This article is part of the “Business case for Sustainability” series on the Zerwaste blog. In this post, we will try to establish the contribution of returns on capital in the business case for sustainability.
Welcome back to the Business case for Sustainability Journey!
A University of Oxford report found that 90% of 200 studies analyzed conclude that good ESG standards lower the cost of capital and 88% show that good ESG practices result in better operational performance.
1. Sustainable Operations
By examining your supply chain, production process, and energy use, sustainable practices can reduce production costs (up to 60% of the impact on EBITDA) through environmental sustainability-related operational efficiencies by:
- Improving operational efficiency;
- Using fewer resources (like raw-material, water, and energy, or more sustainable ones;
- Considering the true cost of water or carbon;
- Reducing waste;
- Using equipment or technology to make your internal processes and product delivery more energy efficient.
It is a real chance to question the way your organization operates.
A study from “We mean business” estimated that companies experience an average internal rate of return of 27% to 80% on their low carbon investments.
2. Sustainable Value Chain
Optimizing the supply chain to improve resource management and reduce environmental impact across the value chain is possible. It reduces costs and improves products value proposition by:
- Driving efficiency in your internal processes
- Creating cross-functional discussions to improve processes and innovate toward new profitable ideas
- Changing from a standard linear system to a sustainable business model, e.g., electric utilities making money by helping consumers cut their energy use
- Collaborating with other actors in your value chain
- Reassessing production materials sourcing
- Shaking up your mindset of “this is how we’ve always done it”
The Supply-chain disruption has an impact of 25% on EBITDA, through production delay or cancellation due to lack of access, especially for local resources such as waterpower.
3. Green Sales And Marketing
For a long time, companies were skeptical about the interest of consumers for sustainable products, and their willingness to pay.
But today, transparency and honesty, as also environmental and social impact are significant factors that will affect consumers’ evaluation of a company and intention to buy sustainable, competitively priced, and high-quality products.
82% of consumers in emerging markets believe they “have a responsibility to purchase products that are good for the environment and society”.
As those customers will shift purchasing decisions towards more environmental green brands, sustainability can drive new business and sales while improving revenue through:
- Elevating the brand as customers perceive a higher level of product performance
- Increased volume of the average basket
- Increased share: new customers or business partners compared to other products of a similar portfolio
- Adding price premiums (around 20%) for products with sustainability attributes
This is what is called the brand ROI which can be measured by spend, loyalty, share price, and brand value as Customer Satisfaction and Customer Lifetime Value.
Products with an on-package sustainability claim delivered $114 billion in sales in 2019—a 29% increase from 2013.
