01 Sep Why sustainability in business matters

“We just can’t consume our way to a more sustainable world.” says writer, activist and founding editor of Eco Warrior Princess, Jennifer Nini. A very powerful affirmation that highlights the ever-bleeding wound of excessive consumption and lack of attention towards the sustainability concept.

Data also backs up the story of this consumption “plague”. Every year since 2018, humanity managed to use all of Earth’s biological resources by the end of July (five months ahead of time), while the consumption of raw materials has tripled from 1970 to 2010. We are consuming too much while paying too little attention to adopt a coherent sustainability strategy. Not just as companies, but also on a personal level.

Early this year, FORBES included sustainability among the TOP 8 Emerging Business Trends of 2022 pointing out that “resilience means being able to adapt and survive for the long term. Any business that ignores sustainability is unlikely to do well in this age of conscious consumption.”

Sustainability covers complex grounds and has simple goals. It’s not just about obeying rules or following regulations, reducing the environmental impact, selective waste collection, or using recycled raw materials in the production process. It’s also about companies applying smarter ways of using resources and a fair treatment for their employees. In other words: sustainability comes with a new way of doing business and creating better tomorrows not just for us, but for the generations to come. It stands for resilience in the test of time.

The 2022 Deloitte CxO Sustainability Report reveals that out of the 2,000 leaders that were surveyed “66,65% work for organizations which are using more sustainable materials and increasing the efficiency of energy use. More than 50% have adopted energy-efficient or climate-friendly machinery, technologies, and equipment and the majority are intentionally reducing air travel.”

Although the numbers are promising, the same respondents openly admitted that they’re struggling to embed climate considerations into their culture and strategy and obtain the broad senior leader buy-in to effect meaningful transformation.

Next to adopting and implementing the entire ESG “thinking” (Environmental, Social & Governance), companies are experiencing a genuine gap between their motivation, the actions they’re actually taking and the impact they’re having.

Sustainability … more than your usual “trend”

Recent environmental data related to climate change are truly worrisome and call for immediate action at scale. The average global temperatures have risen significantly since the industrial revolution. The last decade (2011–2020) was the warmest decade on record. Of the 20 warmest years, 19 have occurred since 2000. Moreover, on July 28, humanity reached “Earth Overshoot Day”, meaning we have used all the biological resources that Earth has regenerated during the entire year.

More than a “fancy” word that gets thrown away quite frequently in conversations, news, or annual reports, sustainability has its own voice as it speaks about the tomorrows that we crave for. It’s no longer about the “coolness” in having a green strategy for doing business. It’s a necessity, a common sense that has been screaming for our attention and involvement for decades. No wonder the increasing number of regulatory frameworks that keep gaining ground, like for instance the CSRD which we’re going to dive into below .

1.A legal approach: The European Union’ Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) comes as a natural follow-up of the already existing Non-Financial Reporting Directive (NFRD) – a regulatory framework that mandates sizable public interest entities to report on their sustainability performance since 2018.

The new CSRD is targeting companies that meet at least 2 or the 3 criteria: >250 employees and/or >€40M turnover and or €20M total assets.

At the same time, the companies must comply with being listed on the EU regulated markets (SMEs get 3+ years to comply) except listed micro-companies (less than 10 employees or below €20M turnover). This adds up to the previous NFRD which only targeted “public interest entities” with >500 employees, listed companies, banks and insurance companies.

As we mentioned before, real action must be taken and sometimes this can only be done through a regulatory framework, so “EU companies must submit their report aligning with the CSRD on 1 January 2024, for the 2023 financial year.”

2.What information should EU companies report?

According to the NFRD regulation, there are 5 main areas companies will be required to disclose information about:

• Environmental protection
• Social responsibility and treatment of employees
• Respect for human rights
• Anti-corruption and bribery
• Diversity on company boards

Thanks to the newly updated CSRD, the report will also need to contain:

• Double materiality concept: sustainability risk (including climate change) affecting the company + companies’ impact on society and environment
• Process to select material topics for stakeholders
• More forward-looking information, including targets and progress
• Disclose information relating to intangibles (social, human and intellectual capital)
• Reporting in line with Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation

Although the nature of the sanctions and the fines’ amount for non-compliance are yet to be disclosed, it is suggested they are significant. However, refusing to report the above-mentioned data could also have other repercussions, as companies that rely on investments or depend on EU funding could see their appeal denied.

Upholding the required information will also constitute to be in breach of the EU regulations and have a negative impact on the company’s image, which will bring a drop in customers credibility and finally will affect sales and the development of the business itself.

3 reasons why you should lead a sustainable business

According to McKinsey, “having a sustainability strategy allows a company to make long-term investments; it doesn’t compromise returns, rather the opposite.”

So, it seems more than obvious that companies should not just comply with the local or international laws and regulations, but also create, adapt, integrate, and fully make use of their own sustainability strategy to overcome the overexploitation of resources we’re currently dealing with on a global scale.

Alongside the positives of making a difference in the world and having a good and direct/ indirect impact on the environment and people’s lives, sustainability represents a genuine “green engine” of doing successful business today, tomorrow and every other day. The positives are endless.

Increased efficiency & creating new opportunities

The same McKinsey report shows that “a sustainability strategy can reduce costs substantially and can affect operating profits by as much as 60%, lowering energy consumption and water intake.” This translates in savings that the company could use in reducing the price of their products, thus meeting the consumers’ needs and demands, and creating a more affordable pattern in terms of green acquisitions.
A sustainable strategy will naturally create new opportunities for the company to reach different customers, markets and even extend or have a more dynamic range of products and/or services.

Meeting the consumers’ demands

A McKinsey analysis carried out in 2020 reveals that “70% of consumers surveyed on purchases in multiple industries, including the automotive, building, electronics, and packaging categories, would pay an additional 5 percent for a green product if it met the same performance standards as a non-green alternative.”

The numbers carry out a shade of optimism, yet according to a recent Deloitte study “between September 2021 and March 2022, the percentage of consumers stating they recently purchased a sustainably produced good or service slipped across more than a dozen countries. Cost was cited as the top reason by a significant margin.”

So, meeting the consumers’ needs and demands becomes a challenge that many companies face, as sustainable products or products that come from sustainable sources are quite pricey. A balance between keeping the green strategy alive and offering your products and services at decent prices is by far a strategy in itself which must be perfected.

The brand’s image and talent attraction

We all know the saying “A picture is worth 1000 words.” In the same way, a company’s image is one of the first things that a customer notices.

In recent years, people have been paying more and more attention to the environment and sustainability as a whole. Millennials are known for feverishly attacking companies that aren’t eco-friendly, ruthlessly exploiting resources (either raw materials or employees) and failing to comply with the regulations.

A company’s image can really shine against its competitors if the company has a genuine sustainability strategy that is fully integrated into its business model.

According to FastCompany in 2019 “nearly 40% of millennials have chosen a job because of company sustainability. Less than a quarter of gen X respondents said the same, and 17% of baby boomers.”

At the same time, a company that has embraced a sustainability strategy becomes a very efficient “magnet” for attracting new talent. People working for sustainable companies have a sense of pride regarding their role, feel like they’re part of something meaningful, and feel more motivated in accomplishing their responsibilities.

How can tech companies integrate sustainability

Challenges arise in many forms as many companies have already committed to reaching a net-zero carbon goal. Legal and official regulations that are increasingly more demanding and the pressure coming from stakeholders and investors are forcing companies to take the need for sustainability very seriously.

Some of the hardest to overcome obstacles is rigid thinking and the force of habit. No matter how innovative their technology is, some companies still have to work hard on changing or adapting their mindset and leadership.

Check out 3 ways in which tech companies can integrate the concept of sustainability in its every-day business.

1. Listening to customers

There’s no secret. Customers play a huge role in how a business is trending in the market. So, listening to their concerns and needs is mandatory. Customer feedback should become the companies’ ally, as it carries precious data not just about the current products and services that the company offers, but also about how those products and services could be better and serve different needs.

Customers need to be heard, so loyalty can be maintained and fed on a long term. By acknowledging their sustainability goals, the company can respond with better adapted products and services or solutions.

2.Dedicated teams/departments

More and more companies are leaving the “hard ESG stuff” in the hands of specialists. And that’s how things should be done to obtain the results the company seeks.

Dedicated sustainability departments led by a Chief Sustainability Officer (CSO) are beneficial for both the company, but also for creating new job roles and of course attracting new talent. New visions and fresh knowledge can have an outstanding impact on the company’s sustainability strategy.

3.Corporate principles = ESG

By aligning the corporate principles of doing business with the ESG, organizations can establish a clearer view of the strategy and implement it easily. At the same time, any external or internal perturbations will have a minimal impact on the way things are running, as the “pattern” has been already established.

Undoubtedly starting, building, and maintaining a green business is a complex endeavor. Especially nowadays, when the socio-economic and political environment are very unstable and many nations depend on resources which are controlled by certain countries.

Startsups are often considered pioneers in the green business world because they are more keen and inclined towards innovation. They begin their journey with a suitable strategy in mind which means everything is aligned towards this goal. As McKinsey points out “[…] they operate quickly. And they have a higher tolerance for risk. In many cases, it’s “scale or die.”

On the other hand, for corporations the situation is a bit more different.“The funding structure, risk profile, and timescales for growth are different. The objective is to deliver what has been promised to investors on a quarterly basis. Scaling quickly doesn’t come as naturally,” said the same publication.

However, things are starting to move in the right direction. More and more companies are committed towards reaching the net-zero climate plans, focusing on minimizing their impact on the environment and producing more green products which “could generate more than $12 trillion of annual sales by 2030 across 11 key value pools.”

In the end, “leaders looking to build a green business might begin with a little soul-searching. It’s not easy for a CEO to say, “I’d like to be part of this revolution—which might require trillions of dollars of overall investment.” But a leader can start by asking, “What do we feel we have the courage to go after?” and start creating and testing hypotheses from there. You can start building courage with facts.” (McKinsey)