The sustainability business case debate is over. Here’s why

The opinions expressed here by Trellis expert contributors are their own, not those of Trellis.​

If it ever went away, the need for the sustainability field to make and deliver a business case has returned with a vengeance. The political backlash combined with skepticism over the performance of ESG funds and an unstable economy means sustainability teams are increasingly pushed to show how environmental and social initiatives support financial performance.      

A new report from Rochlin’s company, IMPACT ROI, puts the debate to rest over whether sustainability drives financial performance or functions purely as a negative cost center. Drawing predominantly from academic research conducted over the last 10 years, the report concludes that when done well, sustainability absolutely drives superior financial and competitive performance. (Rochlin will discuss the findings at Trellis Impact this week.)

Specifically, the report finds that when done well, sustainability can boost: 

• Firm value by 36 percent
• Profitability by 21 percent
• Shareholder returns by 6 percent
• B2C and B2B sales by 20 percent
• Reduce employee turnover by 57 percent and
• Reduce a range of financial and market risks by 30 percent

The research includes a wide range of quantitative benefits sustainability can generate related to financial key performance indicators, growth, risk reduction, cost reduction and responsible sourcing. Companies that engage in sustainability aren’t promised these results. Rather, those that follow a set of good practices increase their ability to deliver these kinds of benefits to the bottom line.

The report updates the 2015 framework that defines what “doing sustainability well” looks like. Summarized as Fit, Commit, Manage and Connect, the framework overlaps with the research on sustainability strategy and tension management we published last year.

One key area is for companies to commit to one or more value propositions for sustainability. Companies typically define value propositions for customers, but sustainability professionals should also define value propositions for internal customers such as the board, C-suite and business line leaders as well. Sustainability can support three high-level value propositions: 

Offer sustainability/corporate responsibility as a feature

Offering sustainability/corporate responsibility as a feature means expressing to key business stakeholders that the company has intentionally designed and built sustainability into its business model. In this way it becomes part of the brand promise communicated to consumers or business customers.

For example, Hewlett Packard Enterprise (HPE) has used sustainability as a tool to support business-to-business sales. The company incorporates sustainability into key marketing messages and sets up customer meetings to discuss HPE’s sustainability commitments, the customer’s sustainability needs and the intersection with HPE’s technology. “Our sustainability program has a demonstrably positive effect on our bottom line: we win business and attract investment by demonstrating the benefits of sustainability and of HPE’s leadership to our customers and investors,” the company states. The sustainability and sales teams collaborate to identify sustainability’s contribution to lead generation and in closing sales. The company estimates that in 2019, sustainability helped drive nearly $585 million in net revenue.

Use sustainability to drive down costs

Sustainability practices often align with efforts to use resources more efficiently, reduce waste and optimize operating expenditure and capital expenditure. For example, Apollo Global Management found its flagship portfolio companies that adopted a goal to lower carbon intensity by 15 percent have identified over $44 million in savings and $52 million in risk reduction costs. 

Grow through sustainability offerings

In addition to offering sustainability as a feature, companies can grow by offering products and services that help solve environmental and social challenges. Research finds that in the U.S. alone, the transition to a sustainable economy represents a $130 trillion opportunity between now and 2050.  

For example, BASF generated sales of $28.02 billion from what it calls “accelerator products” (products that make a substantial sustainability contribution in the value chain). The company is now focusing on setting new, more ambitious sustainability targets to continue its commitment to sustainable development.

Skeptics have long argued that sustainability sits outside of conventional business practice and represents taxation and regulation in disguise. This remains a powerful counterpoint that feels intuitive to executives and investors. 

The new report shows it’s time to tell a more intuitive story. Who would you rather do business with: a company you trust or one you don’t? A company that’s accountable and engaged in improving the environment, communities and people or one that isn’t? The new Project ROI report finds that sustainability helps improve the trust and favorability of a wide range of stakeholders including consumers/customers, investors and employees. The idea that trusted businesses perform better in the marketplace is far from rocket science.

Investing in trustworthy, responsible and accountable behaviors isn’t bad for business. To the contrary they’re a business imperative. It’s time to put aside the debate of whether sustainability supports business value creation and focus on how to use sustainability to support business in a way that will enable it to meet expectations and accountabilities to profit, people and planet at scale.