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Balancing sustainability in business with growth and innovation

Balancing sustainability in business with growth and innovation

Aidan Bell, co-founder of sustainable business EnviroBuild.

Modern sustainability today is generally seen in three pillars; economic, environmental and social. Economic sustainability has always been seen as an important part of business growth. Sustainability in this instance is remaining commercially viable and being able to sustain operations in the face of unexpected events.

Social sustainability means it should have the support and approval of its community, such as employees and stakeholders. Although these both fit within corporate sustainability, historically environmental sustainability and business growth are often discussed as if they’re on separate ends of the spectrum.

 In fact, a misconception exists suggesting that being ecologically aware or investing in environmental sustainability as a business is something that works directly against profit and growth. In turn, these assumptions are linked to things commonly associated with business, such as innovation and disruptive strategies. This means that sustainability continues to be seen as something entirely separate from innovation and progressive strategies within global business.

Where does this come from?

Historically the driver of business decisions and the only measure of success was financial shareholder value.

Legally this is still the case within the Anglo-Saxon governance system, so therefore it’s easier to appeal sustainability and ecological factors to corporations by presenting the economic gains and commercial opportunities that can come to a business from being focused on environmental sustainability. Although this may seem counter-intuitive as these motivations are driven purely on financial profit, any changes towards genuine sustainability should only be seen as positive.

Only third sector charitable companies, philanthropic organisations or smaller companies (where the founder has control and had their own altruistic reasons for sustainability) have historically looked at sustainability.

The world is changing

However, the world and business globally is changing. Green issues have become of increasing importance, environmental laws have been implemented and companies are now adopting their own green pacts and responsibilities. CSR (Corporate Social Responsibility) came along and companies begun taking their branding and sustainable image seriously.

Uniquely Indian law now stipulates a CSR legislation that companies have to give a minimum of 2% of their profits back to charitable causes. However, this legislation creates a focus on expenditure rather than outcome. In fact, it often results in spending primarily in locations where the spend is most likely to result in increased business for the companies donating. Another criticism is that it is allowing the government to relax their own social responsibility towards the rural poor, something that should be considered if this was to become commonplace in other companies internationally.

Generally however, CSR is often related to creation of a better brand image, effectively part of a marketing budget. There are examples beyond this, but bringing it central to a businesses core has never truly troubled the Fortune 500.

Today, the consumer is more aware than ever of the importance of environmental sustainability. As the realisation kicks in that bringing sustainability central to your brand can actually increase performance, many companies are using this ‘green’ USP as a selling point which is changing consumer behaviour. For example, a 2016 Morgan Stanley survey on consumer buying habits and ethics showed that when choosing apparel retailers, 51% of respondents think that ethical credentials are important.

The workforce is increasingly mobile and there is an ever increasing battle for talent.  Employees, particularly those with talent and correspondingly with the greatest choice of employers, wish to feel part of something greater than themselves.  Companies are not slow to recognise value and this is being seen as an equal driver of business decisions.

Business benefits for sustainability

It’s important to remember that innovation is integral to sustainability and the two can work in partnership, such as innovative companies that now exist which support the inclusion of environmentalism in business. For example, environmental accounting now is an innovative practice which serves to increase the profit margin when applied properly. Companies themselves can practise the novel approach of environmental accounting which aims at identifying inefficiency due to excessive waste or poor use of input within the value chain.

Today, companies are being created which are doing good as part of an organisation’s core offering rather than as an ‘afterthought’ or as a marketing strategy. These kind of companies inevitably can create better revenue growth into sustainable programs. For example, according to The Financial Times, there is evidence that investment funds which observe environmental and social standards in their strategies tend to outperform those that don’t.

We know that in order to stand out in the changing landscape, companies need to think about their sustainable practises in terms of their economic growth, not aside from it. Many businesses may find that integration of these strategies in fact this creates the need to think innovatively, use imagination and creativity to redesign their goals; all factors which will inevitably lend themselves as beneficial to other commercial areas of the business.

It’s also inevitably true that innovation of what constitutes shareholder value is easier in companies where a few individuals can exert large control. It is easier for a company like Facebook, Amazon, Alphabet or any start-up to innovate in this regard than GE or JP Morgan Chase.

Growth and sustainability

Perpetual growth is incompatible with the finite world we live in. Although many argue capitalism can go hand in hand with sustainability, the creation of products and services requires the use of natural resources and therefore will always come at an environmental cost. The principles of “limitless economic growth” directly counters the idea of sustainability. In business, growth must sustain growth, meaning resources must continue to be used in order to keep this up infinitely.  We currently use resources three times faster than they are replaced by the Earth, which is clearly unsustainable.

We understand within society and within business that we rely on ecological and environmental resources in order to survive on the planet. However, these points are often forgotten in the midst of the individual search for short-term fulfillment through economic growth and materialistic need.

How can we make a change?

Step changes generally come through technological changes and the solution to the above conundrum isn’t on the near horizon. It is imperative that the financial motive be leveraged to develop. This could be achieved by government mandated valuation of the economic “externalities” of waste, pollution, global warming like the EU attempts at placing a price upon Co2. This is obviously a supra-governmental issue and not one that an individual corporation answerable to shareholders can easily navigate.

We live in a time where economic growth is seen as far more important than the detrimental effects that the burning of fossil fuels has on the environment, as well as the eventual implication of limited resources. Another solution then would be for society to reassess what it defines as shareholder value, however, that feels unlikely as it requires even more people to agree upon something. It is the global poor who will suffer most dramatically, but who have the least say in any of the solutions.  It is deeply ironic that the method most effective to resisting climate change as an individual is ensuring that you have the money to do so

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