What is business sustainability?
Business sustainability, also known as corporate sustainability, is the management and coordination of environmental, social and financial demands and concerns to ensure responsible, ethical and ongoing success.
In traditional corporate culture, social and environmental concerns are often considered to be in conflict with financial goals. For example, depletion of non-renewable natural resources isn't a sustainable practice. However, because alternatives typically require investments in infrastructure, continued reliance on fossil fuels is the least expensive short-term option.
Similarly, investments in socially ethical practices may initially cost money but ultimately lead to enhanced recruitment, branding and public relations, and increased profitability.
Why is business sustainability important?
Business sustainability helps solve or mitigate ecological, social and economic problems through the strategic management of resources. It seeks to improve the effect a company has on the external world. In return, the business generates goodwill with employees, stakeholders and the community.
In addition to solving these problems, business sustainability may boost savings and promote the long-term financial health of the organization. If a company spends less on resources, it can increase profits. Similarly, a company's sustainability initiatives may elevate its standing in the community and with employees and improve business results.
Companies are advised to regularly publish sustainability goals and their progress toward reaching them. This transparency helps outsiders understand how the business is contributing to a sustainable global economy. Additionally, these progress reports help maintain trust with stakeholders.
Business sustainability objectives and goals help organizations stay true to commitments to core business interests like efficiency and shareholder value. Business sustainability has been co-opted by other business movements such as Kaizen, which aims to reduce waste in manufacturing and business practices. This philosophy of continuous improvement focuses on improved quality and productivity. Sustainability also helps to build more resilient supply chains by increasing efficiency and managing costs.
What are the 3 types of sustainability?
Social, environmental and economic demands are considered the three pillars of sustainability. In the corporate world, they're sometimes referred to as the triple bottom line. This is a departure from the traditional concept of the bottom line, which evaluates all efforts in terms of their short-term effect on profits.
The three main pillars of sustainability are the following:
- Social sustainability focuses on social responsibility and being a business that the surrounding community, employees and stakeholders want to support. Companies practicing social sustainability are advised to invest in long-term community relationships by giving back to the local community.
- Environmental sustainability garners the most attention from businesses. It requires businesses to focus on reducing their carbon footprint, packaging waste and water usage among other environmental problems, and improve energy efficiency. It can be difficult for a business to fully account for its environmental impact.
- Economic sustainability focuses on business profitability and includes activities such as corporate governance, supply chain sustainability, sustainability risk management, compliance and accounting transparency.
These three categories are referred to by the acronym ESG -- or environmental, social and governance. Businesses can measure their success in these areas using ESG ratings and key performance indicators.
How to create a sustainable business strategy
While there's no one right way to practice sustainable business development, organizations can implement the following best practices:
- Address compliance. Companies need to first pay attention to and meet compliance regulations regarding waste management, pollution and energy efficiency, as well as regulations related to corporate governance like the Sarbanes-Oxley Act. Failing to adhere to these regulations can result in financial fines and reputational damage, which can make it difficult to sustain a business.
- Align overall strategy with sustainability. Businesses should realize that contrary to traditional ways of thinking, sustainability isn't at odds with competitive advantage or profit. Sustainability --- social, environmental and corporate -- is essential for long-term success. Businesses should strive to exceed compliance and use sustainability to their competitive advantage.
- Quantify. Businesses should quantify the return on sustainability investments to make progress easier to track. For example, when dealing with compliance-based sustainability initiatives, compliance regulations typically outline a preset framework to help businesses measure their progress. It's generally more difficult for businesses to independently define a framework that measures sustainability, with the goal of achieving competitive advantage once base-level compliance requirements are met.
- Be proactive. Anticipate potential areas of improvement and build them into the sustainability strategy before they become a visible problem. While most corporations understand the importance of sustainability, not all are proactive.
- Be transparent. Disclosures about a company's sustainability strategy must be shared with the board of directors, shareholders, stakeholders, employees and the surrounding community. Businesses should also be forthcoming about where they require improvement and their plans to address it.
- Collaborate. Work with other organizations in the business's ecosystem to help develop solutions to address larger economic, ecological and social problems.
Examples of business sustainability
The goal of sustainability requires an extended timeline for return on investment but once initial investments are made, they can lead to increased profitability. For example, free cooling for data centers takes advantage of naturally occurring phenomena to control temperatures. While investing in this technology may require an initial cash outlay, free cooling relies on renewable resources that are freely available and reliable and will eventually pay off for the business.
Another business sustainability practice is carbon offsetting. Businesses use carbon offsets to register their emissions and offset them by reducing emissions elsewhere in the world. For example, an airline might generate x amount of greenhouse gases, which are recorded and offset in other parts of the world via forestry, landfill gas capture, or solar or wind projects. Businesses can receive credits for offsetting carbon emissions to validate their efforts. However, those carbon offsetting projects can be considered greenwashing if the company is overstating its environmental contributions.
Another way to achieve environmental sustainability in the enterprise is to embrace net-zero supply chain emissions by using electronic vehicles or transitioning to environmentally friendly, low-impact refrigerants. Many companies, including H&M, Ikea, Nestle, Unilever and Walmart, have pledged to achieve net-zero carbon emissions in the coming decades.
Building sustainable practices across the supply chain helps to make it more resilient. Learn some techniques for building supply chain resilience in the enterprise.