Investing in sustainable practices today will help companies see RoI in next decade

Our environment has undergone a significant change in the recent times with temperatures soaring across the globe leading to extreme weather conditions, rising income inequality, deepening geopolitical tensions. The most recent and threatening is the COVID-19 pandemic that has disrupted livelihood across the world due to the nationwide lockdowns.

However, looking on the brighter side, this situation has acted as a catalyst for innovation with companies focusing on sustainability, to reassess the way they do businesses and how they interact with the environment.

Sustainability has surfaced as an integral corporate strategy that might not translate into tangible benefits immediately but might have significant positive effects in the long run. Business leaders today, are understanding the fact that its benefits go beyond pleasing institutional shareholders, thus building a robust brand reputation.

Sustainability is no longer a big boy’s concern, it impacts even startups in their growth. Building and growing a sustainable business has a lot of benefits like, it can help reach out to attract a large pool of capital, build a stronger corporate brand and promote robust long-term growth, benefiting companies and investors.

Here are five reasons why a company needs to institutionalise and integrate sustainability.

Attracting investor interest

Individual and institutional investors are investing heavily in companies that proactively adopt ESG practices and have them integrated into the business strategy. Sustainable and impact investing is actively growing considering the recent trend of sustainable investment that has gained a lot of importance among individual millennial investors.

Institutional investors also are considering ESG as one of the main criteria before investing in any company. Consulting firms across the world have developed measures that rank companies based upon ESG criteria compared to their peers. Hence, it is important for companies to invest in ESG practices today to attract investors’ interest in the long run since they understand its benefits for the growth of the business.

Also, many investment firms are including ESG assessments in their portfolio, which is an indicator that capital will continue to flow towards companies with strong ESG programs and practices.

As per a recent industry report, India ranks 117 among 193 UN members, on the sustainability index. Eight percent of Nifty 50 companies are making public their ESG compliance data, while many more have begun integrating ESG into their operations.

Reduces overhead costs

One of the easiest ways to incorporate sustainable practices is the adoption of renewable energy as it can save businesses money by reducing their energy bills. Companies can adopt solar energy, wind energy, bioenergy and other forms of renewable energy to power their operations.

Bio-energy is one of the upcoming forms of renewable energy used as alternate fuel which can reduce cost but also addresses the issue of agricultural waste management.

A number of businesses across sectors like hospitality, manufacturing have become cognisant of this fact and have started adopting bio-fuel.

Interestingly, this has led to not only environmental benefits for businesses but also led to commercial savings, making the adoption of bioenergy a smart and sustainable choice.

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Gaining a competitive advantage

Corporates that understand the importance of adapting to evolving socio-economic and environmental conditions are in a better position to identify strategic opportunities and overcome competitive challenges. Proactive and integrated ESG policies can help companies gain a competitive advantage over other industry players.

For example, the population today is dominated by millennials majorly. A survey by Nielsen shows (source) that millennials are twice as likely as baby boomers to say they are changing habits to reduce environmental impact. Generation Z is soon to become the next dominant generation and is equally concerned, and in many cases more concerned, about sustainability than millennials.

This shows that companies can increase their values tremendously by focusing on sustainability to gain a competitive advantage over brands that don’t.

Attract and retain the best talent

Employees generally care deeply about the companies they work for and the businesses they support, hence, they embrace values that are aligned towards social good, environmental and social responsibility being an important one.

Employees who are passionate about the organization, tend to stay loyal as they feel valued which drives intangible goodwill that strengthens the brand of the company in the employees’ minds and improves their overall productivity of the workforce.

Better financial performance

Business leaders have a false belief that they can either have profits or sustainability, but not both. However, this is incorrect. As mentioned above sustainability results in increased competitive advantage, innovation, companies are recognising significant cost savings through environmental sustainability-related operational efficiencies.

Moreover, increased interest from investors along with the other cost-saving benefits, result in improving the credibility and financial performance of the company.

Hence, it is important for businesses to navigate through changes brought in by globalisation, technology, society and consumer behaviour, and the very recent COVID-19. Incorporating Environment, Social, and Governance (ESG) factors into their core strategy can help deliver long-term value if not instantly, from a long-term perspective.

While, sustainability and profitability might not go hand in hand initially, in the long run, they usually prove to be beneficial, considering the finite resources of fuel and ever-increasing input costs of ancillaries like power, fuel etc.

With increasing emphasis on the adoption of sustainable practices, organizations can adopt various frameworks such as Global Reporting Initiative (GRI), Integrated Reporting Council Framework (IIRC), and Carbon Disclosure Project (CDP) to connect their strategy to different ESG areas.

This will help in increasing their brand credibility amongst the stakeholders in the long run.