ESG: Environmental Sustainability Initiatives Fuel Long-Term Success
As sustainability initiatives and environmental consciousness become a bigger part of our everyday lives, it’s hard to go a day without seeing headlines about major brands announcing their plans to make their operations more sustainable and fight climate change. From Walmart’s various climate priorities and efforts to JPMorgan’s massive $2.5 trillion pledge to support climate solutions and sustainable development, corporations are making bold moves to secure their spot in the green future.
For companies, there’s not just a moral obligation to go green. There are also undeniable business benefits to embracing sustainability.
It’s part of why ESG continues to influence business decisions today. Short for Environmental, Social, and (Corporate) Governance, ESG has become a significant set of standards that investors use to evaluate a company’s performance. Socially responsible investors are willing to support organizations with high ESG performance not only because it aligns with their values but also because the financial ROI is real.
So, with more and more organizations making environmental commitments and plenty scrambling to join the movement, it’s natural to wonder: how exactly does consideration for the environment affect an organization’s long-term success?
1. Regulatory compliance
When it comes to why businesses need to consider environmental factors, the first and most straightforward reason is quite simple: In many places, it’s the law.
Governments around the world have implemented a web of environmental regulations designed to curb pollution, conserve resources, and protect the ecosystems that sustain us. For instance, the Clean Air Act in the United States sets limits on certain pollutants while the European Union’s Emission Trading System regulates carbon emissions.
Neglecting environmental regulations can tarnish an organization’s public standing and burden it with legal and financial penalties.
Non-compliance can not only damage your company’s brand and reputation but it also often comes with substantial fines, legal entanglements, and sometimes long-term financial losses. Here are some real-world examples of what can happen when companies don’t take their environmental responsibilities seriously:
- In 2015, Volkswagen, then the world’s second-largest car maker, was caught cheating on emissions tests, which led to a $2.8 billion fine and a loss of global public trust.
- In 2017, Brazil’s JBS, one of the world’s largest meat producers, was fined $7.7 million for violating Amazon rainforest protection laws.
- In 2021, ExxonMobil was slapped with a $14.25 million penalty for repeated Clean Air Act violations, adding to its history of environmental infractions.
Ultimately, neglecting environmental regulations can tarnish an organization’s public standing and burden it with sometimes significant legal and financial penalties.
2. Reputation building: meeting rising expectations
Customers, investors, and employees are increasingly placing sustainability at the forefront of their decision-making processes—and they’re expecting companies to do the same.
PwC reported that 80% of consumers and 84% of employees are more likely to buy from/work for a company that stands up for the environment. Moreover, 76% of consumers declared they would cut ties with companies that treat the environment (as well as employees and communities) poorly.
Patagonia is a stand out example of a company with a long history of putting environmental considerations at the forefront. The company was recently ranked #1 as the brand with the best reputation. Its strong commitment to environmental responsibility has resulted in a loyal customer base, rewarding it for not only producing sustainable products, but also actively engaging in environmental activism.
By adopting environmentally friendly practices, organizations are better able to meet the rising expectations of an informed public.
In an era where information is readily accessible, every eco-friendly step or misstep can impact public perception. Brands known for undertaking genuine sustainability initiatives earn trust, a key ingredient of long-term brand viability. By adopting environmentally friendly policies and practices, organizations are better able to meet the rising expectations of an informed and concerned public.
3. Risk management: tackling environmental risks
The world faces a host of serious environmental challenges and ignoring these risks can lead to dire consequences for organizations’ operations. For example, climate change can lead to extreme weather events that can damage infrastructure and disrupt supply chains. Resource depletion can lead to higher prices for raw materials and energy, which can increase costs and reduce competitiveness.
By prioritizing environmental considerations, companies can proactively identify and mitigate potential risks. Strategies like carbon footprint reduction and resource efficiency enhance sustainability and strengthen resilience against external environmental shocks.
By prioritizing environmental considerations, companies can proactively identify and mitigate potential risks.
Take Google, for instance. After achieving carbon neutrality, the company now seeks to eliminate carbon emissions associated with its operations and “run on clean energy every hour of every day by 2030.” Not only does this goal help the environment, it also helps to protect Google from the ups and downs of the fossil fuel market. And it puts the company in a better position in the likely event of increased regulation of carbon emissions.
4. Cost savings
Contrary to popular perception, going green isn’t a recipe for higher costs. Eco-friendly practices often lead to cost reductions and increased efficiency. Companies that prioritize resource conservation, waste reduction, and energy efficiency often discover new ways to streamline processes and cut expenses.
Unilever saved $1.5 billion in costs between 2008 and 2021, with executives concluding that “upfront sustainability investments very often result in long-term discounts.”
Eco-friendly practices often lead to cost reductions and increased efficiency.
In the medical realm, a study by Practice Greenhealth estimates that hospitals that pursue basic “green” programs or sustainability initiatives, such as LED surgical lighting or HVAC setback, will likely see annual savings of $56,000 per operating room.
These examples highlight the potential for organizations to both reduce their environmental footprint and improve their bottom line. By integrating sustainability into their core strategies and investing in green practices, businesses can find innovative ways to enhance efficiency and save money. Sustainable practices, in this sense, become a win-win.
5. Driving innovation and resilience
Implementing sustainability initiatives often involves innovative problem-solving. As a result, companies that prioritize environmental factors often find themselves at the forefront of industry trends and the innovation curve. They push boundaries and develop sustainable products and services that meet the needs of today while also better preparing them for tomorrow’s demands.
For instance, Tesla’s commitment to electric vehicles disrupted the automotive industry by prioritizing electric vehicles and renewable energy solutions. This commitment to sustainability has finally sparked a global, industry-wide scramble to electrify product lines. Nearly all of the world’s other car manufacturers could have made this move but only Tesla put “accelerating the world’s transition to sustainable energy” at the core of its business vision. This has put them years ahead of nearly every other manufacturer and garnered them a significant competitive advantage.
Companies that prioritize environmental factors often find themselves at the forefront of industry trends and the innovation curve.
To top it off, sustainability initiatives promote resilience. Businesses that anticipate environmental challenges and adapt early are better equipped to weather storms—both literal and metaphorical. By proactively innovating, they gain a competitive edge and position themselves as leaders in ever-evolving markets.
6. Attracting customers and investors
Many customers and investors are increasingly concerned about the environment and want to support businesses that are taking steps to reduce their environmental impact. According to NielsenIQ, 78% of U.S. consumers say that a sustainable lifestyle is important to them. This is evident in the growing popularity of sustainable investing and the increasing demand for eco-friendly products and services.
But do consumers actually follow through with their claimed demands?
Do consumers actually follow through with their claimed demands for eco-friendly products and services?
A McKinsey study sought to answer that question and determine whether there was a link between ESG-related claims and consumer spending in consumer packaged goods. The results?
A “fact-based case for bringing environmentally and socially responsible products to market as part of overall ESG strategies and commitments.” Take a look at the findings:
- Products making ESG-related claims averaged 28% cumulative growth over the studied five-year period, versus 20% for products that made no such claims.
- Products making multiple types of ESG-related claims grew about 2x as fast as products that made only one.
- Brands with more sales from products making ESG-related claims enjoyed greater loyalty in terms of repeat purchases.
The data speaks volumes: Customers are voting with their wallets, and the momentum is only growing. Being conscious about one’s impact on the environment isn’t just a noble pursuit; it’s clearly become a smart business move that aligns with consumer values. It has become a key ingredient in positioning a business for long-term viability.
Sustainability initiatives: ESG’s ‘E’ in action
The “E” in ESG is not merely a checkbox to be ticked off in a corporate agenda. It’s a pivotal force that shapes the business sustainability of organizations. By prioritizing the environment, you’re not only building a greener future but also safeguarding your own success.
Photo by James Heaton