Why sustainability is important for business

The business benefits of sustainability and how an organization can achieve it.

Today’s business leaders know they need to run sustainable organizations. Their stakeholders, from investors to consumers, want evidence that the business is operating sustainably, and that its products, services and supply chains are truly sustainable.

The importance of sustainability

Businesses in every industry can benefit from embedding sustainability into their corporate strategy. Sustainability is crucial for future-proofing organizations while promoting broader environmental, social and economic health. Here are five key reasons why:

1. Cost savings: Sustainability initiatives can cut costs. For example, energy-efficient practices, waste reduction, and reducing supply chain emissions to minimize exposure to carbon pricing;

2. Risk management: By improving their economic, social and environmental stewardship, companies can identify and tackle reputational, financial and regulatory risks — and even physical risks (such as those related to climate change). According to CDP, environmental risks in supply chains could cost up to US$120 billion within 5 years, while regulations around sustainability reporting are tightening.

3. Attract and retain talent: An IBM study found that 7 in 10 workers are drawn to, and will be more likely to stay with, employers with strong environmental sustainability strategies.

4. Competitive advantage: By embracing sustainability, businesses can ensure they retain and grow market share, with premium low-carbon products. Compelling sustainability claims can increase customer appeal (to 74 in every 100 people , vs 44 in every 100 where there’s a core attribute claim without a compelling sustainability claim). This demand triggers a chain reaction; for example, manufacturers of finished goods are requesting suppliers like aluminum producers to disclose and reduce their emissions, who in turn ask their suppliers to do the same.

5. Future-proofing the business: To ensure resilience and long-term continuity, businesses need to both ensure the availability of resources and reduce their dependence on finite resources. This can be achieved through sustainable practices, such as embracing renewable energy, reducing water usage and pollution, and promoting recycling of critical materials like copper and steel.

Rather than seeing the sustainability agenda as a threat, businesses need to embrace it as an opportunity.

What is a sustainable business?

Fundamentally, sustainability means that businesses are operating in such a way that they are meeting the needs of profit, people and planet today without compromising the needs of tomorrow. Long-term sustainable business strategies focus on the environment and society as well as on financial success.

Sustainable businesses actively identify, rethink and transform their operations, supply chains and products across the three pillars of sustainability: economic, environmental and social. This means identifying, tracking and addressing their impacts and risks related to global issues such as:

• Climate change (this includes reducing the business’s greenhouse gas (GHG) emissions) and addressing the business risks associated with the climate crisis;
• Environmental degradation;
• Economic and gender inequality;
• Human rights;
• Labour conditions;
• Racial injustice.

Examples of common models or frameworks for sustainability in business include (but aren’t limited to):

• The UN Sustainable Development Goals (SDGs), covering themes from social justice and gender equality to economic growth and clean energy;
• The triple bottom line (subverting the idea that profit is the single bottom line);
• Climate Transition Action Plans that demonstrate to shareholders that the organization has a plan to survive and succeed in the transition to a net-zero economy;
• Doughnut Economics (developed by Kate Raworth) guiding businesses to transform and become more regenerative and distributive by design;
• Circular economy (see resources by the Ellen MacArthur Foundation), which involves businesses redesigning products to stop waste and pollution from being produced;
• Just transition mechanisms, which centre human rights, jobs and equality in global efforts to decarbonize and phase out heavy emitting industries.

How can businesses be more sustainable?

For a business, a sustainability journey typically involves:

1. Measuring existing sustainable performance and developing a baseline (e.g. carbon accounting as part of measuring environmental sustainability);
2. Setting targets (e.g. science-based targets) and developing a meaningful strategy (including scenario modeling, risk analysis, evaluation and policy formulation);
3. Undertaking internal organizational and behavioral change, to embed sustainability throughout the business;
4. Tracking progress against targets and seeking audits and certification for sustainability performance;
5. Complying with legislation and regulation;
6. Communicating sustainability performance to investors, customers and purchasers. It's now common practice for companies to publish annual sustainability reports, following frameworks like the UN SDGs and the Global Reporting Initiative (GRI).

The benefits of a sustainable business

By becoming more sustainable, organizations can benefit from:

• A more future-proof and climate-resilient business model;
• More efficient and sustainable use of resources;
• Identifying and mitigating risks (e.g. climate risks);
• Increased competitiveness with differentiated, sustainable products and services;
• Access to financial benefits from policies such as the US Inflation Reduction Act;
• More innovation;
• Potentially being more attractive to investors;
• Fulfilling reporting requests from customers, regulators and financial institutions.

Challenges of corporate sustainability

Sustainability requires transformation and is not easy. However, it comes with social, environmental and business benefits, and leading companies are rising to the challenge.

Key challenges, and their solutions, include:

• Accurately measuring and tracking performance is time-consuming and complex. To overcome this, companies can use specialist tools that automate the process and fill the data gap using ground-up methodologies. For example, CarbonChain addresses the carbon accounting challenge by automatically and accurately calculating companies’ emissions from source to shipment.
• Anti-sustainability lobbying from certain companies and trade associations can prevent policymakers from implementing legislation to incentivize companies to be more sustainable. Businesses should ensure they align their lobbying and advocacy efforts with their sustainability goals, and encourage their trade associations and peers to do the same.
• Businesses are being scrutinized for a lack of progress and false claims about their sustainability credentials, particularly when greenwashing their climate impact. Businesses should follow best practices such as the Greenhouse Gas Protocol for emissions accounting and reporting to ensure transparency. They should also acknowledge and address any trade-offs (for example, situations where a positive impact on the environment results in a negative social impact).

FAQs

What are the 3 principles of business sustainability?

Under the ‘three P’ framework, the three principles of corporate sustainability are People, Profit and Planet. Or in other words: social sustainability, economic sustainability and environmental sustainability.

Another three-principle framework is Environmental, Social, Governance (ESG). ESG refers to a framework for assessing, integrating and reporting on key criteria which investors, customers and other corporate stakeholders can use to evaluate an organization’s performance, risks and opportunities around sustainability issues.

How can businesses access sustainable finance, e.g. sustainability-linked loans?

Over 50% of global GHG emissions come from commodity supply chains, which face regulatory, physical and reputational risks in the net-zero transition.

To respond, commodity traders and their banks can develop sustainability-linked loans to drive a decarbonization strategy and capture emissions data in the sector.

How can businesses measure their environmental sustainability?

To measure and track their environmental sustainability, businesses can use various methods and indicators:

1. Conducting environmental audits (across factors such as energy consumption, waste, water usage, emissions);
2. Developing Life Cycle Assessments (LCAs) of products and services, from raw material extraction to disposal;
3. Using Key Performance Indicators (KPIs) to track performance against time-bound targets, such as emissions reductions;
4. Completing sustainability reports in line with international standards, such as the GRI, TCFD and Greenhouse Gas Protocol;
5. Obtaining certifications of adherence to recognized environmental standards, such as ISO 14001;
6. Benchmarking performance against industry peers and standards such as the IMO’s CII ratings for ships.