In the guide below, we outline some of the potential pros and cons of sustainability for businesses and companies.
These pros and cons cover different economic/financial, environmental, social and practical/logistical considerations.
Summary – Pros & Cons Of Sustainability For Businesses & Companies
Firstly, What Is Sustainability In Business?
Pros
Some changes may be simple, quick, and/or cost effective to implement
May reduce some costs/lead to some cost savings
May increase profits in some instances
Government assistance may help cover some increased costs
Some argue that increased sustainability in business is simply a way of finally ‘pricing in’ the environmental costs & other costs that businesses previously weren’t paying
Some of the largest publicly listed companies in the world have already implemented aspects of sustainability into their business
Some conscious consumers may have a preference for some specific products with specific sustainable features
May increase brand equity, which may come with it’s own potential benefits
May attract new customers and/or help grow a customer base
May provide an opportunity for businesses to differentiate themselves and their products from that of their competitors, & the rest of the industry
Opportunity to attract new employees, retain existing employees, & improve other employee metrics
May provide other miscellaneous economic and business metric related benefits for businesses themselves
Certain aspects of sustainability are already essential or mandatory in some places and in some industries
Sustainable business may become a standard in the future, and companies may benefit from preparing now
May reduce negative environmental impact in various ways
May help protect against resource depletion in some ways
Sustainable investment (in sustainable business) may be growing
There may be some measures in place to protect consumers from some types of ‘greenwashing’ in some countries
There may be some measures in place in some countries to provide some level of protection for consumers from some types of ‘greenwashing’ and misleading sustainability related claims by companies
Cons
Some changes may be slow and/or complex to implement
There’s upkeep and maintenance involved in some sustainable changes
May increase some labor costs and also labor intensity of some activities
May increase some capital costs
Can be other costs to consider too
There may be a number of consequences of higher costs to do business
It can take time to recoup the initial investment, or general cost involved in implementing some sustainable changes
May increase risk for businesses in some ways
Some may question the real cost and economic feasibility of some sustainable businesses and product/services after government assistance is taken into consideration
Sustainable products may sometimes lack the performance or effectiveness of non sustainable products
Consumers may not be willing to pay the premium price for, or sacrifice quality for sustainable products
Some consumers consider sustainability to be a lower priority compared to other preferences when purchasing some products
‘Greenwashing’ can be an issue, whereby some companies mislead some consumers about their sustainability practices or their product/services
Consumer awareness of sustainability may be low in some markets, industries and geographic regions
Some sustainable product markets may currently be smaller than non sustainable product markets in some industries
Sustainability may have hard limits in some industries, and across some sustainability indicators
The inclusion/exclusion decisions of different companies for some sustainability indexes have been criticised
Some argue that the subjectivity and disagreement on what is actually ‘sustainable’ might be an issue for several reasons
May lead to more restrictive markets, with less choice in some ways
Pros Of Sustainability For Businesses & Companies
Some changes may be simple, quick, and/or cost effective to implement
As one potential example of this, some small businesses may find it relatively simple, quick, and cost effective to switch from paper to electronic/digital for documentation and mail, as one methods to reduce waste.
May reduce some costs/lead to some cost savings
Reduced costs and cost savings may be a result of:
– Saving inputs and resources, or using them more efficiently
Saving inputs and resources like energy/electricity, water, or raw materials, or using them more efficiently, may lead to cost savings on inputs and materials
– Substituting a more expensive material for an alternative cheaper one during product re-design
– Avoiding certain types of penalties and/or taxes
In some regions, there may be fines or additional taxes for pollution, emissions, excessive resource use, and other infringements on sustainability
May increase profits in some instances
Increased profits may be a result of:
– Cost savings
– Customers being willing in some instances to pay more for certain types of sustainable products or services
Sometimes, where a suitable alternative is not available, the sustainable features of a product or service are important enough to a consumer that they will accept a higher price point/pay a premium for that product or service.
– Other effects of offering sustainable products and/or services
Sustainable products and services can attract new customers, increase total revenue, and affect other business metrics that lead to increased profit
Government assistance may help cover some increased costs
For example, the government may provide funding & subsidies, tax breaks and concessions, credits, and other forms of assistance to incentivize or support different types of sustainable businesses across various industries
Some argue that increased sustainability in business is simply a way of finally ‘pricing in’ the environmental costs & other costs that businesses previously weren’t paying
There are some that may argue that in the past, businesses and society at large were not paying the cost for different types of pollution, excessive resource use, and other externalized impacts of business.
Greater implementation of sustainable business may simply be a way to finally pay upfront for what were previously externalized and unpaid costs that negatively impacted the environment and future generations in society.
Some of the largest publicly listed companies in the world have already implemented aspects of sustainability into their business
We identify some of those companies in this guide
Some conscious consumers may have a preference for some specific products with specific sustainable features
What this means, is that businesses can ‘tap into’ this demand by offering products that have features in line with these preferences.
According to the BBMG Conscious Consumer Report, via eco-officiency.com:
‘[Conscious consumers are more likely to buy from] companies that manufacture energy efficient products (90%), promote health and safety benefits (88%), support fair labor and trade practices (87%) and commit to environmentally-friendly practices (87%), if products are of equal quality and price’
What’s worth noting though is that what consumers say they will do, and what they end up doing when it comes to spending their money and actually buying, can differ.
So, additional comparative information on how much the demand of the same types of sustainable and non sustainable products are increasing or decreasing might be needed for a more reliable assessment of this point.
May increase brand equity, which may come with it’s own potential benefits
Implementation of sustainable practices into a business, introducing initiatives, or offering sustainable products, may increase a brand’s equity amongst consumers, communities and groups who value sustainability, or are involved in sustainability related industries.
Brand equity can involve things such as brand awareness, brand loyalty, brand response, customer perception, and brand image.
There can be a range of short term and long term benefits to increased brand equity, with a few examples being attracting new customers (with better brand awareness), helping the brand to establish a better position in the market (with brand image and perception), and potentially increasing the overall value of the business.
… the more sustainable a company is, the higher their brand equity value is (mdpi.com)
… there is a relatively strong correlation between a measure of brand strength and a measure of sustainability (brandfinance.com)
Just as company management practices influence business value, so do sustainability initiatives (interbrand.com)
May attract new customers and/or help grow a customer base
Doing things such as offering certain types of sustainable products to conscious consumers with certain preferences, and also increasing brand equity, may result in a business attracting new customers, and/or growing their customer base.
May provide an opportunity for businesses to differentiate themselves and their products from that of their competitors, & the rest of the industry
Sustainability is ultimately another feature of an individual business and/or their products and services
As is the case with any feature, companies can differentiate themselves from their competitors (especially competitors with little sustainability offerings) and the industry they are in, depending on how they incorporate and use sustainability, and also depending on how they offer sustainability as a feature to their customers
Some companies for example become sustainability leaders within an industry, and establish a unique positioning because of this
Other companies may not necessarily become leaders, but may offer a specific sustainability feature in their product or service that other competitors don’t, that some customers and the market value
Opportunity to attract new employees, retain existing employees, & improve other employee metrics
Some new employees may value working with a sustainable business..
Additionally, some existing employees may want to stay woking at a sustainable business.
Therefore, some sustainable companies may benefit in the areas of skilled labor acquisition and skilled labor retention.
From eco-officiency.com: ‘… companies with sustainability programs report 55% better employee morale, 43% more efficient business processes and 38% improved employee loyalty’
May provide other miscellaneous economic and business metric related benefits for businesses themselves
mckinsey.com indicates that environmental social governance in companies has additional benefits when it coms to company cash flow:
‘ESG links to cash flow in five important ways: (1) facilitating top-line growth, (2) reducing costs, (3) minimizing regulatory and legal interventions, (4) increasing employee productivity, and (5) optimizing investment and capital expenditures’
Other potential economic or business metric related benefits might include:
– Creating additional income streams
Like for example finding ways to commercialize waste by-products, or even feeding solar power back into the grid from on-site solar set ups and receiving credits
Certain aspects of sustainability are already essential or mandatory in some places and in some industries
There might be two main reasons for this:
– Law and regulations are making certain sustainable practices and requirements mandatory in some industries and cities
On example of this might be regulatory requirements or penalties related to carbon emissions and being carbon neutral as a business
– Conscious consumers being more selective about the products and services they buy
Some conscious consumers will only buy certain types of sustainable products and services now, or shop from certain types of sustainable businesses
Sustainable business may become a standard in the future, and companies may benefit from preparing now
Some may argue that regulatory and social trends are moving towards sustainable business becoming a standard in the future.
This may especially be the case when different reports may suggest that economic growth can’t permanently or completely be decoupled from it’s impact on the environment or resource depletion.
Businesses that implement sustainability now may therefore put themselves in a better position compared to those who don’t.
May reduce negative environmental impact in various ways
For example, sustainable business practices may help reduce a range of different types of pollution, such as water pollution, air pollution, and general waste pollution.
It may also help reduce carbon emissions.
May help protect against resource depletion in some ways
Sustainable business practices that involve sustainable resource management can help protect against resource depletion.
Not only does this benefit society as a whole, but, it may benefit some of the largest water using industries by ensuring there’s enough water for them to use in the future.
For example, agriculture is a major user of water amongst all sectors. Agricultural water users being more sustainable with water use now, may decrease water risk for agricultural water users in the future.
Two examples of sustainable resource management might involve:
– Using more renewable resources over non renewable resources
– Being more efficient with resource and raw material use
Such as using water more efficiently across different sectors and industries
Sustainable investment (in sustainable business) may be growing
Separate directly buying products and services from sustainable businesses, investors can invest in sustainable businesses themselves.
Several reports indicate that sustainable investment has grown over the last few decades.
Global sustainable investment now tops $30 trillion—up 68 percent since 2014 and tenfold since 2004 (mckinsey.com)
There may be some measures in place in some countries to provide some level of protection for consumers from some types of ‘greenwashing’ and misleading sustainability related claims by companies
This is something we’ve explained in more detail in a separate guide
The FTC for example has previously investigated some companies for violations of certain Acts
Cons Of Sustainability For Businesses & Companies
Some changes may be slow and/or complex to implement
Some sustainable changes may take months (or even years) to implement into a business or product
As one example, some third party certifications have many steps before a company can become certified
As another example, redesigning a product to be more sustainable may take a year or more of research and carry out testing on before the product can be released to the public. Redesigning a product can also be a complex process
As another example, sometimes a business may have to completely change over to a new business model or a set of new business practices and offer new products and services (such as converting from conventional cotton farms to organic farms and obtaining an organic cotton certification)
When engaging in a ‘switch over’ or business conversion of this magnitude, there can be large resource, skills (especially technical skills), knowledge, and infrastructure gaps that need filling.
There’s upkeep and maintenance involved in some sustainable changes
For example, some third party certification programs require periodic auditing, reporting, and other ‘upkeep’ type tasks to be carried out to ensure a company is continually meeting the criteria/standards that the certification requires
Internal sustainability management and documentation within a company also requires basic admin and updating
This ultimately equates to additional time and resources that have to be committed to doing these things
May increase some labor costs and also labor intensity of some activities
Labor costs may increase as a result of sustainable business practices requiring more people or requiring more hours to carry out, and even training/education for employees gain knowledge on new sustainable practices.
Additionally, the labor intensity may be higher for some activities, which places a greater burden on the workers performing the work.
Two examples of this might be some renewable energy jobs, and some methods of organic cotton production.
Organic food typically requires 30-50% less energy during production but requires one-third more hours of human labor compared to typical farming practices, making it more expensive (css.umich.edu)
May increase some capital costs
Some sustainable capital and technology is more expensive buy, install, and set up than non sustainable capital and technology.
A few examples of this might include:
– Power plants that are fitted with pollutant capture, carbon capture, or other types of sustainable technology and devices
Aside from set up costs, there may also be ongoing costs such as maintenance (and repairs) to consider.
Can be other costs to consider too
Apart from labor costs and capital costs potentially increasing operating costs and overall costs, other costs that may arise from sustainable business might include:
– Investment, and research and development costs
Some companies have to invest in, and research and develop some sustainable solutions upfront before implementing them
– Cost of meeting regulatory requirements
– Obtaining and keeping third party independent sustainability certifications
These certification may have an application/joining fee, in addition to an annual membership fee.
– Increased marketing costs
Some sustainable products may also require more marketing or a change in marketing because of lower consumer awareness.
There may be a number of consequences of higher costs to do business
Including but not limited to:
– Lower profit margins for businesses
– Lack of price competitiveness for businesses who implement sustainable practices vs those who don’t
– More expensive products and services when the higher business costs are passed onto consumers
It can take time to recoup the initial investment, or general cost involved in implementing some sustainable changes
For example, installing and operating an on-site commercial or industrial solar energy setup may take years for a business to reach break even, or see a payback on the initial cost to install the solar setup.
So, businesses may have to consider payback periods prior to investing in some sustainable business practices and solutions.
May increase the risk for businesses in several ways
Some of the ways businesses may take on additional risk might include:
– By having increased cost, time and resource investment requirements to carry out sustainable practices or offer sustainable products and services
– By being exposed to uncertainty in the marketplace when implementing a sustainable business model, implementing sustainable practices, or offering a sustainable product or service
Where there might already be proven demand for some non sustainable products and services in some industries, there may be uncertainty in how different markets receive and respond to sustainable businesses and products/services
This may especially be risky when a company (new, or existing) has invested a large sum of money to get set up before entering the market
Some may question the real cost and economic feasibility of some sustainable businesses and product/services after government assistance is taken into consideration
Two examples of this might exist in the transportation industry for electric vehicles, and also in the energy industry for renewable energy.
Some question the real net cost and also the economic feasibility in the short term and long term of these sustainable solutions once subsidies and concessions, regulatory and market control, and other forms of government assistance are taken into account.
Sustainable products & services may sometimes lack the performance or effectiveness of non sustainable products & services
In adding sustainable features to certain products, companies may find that their products don’t perform as well, or are less effective compared to non sustainable products (i.e. there’s tradeoffs)
Two potential examples of this might include:
– Electric cars vs combustion engine cars
Some electric cars may be more expensive to buy, and have less range than a conventional combustion engine car
– Natural cleaning and washing products vs non-natural cleaning and washing products
Some people may find for example that some non natural cleaning sprays and washing powders may clean far more effectively than natural sprays and powders, and may smell more pleasant too
Consumers may not be willing to pay the premium price for, or sacrifice quality for sustainable products
In the ‘Pros’ section of this guide, we included an eco-officiency.com quote
That quote may have implied conscious consumers might only buy certain types of sustainable products or services if the price and quality is comparable to non sustainable products and services
An issue then arises that if producers can’t balance sustainability with price and quality effectively, some consumers may go with non-sustainable products instead of paying premium prices or making sacrifices in quality
In this instance, sustainable business will find it difficult to compete
Some consumers consider sustainability to be a lower priority compared to other preferences when purchasing some products
Some consumers are not what is considered a ‘conscious consumer’
These types of consumers may simply value and prioritize other product and services features like price, performance, aesthetics, and brand popularity or recognition over sustainability.
Two example of products where this might be the case might be:
– Vehicles
Some consumers may have a strong preference for a certain brand or model of internal combustion engine car over an electric car.
– Fashion
Some shoppers may strongly prefer certain well known brand names over new brands or sustainable brands.
‘Greenwashing’ can be an issue, whereby some companies mislead some consumers about their sustainability practices or their product/services
We’ve explained ‘greenwashing’ in more detail in a separate guide
Consumer awareness of sustainability may be low in some markets, industries and geographic regions
For various reasons, some markets, industries and countries simply haven’t adopted sustainability as quickly as others
With some industries in particular, large barriers and challenges in implementing sustainability may play a role in this. Tourism might potentially be one of those industries.
Some sustainable product markets may currently be smaller than non sustainable product markets in some industries
How much these product markets grow in the future may be a significant variable.
Sustainability may have hard limits in some industries, and across some sustainability indicators
There may exist physical or practical limits in implementing or improving sustainability past a certain point in some industries, or for some sustainability indicators.
Two examples of this might be:
1. In sustainable tourism
There can be a range of challenges and limitations with implementing more sustainable tourism practices.
One example of a potential limitation is that there are a finite and limited number of destination sites that majority people want to visit.
Working from this place of scarcity means that it can be hard to make destination sites more sustainable without drastically imposing restrictions, limits and other changes on tourism at these sites
2. In sustainable resource use
When analysing whether economic growth can be sustainable or decoupled from resource use and environmental degradation, some studies might find that there is a physical limit how efficient we can become with the use of essential, non-substitutable resources.
This might impose efficiency and sustainability limits on manufacturers and producers in raw materials and products based industries.
The inclusion/exclusion decisions of different companies for some sustainability indexes have been criticised
One type of index that has developed over recent years is a ‘sustainable’ or ‘ESG (Environmental, Social & Governance)’ index, that might comprise of companies that meet standards for sustainability, or being responsible in different ways
However, some public figures have criticized some decisions to include or exclude specific companies from these indexes
This may lead some to question the criteria on which companies are assessed as ‘sustainable’ or ‘responsible’ across different areas of society, how subjective it might be (depending on who is making the assessment/decisions), and also how there may be other agendas at play during the decision making process (i.e. agendas other than determining how sustainable or responsible a particular business it)
These types of decisions have the ability to impact businesses and markets in several ways
nytimes.com (paraphrased) indicates that:
‘[This was the case with the S&P 500 ESG Index, which is …] a listing of companies that meet certain environmental, social and governance standards [whereby, they made a decision to remove Tesla because of …] claims of racial discrimination and poor working conditions at Tesla’s factory in Fremont, Calif […, in addition to …] Tesla’s handling of an investigation [relating to Tesla’s driver assistance system]
[Elon Musk criticised this decision, comparing Tesla to another company on the Index, and wrote on Twitter that …] ESG is a scam. It has been weaponized by phony social justice warriors’
Some might argue that the subjectivity and disagreement on what is actually ‘sustainable’ might be an issue
The potential problem with this on large scales is that small groups with large amounts of power may be able to impact broad markets or individual companies with their personal views of what ‘sustainability’ should involve (even though there may be many different people with differing views on sustainability)
May lead to more restrictive markets, with less choice in some ways
On a related point to the one above, imposing narrower ‘sustainability’ criteria on broad markets may decrease the ability of businesses to innovate, create and provide different products and services to consumers, and consumers may find they have have less choice in some ways as a result
Sources
1. Samer Ajour El Zein 1,*, Carolina Consolacion-Segura 2 and Ruben Huertas-Garcia, The Role of Sustainability in Brand Equity Value in the Financial Sector, Available at mdpi.com
2. https://www.weforum.org/agenda/2017/08/the-growth-paradox-can-tourism-ever-be-sustainable/
3. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/five-ways-that-esg-creates-value#
4. https://brandfinance.com/wp-content/uploads/1/the_link_between_brand_value_and_sustainability
5. https://www.interbrand.com/wp-content/uploads/2015/10/3.-Sustainabilityand-its-impact-in-BV.pdf
6. http://www.eco-officiency.com/benefits_becoming_sustainable_business.html
7. https://www.rmagreen.com/rma-blog/what-are-the-benefits-of-becoming-sustainable
8. https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability
9. http://css.umich.edu/factsheets/carbon-footprint-factsheet
10. https://www.nytimes.com/2022/05/18/business/tesla-esg-index-musk.html
11. https://en.wikipedia.org/wiki/Sustainable_business
12. https://en.wikipedia.org/wiki/B_Corporation_(certification)
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