Pros & Cons Of Sustainability For Businesses & Companies (Benefits & Disadvantages)

In this guide, we outline some of the potential pros and cons of implementing more sustainable practices for businesses and companies.

These pros and cons involve financial, environmental, social and practical/logistical factors.

 

Summary – Pros & Cons Of Sustainability For Businesses & Companies

Pros

Might increase efficiency in some ways 

Might lead to cost savings in some ways

May lead to increased profits in the short term, or long term

May have other important effects on cash flow

Large publicly listed companies have experienced growth over the past decade with sustainable features incorporated in their products/services

Customers may be willing to pay more for a certain type of sustainable product or service

May increase brand equity value and reputation 

Opportunity to differentiate from competitors

Opportunity to attract new customers, or strengthen relationship & loyalty amongst existing customers

Opportunity to attract new employees, or retain existing employees

Certain aspects of sustainability are becoming essential to incorporate in some places and in some industries

Can help put business/company in a better position now, and also for the future

Can increase a company’s flexibility and adaptability, whilst decreasing dependence in some ways

Investment in ethical, sustainable and responsible businesses is growing according to some metrics

Can reduce negative environmental impact

Can reduce negative impact on non renewable or scarce resource depletion

More sustainable resource use by producers and companies can reduce risk an entire industry

 

Cons

May increase some labor costs and labor intensity of certain tasks in certain industries

May increase some capital costs

May increase overall costs 

May increase risk in some ways

May lead to a less effective or poorer performing product or service in some instances

Consumer awareness of sustainable products may be low in some markets, industries and geographic regions

Some consumers consider sustainability to be a lower priority compared to other preferences when purchasing some products

There can be practical, physical and other limitations on how sustainable companies might be able to be in some industries, and across different business activities

 

Firstly, What Is Sustainability For Business?

Traditional business strategy might involve meeting primarily economic objectives.

Sustainability for business might involve considering the business’ short and long term impact on:

– The environment and environmental degradation (and ecosystems, and wildlife)

– The management and depletion of natural resources

Going one step further than that is perhaps considering corporate social responsibility, where businesses may also consider their impact on different social groups, and society as a whole.

 

Pros Of Sustainability For Businesses & Companies

Might increase efficiency in some ways

Increased efficiency can come in several forms, including but not limited to:

– Saving or using less energy and electricity for the same quantity of production (with energy efficient devices just as one example)

– Saving or using less resources and raw materials for the same production

 

Might lead to cost savings in some ways

Cost savings may result from factors such as:

– Increased efficiency, or using less resources and materials. Decreased consumption usually means lower costs

– Substituting materials or processes for alternate, or new ones, that are cheaper

– Qualifying for credits, grants and tax breaks for meeting sustainable benchmarks

– Avoiding penalties and taxes like wastewater discharge permits, and avoiding costs for increased pollution control technology, and fees and fines associated with non compliance or pollution

 

May lead to increased profits in the short term or long term

Increased profits may result from:

– Becoming more efficient

– Reducing costs (with or without the help of incentives, credits, etc)

– Being able to offer different products and services with higher margins

– New customers, increased revenue, and investment back into the business (and potential improvements in the business, and sometimes economies of scale)

 

Profits may come in either the short term, or the long term.

Long term profits might come where there is an initial outlay for capital for example, and it takes a certain number of months or years to recoup that initial outlay.

 

May have other important effects on 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’ (mckinsey.com)

 

Large publicly listed companies have experienced growth over the past decade with sustainable features incorporated in their products/services

There are individual companies, if you look at some of the publicly listed/traded companies in the US, that have experienced growth across various parts of their business, and seen an increase in their share prices (at least over the last decade time period)

 

Customers may be willing to pay more for a certain type of sustainable product or service

Customers are sometimes willing to pay a premium for products and services (compared to competing products and services) that reflect their set of specific sustainability related values.

 

Obviously what consumers say they will do and what they end up doing when it comes to spending their money are two different things, but 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’

 

May increase brand equity value and reputation 

Implementation of sustainable practices may raise a brand’s reputation or equity amongst consumers, communities who value sustainability, authorities, and in the industry in general.

This can help a brand establish a position in the market, but also deliver various short term and long term benefits.

 

… 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)

 

… the business case for sustainability and corporate responsibility in tourism is growing stronger year-on-year [with several benefits for businesses, but also for consumers that give their money to them] (weforum.org)

 

Opportunity to differentiate from competitors

Companies that implement sustainable practices and features differentiate themselves from those who don’t.

Even amongst competitors who have implemented some sustainability practices already, there’s the additional opportunity to either be more sustainable, or be sustainable in a specific way that they aren’t (such as obtaining a specific certification just as one example)

There’s the opportunity for unique market or industry positioning in this regard.

 

Opportunity to attract new customers, or strengthen relationship & loyalty amongst existing customers

Implementing sustainable practices opens up the possibility to attract new customers, especially if there is a lack of sustainable competitors in the industry, and there is a demand.

It may also strengthen the relationship and loyalty from existing customers, which may lead to repeat business.

 

Opportunity to attract new employees, or retain existing employees

Some new employees may value working with a company that incorporates sustainable practices.

Existing employees may want to stay at a company with sustainable practices.

This could sometimes be one of the major deciding factors in skill retention

 

From eco-officiency.com: ‘… companies with sustainability programs report 55% better employee morale, 43% more efficient business processes and 38% improved employee loyalty’

 

Certain aspects of sustainability are becoming essential or mandatory to incorporate in some places and in some industries

Some consumers consider choosing a sustainable product essential.

On the company side, laws and regulations are making certain sustainable practices and requirements mandatory in some industries and cities. 

Some businesses and companies may not have a choice when it comes to implementation.

This may especially be the case with legal requirements to be carbon neutral in some industries.

 

Can help put business/company in a better position now, and for the future

If the regulatory and social trend is moving towards more sustainable and responsible business behavior and activity, businesses and companies that make plans and take actions to start setting themselves up now may be putting themselves in a better position for the future.

This benefits the company in itself, but may also benefit the company in comparison to competitors who are not taking the same actions.

 

Can increase a company’s flexibility and adaptability, whilst decreasing dependence in some ways

Two examples of this are if a company:

– Has multiple energy sources they can use, such as electricity from the grid, and a supplementary solar panel or renewable energy set up 

– Creates additional income streams by finding ways to better manage waste, or commercialize waste by products (just as two examples)

 

There’s more awareness for, and interest in ethical, sustainable and responsible investing in businesses

More and more retail investors are becoming aware of ethical, sustainable and responsible investing, and there’s reasonable evidence to say it will continue to grow in the future.

Companies that can receive investment may benefit from getting involved in this growth.

 

Global sustainable investment now tops $30 trillion—up 68 percent since 2014 and tenfold since 2004 (mckinsey.com)

 

Reduce negative environmental impact

There’s several ways negative environmental impact might be reduced when more companies engage in sustainable practices.

Just a few examples are reduced water pollution, reduced air pollution, and overall reduced waste pollution.

And, one that is commonly mentioned is reduced carbon emissions.

 

Reduce negative impact on non renewable or scarce resource depletion

Two examples of reducing negative impact on non renewable or scarce resources might be:

– Using less fossil fuel based energy or fuel

– Being more efficient with water use, or reducing overall water use in water scarce areas

 

More sustainable resource use by companies and producers can decrease risk for an entire industry

Related to the above point, becoming more sustainable with resource use can decrease the future risk for entire industries

Water for example is scarce in some regions.

Agriculture is a major user of water amongst all industries for example, so, major agricultural producers in water scarce areas may minimize theirs and other business’ future risk as a whole by putting into action sustainable water resource management plans in the present.

 

Cons Of Sustainability For Businesses & Companies

May increase some labor costs and labor intensity of some activities

Some sustainable products and sustainable practices can either require more labor, or increase the intensity of the labor required.

Two examples of this might arise in some types of 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)

 

Side effects of increased labor requirements may be increased labor costs, and greater burdens placed on workers.

Side effects of increased labor cost may be lower margins for businesses, and also a resulting lack of competitiveness in terms of price.

 

May increase some capital costs

There is an outlay regarding the initial cost to buy, install, and set up some equipment and technology.

This may be the case for some power plants that install devices to capture particulate matter and other emissions – this equipment and technology can be expensive.

In the case of some forms of fibre production, like for example viscose rayon production, it can be more costly for manufacturers to be more eco friendly with their manufacturing processes.

There may also be ongoing costs such as maintenance (and repairs).

These types of costs may increase the cost of capital expenditure, and at the very least, may be a cost that needs to be recouped in some way.

 

May increase overall costs

Beyond labor and capital costs, there may be other costs like getting certifications, or implementing quality and assurance checks, to take into account.

This may be the case with converting organic farms and obtaining and organic organic certification in some cases

Some sustainable products may also require more marketing because of lower consumer awareness.

Adding up all sustainability related costs may increase overall costs in some instances.

 

May increase risk in some ways

Increased risk can happen when a company invests in a new sustainable product or service, or new sustainable technology.

There can be uncertainty in new aspects of the producer’s business model, and there can be uncertainty in factors such as how much demand consumers will have for new products and services.

Companies still have to put time and financial resources into these changes, regardless of the outcome. 

Companies may not see a return on their investment in the short term, or at all in some instances.

 

May lead to a less effective or poorer performing product or service

Products and services that meet certain sustainability criteria may be less effective at doing what they are supposed to, or may perform poorer in certain ways compared to non sustainable products.

This is because companies may have to make tradeoffs in the features of a product in order to meet specific sustainability benchmarks, or in order to incorporate certain sustainability features.

Three examples of this might include:

– An electric car with less range and run time than a petroleum fuel based car

– A natural all purpose cleaner spray or power that doesn’t clean stains as effectively, or clean heavier stains, like a cleaner with synthetic ingredients in it

– Renewable energy that might only be able to provide energy at certain times of the day or in certain weather conditions, compared to fossil fuel energy that might be able to provide energy at any time or in any conditions

 

Consumer awareness of sustainability may be low in some markets, industries and geographic regions 

This can be due to a range of reasons, with two being that there is a low importance/priority placed on sustainability in some societies and some markets, and also that sustainable products are newer and less established in many markets compared to many traditional products

In some markets and industries, or in some geographic areas, there is either a lower awareness of, or lesser priority and preference placed on sustainability compared to other factors like price and performance.

In these instances, greater investment in sustainability may disadvantage a business, or leave them at risk.

Additionally, sustainability is making slow progress in some industries with larger barriers and challenges, with tourism potentially being one of those industries.

 

Some consumers consider sustainability to be a lower priority compared to other preferences when purchasing some products

Price, performance, aesthetics, and brand popularity or recognition might all be priorities for a consumer over sustainability when purchasing a product

Cars might be an example of this – some consumers may have a strong preference for a certain brand or type of car, such as a combustion engine sportscar over say for example an newer brand and model of an electric car or hybrid car

 

There can be practical, physical and other limitations on how sustainable companies might be able to be in some industries, and across different business activities

Practical and physical limitations, along with other types of limitations, might impose limits on how sustainable companies and product/service providers can be in some industries, and across different types of business activities.

There might be two good examples of this to note:

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 to tourism to 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, and this ultimately impact sustainability.

This might impose efficiency and sustainability limits of manufacturers and producers in the raw materials and products based industries.

 

Reminders About Making Sustainability Claims As A Business

– Make sure to read the regulations and laws in your country as to the marketing, labelling, and other public claims you are allowed to make about your business products and services

– Some companies also choose to get certified under a third party independent certification, and there will be additional requirements specific to their criteria, in addition to any regulated criteria

 

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

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