain quality employees better than their non-certified peers thus securing the future of not only the organisation itself but in some cases the entire industry.
Finally, according to a Harvard Business Review report the following are the fundamental and tangible benefits to eb gainesd when a business can demonstrate that it is a sustainable business:
- 20% higher sales and margins through differentiation from same sector competition
- 55% higher employee morale
- 16% higher employee productivity
- 38% higher employee loyalty
- 50% lower employee turnover
In conclusion, McKinsey also emphasises the point, probably already clear to many, that financially sensible objectives, such as better regulatory settlements, price premiums, increased sales, a reduced risk of boycotts, and higher retention of talent often depend, at least in part on the perception of the company in the community mindset.
In both tangible and less tangible terms, a company’s reputation for environmental, social, and governance programs and in meeting community needs generally, by going beyond regulatory requirements or industry norms, has been identified as having a significant commercial and marketing benefit for the growing SME.