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

Customers may be willing to pay more for a certain type of 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

Can decrease risk in some ways

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, in preparation 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

Reduce negative environmental impact

Reduce negative impact on non renewable or scarce resource depletion

 

Cons

May increase some labor costs and labor intensity

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

May be making slow progress in markets, industries and geographic regions where there is low awareness of sustainability, low importance/priority placed on sustainability, or large challenges and barriers

 

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

– 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 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 arise in either short term, or long term.

Long term profits might arise 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)

 

Customers may be willing to pay more for a certain type of 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 amongst consumers, communities who value sustainability, authorities, and in the industry in general.

 

… 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)

 

Can decrease risk in some ways

One example of this is when companies play a part in sustainably using resources in a geographic area.

Water for example is scarce in some regions.

Major water users like agriculture for example may minimize theirs and other business’ future risk by putting into action sustainable water resource management plans in the present.

 

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.

 

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

 

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 a deciding factor in skill retention.

 

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

Laws and regulations are making certain sustainable practices mandatory in some industries and cities. 

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

 

Can help put business/company in a better position now, in preparation 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.

 

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 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.

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

 

Cons Of Sustainability For Businesses & Companies

May increase some labor costs and labor intensity

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)

 

May increase some capital costs

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

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.

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’s sometimes no guarantee for things such as the demand of the product or service (at least from that particular company), or that the new technology provides a return on it’s cost. 

 

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.

Three examples of this might include:

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

– A natural cleaner that doesn’t clean stains as effectively as 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

 

May be making slow progress in markets, industries and geographic regions where there is low awareness of sustainability, low importance/priority placed on sustainability, or large challenges and barriers

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.

 

Reminders About Making Sustainability Claims As A Business

– Make sure to read the regulations and laws in your country as to the public, marketing, labelling, and other related 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 as well

 

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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