Sustainability Cost

We have been hearing "Sustainability" word from many years now. Many organisations have committed, pledged and promised to improve their environmental, social, and governance performance.

Many Governments and associations lay importance on such initiatives yet many CEO's and CFOs still see them as a cost rather than a source of value which makes it hard to unlock the internal financing needed to scale them up.

Though many studies conducted have shown a correlation between sustainability and financial performance like nonfinancial metrics such as carbon emissions can save hundreds of millions in sustainability-related savings.

So whatvis it that makes it difficult....

Management like CFO don't understand the language used by their sustainability colleagues. Financial management of a company understands only about EBITA and ROI whereas sustainability people focus on measures such as reductions in wastewater or emissions, carbon footprint. The separate reporting of sustainability and financial metrics both internally and externally can resolve such issues. In reality there is a connect between these two numbers.

Sustainable initiatives are difficult to measure tangibly like accounting and performance data. But as the links between sustainability and economic performance become clearer, pressure will mount from investors, boards, and executive leadership to track and report the payoffs.

Nonfinancial metrics such as carbon emissions carbon footprint, energy saving can reveal hundreds of millions of dollars in sustainability-related savings and growth.

Some key areas that can be looked at by sustainability managers to clarify benefits and manage it tangible number can take help of below mentioned points-

  1. Identify your current sustainability strategies which might include activities with sustainability components that haven’t been identified as such—for example, a logistics program ensuring that boxes are fully packed with no empty space or trucks are fully loaded, or using sea freight more often than air cargo, which may be aimed at efficiency but also reduces the fleet’s greenhouse gas emissions.

  2. Identify the related changes in operational or management practices.Like changing manufacturing processes, adding new models of machines etc. Like under the waste management strategy, reduces emissions by recycling materials. That may seem like a small change, but as we’ll see shortly, it can generate millions in savings. In apparel sector, including the use of more-sustainable materials, the certification of fair labor practices in supply chains, reduced packaging, and “circular” solutions such as the return and repurposing of garments.

  3. Determine the resulting benefits. For example, better waste, energy, and water management which results in operational efficiency.

    Many benefits that you find may not be obvious. For instance, many apparel manufacturing units often are rumoured to pollute environment and exploit laboir. But when we have collective bargaining agreement and often show to the world what positive it has brought to the area it can be quantified.

  4. Quantify the benefits by comparing a new practice with an established benchmark.

  5. Calculate the overall monetary value. like opting for some new technologies reducing energy consumption resulting in carbon footprint also cost benefits as cheap alternative sourcing.

As the links between sustainability and economic performance become clearer, pressure will mount from investors, boards, and executive leaders to track and report the payoffs.

Operational efficiency

A sustainability strategy can improve operational efficiency, and thus cut costs, by reducing waste and the use of natural resources.

Sales and marketing

Sustainable products and services can help a brand stand out from the crowd and increase market share and sales and generate profitability.

Customer loyalty

People are more devoted to purpose-led brands that make a positive contribution to society.

Risk management

Stakeholder engagement can be improved by a firm’s sustainability activities with local communities and society more broadly, with positive financial impacts.

Sustainability is not a mere word anymore. In the Covid era it means a lot not only for financial management but also for society as such.