The business case for sustainability

Adding value to your business by going beyond basic compliance

To those who are just starting out, sustainability or corporate social responsibility (CSR) may be viewed as a business expense. However, the investment pays dividends in the long term.

In 2014, UNEP counted over two hundred academic reports which demonstrate positive and statistically significant relationships between sustainability performance and financial performance. The amount of case studies of CSR success has only grown since that study.

A business case is generally a cost to benefit ratio, so first, let's talk about the benefits.

Benefits of CSR

The business benefits generally fall into seven types. By clicking on each summary below, you will see a selection of actual studies and statistics that illustrate the real business value. This is far from an exhaustive list, but should be good fodder to make your own internal case!

Cost reduction

Avoid wasted resources, minimise energy and material inputs, avoid fees, fines or legal action for illegal activities, and cost of reacting to new customer requirements.

Companies experience an average internal rate of return of 27% to 80% on their low carbon investments. (We Mean Business Coalition, 2014)
Commercial and industrial buildings can save an average of 39 per cent through energy efficiency improvements as simple as changing light globes and installing sensors and timers and upgrading HVAC units. Industrial facilities could save an average of 50%, while retail could save 33% and hospitality 25%. (UK Government, 2105)
Large companies saved an average of $5.2 million (USD) in one year from energy efficiency efforts, or a total of $800 million across 153 companies. (Pure Strategies, 2015)
The average cost of avoidable food waste to a hospitality business is £0.52 (approx. US$0.85) per meal in the UK. (WRAP, 2014)
Each tonne of waste you reduce can save you between $70 and $143 in Australia, depending on your state's landfill levy. (Small Mighty CSR, 2020)

Revenue and market share

Meet rising customer (both business and consumer) expectations on environmental and social responsibility and differentiate your product from competitors or take advantage of new market opportunities and innovation.

78% of ASX50 and 64% of ASX100 companies have implemented a supplier policy or code of conduct that requires suppliers to meet environmental, social and ethical standards beyond legal requirements. (Small Mighty CSR research, Jan 2020)
73% of Australian shoppers actively seek out businesses that offer sustainable products or services. (American Express, 2018)
Products with sustainability claims generally outperform the growth rate of total products in their respective categories. (Nielsen, 2018)
At least nine companies globally generate a billion dollars or more each and $100 billion collectively in annual revenue from products or services that have sustainability or social good at their core. These companies' stocks also outperform a portfolio of conventional competitors by 11.7% per year. (Green Giants, 2015)
Meeting the Sustainable Development Goals in just four sectors (food and agriculture, cities, energy and materials, and health and wellbeing) would create market opportunities worth up to $12 trillion a year. (Business and Sustainable Development Commission, 2017)
93% of the millennial generation want to buy from companies that have purpose, sustainability and environmental stewardship built into their ethos. (FleishmanHillard Fishburn, 2018)
56% of millennials will exclude companies that are not operating sustainably from their shopping lists. (Deloitte, 2016)
Up to 72 percent of consumers age 15-20 say they will pay more for products and services from companies with a strong social and environmental commitment. (Nielsen, 2015)
Unilever's purpose-led 'Sustainable Living Brands' are growing 69% faster than the rest of the business and delivering 75% of the company’s growth. (Unilever, 2019)
56% of consumers said they have paid more for a product or service in the last 6 months because it was sustainably sourced, and over half have purchased a product specifically because it had reusable or biodegradable packaging. (Smurfit Kappa, 2020)

Risk avoidance

Prevent disruption due to non-compliance or major incidents in operations or critical suppliers, anticipate regulatory changes such as restriction on hazardous substances, sourcing of materials.

The value at stake from sustainability concerns can be as a high as 70% of earnings from regulation / reputation, rising operating costs, and supply chain disruption. (McKinsey, 2014)
72% of suppliers to multinational companies said that climate change presents risks that could significantly impact their operations, revenue, or expenditures. (CDP, 2016)

Reputation

Build trust and positive perception of your company's corporate responsibility (often referred to as social licence to operate), facilitate ease of business with stakeholders and avoid negative media around environmental and social issues in operations or the supply chain.

On average more than 25% of a company’s market value is directly attributable to its reputation. (World Economic Forum, 2012)
In sensitive industries such as mining, lack of social licence to operate can reduce the market value of a company by up to 70%. (Henisz, 2015)
Negative reputation events have the largest impact on brand value (41% of events) and revenue (41%), followed by regulatory investigation (37%), loss of customers and stock price. (Deloitte, 2015)
56% of US consumers stop buying from companies they believe are unethical. (Mintel, 2015)
Over 90 per cent of the Australian population is concerned with sustainability and the environment and 80 per cent of them hold businesses accountable for their environmental impact. (HP and PlanetArk, 2019)
70% of consumers want to know what the brands they support are doing to address social and environmental issues. 73% of respondents said that their expectations around social responsibility are the same for small companies as large companies. (Markstein and Certus Insights, 2019)

Employee engagement

Increase employee satisfaction, motivation and retention, as well as access to best talent, through a business model and culture that aligns with their values and treats them with respect.

49% of millennials will refuse to work for companies that go against their personal ethics. (Deloitte, 2016)
74% of candidates want a job where they feel like their work matters. (LinkedIn, 2016)
Morale is 55% better in companies with strong sustainability programs and employee loyalty is 38% better. (Society for Human Resource Management, 2011)
Companies that adopt environmental standards experience a 16% increase in productivity. (University of California Los Angeles, 2013)

Access to capital

Demonstrate to potential financiers management's maturity and ability to control risks, as well as accessing a growing area of social and environmental-focused 'impact investing'.

90% of 200 studies analysed conclude that good ESG standards lower the cost of capital. (Arabesque and University of Oxford, 2015)
Companies with superior environmental performance experienced lower cost of debt by 40-45 basis points. (Schneider, 2010)
Companies with environmental concerns were charged interest rates 20% higher than those with an equal number of strengths. Conversely, companies that derived their primary revenue from environmentally beneficial goods or services were charged rates 20% lower than others. Those companies with environmental concerns also had significantly fewer institutional investors and borrowed from a smaller number of lenders, suggesting these companies have fewer options for raising capital. (Chava, 2019)
$502 billion in capital was allocated to impact investing by the end of 2018, up from $9 billion in 2013. Impact investments are those made with the intention to generate positive, measurable social and environmental impact alongside a financial return. (Global Impact Investing Network, 2019)
$247 billion worth of sustainability-tied debt was raised in 2018, a growth of 26% on 2017, including green bonds, social bonds and sustainability-linked loans. These loans, which involve pricing terms that can go up or down based on the sustainability performance of the borrower, grew by 677% since 2017. (BloombergNEF, 2018)
Global investment that places weight on environmental, social and governance (ESG) criteria now tops $30 trillion — up 68 percent since 2014 and tenfold since 2004. (Global Sustainable Investment Alliance, 2018)

Supply chain improvement

Improve quality of service and products, strengthen relationships with suppliers, and avoid risks of non-compliant materials or activities and disruption.

Supply-chain disruptions due to climate risk have increased 29%. (Ceres, 2019)
Companies that implemented sustainable procurement achieved reductions in costs (including energy, materials and compliance) equivalent to 0.05% increases in revenue, avoided financial costs of 0.7% of total revenue and decreases of 12% in market capitalisation (attributable to brand value and disruption), and added 0.5% of total revenue. (INSEAD, 2010)

Costs of CSR

When instituting any new initiative, costs can be grouped into design, implementation, and operation. For CSR, the most investment (both time and money) is usually in the first two, design and implementation, such as establishing and agreeing an action plan or installing and commissioning a new technology.

Operational costs are generally negligible as CSR should be embedded into existing responsibilities and procedures rather than as a bolt-on initiative. Meanwhile, operational costs across the company reduce, including energy, materials, HR, and avoiding fines. This reduced cost, plus improved competitiveness due to the many reasons above, create a clear business case and a more successful business overall.

CSR is not one-size-fits-all, so no one can provide one CSR business case that applies to all businesses. To develop your own business case, it's important to understand which benefits you're most looking to gain (e.g. through Our Sustainability Roadmap), then you can identify the CSR actions that will best achieve those, and their specific cost. For example, an efficiency measure may be great for cost reduction, but might not be as engaging for your employees and customers.

The SMB advantage

Small and medium businesses (SMBs) can often feel limited by their size, which limits the resources, budget and expertise available to implement CSR. However, they often have an advantage over large businesses in implementing CSR due to:

Agility - due to their smaller size and less complex structure, as well as often the freedom of not having external owners and shareholders, SMBs are more flexible and adaptable than large corporations and are therefore more able to change focus and structure to respond to changing circumstances and opportunities presented by environmental and social challenges.
Innovation - SMB people are problem solvers. They are used to overcoming challenges within their business and are often more willing to look creatively at a market to innovate new and better solutions.
Connectivity - leaner, less hierarchical management structures enable a closer connection between decision makers and implementers, allowing direct influence from senior management, involvement and buy-in of teams, dissemination of information (both instruction and results), and consistency of implementation, overall reducing the gap between rhetoric and action.