I’ve always been a nature lover, so the fact that Earth Day falls on my birthday seems like fate. In recent years, I’ve adopted a tradition of writing a blog post in honor of my Earth Day birthday (even if they don’t always fall on my birthday). Previous posts have explored topics like ways that AI helps businesses protect the earth, why cognitive sustainability makes good business sense, and how technology and big data can help save the planet. For this year’s post, I am exploring reasons why sustainability can make or break your brand.
(Brand) profits before planet?
Let’s face it, unless you are a benefit corporation, your primary focus is the bottom line. Profits before planet, in a manner of speaking.
If you think about how brands developed, it makes sense. Human beings have been making things using natural resources since the beginning of time. Small scale, localized exchange of goods and services was the norm. Securing a strong place in these bartering systems meant you need to ‘own’ or brand the source materials, valuable as they were for creating things. In fact, the practice of ‘branding’ is thought to have started as early as 2,700 BCE with the ancient Egyptians branding their livestock.
Today, it’s a lot more complicated. There are over 43,000 publicly traded companies and making one product like an iPhone requires up to 34 components from eight countries and 62 different types of metals. Wow! Who ‘owns’ the natural resources and where does the ‘brand’ go in that scenario?
That is actually a great segue into the first of several reasons why sustainability is of utmost importance to your brand.
1. Preserving your source materials for the long run
This one is a no brainer. Every product is made up of natural resources at some level. The supply of these resources is not limitless, so companies must protect the resources they depend on the most for the long-term viability of their business. That’s why you see water stewardship featured prominently in the sustainability strategy of beverage brands like Coca-Cola or Pepsico, while renewable energy and recycling tends to be the focus of technology companies like Google or Cisco. This is one case where “planet before profit” makes perfect sense. The profit, quite literally, depends on the source material being available for use.
2. Achieving supply chain resiliency in the face of climate change
As illustrated in the iPhone example above, the supply chains of today are extremely complex. It’s not uncommon for manufactured goods to have hundreds or even thousands of parts and materials from multiple countries. Ensuring the supply chains they depend on are resilient is a key priority for businesses. Climate change-induced extreme weather, natural disasters, power outages and transportation disruptions are just a few of the growing supply chain risks that companies face.
According to a recent report by CDP, more than 75% of global suppliers report that climate risks have the potential to impact their business.
For example, during the severe flooding in Thailand in 2011, more than 14,500 companies who rely on Thai suppliers suffered business disruptions. Western Digital lost 45% of its shipments, HP lost $2 billion, and Toyota lost 240,000 cars. Growing recognition of these supply chain risks is driving an increased focus by businesses on transparency and collaborative climate change action. Tools and alliances such as the World Bank Climate and Disaster Risk Screening Tools, CDP, GRI, RE100, Global Resilience Partnership, We Mean Business Coalition and Science Based Targets can help companies determine what risks need to be a part of their sustainability strategies and reporting mechanisms.
3. Staying in front of rapidly changing regulations
Keeping up with regulations across multiple countries to make sure your product stays compliant is already tough (think about the 30,000 parts that go into a single Toyota car!). And, as pollution and other environmental impacts continue to spiral public welfare costs upward, further environmental regulations will follow. Ensuring compliance with these regulations is a critical bottom line element for businesses since fines and penalties for non-compliance can run into the US$ billions. To keep up with the rapid change, some companies like IBM are experimenting with using artificial intelligence to scan large volumes of regulatory text to find the essential obligations they need to keep up with.
4. Following the money
The misconception may be “profits before planet”, but the data doesn’t really support it. S&P companies that build sustainability into their core strategies are outperforming companies that choose not to report their emissions by 67%, according to a report by the CDP. A quick glance at the financial markets confirms this trend – investments into sustainable companies/funds that rank favorably on ESG factors (environmental, social, governance) are consistently outperforming the market. In fact, returns on ESG-focused indexes matched or exceeded those of traditional index funds from May 2012 through February 2018. There are also numerous examples of sustainable brands and products growing faster than the rest of the market. For example, Unilever’s sustainable brands are the fastest growing part of its business, growing 46% faster than the rest of its portfolio. And, a recent Nielsen study found that sales of sustainable brands of chocolate, coffee and bath products grew twice as fast as the growth rate of total products in their categories.
5. Riding the wave into new markets
The business of sustainability is booming. Here are a few examples:
The Environmental, Health, Safety (EHS) software market is expected to grow to $1.9 billion by 2024.
The global renewable energy market is projected to reach $2,152.9 billionby 2025.
The global waste management market is estimated to grow to $530 billion by 2025.
The secondhand apparel market will climb to $51 billion by 2023.
Brands are paying attention to these shifts. Notably, brands that have already survived a long time through continuous reinvention, like Royal Dutch Shell, are taking serious stock of the impact these trends will have on their business. But startups are also finding a foothold where none existed before. Everything from sustainable shoes made from recycled tires and vegan materials to AI-based technologies for e-waste sorting represent new market opportunities in the sustainability space.
Beyond the bottom line: Your reputation is at stake
Sustainability is essential to your brand, but not just for all the bottom-line reasons noted above. Your reputation depends on it, and your reputation precedes you when it comes to your stakeholders:
Employees: Half of potential employees won’t work for a company without strong sustainability commitments.
Investors: Global investment into sustainable assets grew by 34% between the beginning of 2016 and the start of 2018 to $30.7 trillion.
Clearly the business case for a sustainable brand has been made, but the number of paths to the right strategy can be overwhelming. If you are working through the right way to define and communicate your sustainability strategy, let’s talk (firstname.lastname@example.org).