In today’s corporate climate, sustainability has advanced past the point of simply being a trend. Most successful companies have adopted aspects of sustainability whether it be in their corporate governance structures, operations management procedures, or both. Data supporting the long-term business benefits associated with sustainable business practices has bolstered the growing popularity of sustainability amongst corporations. Experts raise concerns that operating a firm as a short-term profit machine often comes at the cost of long-term growth. Companies once viewed as being exceptionally charitable now represent industry standards for productivity and innovation.
Achieving the “triple advantage” is the primary aim for firms that invest heavily into promoting sustainability. The three pieces making up the triple advantage are:
- The environment
- Financial results
The term describes the business benefits realized alongside significant environmental and societal progress resulting from a company’s sustainability efforts.
Statistics published in a report by the World Economic Forum detail the specific benefits experienced by companies who are industry leaders in sustainability. The data shows that these companies experience long term benefits in four key areas: revenue growth, cost reduction, brand reputation and risk mitigation.
1. Revenue Growth
Sustainable firms are experiencing considerable spikes in revenue as consumers shift their preferences in favor of companies known for sustainability. According to the report, companies across several industries have experienced revenue growth between 5 and 20 percent from successful, sustainable products.
Firms are often able to charge a premium for products manufactured sustainably, utilizing clean technology or ethical sourcing. Premium pricing exemplifies the maxim of corporate sustainability: “What you get out is what you put in”. The business benefits that a company experiences are reflective of its dedication to advancing environmental and societal progress through sustainability.
2. Brand Reputation
The report states that corporations who succeed in legitimizing their sustainability practices may experience between a 10 to 25 percent increase in popularity of their corporate brand. Companies with reputable brands carry a larger base of loyal customers according to the report. These loyal customers are more likely to purchase an array of different products from their preferred brands. As a result, these businesses are able to expand into new markets.
A strong brand reputation has deeper implications for business growth than simply serving as a driver of sales. The corporate brand plays a crucial role in promoting success within the organization itself. A company’s brand reputation has a strong influence on employee morale. Employees are more effective at forwarding the goal of a company when its values are aligned with their own. Support for the corporate brand also contributes significantly to the recruitment and retention of talent within the organization.
3. Cost Reduction
Companies benefit from mitigated production costs when they commit to operating sustainable supply chains. Sustainable practices can reduce overall supply chain costs by an average of 12.5 percent according to the report. Promoting sustainability within the supply chain often requires focusing on equipment and energy efficiency. These two factors contribute to reductions in waste and decreases in production costs. Diminishing resources and rising commodity prices have made it increasingly difficult for many firms to remain profitable. In the face of these challenges, streamlining the supply chain has become a necessity for companies looking to stay competitive.
4. Risk Mitigation
Instituting sustainable business practices has been a tried and true way of mitigating potential legal risk. Maintaining high environmental, ethical and health and safety standards serves to promote disciplined compliance throughout all facets of the business. Successful companies mitigate source risk by operating diverse and responsible supply chains bolstered by sustainable substitutes.
The overwhelming success of corporate sustainability initiatives has forced directors and managers to adjust their collective mindset. Corporate governance has long been driven by a principle of “shareholder primacy”. Directors often placed the interests of shareholders above all others with little regard for stakeholders impacted directly and indirectly by the company’s operations. Data has brought the importance of stakeholder satisfaction to light, revealing its impact on productivity and innovation. Operating a firm with minimum costs and maximum profits has proven to impede the company’s long-term sustainability and growth prospects.
The Rise of the CXO
Theories centered around achieving success through sustainability have shifted the focus away from shareholder primacy towards an approach which acknowledges the inherent value of a company’s stakeholders. Further engagement with customers and employees alike has driven companies to implement sustainability measures into their organizational structures. Many firms have adopted the position of Chief Experience Officer, or CXO.
The goal of the CXO is to maintain a loyal base of customers by promoting a positive brand image. As Experience Officers aim to encourage customer engagement, Human Relations officers have taken on a more significant role in enhancing the experience of employees. HR professionals are beginning to view their workforce as “employee entrepreneurs” who are more productive and innovative when given an optimal work environment and incentives.
Public Benefit Corporations Have Sustainability Built Into the Business Model
Many firms are choosing to adopt the holistic approach of stakeholder primacy into their business structure by filing as public benefit corporations. These entities are structured like typical, for-profit corporations with shareholders, directors and officers; however, they are organized with a specified public benefit purpose written in their Certificate of Incorporation. Public benefit corporations afford their directors protections allowing them to make business decisions with the purpose of advancing the stated public benefit purpose without risk of allegations of waste by the shareholders.
Filing as a public benefit corporation can serve as a significant step for any company looking to improve its long-term sustainability and profitability. Over 70 million consumers in the US label themselves as “conscious consumers”. Every day, more consumers are choosing to look beyond the products they are purchasing and becoming more aware of the business practices of their favorite companies and brands.
When made aware of the public benefit corporation campaign, 96% of consumers, according to surveys, reported that they would begin to look for products made by public benefit corporations while shopping. As this sentiment continues to grow, the public benefit corporation may prove to be the optimal legal structure for companies looking to remain competitive in a marketplace demanding sustainability.