Why going green makes good business sense

Joni Mitchell’s icon­ic 1970 song “Big Yel­low Taxi” pleads: “Give me spots on my apples but leave me the birds and bees”. At the time of its release, this protest at the wide­spread use of chem­i­cal pes­ti­cides seemed like a Hail Mary. Would farm­ers and their coun­ter­parts in oth­er indus­tries real­ly heed this call for a more eco­log­i­cal­ly friend­ly ver­sion of cap­i­tal­ism?

Now, more than half a cen­tu­ry lat­er, cor­po­ra­tions are doing just that, hav­ing start­ed inte­grat­ing more sus­tain­able prac­tices into their busi­ness mod­els. What’s more, they have found that – in an envi­ron­men­tal­ly con­scious mar­ket­place – sus­tain­abil­i­ty can actu­al­ly be good for busi­ness. 

Shel Horowitz, founder of Going Beyond Sus­tain­abil­i­ty, a con­sul­tan­cy which guides busi­ness­es toward green­er prac­tices, traces the ori­gins of this move­ment to the pub­li­ca­tion of Rachel Carson’s Silent Spring in 1962. This pre­scient vol­ume detailed the alarm­ing effects of pes­ti­cides on the envi­ron­ment and pre­cip­i­tat­ed a groundswell of activism aimed at hold­ing indus­try account­able for its effects on the envi­ron­ment.

The voic­es of con­sumer activists remain an essen­tial moti­va­tor today. Leg­isla­tive efforts such as the UN Sus­tain­able Devel­op­ment Goals, the 2021 Envi­ron­ment Act in the UK, and the EU’s Envi­ron­ment Action Pro­gramme have pro­vid­ed extra impe­tus. But in fact, many com­pa­nies now under­take sus­tain­able ini­tia­tives of their own voli­tion. Tak­ing respon­si­bil­i­ty, it seems, is just good busi­ness nowa­days.

Across indus­tries, sus­tain­abil­i­ty is increas­ing­ly seen as a vital aspect of most con­sumer-fac­ing busi­ness­es. Half mea­sures are no longer cut­ting it.

“If it’s treat­ed as nice-to-have, it fails. It’s ulti­mate­ly not suc­cess­ful for the busi­ness, its rep­u­ta­tion or its objec­tive – finan­cial­ly, social­ly or envi­ron­men­tal­ly,” says Noa Gafni, exec­u­tive direc­tor of the Rut­gers Insti­tute for Cor­po­rate Social Inno­va­tion. And there is grow­ing demand for account­abil­i­ty. Audit­ing bod­ies now play a cru­cial role in cer­ti­fy­ing sus­tain­abil­i­ty ini­tia­tives, pro­vid­ing the pub­lic with an objec­tive mea­sure of their suc­cess. 

“Green­wash­ing is real,” Gafni con­tin­ues. “But com­pa­nies are tak­ing big­ger steps to ensure that they aren’t doing that. They are part­ner­ing with exter­nal audi­tors to look at the places where they’re doing well and look at places where they can improve.”

 If sus­tain­abil­i­ty is treat­ed as nice-to-have, it fails. It’s ulti­mate­ly not suc­cess­ful for the busi­ness, its rep­u­ta­tion or its objec­tive

“Con­sumers are becom­ing more sen­si­tive to green­wash­ing. They will not hes­i­tate to break off rela­tion­ships with brands that do not take their stat­ed com­mit­ments seri­ous­ly,” observes Tara Mil­burn, founder of sus­tain­able brand­ing com­pa­ny Eth­i­cal Swag.

“Some com­pa­nies will try to green­wash. They’ll try to avoid the cer­ti­fy­ing body,” adds Robert Bird, Ever­source Ener­gy Chair in Busi­ness Ethics at the Uni­ver­si­ty of Con­necti­cut. “But the cer­ti­fy­ing body will find out what’s going on. They’ll make the prob­lems pub­lic. Then the com­pa­ny improves. There is some cat and mouse involved, but there’s a long arc towards improve­ment.”

In prac­tice, sus­tain­abil­i­ty ini­tia­tives work best when they are dis­trib­uted even­ly across the val­ue chain. “They should be imple­ment­ed across all pri­ma­ry activ­i­ties, as well as sec­ondary activ­i­ties includ­ing infra­struc­ture, tech­no­log­i­cal devel­op­ment and pro­cure­ment,” says Juan Car­los Las­cu­rain of Las­cu­rain-Grosvenor Sports Bro­ker­age, a firm which has pre­vi­ous­ly assist­ed sports sta­di­ums around the world in green­ing their oper­a­tions. 

“They absolute­ly can­not be siloed,” Gafni explains. “That’s the tricky part. When you’re try­ing to get some­thing like this off the ground, it requires lev­els of col­lab­o­ra­tion that organ­i­sa­tions aren’t nec­es­sar­i­ly used to. It’s impor­tant that they part­ner not only inter­nal­ly with dif­fer­ent parts of the organ­i­sa­tion, but also exter­nal­ly.”

Indeed, the effect of these ini­tia­tives is not sole­ly inter­nal; sup­ply chain pres­sure has cre­at­ed a com­pet­i­tive mar­ket­place in which sup­pli­ers vie to demon­strate their green cre­den­tials to their clients. 

“Con­sumers are not just con­cerned with prac­tices at the retail lev­el, such as Nike stores or Apple stores,” Bird observes. “They’re also inter­est­ed in Apple and Nike’s sup­ply chains – the peo­ple they buy their sup­plies from, the peo­ple their sup­pli­ers buy their sup­plies from. Are these peo­ple giv­en a liv­ing wage? Are they engag­ing in envi­ron­men­tal­ly aware prac­tices?”

“Every busi­ness has an upstream and down­stream in their sup­ply chain, where their busi­ness is the crux,” says Sta­cy Sav­age, founder and CEO at Zero Waste Strate­gies in Austin, Texas. “All the oper­a­tional deci­sions that hap­pen with­in that crux affect what hap­pens upstream and down­stream. The buy­er real­ly holds all the cards. If the cur­rent ven­dor can’t do what they’re ask­ing, then they can always go and look for a new ven­dor.”

She cites the exam­ple of a busi­ness that express­es a desire to avoid the use of card­board in its ship­ping oper­a­tions. It could demand that its ship­pers use reusable, col­lapsi­ble crates, reuse those crates itself, and ask that clients on the receiv­ing end also reuse them.

If sup­pli­ers don’t get on board, says Simon Glynn, co-lead of con­sult­ing firm Oliv­er Wyman’s cli­mate and sus­tain­abil­i­ty plat­form, “they won’t get access to the best part­ners. They won’t get access to the best con­tracts. And they may be exclud­ed from pro­cure­ment oppor­tu­ni­ties.”

Still, val­ue chain imple­men­ta­tion varies by indus­try. “For a busi­ness with­out phys­i­cal prod­ucts, like a SaaS busi­ness, I would imag­ine that sus­tain­abil­i­ty ini­tia­tives sit low­er on the val­ue chain,” notes Cal­loway Cook, pres­i­dent of Illu­mi­nate Labs, a cer­ti­fied B Corp which is required to meet cer­tain envi­ron­men­tal and social stan­dards.

Loca­tion can also play a key role. As Las­cu­rain relates, com­pa­nies in north­ern Europe may have sig­nif­i­cant tax incen­tives and cul­tur­al moti­va­tion to take steps toward sus­tain­abil­i­ty. Con­verse­ly, those locat­ed in the devel­op­ing world may be more resis­tant. He con­fides that clients in South Amer­i­ca have proven far less will­ing to adopt these mea­sures – although when they have done so, they have proven suc­cess­ful nonethe­less.

While com­pa­nies estab­lished in recent years have tend­ed to bake sus­tain­able prin­ci­ples into their oper­a­tions as a mat­ter of course, sus­tain­abil­i­ty can be more dif­fi­cult for sprawl­ing lega­cy cor­po­ra­tions with oper­a­tions that extend across the globe.

“Com­pa­nies that are deeply attached to a prod­uct or ser­vice that is inher­ent­ly unsus­tain­able require a fun­da­men­tal change in how they oper­ate,” Bird cau­tions. “They are going to have the most dif­fi­cul­ty mak­ing changes. Com­pa­nies that are more B2B are also less like­ly to feel the pres­sure from con­sumers, and indus­tries that have a very slim prof­it mar­gin may not be able to invest in sus­tain­able prac­tices.”

But that does not mean that larg­er cor­po­ra­tions are inca­pable of inte­grat­ing sus­tain­able prac­tices into their val­ue chains. Gafni cites the exam­ple of British con­sumer con­glom­er­ate Unilever. “Their for­mer CEO Paul Pol­man was a dri­ving force,” she says. “But their sus­tain­abil­i­ty plan was also sup­port­ed by peo­ple in mid­dle man­age­ment. It’s impor­tant that you not only have the vision from the top, but cham­pi­ons in dif­fer­ent func­tion­al areas to under­stand how to get things done from a prac­ti­cal stand­point.”

This point – that lead­er­ship is impor­tant on all lev­els – is echoed by most peo­ple who work on facil­i­tat­ing sus­tain­abil­i­ty in the cor­po­rate world. Direc­tives from the top can cer­tain­ly have a major impact. But so too can pres­sure from low­er-lev­el employ­ees. 

“It can come from all angles,” says Sav­age. “The biggest pres­sure gen­er­a­tor is when you have a sce­nario where your employ­ees say, ‘Hey, we have 3,000 employ­ees and a cafe­te­ria. Why aren’t we com­post­ing?’” 

When these mes­sages reach upper man­age­ment and com­bine with exter­nal pres­sure from envi­ron­men­tal advo­cates, they put pres­sure on mid­dle man­age­ment to imple­ment real change. That, she claims, is where con­sul­tan­cies like hers can come in and help the often bewil­dered func­tionar­ies to imple­ment mean­ing­ful alter­ations to a company’s prac­tices.

When you’re try­ing to get some­thing like this off the ground, it requires lev­els of col­lab­o­ra­tion that organ­i­sa­tions aren’t nec­es­sar­i­ly used to

Respon­sive­ness to these demands trans­lates into employ­ee reten­tion. Mil­len­ni­al and Gen‑Z employ­ees are insis­tent on see­ing their val­ues reflect­ed in their employ­ers. If they feel their val­ues are in con­flict, they will leave, tak­ing their insti­tu­tion­al knowl­edge with them and forc­ing their for­mer employ­ers to sink mon­ey into train­ing new employ­ees. Con­verse­ly, if they see that their employ­ers are aligned with their prin­ci­ples, they will stay and rein­force them, con­tribut­ing to the organ­i­sa­tion­al knowl­edge pool.

But where should proac­tive lead­ers start? While the ulti­mate goal is sus­tain­abil­i­ty across the val­ue chain, waste man­age­ment is per­haps the low­est-hang­ing fruit. “There’s a whole cir­cu­lar econ­o­my now. We’re mov­ing away from a lin­ear, destruc­tive econ­o­my,” Sav­age says. “Instead, you trans­form your waste into a prod­uct.”

She sug­gests that the goal of these types of projects should be to at least break even. But sus­tain­abil­i­ty can actu­al­ly con­serve mon­ey – and even be prof­itable.

“Focus first on things that are going to actu­al­ly earn mon­ey quick­ly. And then, as those become suc­cess­ful, you can use them to fund some of the deep­er, more com­pli­cat­ed ini­tia­tives. Keep­ing prof­itabil­i­ty in focus means that these efforts are less like­ly to be the vic­tim of bud­get cuts when times are tough,” Horowitz advis­es.

He cites the $31m ener­gy-effi­cien­cy retro­fit of the Empire State Build­ing in New York City. “It was a three-year pay­back. That’s a 33% return on invest­ment. A fast-food restau­rant might have a mar­gin of 3% to 5%,” he enthus­es. The adjust­ments have cre­at­ed mil­lions in annu­al sav­ings, and the build­ing has attract­ed a suite of deep-pock­et­ed new ten­ants.

Envi­ron­men­tal, social and gov­er­nance (ESG) cri­te­ria are also a sig­nif­i­cant fac­tor in attract­ing new invest­ments. “ESG stan­dards are now one of the top-five indi­ca­tors to invest­ment firms and share­hold­ers as to whether your com­pa­ny will still be viable and rel­e­vant in the next 10 years,” Sav­age notes. “Many of these firms are shun­ning com­pa­nies that aren’t mak­ing an effort to get ESG poli­cies in place. That’s huge if you want to expand your busi­ness.”

“Once com­pa­nies and their employ­ees become habit­u­at­ed to a cer­tain val­ue or a cer­tain norm, they will prac­tise sus­tain­ably almost reflex­ive­ly. And they won’t have to make the con­scious deci­sion as to whether or not it’s prof­itable,” says Bird.

In fact, many of the ben­e­fits of sus­tain­able prac­tices are some­what intan­gi­ble. “It changes your rela­tion­ship with your cus­tomers,” says Glynn. “Imag­ine you were sell­ing a com­mod­i­ty like steel. Well now you’re pro­vid­ing some­thing real­ly dif­fer­en­ti­at­ed because you’re pro­vid­ing zero-car­bon steel. You’re hav­ing very dif­fer­ent con­ver­sa­tions with your cus­tomers. You’ve got a much more strate­gic rela­tion­ship with your cus­tomers. They are bond­ed in some way into buy­ing from you because it’s a dif­fer­ent prod­uct than just com­mod­i­ty steel. Decom­modi­ti­sa­tion doesn’t nec­es­sar­i­ly direct­ly turn into a pre­mi­um, but it turns into more sta­ble rela­tion­ships and cus­tomer loy­al­ty and deep­er cus­tomer col­lab­o­ra­tion.”

This ulti­mate­ly trans­lates into good cor­po­rate cit­i­zen­ship. Whether or not these projects make or save mon­ey, they are like­ly to have pos­i­tive impacts on the world at large. And that’s some­thing worth encour­ag­ing.

The business case for sustainability

Sus­tain­abil­i­ty is by def­i­n­i­tion a long game. Super­fi­cial sus­tain­abil­i­ty mea­sures no longer cut it in a heav­i­ly scru­ti­nised mar­ket. Slap­ping a green label on a prod­uct or ser­vice sim­ply doesn’t pass muster any­more – not with con­sumers, not with activists, not with busi­ness part­ners. 

By con­trast, care­ful­ly con­sid­ered ini­tia­tives that adjust prac­tices across the val­ue chain can have pro­found effects on busi­ness suc­cess. While decar­bon­i­sa­tion may entail an ini­tial invest­ment, it more often than not means sav­ings down the line – if not an actu­al prof­it. 

Waste and ener­gy use reduc­tion are among the most eas­i­ly imple­ment­ed sus­tain­abil­i­ty prac­tices. The sav­ings accrued by these easy ini­tial steps can then be used to sub­sidise more dif­fi­cult, indus­try-spe­cif­ic actions. What’s more, pres­sure on sup­pli­ers can help to facil­i­tate a com­pet­i­tive mar­ket in which rela­tion­ships between indi­vid­ual organ­i­sa­tions are increas­ing­ly con­tin­gent on sus­tain­able stan­dards.

Per­haps most impor­tant­ly, sus­tain­abil­i­ty can be cru­cial in secur­ing invest­ments for busi­ness expan­sion. Envi­ron­men­tal, social and gov­er­nance cri­te­ria are now a major fac­tor for many investors when decid­ing whether or not to divert funds to a par­tic­u­lar organ­i­sa­tion. Demon­stra­bly sus­tain­able prac­tices are con­sid­ered key indi­ca­tors of future busi­ness suc­cess. They indi­cate a like­li­hood that a giv­en organ­i­sa­tion will be com­pli­ant with increas­ing­ly strin­gent envi­ron­men­tal reg­u­la­tions, thus avoid­ing lia­bil­i­ty. 

These com­mit­ments are also appeal­ing to a vig­i­lant con­sumer base which reacts poor­ly to unsus­tain­able prac­tices and rewards com­pa­nies that can demon­strate their sus­tain­able prac­tices over time.

Mil­len­ni­al and Gen‑Z mem­bers of the work­force often look for employ­ers that share their pur­port­ed val­ues. A vis­i­ble and ver­i­fi­able com­mit­ment to sus­tain­able prac­tices can help com­pa­nies attract and retain tal­ent. Low­er turnover means that human cap­i­tal – the resources invest­ed in train­ing employ­ees and the result­ing repos­i­to­ry of insti­tu­tion­al knowl­edge – stays with­in the organ­i­sa­tion. This can amount to sig­nif­i­cant cost sav­ings in the long term.

As ben­e­fi­cial as sus­tain­able prac­tices may be to a giv­en organ­i­sa­tion, their ben­e­fits to the world at large are even more impor­tant. Cor­po­rate cit­i­zen­ship is now seen as an unavoid­able respon­si­bil­i­ty. Just as indi­vid­u­als ought not to hope to accrue direct ben­e­fits from behav­ing with decen­cy and con­sid­er­a­tion towards their fel­low cit­i­zens, there is now an expec­ta­tion that com­pa­nies will do the same. 

Will these behav­iours affect the bot­tom line in the near term? Per­haps. Per­haps not. But pur­su­ing prac­tices that ben­e­fit the plan­et and its inhab­i­tants will help to main­tain a healthy ecosys­tem – for peo­ple, for oth­er liv­ing things and for busi­ness as well.

---