While the benefits of environmental sustainability for long-term business success are numerous, the main competitive advantages can be broken down into three clear categories: investors, customers and legislation.
Successful organisations are already aware of the importance of meeting investor and customer demands whilst complying with legislative requirements. Here we highlight how a well-developed corporate sustainability strategy can provide notable business benefits as well as the targetted climate action.
1. Happy investors: Benefits of environmental sustainability
One of the key discoveries of our latest Sustainability Reporting Performance research into the FTSE 100, was the clear trend of investor pressure on sustainability reporting. This was in part driven by the need for better climate-related disclosures as set out by The Task Force on Climate-related Financial Disclosures (TCFD). Alignment to TCFD has increased rapidly from only 15% of FTSE 100 companies in 2018 to 56% in 2020 as companies respond to investor demands for business climate risk assessments.
This alignment will continue to rise, especially given the plans to make TCFD alignment manatory in the UK as we shall discuss later in the article. Climate risk is clearly an important factor for investors where we have seen increasing numbers holding businesses to account for their climate actions. They want to know that due diligence has been carried out on the management of climate related risks within their investment portfolios to help inform their investment decisions.
Investors are also concerned about the risk of stranded assets (i.e. assets that lose value prematurely due to environmental, social, or other external factors). However, investors cutting their holdings of a company because of climate risk is just one side of the coin. Environmental sustainability can also create significant opportunities and enable organisations to become more attractive to investors.
Last month, Schroders chief executive Peter Harrison called for companies to produce dedicated net zero transition plans following demand by clients and shareholders for a greater focus on the climate activities of business. BlackRock CEO, Larry Fink also pressed firms to pursue the net zero transition because ‘No issue ranks higher than climate change’.
It is now evident that a proactive approach to environmental sustainability that incorporates investor demands can help future-proof investment and engagement from shareholders.
2. Engaged customers: Benefits of environmental sustainability
It is well known that a positive company image can improve customer engagement for businesses and can foster loyalty vital to long-term business success. Conversely, consumers drop favourite brands when they lose trust in the company. But how does environmental sustainability translate into customer purchasing decisions?
Across multiple resources, environmental sustainability is an increasingly important part of consumer purchasing decisions. In the period 2013-2018, products marketed as sustainable grew 5.6 times faster than other products. It is anticipated that the US market for sustainable products will reach 25% in 2021 representing $150 billion.
Conveying your services or products’ sustainability benefits is essential and consumers are more informed than ever. Research from IBM and the National Retail Federation found 79% of consumers stated the importance for brands to provide guaranteed authenticity, like certifications, when they’re purchasing goods. In light of these findings, companies are urged to ensure they are credibly communicating green credentials to avoid the risk of being labelled as ‘greenwashing’.
In 2021, customers are more aware than ever of how their buying power can influence organisations. They are more willing to alter buying habits to reduce their impact on the climate and they are more knowledgeable about the difference between genuine climate action vs marketing ploys or greenwashing. Businesses that build effective, science-based climate strategies will see the benefit of improved brand perceptions amongst customers and the increased opportunities that follow. Especially if they can communicate this climate action and engage the consumers of the growing market for sustainable products. This may be why a recent report from HSBC shows 86% of their respondents are expecting sales to grow following a greater focus on sustainability.
3. Addressing legislative pressures: Benefits of environmental sustainability
Companies that stay ahead of the compliance curve can plan for changes well in advance. A report by the Investment Leaders Group found that climate and energy regulation will likely have significant effects on company profitability. As a minimum increased taxation results in increased operating costs.
As governments step up action towards net zero goals, such as the UK’s commitment to net zero by 2050, increased climate legislation is inevitable. Taking the UK as an example, there has been much talk about ‘green recovery‘ following the COVID-19 pandemic and efforts to position the government as a leader in sustainable governance through hosting COP26 in Glasgow later this year. An example plans to heighten sustainability legislation can be seen by, the move to make Task Force on Climate-related Financial Disclosures (TCFD) mandatory by 2025.
Consideration of how climate legislation will affect your business is not just limited to those already within certain reporting boundaries. As we saw with the change from CRC to SECR, widening the pool of organisations that qualified meant many more companies having to get to grips with sustainability reporting frameworks.
Proactive companies addressing climate impact legislation ahead of enforcement are better placed to deal with the changes and associated time and effort involved in data collection and submission. Conversely, if you have a well-planned climate strategy, costs associated with switching to lower emission operations can be offset by the reduced costs of increasing carbon taxes.
Having a better understanding of the cost/reward ratio will help you make informed decisions on climate action, bringing benefits to your business whilst reducing your impact on the planet. It might even help you get sign off for further climate action!
Bonus point: employees and hiring
Businesses that have a well-rounded approach to sustainability can see wide-ranging growth opportunities, not just in terms of improved financial performance but also from attracting and retaining the brightest talent and increased levels of innovation.
In a recent study into how climate change and Covid are transforming workplaces, 65% of respondents were more likely to work for a company with a strong environmental policy. These numbers are even more encouraging in younger age groups and as over 75% of the workforce is set to be millennials by 2025, it makes sense to consider their job requirements.
Take climate action and communicate it!
Hopefully, it is now abundantly clear the benefits of environmental sustainability lead to business success. If you’re looking at how to start your corporate climate action, it is essential to start by understanding your impact through your carbon footprint. After that, we recommend setting a public commitment to reducing your emissions, such as a science-based target. We have seen from our research that making public commitments to climate action results in higher uptake and faster progress. Please get in contact today if you want to discuss how your organisation can benefit from environmental sustainability.