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Sustainability

Why 2021 is the year to focus on sustainability

Published 6 April 2021 in Sustainability • 3 min read

There are fresh winds in the sails of sustainability. From a strong momentum on Environmental, Social and Governance (ESG) investment, to the US re-entry to the Paris Agreement, to plans for the post-COVID recovery that leverage investment in green technologies in both Europe and the US, the world is heading towards  green renewal that combines high performance with purpose.

It certainly makes sense in both business and societal terms. After all, sustainability is the only way companies and nations can survive and thrive over the long term. Simply put, sustainability is a business approach to creating long-term value by taking into consideration how a given organization operates in the ecological, social and economic environment.

Sustainability is built on the assumption that developing such strategies ensures both company longevity and benefits for the communities in which organizations operate. With sustainability’s holistic aim to create value propositions that address societal needs through innovation, energy efficiencies and stakeholder engagement, it is also a strategy for people, profit and planet.

Against that macro background, businesses also face more immediate reasons to engage fully with sustainability. From profitability to increasing pressure from investors and regulatory pressures on the horizon, there are clear and present rewards and risks attached to the decision to embrace or avoid a sustainable business strategy in today’s business environment.

As expectations on corporate responsibility increase, and as transparency becomes more prevalent, companies are recognizing the need to integrate sustainability in their core strategies. Slick communications and good intentions are no longer enough. Here are four drivers that businesses cannot afford to ignore.

Leading Sustainable Business Transformation

Sustainability today: the four drivers

  1. Sustainability can drive efficiencies and lower your costs

Increasing numbers of companies have found that reducing their waste, their energy use or their reliance on costly natural resources has a beneficial impact on their P&L figures. Take the example of Walmart. Between 2005-2015, the company applied efficiencies to its logistics through better routing, truck loading, driver training and advanced technologies, resulting in 15,000 metric tons of CO2 emissions and savings of nearly $11 million.

  1. Consumers are demanding more from corporations

Consumers, and millennials in particular, are demanding more scrutiny and action on sustainability from corporations. Furthermore, social media enables the naming and shaming of brands that fail to live up to their sustainability credentials on a scale never seen before. The brighter side to this is that consumers are increasingly willing to pay more for products from companies that have clear commitments to social and environmental causes. Unilever, for example, has seen its Sustainable Living Brands delivering 75% of growth for the company in 2019.

  1. Investors are scrutinizing ESG risks when deciding on where to put their capital

Increasingly investors are placing a strong focus on the sustainability and ESG performance of their potential investee companies. What they look for is safe bets and megatrend opportunities: those businesses with credible sustainability credentials are viewed as low-risk and future-proof investments. Overall, companies with better sustainability performance face on average 10% lower cost of capital. With capital on the line, it literally pays to show up on sustainability in meaningful ways.

  1. The emergence of robust Environmental Social Governance metrics is set to create greater transparency

Frameworks such as the International Financial Reporting Standards (IFRS) provide a standardized set of accounting principles through which companies can disclose their financial performance.  Extending accounting standards further to gauge material societal impacts, the World Economic Forum (WEF) is working with five leading standard-setters – CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) – to establish metrics and methodologies to standardize reporting under the umbrella concept of ESG. ESG is fueling the adoption of sustainability metrics because it has an impact on accounting, can drive regulation and enables comparisons between competitors.

As consumers, we want clear sustainability commitments from the brands and corporations we trust and, as employees, we want to work for organizations that are striving for a sustainable future. Businesses are responding to this. The following decade will offer breakthroughs as economic, social and planetary recovery are all tackled by more businesses committing to sustainable business strategies. That potential future offers us all some much-needed hope.

In part two of the series, we will outline what constitutes a sustainable business, offering a roadmap to embedding it within your company and offer examples of companies that have profited from their sustainability strategies.

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Authors

Knut Hanaaes - IMD Professor

Knut Haanaes

Lundin Chair Professor of Sustainability at IMD

He was until recently the Dean of the Global Leadership Institute at the World Economic Forum. At IMD he teaches in many of the key programs, including the MBA, EMBA and other executive programs. He is Program Co-Director of the Leading Sustainable Business Transformation program. His research interests are related to strategy, digital transformation and sustainability.

Natalia Olynec, Head of Sustainability at IMD

Natalia Olynec

Head of Sustainability at IMD

Natalia Olynec is the Head of Sustainability at IMD, where her work focuses on research, program development, strategy, governance, reporting and advisory. She has worked in sustainability management, consulting and education for more than 15 years.

James Henderson

James Henderson

Professor of Strategic Management at IMD

James E. Henderson is Professor of Strategic Management at IMD. Prior to joining IMD, he was an Associate Professor of Strategic Management at Babson College and Babson School of Executive Education, based in Boston, MA. He is Program Co-director of the Leading Sustainable Business Transformation program.

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