Sustainability in Business
From niche market to industry-standard under climate change
Sustainability is the hottest keyword in business. Start-ups build their brand identities on being more sustainable than bigger brands, and bigger brands work tirelessly to convince their consumer that they have always been sustainable.
Shifting consumer demand favors companies that value the environment. As we see the increased effects of climate change, as well as income inequality and human rights issues, consumers are pushing companies to take responsibility and make the change.
Every day, companies try to become more sustainable, solely to keep up with this burgeoning trend.
We are currently at a point when sustainable companies are popular, but they are not industry leaders. In fact, the major players in each industry are not threatened by these new practices. Instead, large corporations have the resources to become more sustainable, or at least advertise that they are doing so.
However, in the near future, environmental sustainability may become the make-or-break factor in the success of a business. Climate change is only worsening, and companies will need to prove their commitment to the environment in order to keep their customer base.
The advantages of sustainable business practices
There are tangible benefits to sustainability initiatives, which can inspire their adoption even if the company does not deeply care about the environment. Common first steps involve reducing energy usage and increasing efficiencies, which reduce costs for the company.
Companies can also receive tax write-offs or subsidies for adopting renewable energy. These financial incentives can persuade business owners to be more sustainable, even if they do not have the ethical motivation to do so.
The less tangible benefits of adopting sustainability are the boost in morale and beneficial societal impact. By initiating these changes, companies can see the benefits of re-prioritizing their values. Employees may feel a boost in morale as they feel they are working for a company that is making a difference. This can improve productivity and even innovation.
Increasing sustainability can open a business up to a new consumer base. The sect of conscious consumers may have avoided a certain company because it was not sustainable enough, but if that company can implement sustainability initiatives, it can now access that market base.
Considering the new trend of sustainable consumerism, adopting sustainable practices can be one of the best ways to secure your consumer base.
Growing demand for sustainability
Millennials and Gen-Z have inherited the Earth in a state of chaos and impending destruction. These generations see climate change as a much larger issue than older generations and are frustrated with inaction from those in power.
The world is changing and younger generations are pushing corporations to step up and change for the good. Businesses can no longer operate in ignorance of the massive environmental crisis at hand; they need to respond, re-prioritize and redesign their way of thinking.
With every hurricane and wildfire comes an increased urgency for change. Consumers feel the pressure of climate change and demand a response from companies. In some cases, consumers want companies to own up to the damage they have caused. In other cases, they want companies to improve their practices so no other harm can be done.
This rising urgency is met with a rising expectation from companies. Consumers are not gullible enough to accept companies who plead ignorance with climate change. The issue is obvious enough that everyone should be concerned about it.
Consumers are not the only group pushing for change: investors are demanding companies to follow ESG standards as well as bring returns. Environmental, social, and governance standards (ESG) show how well a company performs in those areas, pertaining to its risk of scandal. Bloomberg expects global ESG assets to reach over 53 trillion dollars by 2025, which is more than a third of total assets under management.
Publicly traded companies must now prove their economic viability and their commitment to the environment. Investors do not want to invest in a company that is subject to climate risk, whether through scandal or through a physical risk of climate change. Investors are looking to the future and reevaluating their investments to align with our changing world.
The changing world
Sustainability is a comparative advantage for many companies. We are at the turning point where some companies are still successful, even if they are not completely environmentally friendly. However, moving into the 2020s and 2030s, where the effects of climate change will only increase, businesses will be forced to adopt sustainability practices.
With the COVID-19 pandemic, increased natural disasters, and uprising in social movements, companies must adapt to survive. We are entering a turning point in history, where businesses operating with twentieth-century mindsets will be abandoned and forgotten for those companies that can change to reflect the new world.
Consumers reward companies that adopt sustainable practices through increased sales, further proving that sustainability will be a defining factor of a company’s success in the coming years. Focusing on environmental, social, and governance standards can lead to better financial performance. It can also bring more talent to the business, as Gen-Z and Millennials want to work for companies that share their values. Soon, it will be necessary to have these components.
The pressure to become sustainable will only increase under new governmental legislation surrounding climate change. Under the Paris Agreement, countries have agreed to work to prevent extreme warming. The policies of many countries restrict emissions, and companies will have to comply. If environmental legislation continues to strengthen, companies will face pressure from three sides: consumers, investors, and the government.
Conclusion
Consumers are growing impatient with the slow reaction time of large corporations to environmental and social issues. Smaller businesses and start-ups can most easily adapt to the changing consumer trends but lack the initial funding to make the big changes. As more consumers show support for sustainable brands, the profits from sustainable initiatives will become more defined and guaranteed.
Creating a sustainable company is no longer a risk, rather a necessity.
References
- https://www.nist.gov/blogs/manufacturing-innovation-blog/five-benefits-embracing-sustainability-and-green-manufacturing
- https://www.bcg.com/publications/2020/why-the-new-competitive-advantage-demands-sustainability
- https://www.nasdaq.com/articles/what-is-esg-investing-and-why-is-it-worth-trillions-2021-07-15
- https://www.odgersberndtson.com/en-nl/insights/how-financial-services-businesses-can-reap-the-rewards-of-having-a-clear-purpose
- https://www.forbes.com/sites/forbesbusinesscouncil/2021/03/31/how-startups-can-become-more-sustainable-in-2021/?sh=1fa33f1d343a
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