Awareness around sustainability and the social and environmental impacts of business is increasing. But what does sustainability mean? And how does this affect business?
What is sustainability?
Generally, sustainability and social responsibility refers to the responsibility of enterprises for their impacts on society, the environment and towards the relevant stakeholders. It relates to how a company achieves a balance of economic, environmental and social impact.
In my view, sustainability 2.0 takes it a step further.
The question is how tackling societies main needs and concerns opens up for new business models and the reshaping of markets.
5 reasons why sustainability is necessary for business
1. Customer satisfaction
Consumer trends for 2018 show a tendency where consumers of all ages want and need less and are concerned with the impact their life has on society (Euromonitor International).
Access to information on pressing global issues inspire consumers to pursue social responsibility. The result is increasing awareness of the impact products and services have on society, the environment and people’s health.
Today new business models challenge the traditional consumption-based economy, giving consumers effective access to services without the need for ownership. Sharing households, cars and clothing becomes the new normal, with companies like Netflix, Spotify, Airbnb, and car-sharing services re-defining the market in different sectors. New services are also emerging. A good example is the Norwegian Startup Fjong, providing a plattform to rent and rent out clothes. New solutions allow us to reduce consumption, without it feeling like a sacrifice.
Talking about social corporate responsibility and sustainability is no longer enough. Having a responsible product line on the side of your product portfolio neither. With new technology as an enabler (product tracking, sourcing information etc.), consumers will be able to differentiate a company that has truly embedded sustainability into its business model and practices.
2. Customer loyalty
There is a wide-spread concern in Europe about the impact environmental issues have on people’s daily life. In a recent European study more than 90 % say environment protection is important to them personally and over 80 % believe environmental issues have a direct effect on their daily life and health.
Business Models that enable consumers to act in line with their values, without making great sacrifices in time, comfort or price will secure recurrent business.
Sustainable packaging is a good example, as the impact on people’s everyday life is big. In the mentioned study key concerns include the impact products made of plastic and the use of chemicals in consumer products have on the environment and on people’s health. Plastic-free stores are emerging and provide an example for the big stores and chains on how to do it.
3. Employee productivity
In a previous blog we wrote about how employees are attracted to purpose-driven companies as such companies give them a sense of meaning and impact.
But not only do purpose-driven companies attract talent. According to research these companies also show higher labour productivity compared to firms that have not adopted environmental management and product standards.
4. Outperform peers
Several studies show that firms making investments in ESG issues (environment, social, governance) outperform their peers with regards to long-term financial growth. A study done by researchers from Harvard and the University of Minnesota in 2016 support this notion and also ruled out reversed causality: meaning it’s not simply the case that profitable firms invest more in social responsibility. The study suggests that companies need to analyse which ESG issues are strategically important to their business.
5. Sustainability is the new black
In today’s business environment ‘business-as-usual’ is constantly changing. New technologies disrupt markets and consumer values and habits are changing.
Companies not keeping up become laggards and lose out on opportunities. They can only follow suit once others have developed new solutions to address societies and consumer’s needs.
Companies leading the way are able to shape markets. They make others follow them.