What is a sustainable company?
Updated: Sep 18
When most people hear the word "sustainable," they probably think of environmentalism or preserving our planet. But there's another kind of sustainability, one that has to do with companies and their ability to remain profitable over time. So what exactly is a sustainable company? And how can you tell if a business is sustainable? Keep reading to find out!
A sustainable company is one that focuses on stakeholders, thinks long-term, and innovates. In other words, a sustainable company is focused on creating value for all stakeholders, not just shareholders. This means that sustainable companies take into account the environmental and social impacts of their business decisions. They also think about the long-term consequences of their actions, rather than just the short-term financial gains. And finally, they are constantly innovating and looking for new ways to create value. Here are some of the ways that sustainability can create an impact.
Sustainability drives revenue growth
A growing body of evidence suggests that sustainable practices can drive revenue growth. Companies that adopted sustainable practices saw an average revenue increase of 18%. Sustainable businesses are also often more efficient, which can lead to significant cost savings. And sustainable practices can help businesses attract and retain customers, as more and more people are interested in supporting companies that share their values.
ESG, or environmental, social, and governance risks, can help companies to find opportunities to be more sustainable. ESG helps businesses to identify areas where they can be more efficient. And research shows that 80% of the results are that paying attention to environmental, social, and governance (ESG) concerns can help to improve profitability and increase stock prices.
Sustainability reduces cost
Sustainability has a lot of benefits for businesses, especially when it comes to reducing costs. For example, sorting waste your operations produce and sending an increased portion to be recycled has a dramatic effect on lowering your operational emissions. Waste to landfill generates 467kg CO2e per tonne whereas one tonne of waste recycled generates only 21kg CO2e. Sustainability also lowers energy costs, reduces water use, and lessens fluctuations in the pricing of raw materials. Sustainably-minded companies are also often seen as more attractive to consumers and employees, which can lead to increased revenue and talent acquisition respectively.
Sustainability boosts engagement
Sustainability is often thought of as an environmental issue, but it can also have a big impact on employee engagement and company reputation. Numerous studies have shown that employees are more likely to be engaged with their work when they feel that their company is committed to sustainability. One IBM survey found that over 2/3 of the potential workforce are more likely to apply and accept jobs with environmentally sustainable companies. In addition, companies with strong sustainability programs often enjoy a boost in reputation, which can attract top talent and customers.
Sustainability improves community resilience
We all know companies have an impact on their employees, but companies also can have a big impact on the environment and the health of those living near their operations. This is something that is often forgotten about or swept under the rug. Understanding the impact of their operations on the local community can help a business to improve its supply chain and build a positive brand reputation, which then helps to improve efficiency and improve profits.
One way for a business to manage its impact on the community is by working with circular economy principles. As explained by the Ellen MacArthur Foundation, circular economy principles focus on the circulation of products and services and regenerating natural resources. Another way is to invest directly in their local communities. Microsoft, Google, Salesforce, Prudential Financial, Chase, and CVS are just six of the biggest companies that are making big investments in their communities.
Benefits of sustainable investing
Sustainable investing is no longer just for tree huggers. When done right, it can create a positive impact not just socially but also financially. Sustainably focused companies tend to have better ESG performance which can lead to lower costs, and improved efficiency. engaged employees and customers, and better financial performance over the long term. According to the Institutional Shareholder Services, companies in the top tier for environmental, social, and governance (ESG) practices outperformed the stock market by 5.9% annually between 2014 and 2021. You can also see examples of sustainable companies, those that focus on stakeholders, think long-term, and innovation, and how they performed individually here.
This data and information are based on data from the Center for Research in Security Prices, LLC (CRSP), an affiliate of The University of Chicago Booth School of Business, ©2021.
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