In 2015, MIT Sloan Management Review and Boston Consulting Group (BCG) polled 3,000 managers and investors from all over the world. They found that three-quarters of senior executives at investment houses said a company’s sustainability performance was something they considered when making investment decisions. Interestingly, only 60 percent of company executives said investors thought that way, showing a marked and unsettling disconnect between the worlds of investment and corporations.
In 2017, a stunning 90 percent of executives said they saw sustainability as important, but only 60 percent of companies had a sustainability strategy. Moreover, 86 percent of respondents agreed that boards should play a strong role in their company’s sustainability efforts, but only 48 percent said their CEOs were engaged, and fewer (30 percent) agreed that their sustainability efforts had strong board-level oversight. And while 60 percent of companies had a sustainability strategy, only 25 percent had developed a clear business case for their sustainability efforts.
Financial Benefits of Sustainability
Stakeholders are waking up to the problems of short-term profits and the possible benefits of long-term value. There are many examples of the differences this is beginning to make. Unilever, for example, stopped reporting quarterly profits shortly after Paul Polman took over as CEO in 2009. And in 2016, the insurance company AXA Group sold all its tobacco-industry assets in a deliberate attempt to burnish its image as a “responsible health insurer and investor.” Step by step, financially driven short-termism is being pushed into retreat.
One reason for this is that more and more executives are coming to realize the financial benefits of sustainability – companies are coming to see it as an investment, not a cost. In fact, sustainability drives profits in two ways, directly and indirectly. Direct bottom-line effects are usually seen quickly through savings, be it in the form of lower electricity consumption, fewer raw material purchases, or less waste accumulation. These are often low-hanging fruits that can’t be picked forever. But the savings they produce are real and ongoing, and their effect is an important encouragement to any employee still skeptical about sustainability.
The indirect effects are no less real. Done right, sustainability can increase brand value – and brand value, in consequence, can drive sales.
Employees and other stakeholder groups reward sustainability with increased loyalty. My research with Daniel Korschun and Scott Swain has also shown tangible effects on sales if both frontline salespeople and customers believe in sustainability, allowing them to connect over the company’s efforts. This bonding with customers drives sales – especially if customers and salespeople also know management is behind and fully committed to sustainability.