Does Sustainability Really Improve the “Bottom Line?”
Although sustainability practices have been available and refined over the last 20 years, many C Suite executives still question whether sustainability really improves bottom line performance. Management viewpoints and feedback can range from the costs outweigh the benefits, “one off” programs, lack of integration into business or strategic plans, doesn’t meet management expectations, appears too “risky,” timing is not right, lack of sustainability budget or resources, and the list goes on! These perceptions may seem difficult to overcome, but it does not mean that sustainability programs and initiatives should not be pursued. So what has to change? One of the most important strategies lies in reframing the sustainability opportunity in a different light and demonstrating that sustainability is “good for the bottom line, as well as being good for the planet.” What lens should we use?
First is to fully understand company value. One way is to envision the company as a floating iceberg and use this as the compass. What you can see is the “book value” of the company including tangible assets and business financials that represents maybe ~20-30% of overall company value.
However, what you cannot see may equate to ~70-80% of company value including company risks and liabilities such as intangibles and non-financials, reputation and brand image, goodwill, and stakeholder relationships made up of shareholders, investors, employees, and the community. (1) What this lens enables you to do is to address true and hidden costs and quantify the total risks and liabilities associated with your business and sustainability project. Many times sustainability projects can reduce total costs and lessen risks and liabilities, and therein lies the business opportunity.
Next, identify total costs and address the risks and liabilities. Many times, for example, sustainability projects can resolve “hidden” costs that remain unidentified including regulatory, upfront, back-end, voluntary, contingency, brand image, relationship, and supply chain costs. (2) These aggregate costs help define total costs associated with the sustainability project. Once total costs have been identified, one can quantify and qualify company risks and liabilities across environmental, supply chain, product and technology, litigation, reputational, physical, financial, operational, and strategic areas of focus (3). If properly qualified and quantified, these cost savings can be expressed as economic impact and shown to reduce company risks and liabilities and the total cost of ownership for products and services, while improving overall business performance.
What is available in the toolbox to achieve overall improved sustainability performance? Today, there are a number of sustainability best practices that have been implemented, as well as new sustainability tools that have been developed in recent years, which are available for use in the food industry:
Sustainability standards and certifications such as ISO 9000 and ISO 14001 standards that support manufacturing and environmental management practices and ISO 22000 for food safety management
Life Cycle Analysis (LCA) of food production, manufacturing, and systems that enable “cradle to cradle” analysis of products and technologies
Creative and innovative Circular Economy initiatives, such as with regenerative food production
True cost of accounting practices such as with the Sustainable Food Trust in areas such as environmental pollution, biodiversity, healthcare, farm support payments etc.
Sustainable Accounting Standard Board (SASB) sustainability adjusted reporting guidelines for Agricultural Products in categories such as GHG emissions, energy, water, safety, social impact etc.
Updated sustainability assessments such with the Sustainability Assessment of Food and Agriculture system (SAFA) guidelines and the Institute of Food Science and Technology (IFST) Food System Sustainability Framework
Improved sustainability metrics including carbon, water, energy, and product environmental foot printing tools
New sustainability reporting formats such as with the sustainability balanced scorecard and with Environmental, Social, and Governance (ESG) guidelines.
So what then is the sales pitch for “show me the money” when it comes to improved bottom line sustainability performance? Improved bottom line sustainability performance can be achieved in the short term, as well as longer term timeframes.
Quantified and qualified cost savings can improve margins and reduce budgets across areas such as recruiting, attrition, insurance, borrowing, operational, supply chain and other cost centers
Productivity gains can be captured through automation and capital improvement projects
Eco and resource efficiencies can be determined across the use of energy, water, materials, as well as waste generation areas. Additional tools are now available to calculate environmental ROIs.
Socio efficiencies can also be created around health, working conditions, and wellness. Additional tools can also determine social ROIs as well.
Reduced risks and liabilities can be accomplished by addressing total cost of ownership
Increased sales and market share growth can be achieved through sustainability products and services in growth categories associated with Lifestyles of Health and Sustainability (LOHAS) and consumer buying behavior and loyalty
Better competitive sustainability positioning can be attained through “Thinking Global, Acting Local, and Building Regional” by raising the bar on your own and not waiting for compliance and regulations to take place.
Sustainability value creation can be generated over time through a variety of metrics and performance measurements. These areas of performance can also include security, talent attraction, brand image and reputation, access to capital, and other conventional operational areas. One emerging area is that of shared value that is collected across all stakeholder groups including suppliers, customers, employees, and other community partners. One interesting metric that many companies are using to express long term sustainability value creation is that of economic impact across the triple bottom line.
Sustainability best practices are now being implemented and integrated in the food and agriculture industry, as it is becoming the DNA in a growing number of companies. The sustainability journey continues on with these practices being embraced as a requisite, not an option, in improving business performance. What is happening is a business reset in the marketplace and a mindset change of C Suite management. Companies are first challenged by risk mitigation or being less harmful. Next comes the test of doing no harm or zero harm. Further challenges are on the horizon with doing good through repair, reuse, replenishment etc. What is arriving now for many companies at the forefront of sustainability is being just and regenerative through building capacity across all stakeholders and applying circular economy guiding principles. (4) Companies alike can demonstrate doing good for the bottom line, as well as doing good for the planet and society. What lies ahead are challenges and opportunities to further progress sustainability through purpose and company values!
I wish you the best on your sustainability journey,
Sustainable Business Practices LLC
The Future of Corporate Accounting. SAP Blogs. 2014
Christopher, N., Sustainability Demystified!- A Practical Guide for Business Leaders and Managers. Principia Media. 2012
Green Business Strategy: Ideas with Impact. Harvard Business Review. 2015
Payne, J. How to transform for a thriving future: A Compass for Just and Regenerative Business. www.forumforthefuture.org. November 2021