Returning to work, hopefully refreshed from the summer vacation, is often a good time to consider the challenges ahead and how we can deliver improved returns for business. Sustainability professionals tend to have a hard time demonstrating that sustainable business makes sound commercial sense. Fear not, help is at hand.
A recent report, launched at Rio +20 earlier this summer, argued that there is a sound business case for companies to invest in sustainable development and the so called ‘Green Economy’. The research, conducted by UNEP, evaluated the most significant work on the business case for sustainability from the last five years or so. It found that there is a compelling business case now. Scientific and financial data shows a clear win-win situation for companies making the transition towards a green economy, both in terms of fiscal outcomes and the value added benefits that a resource efficient, socially aware business model can bring to a company and wider society.
Is there a business case for green development?
UNEP invited DNV Two Tomorrows to draft a summary of the business case for the Green Economy. I was fortunate to lead on this project and was pleased to see such a significant body of evidence, which confirms DNV Two Tomorrows’ position that business should be taking action now in order to reap the rewards. Allow me to elaborate: the paper presented a Green Business Case Model, demonstrating how actions taken by companies to improve their sustainability performance have resulted in improvements to leading indicators of financial success, such as employee satisfaction, resource efficiency and reputation, which in turn resulted in improvements to six key financial metrics:
- Sales growth
- Duration of sales
- Capital expenditure
- Profit margin
- Tax rates
- Cost of capital
For example, as market and regulatory demand for sustainability increases, flexible businesses with the foresight to shape their products and services in line with this trend will find themselves at a distinct advantage. This helps to attract customers, improve brand value and reputation and ultimately, sales growth and customer loyalty.
Businesses which take the lead and embrace the transition to the Green Economy are already reaping many rewards. The report is supported by many case studies from around the world. For example, the Egyptian company SEKEM-LIBRA launched a commercial compost project in 2007, transforming waste products from SEKEM’s agricultural activities into compost, a high-value and sustainable good. This stimulates employment and land reclamation opportunities whilst saving emissions and generating income. Sales have increased over 13 times and the company generates additional income through the sale of certified emissions reductions certificates.
At a larger scale, the Unilever Sustainable Living Plan sets about 60 time-bound, publicly reported targets designed to reduce costs, support customers and grow its brands, opening up new markets in a sustainable way. Socio-economic benefits include engaging at least 500,000 smallholders and 75,000 small-scale distributors in Unilever’s supply network by 2020. Unilever has already saved €10m per year in its European factories and believes it will ultimately reduce its operational expenditure through effective management of supply-side risks and efficient use of resources.
Myriad more benefits come from making the leap to resource efficiency and sustainable products and services. These include: supply chain resilience; reduced dependency on natural resources; new investment opportunities; the ability to secure capital at a lower cost by developing a better risk profile; and mitigation against the negative financial risk from environmental impacts, to name but a few.
The implications of a Green Economy on business are profound. It is great that governments and supra-national institutions like the UN introduce policies and blueprints paving the way to a sustainable future, but often they don’t go far enough, are not enforced, not supported politically and other policies are not aligned to them. It is therefore business that holds the key to implementation; business has the potential to move further and faster than governments. It is well placed to innovate and transform, which is what a transition to a Green Economy requires.
And by business, I don’t just mean large corporations and international conglomerates. Small and medium sized organisations are responsible for a greater share of employment and GDP and they are therefore central to our economies. Increasingly, large organisations are looking to collaborate with their value chains to meet targets such as emissions reductions and labour conditions.
The prevailing attitude has been to focus on the financial short-term: quarterly and annual results. This has all too often led to the sidestepping of sustainability, backed up with the rather weak justification that long term actions in this sphere make little financial sense.
However, the transition to a Green Economy will not be easy; there are significant challenges to be overcome in addition to financial short-termism. Informed by surveys of opinion formers and experts, these include the need to move away from regulations that encourage unsustainable practices, increase leadership knowledge of the business imperative and improve international standards.
The report offers a nine-point action plan to help catalyse the sustainable return on investment. Some companies, and perhaps whole industries, will not survive the transition. Success over the long-term will require new skills, diverse collaborations, continuous innovation, investments with uncertain returns, and increased scope of market valuation. For those companies, and especially the early movers who rise to the challenge, the rewards are there for the taking.
The report can be accessed at: http://www.unep.org/greeneconomy/Portals/88/documents/partnerships/UNEP%20BCGE%20A4.pdf
Dave Knight, Sustainability Services Director and Louise Ayling, Consultant at Two Tomorrows – A DNV company.