Business Environmental Sustainability 101

Business environmental sustainability has shifted centre-stage as the world experiences increasingly extreme impacts of climate change. Global rallying points such as COP26 highlight the urgency of collective action to mitigate the effects and slow the progression of anthropogenic climate change and businesses play an influential role.

When companies are manufacturing products, selling services, buying from suppliers, seeking investment and engaging with consumers, they have the opportunity to both advance sustainability and benefit from it.

Below we look at what environmental sustainability means in a business context, its benefits, challenges and examples of UK companies that are succeeding in uniting their environmental ambitions with commercial success.

What is Environmental Sustainability in Business?

Business environmental sustainability means identifying the negative environmental impacts of business operations across the entire value chain and consistently acting to minimise them, with the goal of protecting and conserving the earth’s natural resources and ecological balance. It is a strategic approach where environmental considerations are integrated into decision-making at all levels of the organisation.

At executive level, a business that is prioritising environmental sustainability will explicitly include it in the organisation’s statement of purpose and values, which is endorsed and embodied by the actions and decisions of the board.

Practically speaking, the board and executive leadership team should have a good understanding of the organisation’s environmental impacts and set environmentally focused goals for the business. It is common practice to align these targets to the UN’s sustainable development goals (SDGs) and the Paris Agreement on Climate Change.

At a tactical level, the many actions businesses can take include: recycling and waste reduction; minimising energy and water consumption; using renewable energy sources; limiting the use of raw materials; designing products for long life, easy repair and end-of-life recycling; and minimising GHG emissions.

Engaging with supply chains to drive environmental improvements is also important. For large consumer goods companies, an estimated 80% of GHG emissions are generated within their supply chain, according to McKinsey. Consequently, meeting emissions reductions targets must include stipulations that suppliers reduce emissions and engaging with them to help achieve this.

Smaller companies, who form part of those large supply chains, will face increasing pressure to address emissions and should view reducing them as a risk mitigation activity.

What Are the Business Benefits of Environmental Sustainability?

The business case for environmental sustainability grows stronger every day. Consumer expectations, increasing environmental regulations and investor interest in sustainable portfolios have aligned, meaning that it can be a bad business decision NOT to create a company sustainability strategy.

Benefits include:

• Lower costs: by eliminating wasteful processes and reducing unnecessary consumption, organisations can reduce operating costs while improving environmental performance. There is a growing ecosystem of technology solutions aimed at simultaneously increasing efficiency and reducing impact and cost. For example, Marks & Spencer has introduced driver performance software that, by reducing idling and assisting smoother acceleration and braking, will reduce fuel consumption by 2.3 litres per hour.
• Reputation: in a climate-conscious society, a reputation for good sustainability performance has significant value. A study by market researchers GlobalWebIndex found that “nearly 70% of UK consumers say a company’s poor environmental track record would, or might, lead them to stop buying from that brand.”
• Employee engagement: employees increasingly seek employers whose values align with their own. As Generation Z comes of age, this eco-conscious cohort aims to bestow its talent on organisations that place people and planet on an equal footing with profit.
• Investor interest: institutional investors have made the connection between strong sustainability performance and good financial returns. They are putting pressure on businesses in their portfolio to demonstrate a proactive approach to sustainability.
• Sales opportunities and license to bid: as companies aim to green their supply chain, tenders often stipulate compliance with environmental standards and evidence of sustainable operations. Failure to achieve these can limit sales opportunities and disqualify companies from tender processes.
• Regulatory compliance and reporting requirements: legislation relating to business environmental sustainability continues to increase in volume and complexity. Having a strategy that addresses compliance and reporting reduces risk and helps monitor key data that can be used for broader purposes.

On top of these benefits, a strategic approach to sustainability helps companies see over the horizon to identify climate-related risks and opportunities. This is essential to effective long-term decision-making and business resilience planning.

Examples of Business Environmental Sustainability

We don’t have to look far to see examples of companies that have embraced a sustainable approach to good effect. Kyocera Corporation bases its corporate philosophy around the belief that profits are the natural result of doing the right thing by people and planet. The company was the first Japanese organisation to sign up to an environmental charter, in 1992, and has centred sustainability in its approach since its foundation in 1959. Its print and imaging division pioneered the development of an alternative print technology that eliminated complex, expensive toner cartridges in favour of long-life parts and simplified toner cassettes. This delivers the dual benefit of reduced cost of ownership and low environmental impact. It demonstrates the unification of efficiency and environmental responsibility.

On a smaller scale, UK business Gailsbread.co.uk puts sustainable baking and waste reduction at the heart of its strategy to supply outstanding artisan baked goods. Any surplus products are donated to food charities local to its bakeries, with the aim of donating 100% of surplus products every day. The bakery also makes goods from perishable food such as fruit and cheese offcuts that is otherwise destined for waste. In its supply chain, Gailsbread buys ingredients locally and also buys Brades Milk, a company that pioneers Mootral, natural feed that results in a reduction of burp methane emission.

Marks and Spencer is arguably the most well-known business environmental sustainability pioneer in the UK. Its Plan A strategy was ground-breaking when it launched in 2007 for its comprehensive scope and whole-business approach. It began with 100 commitments to achieve in five years and the company has transparently reported on these ever since, expanding and evolving the programme as new risk and priorities have emerged.

Barriers to Business Environmental Sustainability

Clearly there are numerous advantages to pursuing an environmentally sustainable business strategy, but there are barriers, too.

• Impact identification and monitoring: the sheer scope of the impacts of even a small business can be hard to identify and harder still to monitor over time. Businesses risk drowning in a deluge of data that can result in analysis paralysis.
• Business environmental standards and reporting frameworks: the challenge above is not helped by the alphabet soup of voluntary environmental standards and reporting frameworks, on top of the UK regulations governing waste and pollution. Fortunately, there is recognition that consensus is needed if companies are to report effectively on their environmental impact in a way that allows for target-setting and comparative analysis. At COP26 a new standards body was established by the IFRS – the International Sustainability Standards Board (ISSB) – tasked with delivering a comprehensive global baseline of sustainability-related disclosure standards.
• Avoiding greenwashing: communicating environmental performance and successes is important, but organisations must make sure they are doing so accurately and transparently. Corporate stakeholders from investors and employees to consumers are becoming increasingly cynical about unsubstantiated environmental claims and the backlash can be very damaging.

Companies starting out on the sustainability journey, or aiming to take a more strategic approach, should explore the range of digital tools available that lift some of the administrative burden of data collection and analysis. Diligent’s ESG Solutions are designed to help businesses get a comprehensive picture of their environmental performance so impacts can be identified, monitored and reported.

The profile of business environmental sustainability is only going to rise as the climate emergency continues to unfold. Many organisations have set SDG-related targets for emissions reduction that fall due in 2030, just eight years from now, yet currently many organisations are not on target. A likely “scramble to SDGs” will require dynamic action and the ripple effects as large companies ramp up focus will influence companies of all sizes.