It’s no surprise that sustainability is essential in today’s business market. More than 4,500 companies around the world are working with the Science Based Initiative to measure, track and reduce their carbon emissions. And while an MIT Sloan Management Review study shows [1] that 90 percent of executives think sustainability is important, only 60 percent have a sustainability strategy.
Data traffic is predicted to grow eightfold by 2030 (BT & Accenture [2]). This could have a significant carbon footprint depending on the source of energy fueling that data and it’s a concern for both companies who haven’t set a sustainability strategy and those touting ambitious net zero emission strategies.
We are at a crossroads and it’s worth asking: What are companies risking by not developing and implementing robust sustainability strategies when it comes to their digital footprint?
If companies don’t act soon, they’re going to face real and lasting challenges. I see this firsthand as head of sustainability at BT, a company with nearly 100,000 employees in the telecoms industry.
Companies that fail to develop or implement sustainability strategies are putting themselves at risk. Even failure to expand sustainability strategies in line with the growing focus on “going green” could have a negative impact on a company’s long-term success.
Let’s take a closer look at the top three challenges a company might face if they don’t have a proper sustainability plan in place.
Global sustainability regulations and carbon taxes
Governments around the world are implementing sustainability laws and regulations and non-compliance is going to become a financial risk for companies. For example, in the European Union, the Corporate Sustainability Reporting Document (CSRD) is aimed at improving the transparency and consistency of sustainability reporting by companies. The CSRD would require companies with more than 500 employees to disclose a variety of sustainability-related information.
The UK is seeing a similar type of regulation with the passage ofmandatory climate-related financial disclosures. And in the United States, the Securities and Exchange Commission is close to agreeing on climate disclosure regulations similar to the CSRD, which would impact most companies.
Carbon taxes are also becoming increasingly common, where governments will charge a tax that companies must pay based on the amount of greenhouse gas they emit. According to the financial and tax website GCC FinTax [3], there are currently 27 countries with carbon taxes implemented including Japan, the EU, the UK, and Mexico, with more expecting to pass similar laws. The EU in December 2022 introduced the first Carbon Border Adjustment Mechanism (CBAM) to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU.
Maintaining a positive reputation among stakeholders, consumers, and employees
According to Gartner [4], 85 percent of investors are using environmental, social and governance (ESG) metrics to inform their decisions on who and how much to invest in organizations. Investors and other stakeholders are increasingly more concerned about sustainability, posing a reputational and financial risk to companies not following suit. Companies who are behind the trend are seen as high-risk holdings which will impact their ability to raise capital. Losing the trust of stakeholders can lead to decreased sales, loss of market share, and negative publicity.
We’ve seen this at play already, as exemplified when UBS excluded Exxon Mobile from their climate funding and four other “unresponsive” energy companies, invoking that they were “lagging on climate change performance” in the statement they released.
But, as mentioned, there’s a secondary reputational risk at play: Stakeholders factor into the long-term investment of a company, but companies who choose not to focus on sustainability could lose their consumer base, while also losing their talent pool.
A 2021 study [5] of 10,000 people across 17 countries found that “sustainability is becoming increasingly important in consumers’ purchasing decisions.” Consumers are increasingly aligning themselves with companies they perceive to be green. A similar 2020 study by Accenture [6] found that 60 percent of consumers said they are making more environmentally, sustainable or ethical purchases.
The pattern is nearly identical for employees. More and more, the workforce is prioritizing working for companies that are committed to sustainability and environmental responsibility. A study conducted by IBM [7] in early 2022 found that 67 percent of their 10,000 respondents reported that they would be more willing to apply and accept jobs from environmentally sustainable companies.
The data further shows that 35 percent of respondents who had changed jobs in the last year had accepted a position with a company they perceived to be more sustainable, even in some cases taking a pay cut to do so. Companies that do not develop and implement strong sustainability programs could lose their talented employees to their competitors.
Market volatility mitigated by net zero emissions
With so much change occurring since 2020—from a global pandemic to the Ukraine-Russia conflict, to rising inflation and a predicted recession—the global supply chain has taken a hit. Market volatility like we’ve seen over the last three years can impact a company's ability to operate efficiently and mitigate risks. Business leaders have had to survive the market rather than focus on sustainability.
Climate change has led to the increased number and severity of natural disasters like hurricanes, fires, and other severe weather, which further impact the supply chain. A disruption like that causes prices to increase and profits to go down at the same time. Data shows [8] that the 2011 Japan earthquake tsunami created $210 billion in costs for Japan. The United States saw a similar impact when Hurricane Maria hit Puerto Rico, home to a large production of pharmaceuticals and medical devices. In turn, American hospitals lost their saline bag supply and resorted to rationing saline.
The problem is that not investing in a sustainability strategy could increase business costs in the long run. Moving to net zero emissions could save businesses. The focus on net zero emissions is critical in combating climate change, which can also drive market volatility. Businesses who focus on net zero emissions have been shown to benefit from a boost in their reputation, reducing costs and protecting their business from over-reliance on fluctuating fossil fuel-based energy supplies, according to the British Business bank [9].
Next steps:
Recognizing some of the major challenges companies face—more sustainability regulations, increased financial risk and volatile supply chains to add to the mix—is the first step in addressing sustainability concerns.
The next is putting together a robust strategy to combat it, including evaluating your digital footprint and considering impactful ways to reduce carbon emissions in every part of an organization.
To get ahead, the time is now. As we head into midyear 2023, It’s imperative for companies to strategize in a proactive manner. Reacting to threats and outside factors will only delay the inevitable. Sustainability can no longer be relegated as a “nice to have” or a box to check – it’s time to form a strategy to get ahead of potential challenges and be a leader in paving the way for sustainability success.
Sources:
- [1] sloanreview.mit.edu/projects/investing-for-a-sustainable-future
- [2] www.bt.com/bt-plc/assets/documents/digital-impact-and-sustainability/our-approach/our-policies-and-reports/accenture-bt-harnessing-data-to-empower-a-sustainable-future.pdf
- [3] www.gccfintax.com/articles/what-countries-have-a-carbon-tax--4100.asp
- [4] www.gartner.com/smarterwithgartner/the-esg-imperative-7-factors-for-finance-leaders-to-consider
- [5] www.businesswire.com/news/home/20211014005090/en/Recent-Study-Reveals-More-Than-a-Third-of-Global-Consumers-Are-Willing-to-Pay-More-for-Sustainability-as-Demand-Grows-for-Environmentally-Friendly-Alternatives
- [6] newsroom.accenture.com/news/covid-19-increasing-consumers-focus-on-ethical-consumption-accenture-survey-finds.htm
- [7] www.esgtoday.com/ibm-survey-employees-more-likely-to-accept-jobs-from-sustainable-companies/
- [8] www.thomasnet.com/insights/how-natural-disasters-affect-the-supply-chain-and-how-to-prepare-for-the-worst/
- [9] www.british-business-bank.co.uk/finance-hub/business-guidance/sustainability/net-zero-how-being-carbon-neutral-can-help-your-business-grow/
