The concept of sustainability in business has come a long way. According to McKinsey, around 70 percent of businesses surveyed in 2017 now have some form of governance for sustainability — a sharp increase from 56 percent in 2014.
However, many corporations still overlook the core concept of sustainability. A sustainable business is not simply one that makes eco-friendly gestures, but one that bases its entire operations—its range of products and services—on those practices.
This increasing focus on sustainability is not a surprise to business leaders or academics, who have long since read the writing on the wall.
Global climate negotiations, such as the Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCC), foreshadow government regulations and investor concerns. McKinsey estimates a potential impact of up to 70 percent on EBITDA from restricted licenses to operate and reputational damage from perceived misuse of resources.
A review of 56 research papers concluded that companies with high ratings for Environmental, Social, and Governance (ESG) factors have lower cost of debt and equity. Companies with high ESG ratings consistently outperformed the market in medium and long terms.
But while businesses acknowledge the importance of sustainability, there is a further boundary to cross.
The difference Between Sporadic Programs and True Integration of Sustainable Business
Many businesses understand the need for sustainability, but their approach can be reactive and piecemeal. They resort to sporadic “environmental programs” that are closer to Public Relations efforts than true integration of sustainability. These are the tree plantings that happen when a mining project is publicly criticised, or one-off donations to clean water programmes after a chemical spill.
For a business to truly integrate sustainability as a core strategy, it must go further. Sustainability must become an influencing factor in how it creates its products or services, selects its areas of operation, chooses its key partners, and so forth.
One example in Singapore is TRIA, a company that produces eco-friendly and easily compostable food packaging. Their approach to developing products that help close the waste loop for their clients isn’t a one-time “environmental program”, but a sustainability effort that defines their core business strategy.
So how can SMEs incorporate sustainability into their core strategies?
Identify the Business’ Key Sustainability Issue
The simplest way to incorporate sustainability is to address an issue directly relevant to the business.
Do we lack diversity in hiring? How is this affecting our ability to read consumer demographics?
How much waste material is produced by our operations? What are the disposal or reputational costs?
What are our products’ and services’ impact on the ecology or environment?
Identifying issues this way helps SMEs adopt the right mindset by enabling them to see how their sustainability efforts—or lack thereof—impact the business.
It also favours the creation of ongoing sustainability strategies over piecemeal programs.
Measure Environmental Impact, not just the Bottom Line
SMEs need to measure the impact of their sustainability efforts on the intended environment. For example, they should be able to quantify lower power usage in a plant, or rising literacy levels in a particular district (if indeed they are building schools).
This allows them to refine existing strategies and replace ineffective ones. SMEs have an edge over bigger companies here, as they are often more flexible and can execute sharp strategic turns with more agility.
On the other hand, SMEs that measure only the impact on their bottom line tend to end up pursuing piecemeal programs.
Review How Products and Services Align with the Mission
If an SME has incorporated sustainability into its very core, this should be reflected in its products and services.
For example, if the service in question is delivery, an SME should quantify how a mission for a smaller carbon footprint informs its delivery operations (e.g. through the use of more hybrid vehicles, or more efficient travel schedules).
The sustainability mission can also drive product development. For example, increasing the longevity of a product’s battery will also decrease electronic waste, and possibly provide a competitive advantage as it translates into cost savings for consumers.
Integrating Sustainability: A Win for the Environment and for Businesses
When thinking of medium- and long-term benefits, businesses are discovering that sustainability can become a valuable part of their core strategy.
Sustainability is no longer just a buzzword or a criterion to fulfil once every quarter. A sustainable business model must be seen as more than a public relations exercise—it must be seen as an obligation to stakeholders, and a way forward for any business.
Swaroop Shah | Director Sales | Validus Capital
With over 20 years’ banking experience across India, Vietnam and Singapore, Swaroop’s vast experience covers a spectrum of functions in consumer lending, ranging from sales, credit underwriting, risk management and credit operations. At Validus, Swaroop runs the sales team, helping to pivot Validus’ position as the top SME lending platform in Singapore.