How Sustainability Can Benefit Your Company's Bottom Line- Cedara Resources

As the threat of climate change looms large for both individuals and corporations, more business leaders are recognizing the importance of corporate sustainability. Some companies are switching to renewable energy for their utilities, others are exploring options for eco-friendly materials for products and packaging, and some are taking steps to reduce waste across their supply chains.

However, sustainability doesn’t just refer to embracing sound environmental practices. True corporate sustainability means making decisions that serve your business well in the long-term rather than cutting corners to drive short-term profits. Prioritizing sustainability can help business leaders reduce expenses without sacrificing quality, improve their brand reputation amongst consumers, and even attract more funding from investors that are focused on environmental, social, governance initiatives.

Today, a growing number of companies are looking beyond net revenue growth to focus on improving their “triple bottom line”: in other words, maintaining or increasing profits while simultaneously helping people and the planet. In addition to delivering value for shareholders, they’re devoting more resources to supporting other stakeholders, including their employees, customers, and wider communities, and creating a positive environmental impact. In fact, 68% of executives state that sustainability now ranks as a top priority for their Boards of Directors, and this figure rises to 92% amongst mature, leading firms. Furthermore, fewer executives see any real conflict between sustainability and profitability, with only 16% saying that it’s hard to meet shareholder expectations while achieving sustainability goals.

By keeping ESG at the center of your business strategy, you’ll naturally prioritize sustainability as a core value within your company, paving the way for long-term bottom line growth. Here’s how shaping your business strategy around sustainable environmental practices can build a strong foundation for your company’s future and help improve your bottom line.

Today’s Consumers Care About Sustainability

Companies that are proactive about making sustainable changes can position themselves as ESG leaders to boost their sales figures in the long run. Consumers have demonstrated their interest in buying sustainable products, and researchers at McKinsey have found that products making ESG-related claims have experienced 28% cumulative growth on average over the past five years, compared to 20% cumulative growth for products lacking ESG claims.

This shift accelerated during the COVID-19 pandemic, with sales of sustainably marketed products skyrocketing by 40% in March 2020, beating total category sales by 6%. While this sales growth rate did decline by mid-April, sustainable product sales still remained higher than pre-pandemic and category rates. Brands took note of this dramatic growth, and the following year, approximately 50% of new products launched were sustainable, and such products represented about one-third of all CPG growth in 2022. Throughout 2022, eco-friendly product sales remained strong, with about 93% of consumers maintaining or increasing their sustainable purchasing habits.

Some business leaders may be concerned that the higher price points for sustainable products could drive away consumers, but price premiums on these products don’t seem to dampen purchasing. While conventional products have experienced a 4.98% compound annual growth rate over the past five years, sustainable products have nearly doubled this with a 9.48% rate. Furthermore, businesses today can sell sustainable products at price points lower than past years while still turning a profit. Although sustainable products are typically priced about 27.6% higher than conventional items, this figure has dipped by 11.8% since 2018.

Companies that keep sustainability front and center in their internal operations and marketing campaigns can enjoy dramatic growth as a result. Patagonia, one of the world’s most high-profile, eco-conscious brands, backs up its sustainable commitments with concrete action while regularly driving sales to the tune of $1B annually. On the other hand, companies operating with unsustainable practices are more likely to face pressure campaigns from activist groups and consumers, which could hurt their growth, damage their public image, and drive away customers.

New Tools Help Shoppers Seek Out Sustainable Products

Some online retail platforms have made it easier for shoppers to search for sustainable products, and now that consumers can conveniently look up products that suit their preferences, many brands have seen significant revenue growth from their eco-friendly offerings. For example, in 2019, Amazon introduced their Climate Pledge Friendly program, which allows sellers to add specific badges to qualifying sustainable products.

A recent market insights report published by JungleScout illustrated just how popular sustainable products have become amongst Amazon shoppers since the platform launched the Climate Pledge Friendly program. Eco-friendly beauty brand Ethique saw revenue for their Climate Pledge-approved solid shampoo bar grow by 14,000% in just six months, while clean beauty company PÜR Beauty experienced nearly 170% year-over-year revenue growth. Furthermore, inflation contributing to price increases across markets may be motivating some customers to purchase reusable products, allowing them to reduce their spending on household goods and cleaning products in the future. JungleScout found that unit sales for reusable drinking straws increased by 297% between January 2022 and April 2022, while revenue for KitchLife’s reusable bamboo paper towels grew by 46,000% in the same time period.

Designing product lines with sustainability in mind also opens the door for innovation. Overall, products labeled with less-common ESG claims have actually enjoyed higher sales than other sustainable products, which means that corporations can expand into niche markets with eco-friendly offerings. Sustainable products are particularly popular amongst millennial and Gen Z consumers, and brands that launch such products may have an easier time drawing new customers from these demographics.

Appealing to Investors

It’s not just modern consumers who are gradually losing interest in supporting unsustainable companies - today’s investors share similar perspectives. Companies that emphasize sustainability can enjoy stronger backing from investors because in recent years, socially responsible businesses have been able to deliver impressive returns. A McKinsey study found that investing $1 in a value-weighted portfolio of low-sustainability companies in 1993 would yield a return of only $15.40 by 2010, compared to $22.60 for a portfolio of high-sustainability companies.

This growth has made investors feel increasingly confident in allocating their capital to sustainable investments. Since 1995, sustainable investments have outpaced the growth of conventional managed assets, and by 2014, socially responsible investments represented more than 11% of all managed assets in the US.

Furthermore, in order to meet sustainability commitments, some financial institutions are aiming to divest from fossil-fuel intensive businesses. Due to this trend, businesses in certain sectors, such as coal companies, are struggling to attract funding.

Cutting Expenses by Reducing Waste

Concentrating on sustainability doesn’t just improve a business’s bottom line by driving sales growth. Implementing sustainable practices can also gradually reduce your expenses, especially when it comes to utilities usage, travel, and commercial leases. Resource efficiency is strongly correlated with financial performance across diverse sectors, and no matter the industry, companies that performed best had strict sustainability plans in place.

Several major corporations have reported remarkable savings as a result of sustainability initiatives. For example, between 2006 and 2013, General Electric cut down on their freshwater usage by 45%, ultimately saving $300M in the process. Lockheed Martin began taking steps to reduce wood waste from their packing crates, which spawned other improvements in the production process to shrink overhead. The company spent $240,000 on these initiatives up front, which led to $7.5M in savings. When the German health and agriculture company Bayer implemented a resource-efficiency check to cut wastewater usage and utilize byproducts, they anticipated savings of more than $10M per year.

Technology also plays a role in implementing sustainable practices that reduce expenses in turn, with 67% of executives stating that they plan to leverage advanced digital technology as part of their sustainability strategies. This can include cutting down on business travel by hosting virtual conferences and events, allowing employees to work from home to eliminate commuting and save money on office rent, and going paperless to reduce office supply waste. While these are all welcome changes, it’s crucial that companies turning to technical solutions to reach sustainability goals don’t overlook the emissions created by Internet usage or digital media production.

Sustainability as a Guiding Principle

Building a corporate strategy centered around sustainable principles extends beyond environmentalism. It means thinking about what’s best for your business in the long run - and thankfully, the same choices that can help you sustain your company’s success are also beneficial for the planet. Today, prioritizing sustainability can help your business stand out amongst your competition and strengthen your position in your market.How Sustainability Can Benefit Your Company's Bottom Line

Sources:

The Triple Bottom Line: What It Is & Why It’s Important

Innovating For a Sustainable Future

Consumers care about sustainability—and back it up with their wallets

Sustainably-positioned products gain market share, drive sales and command price premiums

Sustainably marketed products’ sales have increased 2.7 times faster than conventional ones

Sustainable products took more market share last year: report

Under pressure: campaigns that persuaded companies to change the world

2022 Sustainable Product Trends

Profits with purpose: How organizing for sustainability can benefit the bottom line

Time to get serious about the realities of climate risk

GE Reduces Freshwater Use 45%

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