The ROI Of Sustainability in Business
There is general consensus among business leaders and investors that business success today requires a commitment to sustainability. Customers, employees, partners, communities and shareholders all benefit from a commitment to sustainable practices which seek to protect the planet, treat employees with respect, and engage with the community in a positive manner. A positive Return On Investment (ROI) and Sustainability go hand in hand, as many sustainable business practices save money by themselves.
There is also company risk in not begin sustainable and a pressing need for businesses to reduce carbon emissions. Small and large companies need to be part of the solution. Climate change has created challenges and risk for all businesses. In some regions, lack of access to natural resources and basic necessities such as water or reliable electricity is a major impediment to profitability and growth. Most recently, businesses face new risks from supply chain shortages in response to COVID-19, along with increasingly monopolistic business alliances. A strategy that includes sustainability is key to building resilience, improving profits, and reducing risk.
The Business Case for Sustainability Programs
Companies need to get serious about sustainability. A strong and effective sustainability program can provide a framework to manage initiatives, set priorities, track progress and measure results. This article discusses how an online sustainability management platform and online tools can help companies to determine where they are today, set goals, and measure results. The old adage, “measure what you manage to get things done”, definitely applies in sustainability. When done right, sustainable business practices deliver a positive return on sustainability investment (ROSI), improving efficiency, lowering costs and driving sales.
Sustainability Management Software To Drive Sustainability ROI
Most business functions today use digitization and online applications to streamline and automate processes. This is no different for sustainability programs. An online sustainability framework and online tools ensure organizations not only make environmental performance and sustainability a priority, but also benefit from their green choices and actions. Companies using a formal sustainability management solution have shown that green business practices improve operational efficiency, reduce operational costs, enhance their brand, retain employees, attract customers, and drive sales.
The Green Business Bureau is one example of a solution provider that offers a complete online sustainability management framework including two online applications, GBB EcoPlanner™ and GBB EcoAssessment™. These tools enable businesses of any size to understand, prioritize, manage and certify green initiatives and sustainable business practices. The framework also includes an EcoScorecard to track results.
Defining a Sustainability ROI Model in Business
Like any investment a company makes, the potential return on an investment in sustainability should be considered before making the investment. The ROI Model for Sustainability typically defines and tracks results in 4 categories:
- Cost Savings
- Increased Sales
- Employee Recruitment and Satisfaction
- Risk Reduction
Driving and Measuring Cost Savings from Sustainability
To achieve the highest ROI, organizations and companies looking to become more sustainable should consider all departments and all business functions. Each area within the organization will have opportunities to make changes towards a greener environment. Below are the sustainability initiatives across departments that should be considered in calculating an ROI. All of these disciplines can be improved via sustainable business practices, and can result in higher efficiency, less waste, and lower costs. Consider the following:
- Manufacturing processes, including production, sourcing, fulfillment, distribution and logistics.
- Facilities, including buildings, cleaning and maintenance, bathrooms, food service, heating, air conditioning, landscaping, lighting, solar and wind power.
- Engineering, including product design, materials, and end-of-life management (e.g. the product’s reuse and recycling potential).
- Waste Reduction: recyclable materials and food waste.
- Green Office Services: employing green vendors for cleaning, product supplies, landscaping materials, and snow/grass removal.
- Finance and Accounting, including applying carbon credits, minimizing paper billing, printing, and remote working.
- Customer Service, including remote service and product repair that uses spare parts for replacements.
- Human Resources, including video conferencing interviews, hiring of employees that are purpose-driven and committed to sustainability.
- Information Technology and printing, including your servers, data center, and hosting providers.
- Sales and Marketing, including business travel, printing of marketing materials, shipping, packaging and sustainability evangelism.
- Smaller real estate footprint via remote workforce, resulting in the lowering of all the associated costs (lighting, heat, water, etc).
- Lower business travel costs by using virtual meetings.
Measuring Energy Usage and Savings
The simplest way to calculate the hard dollars saved from energy efficiency is to track your electric, gas, and oil bills. In addition to dollar expenses, which may vary by season or time, you can also monitor actual usage and look for anomalies, trends, or opportunities for change. A more detailed approach is to install Internet of Things (IOT) measuring sensors that can break down electric consumption for each device across your organization. A spike in use might signal a maintenance issue.
Alternative green energy sources like solar and wind can also lower your operational costs. Although there is a major investment upfront, the future savings typically pay for the investment in less than 10 years. Bottomline, focusing on energy efficiency and green energy will lower your operational costs.
Fleet Management Efficiency
Does your business deliver physical goods to customers? If so, have you investigated best practices for maximizing fuel efficiency and thereby reducing cost and GHG emissions? Smart and simple solutions like reminding drivers to check tire pressure, perform routine maintenance, and refraining from leaving vehicles idling will result in real savings.
Climate change is affecting weather patterns and creating water shortages in many parts of the world. In many areas, buildings and other infrastructure are built with older pipes, which may have small undetected leaks. With very little effort you can monitor water usage and conserve water. Other steps include installing auto on/off faucets in sinks, using drip technology to water plants, and even finding alternatives to grass. Check with your staff to determine where cold water can be used in place of hot water – you’ll save on electricity and reduce GHG emissions. Using grey water to water lawns is an effective recycling procedure that saves potable water for human consumption.
When did you last analyze your waste expense? Have you discussed recycling or compost options with your vendor? Are your employees trained and aware of ways to reduce costs involved in waste management?
Everyone knows that the Covid pandemic has drastically reduced business travel but in-person meetings and conferences are coming back. Do you want a simple and easy way to offset the carbon footprint of your corporate travel while making sure you get the best price? Our partner Goodwings has a very compelling offer. They partner with airlines and hotels to bring customers the lowest prices and provide Carbon Offsets to your business.
ROI From Increased Sales
In addition to cost savings, sustainability can drive new business and sales. Sustainable businesses can target new customers that are seeking out green companies. Sustainable businesses can all increase their market share by using sustainability as competitive advantage. In some cases, sustainability will allow you to bid on business and contracts that were not possible in the past due to requirements for proof of commitment to sustainability.
Sustainable Supply Chains and Eco-minded Companies
Some companies prefer or only do business with sustainable companies. Their Requests for Proposal (RFPs) will call out sustainability expectations and requirements. Competing for these new accounts will require your business to be more sustainable and hence sustainability becomes critical to winning new contracts. Even if it’s not a formal requirement, today’s vendor selection processes often include sustainability and social responsibility as part of the decision criteria. Not being sustainable and green certified may actually lose you business and customers in today’s crowded marketplace.
Consumers are now taking a stand on who they purchase from. This “Eco-wakening” is putting pressure on companies to make changes. According to the World Wide Fund for Nature, demand for sustainable goods has increased, especially in high-income countries. In the United States, Google searches for sustainable products grew by an astounding 450% between 2016 and 2018. But this trend can also be seen in emerging countries. In China, 41% of consumers say they want eco-friendly products, and in India, sales of ‘natural’ [organic] products have grown by 13% since 2018.
In addition more and more customers want support in their own lives to be more green-conscious. Companies can play a positive role in helping consumers feel fulfilled in this way when they purchase from environmental green brands. If your brand isn’t helping your consumers improve their environmental and social footprint, then you’re in danger of disappointing 88% of them. Brands influence our behaviours, our aspirations, our insecurities and even our definition of success and happiness. That creative power is potent.
Sustainability Benefits That Drive Sales
Here’s a list of benefits that sustainable business practices bring to the table to improve a company’s marketing and sales:
- IMPROVED REPUTATION VALUE – Companies that are greener tend to be perceived as more ethical, reliable, and responsible.
- ELEVATED BRAND – Nothing is more important than your brand. Letting people know your business cares about the environment and society will associate “good” with your brand and improve your overall brand identity. Sustainable businesses are also perceived as being more honest, with higher quality products and services. Major Brands with purpose report double sales growth compared to those with no perceived purpose. Improved and elevated Brand can translate into higher value and your ability to charge more and increase bottom line profits.
- NEW CUSTOMERS – Being known as a green business will attract new customers, specifically consumers and companies who seek out sustainable businesses, products, and services.
- COMPETITIVE DIFFERENTIATION – Being sustainable allows you to stand out when competing for business. In fact, it is common today to see requests for proposals requiring sustainability information from competing vendors bidding on a contract.
Sustainability Benefits For Employee Recruitment and Satisfaction
Is there any greater ROI than the returns received from better Employee Recruitment, Retention and Performance? There is no question that businesses who focus on strong Sustainability Programs engage employees, improve morale, create a purpose-driven culture and improve employee well-being. Here’s a list of benefits that sustainable business practices can bring to your workforce.
- IMPROVED RECRUITING, STRONGER WORKFORCE – Multiple surveys report that Employees, especially the younger generation, seek out employers who are socially and environmentally responsible. Over 70% of potential workers reported that they prefer to work for an employer with a meaningful environmental plan. Being green and promoting this will attract the best employees and enable you to hire exceptional purpose-driven employees. Other surveys show that employees are willing to work for less money if they believe their employer is environmentally conscious.
- HIGHER EMPLOYEE ENGAGEMENT, IMPROVED PRODUCTIVITY, IMPROVED MORALE – 70% of employees expressed they are more likely to remain with an employer who exhibited a meaningful sustainability plan. Over 33% of employees report they work harder when they feel their company has a sustainability plan. 30% of surveyed respondents resigned from companies that did not have sustainability programs to find more rewarding positions at companies that did. Employees enjoy participating in projects, programs and events that support causes they believe in, like protecting the planet. Employees care about the environment and want to know the company they work for also cares. Your employees will be more fulfilled and satisfied knowing they work for a company that is environmentally responsible.
- EMPLOYEE HEALTH – Healthy buildings and policies drive healthy employees. Clean air through proper ventilation was important before a worldwide pandemic – now it is a priority. Do you change air filters regularly? Not only will you improve air quality but you’ll save money on operating costs as well. A more aggressive approach is to monitor VOC’s or Particulate Matter. Make sure you are using “green” or safe cleaning products that don’t contain harmful or irritating gases, and store them properly. These steps are just a small part of an Employee Wellness program.
Every news outlet reports regularly on how investors and the general public look at ESG metrics when deciding where to invest their savings or where to spend their money. Risk Reduction is a large piece of the calculation. So, how do non-public enterprises or smaller businesses fit into this picture? Smaller companies are harder to measure accurately, but doing the “right thing” attracts customers and employees to any enterprise. Doing the right thing makes sure any press attention you receive will be positive. Reducing pollution, cutting energy use, volunteering in your community, providing opportunities to build relationships in your community, etc. all go to reducing risk.
Lastly, be on the lookout for innovation and new technologies that can improve business ROI in the sustainability space that might come from unlikely places. Green Business Bureau has members from across the globe that represent a wide range of industries. Replate’s food recovery, and Ginkgo Sustainability’s living walls and living roofs are two great examples. We encourage you to share what you’ve learned or tried in your own efforts so that together we make a larger positive change in the world.
Green Business is Good Business: Expect a Positive ROI from Sustainability Efforts
Many companies choose to develop sustainable business practices based simply on the intuitive understanding that operating a greener business is ‘the right thing to do’. Helping protect the environment and address climate change are worthy causes that all companies need to rally around.
A shift to sustainable business practices is also good for business and the bottom line. New greening policies, procedures and activities can actually have a very positive impact on the financial considerations of a business. Sustainable practices can improve operational efficiency, reduce waste, and lower overall costs. Being a greener and more sustainable business can also drive revenue growth by elevating a brand, uncovering new customers, attracting and engaging employees, improving morale, and strengthening your workforce. This article provided an overview of the business benefits and ROI (Return On Investment) of sustainability and its impact on profit.