Money used to be a dirty word in corporate sustainability. For decades, companies largely viewed their social and environmental initiatives as charitable or side projects instead of part of their core business. But that attitude is changing.
More companies are taking into account their impact on environment, workers and community in running their business. At the same time, a growing body of research shows that consumers, especially young ones, believe that doing something good for the world should be part of a company’s core business plan. They want companies to show how their sustainability investments produce financial and other measurable results.
“[Sustainability is] not only something our consumers and customers support, it’s also good for business,” said Jerry Lynch, chief sustainability officer at General Mills. Last year, the company said it would reduce its emissions by 28% by 2025. It didn’t disclose how much it would cost the company to achieve that goal, but said it would spend at least $100m on renewable energy and running a more energy-efficient operation.
“When we can clearly track metrics like energy and water use in our direct operations on an ongoing basis, as well as engage with growers to measure inputs and outputs at the farm level, it helps us to communicate internally and externally the positive impact these efforts can have on our triple bottom line,” Lynch said.
How companies make a strong business case for sustainability will be part of a new, 12-month series launching today, titled The New Bottom Line. The series will examine the different metrics businesses use to decide the scope of their social or environmental efforts, and whether they manage to make profits while doing something good for the world.
Who says sustainability can’t be profitable?
Some companies are willing to disclose the financial returns gained from a sustainable practice, especially when they can show success. When Marks & Spencer, a UK-based department store chain, launched a sustainability plan in 2007, the company predicted that it would cost £40m ($56m) to implement – if it generated no financial benefits. Five years later, the company published a reportdetailing the key lessons from executing that plan and found that, instead of suffering losses, the changes it made, such as reducing packaging materials and food waste, resulted in a £105m ($148m) net business benefit in 2012, whichclimbed to £160m ($225m) in 2015. Marks & Spencer noted that its investment energy efficiency measures at its UK and Ireland stores, offices and warehouses, such as installing LED lights and monitoring water and energy use in real-time, resulted in a 36% improvement.
A 2015 report by consultant firm Pure Strategies which surveyed sustainability officers at 152 large companies, found that of the companies that had already implemented projects to create more sustainable products, such as by using recycled or non-toxic materials, 27% saw $5m or more in increased sales and 33% generated $5m or more in benefits from taking good care of their employees. The attached chart (see below article) shows other areas of benefit from sustainability implementation.
“If you want the whole company to follow you, you have to explain that [sustainability is] part of the business strategy,” said Andy Last, CEO and co-founder of communications firm Salt. “If you want the investment community to follow you, you have to explain this is a good strategy. If you want partners to follow you, you have to be honest that you’re doing this for business reasons.”
The emergence of B Corp, a certification for companies that agree to benefit the society as well as their shareholders, also demonstrates this philosophical shift in running a business. Most B Corps, which number about 1,500 in 42 countries, are small and medium private businesses, such as Patagonia and Ben & Jerry’s. But the certification is now attracting larger companies including Unilever and Group Danone, a French food company, who is working with B Lab to make the certification program work for large, public companies.
Young, tech-savvy consumers are already onboard
The public has become more open to the idea of companies pursuing sustainability for the sake of profit. Millennials say they want to work for companies that care about creating a better world. Research by Salt last year suggested that the generation following them, Generation Z, goes a step further and expects their employers to make money by including social and environmental factors in their business decisions.
In a Salt survey of 1,500 16-20-year-olds in the UK, US and Singapore, at least two-thirds said that businesses have a responsibility to help create a better world and make “doing good” a central part of their business, and not just by giving to charity. Perhaps most telling is that nearly three-fifths of respondents said it is OK for a business to make a profit from making the world a better place.
To younger generations, a socially responsible business not only invests in worthwhile projects outside of the company, but also takes good care of employees. More companies are spending more money and energy on creating a happy and presumably healthier and more productive workforce. Employee happiness programs can include everything from promoting healthy eating to providing games and entertainment to relieve stress.
A survey by consulting firm Goodcorps last year on the public’s perception of a company or brand showed that people value whether a business is transparent about its conduct.
“People are trying to assess goodness on their own terms,” said Grace Kim, managing director of Goodcorps. “Take Trader Joe’s as an example: you might not know anything about their sourcing practices, but you see how happy their employees are, so you will make a logical leap and think, ‘This is a really good company’.”
While employee wellbeing can be difficult to measure, there’s research to quantify it. A six-year study by health insurance company Humana and the University of Michigan showed that happy workers perform better and cost less. The happiness survey developed by the university could predict with 99% accuracy health metrics such as blood pressure and cholesterol levels. These kinds of predictions could help a company create prevention programs and cut the frequency of medical checkups, which cost an average of $150 per employee. According to the study, an increase of one point on the survey means savings of $2,552 in medical costs per employee per year.
In a separate study, Humana found that patients who worked with the happiest nurses had 70% fewer visits to emergency rooms and 91% fewer visits to urgent care clinics. The insurance company also paid 40% less in claims to those patients.
But sustainability initiatives don’t always produce desirable results. For example, the growing interest by companies to measure their workers’ wellbeing has drawn concerns about privacy intrusion and the job security of those who have a bad month or two.
When California-based North Face discovered that it wasn’t able to create a cotton hoodie using only locally sourced materials and labor, the company sold the hoodies at its own stores and online shop – instead of incurring shipping costs by selling them to its retail customers – as a way to ensure the project would not lose money.
According to Bob Willard, a consultant who is developing a set of benchmarks to help companies assess the risk and reward, creating better metrics is crucial in making sustainability investment decisions – especially when it comes to employees.
“Environmental projects are the easiest to monetize,” Willard said. “Saving electricity, saving materials – you can add that up. But the real payoff is the employees.”