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Can't find profits? Look to Sustainability!

It is tempting to look at sustainability only as “do good” when in fact it is BOTH “do good” and “do well”. “Do well” is one lens to look at the business through and that is profitability, most often quarterly profits. Sustainability is another lens that looks at a broader set of stakeholders, quarterly profits AND Market Value. I would contend that looking at the business through the sustainability lens is a superior approach for shareholders.
Can’t find profits? Look to sustainability

It is tempting to look at sustainability only as “do good” when in fact it is BOTH “do good” and “do well”. “Do well” is one lens to look at the business through and that is profitability, most often quarterly profits. Sustainability is another lens that looks at a broader set of stakeholders, quarterly profits AND Market Value. I would contend that looking at the business through the sustainability lens is a superior approach for shareholders.

How does sustainability enhance Market Value?

Increased Revenue - increased competitive position and gives the firm access to some new markets, allows it to win bids, increases loyalty and retains business.

Reduced Cost - increased efficiencies through lower materials usage, less waste and lower energy uses. Wal-Mart is looking to save $3.4B from packaging alone.

Increased Brand Equity - increased Brand Equity through consumer perceptions and emotional connections. 91% of customers have a more positive image of a company when it is environmentally responsible.

Improved Employee Engagement - increased engagement, increased productivity, better retention and greater recruitment quality. A 10% improvement in employee Engagement has been shown to increase customer satisfaction by 6% and profits by 2%.

Lower Financing Costs - lowered cost of capital. Sustainable businesses outperform other businesses, are able to access Socially Responsible Investment funds and pass financial institution filters. Sustainable businesses are seen as lower risk investment and reap the rewards through lower borrowing costs.

Lower Risk - Supplier, Product, Facility, Regulatory, Competitive and Reputational risks are all lowered in sustainable businesses. Risk is a tangible cost where the Expected Risk Cost is equal to the sum of the magnitudes and frequency of potential events. For example, a blown well in the Gulf Coast was a risk at BP until the event happened at a $43B cost.

Integrating sustainability into business operations affects a number of other intangible areas that have an impact on Market Value but these are not well captured in management systems: Business Model, Design, Innovation and Strategy.

While “Doing Good” impacts profits and tangible measures of Market Value, “Doing Well” impacts Profits and Intangible measures of Market Value, which have been a growing part of total Market Value. The answer is clearly that companies should ensure that there is a focus on sustainability, knowing that it is not done at the expense of profits.