The Success of Sustainability
The field of sustainability has been around for decades. The mantra “Reduce, Reuse, Recycle” has been chanted since the first Earth day in 1970, and with few notable exceptions, the birth of sustainability in business started around Earth Day’s 20thanniversary in 1990. It was thought of to be a good thing for businesses to do in crafting an image, a marketing incentive for companies run by hippies like Ben & Jerry’s ice cream, and not a profitable revenue producer.
Starting with the Kyoto Protocol of 1997, the beginning of the millennium post the Y2K bug, and the internet bubble companies downfall; the slowly warming environment was becoming a real issue, overpopulation was going to become “a thing,” and in the minds of the quickly growing millennial and Gen Z populations, who grew up watching An Inconvenient Truth, sustainability and the environment became front of mind. With increases in technology, allowing digitization and cloud storage, combined with the growing use of lean six sigma practices, companies finally looked at how sustainability could go from being a cost to first being an avenue of savings, and then to a revenue producer.
So why is environmental responsibility and sustainability often considered as an asset for companies that helps them earn money and new business opportunities? The first reason is that for a company that is not doing any sustainability, it is a simple way to look at what they are already doing and try to find new advantages that they can gain by only making a few small changes.
As a simple example, a process is created for a new product. That process produces waste. In the past, companies would have paid to have the waste removed. Now the discussion is, how can that waste first be reduced or eliminated?
Second, how can the waste or the process that produces it be a revenue generator? Just taking these two steps, as part of the work of the supply chain (or service delivery chain), can reduce costs and/or increase efficiencies of production considerably. When a company incorporates sustainability into its everyday business processes, it is the point where it can then become a revenue driver.
B of A Merrill Lynch has produced data affirming the power of sustainability. Their 2018 research found companies with better ESG (Environmental, Social and Governance) records outperformed their lower-rated peers, becoming higher-quality stocks, producing better three-year returns, less likely to go bankrupt, and lowering downside volatility.
Whether these numbers are due to causation or correlation is still in question, but the companies that incorporate a process of sustainability do produce positive economic results.
Investors also see the long term downside of non-sustainability. As of 2019, the Fossil Fuel divestment campaign (FF), which started with university endowments agreeing to forego and divest in coal, has broadened to all fossil fuels. Now the FF has $11 trillion in total assets pledged, including the Norweigian Sovereign Fund (the world’s largest sovereign fund), the French insurance giant AXA, the European investment bank, and one of China’s most prominent state-owned investors.
Where money flows is where the focus of companies will be in the coming years.
Several global companies are doing sustainability right and can find great success by doing so. Here are a few examples:
This flooring company is probably known for its sustainability efforts more than the products they sell. Their founder started Interface on the sustainability path in 1994, and they haven’t looked back. Interface’s Mission Zero program started in the 90s, aims to eliminate any negative environmental impact the company has by 2020. As of 2019, they reduced their carbon footprint per square meter of carpet produced by 98%, their water usage by 93%, and their factories currently use 95% renewable energy, with their European factories sending zero waste to landfills. They embrace carbon and use it to produce better products. They recently started selling carpet tiles that use recycled content and bio-based materials that can store carbon and prevent its release into the atmosphere. These are now their first carbon-negative flooring products. They have done all of this by radically redesigning the company, its products, and business practices with sustainability considered at every step. Some simple examples of this are the replacement of latex in their precoat with a recycled PVB, and the use of recycled fishing nets for raw materials, as well as energy conservation that allows them to run more efficiently. Interface’s newest initiative is Climate Take Back™, intending to reverse global warming.
Honda is pushing its Triple Zero program, which has three specific goals. 1. Zero CO2 emissions by using renewable energy, 2. Zero resource and disposal risks, and 3. Zero energy risks. They do this with partners to integrate the technology of renewable energy companies into autos, ensure the safe transfer of waste materials, and encourage the pursuit of environmentally friendly lifestyles by their consumers. To this end, they have reduced CO2 emissions of all their vehicles by 30% compared to their 2000 levels. And they are the first auto company to disclose their greenhouse gas emissions for the entire value chain.
Nestlé’s Water Stewardship program is aimed to ensure the availability and management of water via its high-profile collaborations, using water as effectively as possible, by supporting their supply chain’s use of water, educating communities on efficient water use, and improving water and sanitation access. They do this by their reduced water consumption, protection and preservation of water resources, through research with the WWF, Zero Water technology (Recycled water), and other NGOs.
Nestlé was an early entrant to sustainability by initially reducing the weight of their various packaging since 1991; these reductions have totaled over 500 million kg (1.1Billion pounds) to date. Nestlé has also been utilizing a team of over a thousand agronomists who, among other things, provide training to Nestlé farmers to minimize their environmental impact.
With the motto, “Don’t be evil,” Google should be focused on sustainability. With one program, Google has attempted to protect critical marine habitats and provide new tools for long term sustainable fisheries management. Their Global Fishing Watch provides a transparent view of commercial fishing activities with near real-time tracking of fishing activity via their public map. This map both enables scientific research, as well as improves fishing management).
Since starting its sustainability efforts, Google has turned in some impressive numbers. Google data centers use 50% less energy than competitors while also diverting 91% of their waste away from landfills. Google is also working with its suppliers to empower the use of renewable resources.
The Scandinavian flat-pack furniture maker now wants recognition for its sustainability efforts. IKEA’s 2020 Sustainability Strategy sees 91% of the waste from their stores recycled or incinerated for energy recovery, an increase in the use of sustainable production materials, and increased sales of water reducing tap nozzles, air cleaning textiles, and efficient LED light bulbs. Since their 2011 discontinuation of incandescent bulbs sales, IKEA has sold over 85 million LED bulbs. They also work with their suppliers to ensure sustainable materials and identify energy and material waste in production. The company has also required more sustainable materials in their own production processes, with 100% of the cotton and 77% of the wood in IKEA products coming from sustainable sources, citing that this will in time, lower its costs.
Sustainability is an easy way for a company to evaluate its operations and look to maximize efficiencies. The process allows for the picking of low hanging fruit and slowly improving all aspects of a business. This effort sees financial results and supplies an opportunity for a company to help an emerging economy or a well established one.