June 19, 2023 | Supply Chain Strategy
Many businesses are under the impression that implementing sustainability measures can be a costly affair. They believe that investing in sustainability is capital-intensive and can bring down their profit margins.
Not surprisingly, they are reluctant to go all out on sustainability despite the increasing pressure from governments, investors as well as consumers.
Contrary to the above mindset, investing in sustainability can yield high returns.
In fact, there is a compelling business case for investing in sustainability, says Jagadish Turimella, chief operating officer of GEP in this webcast. And there hasn’t been a better time for businesses to take advantage of the tax incentives on sustainability offered by the government, he adds.
The recently approved Inflation Reduction Act, for example, offers a lot of incentives to accelerate the transition to a clean energy economy.
Before diving deep into how sustainability can boost profitability, it is vital to first understand the urgent need to act on a sustainability agenda.
Growing pollution levels, effects of climate change and weather extremes are threatening the survival of the planet. If businesses and the larger society fail to act now, they are at a huge risk of falling prey to some or the other natural calamity in the not-too-distant future.
Clearly, organizations now must build a business model that is sustainable and profitable at the same time. This requires, among other things, broadening the classical definition of profitability to include aspects of social and environmental impact. It also requires a strong commitment to sustainability by business leadership and other stakeholders.
Thankfully, many organizations already have a sustainability project underway. In a recent study involving 581 interviews conducted in 2021, 96.7% of respondents replied they have a sustainability project in their organization.
Here are 5 ways a business can benefit by merging sustainability with profitability.
Companies pursuing sustainability can change their business models at short notice to respond to higher natural resource prices, changes in demand and other major discontinuities. Sustainability can also enable businesses to design innovative products that use less resources or meet specific social needs. Redesigning products and services around sustainability can help reduce costs and increase profit margins.
The three principles of sustainability — reduce, reuse and recycle — can help organizations make the best use of available resources. Efficient resource utilization promotes a culture of corporate responsibility and sustainability and prevents unnecessary wastage. Less wastage can translate into reduced need for disposal and transportation
Customers are becoming increasingly conscious of the brands they buy. They are looking to identify companies that are taking active steps to implement sustainability. In fact, they are also ready to pay more to buy a product that is sourced sustainably. To drive customer loyalty and stay ahead of competition, companies must act on their sustainability agenda.
Businesses that act on sustainability now are not likely to be impacted by future regulations. They are set to comply with upcoming regulations and any changes in policies and procedures. On the other hand, businesses that continue to evade sustainability goals are not likely to survive for long.
Investors are increasingly considering sustainability to make an investment decision. To make a high-returns decision, they are looking at sustainability-related data, which is now more easily available compared to a few years ago. They scrutinize this data to shortlist best-in-class sustainable companies.
Sustainability, resiliency and cost savings are not mutually exclusive. Instead, they are closely linked in a business landscape that offers several incentives for producing sustainable products and services.
Businesses also need a mindset shift to effectively merge sustainability with profitability. They should pursue sustainability not because they have to, but because they can benefit from it in several ways.
Sustainability can offer product differentiation and competitive advantage. It can enhance brand value and set your business apart from others. And it can increase profit margins in the long term.