The four benefits of a sustainability strategy for business
Leading businesses are using sustainability as a key financial lever to grow revenue, reduce costs and mitigate risks – all while making an impact.
Professor Glenn Hoetker has been a strategy scholar for 35 years and consulted with leading businesses around the world.
Now he’s on a mission to help businesses thrive as they engage their ultimate stakeholder, the planet.
“My goal is to equip businesses to think about sustainability strategically because doing so delivers superior financial performance and contributes to a healthier planet, society and economy.”
Companies increasingly recognise that they need a sound sustainability strategy to achieve their sustainability goals.
But Professor Hoetker believes the greatest value comes when companies connect their sustainability strategy to a sustainable business strategy ensuring key strategic decisions reflect the challenges posed by the sustainability crisis and the opportunities available to those who offer solutions to those challenges.
Sustainability can be a powerful strategic lever allowing businesses to build a competitive advantage in four key areas.
Increasing revenue
Sustainability is opening doors to emerging markets and new customer segments. As consumers, investors, and governments demand cleaner, more responsible products, businesses that deliver them can grow faster and command premium pricing.
In crowded markets, sustainability features such as recyclable packaging and low-emissions production also provide product differentiation that gives companies a competitive advantage.
“Whether it’s Victoria Bitter’s creative Solar Exchange program or Interface’s carbon negative carpet tiles, sustainability is leading to innovative new products and revenue streams,” Professor Hoetker said.
The logistics real estate company, Prologis, grew from experimenting with solar panels on top of some of their warehouse buildings to identifying Energy & Mobility as a unique growth opportunity, one expected to grow to over $1.2 billion in net operating income.
Today’s consumers, especially younger generations, are more loyal to brands that align with their environmental and social values. A clear sustainability mandate builds emotional connection and brand stickiness with consumers.
Employees engaged in solving meaningful problems like reducing carbon emissions or innovating in green tech are also more likely to bring their best ideas and efforts to work.
“You often find employees that resonate with the company's mission are more motivated, more likely to bring their creativity to work and give you discretionary effort, to go over and above what’s in their job title,” Professor Hoetker said.
Driving down costs
Sustainability often goes hand in hand with operational efficiency. Companies that actively pursue energy efficiency, reduce material waste, or improve supply chain processes unlock significant cost savings.
“Businesses, especially small businesses, are always trying to drive down costs. Well, a lot of sustainability is reducing waste and reducing waste often saves costs,” Professor Hoetker said.
Reducing packaging, optimising transportation, or reusing materials leads to less waste and lower costs. There are also plenty of government incentives available to businesses able to manage their energy more efficiently.
A strong sustainability orientation can help companies reduce employee turnover, with the bonus of encouraging employees to find opportunities to reduce waste and increase efficiency.
Mitigating risks
Climate change is increasing physical risks such as floods, fires, and extreme weather. Integrating sustainability into strategic decision making helps businesses anticipate and manage a broad spectrum of risks.
“There are areas of Australia that are becoming expensive or impossible to insure because of increased risk of flooding, increased bush fire risk or in some places both,” Professor Hoetker said.
Being proactive, for example by finding facilities in safer areas or designing for climate resilience can prevent massive operational disruptions in the future.
“A bank is not going to give a loan to a business operating in an uninsured property. So, if you're a small company that should be shaping your business decisions about where you locate.”
Businesses with sustainable supply chains are also less exposed to sudden shifts in resource availability or price spikes caused by environmental degradation, political shifts, or public backlash.
Having a positive impact
Companies that have a positive impact and embed sustainability into their strategy can earn greater trust and goodwill from their stakeholders, regulators, investors, and the public, which can be a valuable tool in proactive reputation management.
A strong reputation built on sustainability can act as a buffer during crises whether it’s a product recall or a broader reputational challenge providing companies with downside protection.
“If you've proven yourself a good citizen, stakeholders are more likely to trust what you're trying to do and to take a positive view during a crisis,” Professor Hoetker said.
Professor Hoetker believes most leaders want their companies to have a positive impact on their communities and the environment. The opportunity is to help leaders understand how doing so is not only consistent with delivering shareholder value, but it can also be critical to doing so.
Sustainability isn't just good for the planet, it's good for business. When embedded strategically, it can increase revenue, reduce costs, mitigate risk and create a positive impact.
Businesses that understand and act on these levers will not only survive the sustainability transition, they’ll do so profitably.
As climate pressures intensify and public expectations grow, the companies that integrate sustainability into their strategic DNA will be the ones that shape a sustainable future for generations to come.
Glenn Hoetker is the MBS Foundation Chair in Sustainability and Business and Professor of Business Strategy at Melbourne Business School. He is also a Fellow of the Melbourne Energy Institute and a member of the Melbourne Sustainable Society Institute's executive committee at the University of Melbourne.
Melbourne Business School works directly with organisations to develop custom-designed sustainability programs, having worked with companies including NAB, Intrepid and Bain & Company.