Why does sustainability make business sense ?

Sustainability has surged as a priority for global organizations. In our latest survey, respondents rated their companies 4 out of 5 for sustainable commitment. But what challenges and benefits await those integrating sustainability into strategy in 2024? Adapting to climate hazards bolsters viability, and AI aids environmental tracking. Balancing these with proactive measures is vital for corporate sustainability in 2024. [Updated February 20th, 2024] 

THE KEY CHALLENGES AND BENEFITS OF SUSTAINABILITY 

Over 76% of respondents in our Executive Horizons survey affirmed that integrating sustainability into corporate strategy and business models can pose significant challenges. Companies need to figure out how to build sustainability into their corporate DNA, and strike the right balance between being profitable and having a positive social and environmental impact. 

Adhering to regulations can also raise all kinds of issues. Mapping sustainability data from tier 2, 3 and beyond in the value chain is an intricate process, and consistency cannot be guaranteed when dealing with dozens or even hundreds of business partners across various countries and regulations. While many corporations have strengthened requirements for direct suppliers, gaining transparency and oversight of downstream materials origins and working conditions remains an elusive challenge.Striking a balance between manageable reporting standards and meaningful due diligence further confounds the issue.

However, those companies making earnest efforts to shed light on sustainability impacts throughout the full life cycle of their products and services stand to reap rewards. More informed solutions emerge when wrapped within a holistic value chain approach.

Not only does sustainability drive innovation, it also has a positive impact on a company’s reputation, reduces waste and costs, and can ultimately ensure their long-term survival. 

SUSTAINABILITY AS A DRIVER OF INNOVATION 

As companies increasingly leverage artificial intelligence to optimize operations and commercial offerings, proper oversight of these advanced technologies grows imperative. Issues of algorithmic transparency, data privacy, fairness and explainability all require prudent governance to ensure AI's societal impacts align with corporate values and public interest expectations. While the precise methods for accountable and ethical AI design remain works-in-progress, proactive businesses understand avoiding these issues poses greater long-term risks than confronting them head-on.

Pioneering organizations demonstrate that leadership on AI governance fuels, rather than hinders, innovation. Taking a human-centric approach which prioritizes safety, responsibility and the fair treatment of all people positively differentiates brands while cultivating trust in uncertain technological terrain. With citizens and regulators demanding accountability, and competitors moving to outperform on ethics, the firms best positioned for sustainable growth will be those guiding development responsibly from the outset. Progress realized through cooperation over mandated compliance strengthens competitive advantage in artificial intelligence's unfolding landscape.

Moreover, according to the World Economic Forum, the circular economy could generate $4.5 trillion of additional economic output by 2030 through key opportunities like upskilling workforces and fostering collaborative business models to access new markets and materials, addressing finance barriers, and advocating standards that benefit communities and incorporate social impacts. 

MAINTAINING A POSITIVE IMAGE IN THE PUBLIC EYE 

The proliferation of media outlets and the power of social media means that companies are increasingly subject to public scrutiny. There is no longer anywhere to hide. Corporate entities are now under constant pressure to project a positive image of their environmental, social, and ethical responsibility. Consumers have grown tired of empty promises and want to see concrete actions from organizations.

A recent study found that 64% of global consumers tried to make sustainable choices in their daily lives in 2023, yet 45% felt that individuals could only do so much and that true change requires collective action.

Moreover, when reputations are compromised, businesses must act quickly. In 2015, the Volkswagen emissions tests scandal broke when the EPA issued the automaker a violation notice for installing emissions software that circumvented tests, allowing excess pollution. Volkswagen faced massive fines of $10 billion for recalls and $4.3 billion in US fines, causing losses and damaged sustainability positioning.

Investigations found the former CEO was aware yet failed to report issues. Volkswagen apologized in newspaper ads and offered customer goodwill packages as initial reputation rehabilitation steps. Additional long-term investments into electric vehicles also helped regain consumer trust over time by addressing root causes.

THE COST SAVINGS OF SUSTAINABILITY 

Many companies are now moving toward replacing the forward supply chain with a circular economy that conserves, reuses and recycles resources. Such closed-loop supply chains are environmentally efficient and can boost economic returns. The automotive industry, for instance, has successfully implemented systems that are cost effective and have significant environmental benefits.

A striking example is that BMW Group is significantly increasing the share of secondary materials in its cars, to as much as 50 percent by establishing closed loops for the re-use of nickel, lithium and cobalt from high-voltage batteries.

This reduces the need for new raw materials extraction and lowers risks within the supply chain. Improved sustainability therefore goes hand in hand with cost savings and operational efficiency.

ENSURING LONG-TERM SURVIVAL

In our Executive Horizon survey, 73.8% of respondents affirmed that sustainability plays a key role in ensuring a company's long-term survival. For organizations throughout the world, integrating sustainable innovation, inclusive growth, as well as social and environmental impact into their corporate strategy, now makes real business sense.

Companies that successfully meet the challenges of sustainability create value and generate competitive advantage. They will not only survive, but will ultimately thrive. 

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