GREEN: Top 5 Benefits for Becoming a Sustainable Business
Column y K.J. McCorry
Although each company has its own reasons and motives for being more green and sustainable in business, here are the top five primary benefits to becoming a more sustainable company and some of the research to support.
1. Enhanced Brand and Increased Competitive Advantage
The Natural Marketing Institute has found, in its consumer research, that customers are 58 percent more likely to buy a company's products or services if they know that company is mindful of its impact on the environment and society. A subculture called Cultural Creatives has been emerging for the past 40 years and is now in the mainstream leading this sustainable revolution. This demographic, according to the NMI, is roughly estimated at 68 million adult Americans who make purchasing decisions based on their personal, social and environmental values. NMI finds that consumers are willing to spend up to 20 percent more on environmental sound products and services. According to the BBMG Conscious Consumer Report, nearly nine in ten Americans say the words "conscious consumer" describe them well and are more likely to buy from companies that manufacture energy efficient products (90%), promote health and safety benefits (88%), support fair labor and trade practices (87%) and commit to environmentally-friendly practices (87%), if products are of equal quality and price.
2. Increased Productivity and Reduced Costs
Through development of more sustainable business practices, efficiency in operations will increase. With better use and conservation of resources, operations will be streamlined and costs will decrease. In 2011, research was conducted by KPMG, in cooperation with the Economist Intelligence Unit, in a report titled, "The Corporate Sustainability: A Progress Report." The report reviewed the importance of sustainability in the prevailing business climate and the attitude of executives toward this issue. U.S. respondents were asked to identify the top three benefits from their sustainability program, with the cost driver being rated one of the highest. U.S. executives identified the key business drivers of sustainability-related business objectives as enhancing brand reputation (37 percent), regulatory or legal compliance (35 percent), reducing costs (34 percent), product or service differentiation (24 percent), and increasing profitability and managing sustainability risks (both 23 percent).
3. Improve Financial and Investment Opportunity
Financial and investment analysts have recognized companies that have developed sustainability plans with regards to energy efficiency and reduction of environmental impact as an important evaluator criterion. A 2007 Goldman Sachs study revealed that companies in six industries considered leaders in environmental social and governance policies have outperformed the general stock market by 25 percent with 72 percent of the companies outperforming their peers since August 2005. In 2009, A.T. Kearney compared the economic performance of companies committed to sustainability versus companies conducting business as usual. In 16 of 18 industries, sustainable companies performed better than their peers and were better insulated from value erosion. Over three months, the differential between the companies with and without a commitment to sustainability was 10 percent and, over six months, 15 percent. Another study, The Role of Finance in Environmental Sustainability Efforts, surveyed 175 top finance executives, of which more than half believe their companies will increase revenue through strong sustainability initiatives.
4. Minimize Carbon Risk and Improve Energy Efficiency
In Ernst and Young's 2008 report on The Top 10 Business Risks for Business, two key business risks are highlighted:
- Failure to respond and plan for environmental regulations
- Energy efficiency as important business risk to mitigate.
Based on current proposed legislation, it is estimated that companies will be required to cut 25 percent of carbon emissions by 2020 and 50 percent to 80 percent by 2050, which could be mandated by both state and federal regulations. This will affect the availability and costs of energy, which are expected to double within the next 10 years.
5. Increase Employee Retention and Recruitment
Employees want to work with companies that are "doing the right thing" and being proactive with corporate environmental and social programs. A 2007 survey by Adecco, an international HR company, found that 52 percent of employed adults feel their companies should do more about the environment. More importantly, companies want their employees to be loyal and ethical to the organization. According to a Global Study of Business Ethics by the American Management Association, one of the top five internal practices for ensuring an ethical corporate culture is developing corporate social responsibility programs.
Gallup estimates that, based on a 2011 survey, the cost of disengaged employees in the United States is more than $300 billion and includes 20.6 million workers or 15 percent of the U.S. workforce. Whereas, a Towers Perrin Global Workforce study has found that companies with highly engaged employees have operating income increases up to 19 percent.