Demystifying sustainable Business concept 1.3 Why sustainable is important for business and start up Simply put, sustainability is a business approach to creating long-term value by taking into consideration how a given organization operates in the ecological, social and economic environment. Sustainability is built on the assumption that developing such strategies foster company longevity. In short, sustainability in business refers to the effect companies have on the environment or society. A sustainable business strategy aims to positively impact one or both of those areas, thereby helping address some of the world’s most pressing problems. Some of the global issues that sustainable business strategies help to address include: Climate change Income inequality Depletion of natural resources Human rights issues Fair working conditions Pollution Racial injustice Gender inequality Although it may sound like it, sustainability in business is not purely altruistic. As Harvard Business School Professor Rebecca Henderson notes in the online course Sustainable Business Strategy, you can't use business to do good in the world if you're not doing well financially. Doing well and doing good are intertwined, and successful business strategies include both. Many of today’s firms have adopted the triple bottom line, which suggests that organizations should focus on more than just profits, or the “bottom-line,” and also measure their environmental and social impact. These focuses can be referred to as “the three Ps,”: people, planet, and profit. Quite often, this sustainable approach to business ultimately boosts business performance. WHY IS SUSTAINABILITY IMPORTANT? In addition to driving social and environmental change, sustainability initiatives can contribute to an organization's overall success. It may seem counterintuitive that spending more money on sustainable business practices can boost a company’s profitability, but studies show that the most sustainable companies are also the most profitable. Environmental, social, and governance (ESG) metrics are often used to determine how ethical and sustainable an organization is. According to McKinsey, companies with high ESG ratings consistently outperform the market in both the medium and long term. While sustainability strategies might be an investment in the short term, they can lead to long-term benefits. BENEFITS OF SUSTAINABILITY IN BUSINESS 1. You’ll Protect Your Brand and Mitigate Risks Ending up on the front page because of a scandal is a CEO’s worst nightmare. Not only do improper practices damage an organization’s reputation and cost it customers, but dealing with a public relations disaster can divert valuable human and financial resources from the core business. You don’t want to become the company that allowed an oil spill or forced employees to work in unsafe conditions. By instituting a sustainable strategy that protects the environment and your workers, you also protect yourself from any damaging incidents. 2. Being Purpose-Driven Is a Competitive Advantage Sustainability doesn't detract from business goals, and infusing your company with purpose can help attract a motivated, skilled workforce that drives financial success. In a Facebook Live discussion, Henderson noted a recent study showing that 89 percent of executives believe an organization with shared purpose will have greater employee satisfaction. Additionally, 85 percent say they're more likely to recommend a company with strong purpose to others. Making your company an organization that does good in the world—rather than just a place that provides a paycheck—can be a competitive advantage when attracting the best talent. Related: HBS Professor Explores the Impact Purpose Can Have on Your Organization 3. There's a Growing Market for Sustainable Goods A 2019 study found that 73 percent of global consumers are willing to change their consumption habits to lessen their negative impact on the environment, and sustainable product sales have grown by nearly 20 percent since 2014. Millennials in particular are more willing to pay more for products that contain sustainable ingredients or products that have social responsibility claims. If your organization commits to sustainable products and practices, it could gain market share by converting sustainability-minded customers and increasing sales. 4. Cooperative Action Can Drive Change As an individual, it can feel overwhelming, isolating, or simply impossible to effect change in a meaningful way. That’s not the case when the most innovative, successful, and powerful companies are collaborating to solve some of the world’s most pressing problems. While governments struggle to address public goods problems, purpose-driven companies working together to address these issues have experienced great success. For example, palm oil is cheap, versatile, and found in about half of all packaged products, including soap, lipstick, and ice cream. But palm oil production (pdf) has resulted in record greenhouse gas emissions and contributed to climate change. In light of this, consumer goods producer Unilever committed to only using palm oil from certified sustainable sources in 2008. The organization cooperated with its competitors—as well as governments, NGOs, and indigenous peoples’ organizations—to lead an industry-wide adoption of sustainable palm oil. As a result, Unilever continues to be a thriving organization, and the world has reaped the environmental benefits of sustainable palm oil harvesting practices. 1.4 Sustainable International Business Sustainable development is a much broader concept than protection of the Earth. It implies a concern for future generations and for the long-term health and integrity of the dimensions of our living environment. It embraces concern for the quality of life (not just revenue growth), for equity between people in the present (including making sure products and services are accessible to all), for intergeneration equity (people in the future deserve an environment which is at least as good as the one we currently enjoy, if not better) and for the social and ethical dimensions of human welfare. It also implies that further development should only take place as long as it is within the carrying capacity of natural systems, because this environment is where (international) business takes place. When we try to figure out the relationship between international trade or global start up and SD issues, there are three aspects to be taken into account. First, we suggest grouping the 17 SDGs into six categories based on whether they increase positive externalities (knowledge, wealth, or health) or reduce negative externalities (the overuse of natural resources, harm to social cohesion, or overconsumption). Second, we propose placing these categories within an extended value chain to facilitate their implementation. Third, we argue that multinationals’ internal investments in host-country subsidiaries to improve their competitiveness contribute to addressing externalities in host-country communities, while external investments in host communities to solve underdevelopment generate competitiveness externalities in host-country subsidiaries. A strong export base is generally regarded as a key component to economic growth. Export is a key determinant in achieving economical growth of the state and a higher level of competition in the domestic market, but there is no proof that export promotion made by the state is efficient to stimulate export activities (Dzemydaitė et al. 2012). Exporters are usually considered to be high-performance firms for two reasons: when competing in foreign markets exporting firms generally incur higher trade barriers and face different consumer tastes and tougher competition; exporting additionally makes firms more easily aware of potential innovations taking place abroad and they may assimilate these in order to improve their position both in domestic and foreign markets. This learning by competing effect may also spread over local firms and benefit them indirectly. Human capital is one of the most important pillars sustaining countries economy growth as well as its competitiveness in the knowledge-based world (Daugėlienė, Marcinkevičienė 2009). The following industry leaders illustrate what sustainability initiatives look like: Nike and Adidas have both stepped up seriously. Nike has focused on reducing waste and minimizing its footprint, whereas Adidas has created a greener supply chain and targeted specific issues like dyeing and eliminating plastic bags. Unilever and Nestlé have both taken on major commitments; Unilever notably on organic palm oil and its overall waste and resource footprint, and Nestlé in areas such as product life cycle, climate, water efficiency and waste. Walmart, IKEA and H&M have moved toward more sustainable retailing, largely by leading collaboration across their supply chains to reduce waste, increase resource productivity and optimize material usage. It also has taken steps to address local labour conditions with suppliers from emerging markets. Pepsi and Coca-Cola have both developed ambitious agendas, such as increasing focus on water stewardship and setting targets on water replenishment. Acting sustainable doesn’t have to be a huge challenge. It can be as simple as finding ways to give back to the local communities your business operates in, whether through employees volunteering their time or through charitable measures, as well as offering internships to those in the community. Sustainable business practices are very likely to be embraced by employees, consumers, and other stakeholders, more so now than ever before. The extent to which you will need to overhaul your current practices to become more sustainable will, naturally, vary greatly depending on the individual company. It could be just a few changes that need to take place, or the business could require a complete restructure and strategy refocus. If your business has a long way to go, the most important thing to remember is that as long as the intention is there, gradual and slow change is much better than no change at all. Also, implementing a new, more sustainable business model can also offer opportunities, by opening or even creating new markets, and reaching new customer bases. The first step is to start a dialogue with stakeholders on how the process should be carried out, how it should be measured, and how its results should be reported on. If you’re looking for support on how to become a more sustainable global business as you expand internationally, you may want to seek expert advice on how best to implement it within your company.
