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Future Sustainability-based Organizations Will Deliver Value across 3 Fronts – Social, Environmental and Financial

Corporate Sustainability is a matured approach towards doing business by meeting the needs of the customers without compromising the opportunity for future generations to enjoy natural resources.

Rapid population growth, economic growth, the consumption of natural resources, and commercial activities have caused unintended negative social, environmental, and economic consequences.

Researchers have agreed that sustainable development is unlikely without the sustainable development of organizations. More and more business leaders have recognized that sustainability can serve either as a source of risk or a source of opportunity to long‐term competitive advantage and, thus, the future of the company. For example, Internet of Things and improved access to big data make it increasingly difficult for companies to prove that they are unaware of the potential negative consequences of company activities.

Today’s executives are dealing with a complex and unprecedented brew of social, environmental, market, and technological trends which requires sophisticated Sustainability-Based Management.

A large group of executives have their own reluctance of various levels toward Sustainability due to the mistaken perception that Sustainability costs outweigh benefits.  We now have more academic research and business experience in place, to give them the right perspective and needed confidence to champion Sustainability-Based Business Management.

Michael Porter and Mark Kramer pioneered the idea of “creating shared value,” stating that businesses can generate economic value by identifying and addressing social problems that intersect with their business.

Insights drawn from our own research, points at how Sustainability-Based Management impacts the bottom line by providing the following 6 key advantages.

Brief Outline

  1. Stakeholder Management: Sustainable businesses are redefining the corporate ecosystem by designing models that create value for all stakeholders, including employees, shareholders, supply chains, civil society, and the planet. Through regular dialogue with stakeholders and continual iteration, a company with a Sustainability agenda is better positioned to anticipate and react to changes on crucial factors affecting the business
  1. Risk ManagementThe risks posed by environmental changes to supply chains and production are subtle in the beginning, but becomes evident in the long term that it has created billions worth of “Stranded Assets”. McKinsey reports that the value at stake from Sustainability concerns can be as a high as 70% of earnings before interest, taxes, depreciation, and amortization (EBITDA).
  1. Innovation Management: The Sustainability & Innovation Global Executive Study, a collaborative study between MIT Solan Management Review and BCG Consulting Group, reveals that there is a high gap in competitiveness when companies which embrace Sustainability as part of core strategy are compared against those which do not
  1. Financial PerformanceMany business leaders have the erroneous perception that one can have profits or Sustainability, but not both. This has its roots in Milton Friedman’s 50-year old, but still influential, thesis that the only business of a business is profit. The conventional wisdom, “the business of business is to make profits” is now reversing. Research has shown organizations with Sustainability practices exhibit much stronger Financial Performance than their peers
  1. Customer LoyaltyToday’s consumers gravitate towards products and services which are environment friendly and are seen to be loyal to those brands which exhibit commitment to sustainable business practices. In fact, one study found that among numerous factors surveyed, the news coverage regarding environmental and social responsibility was the only significant factor that affected respondents’ evaluation of a firm and intent to buy
  1. Employee Engagement: Research is finding that 21st century employees are focusing more on mission, purpose, and work-life balance. Corporate Sustainability initiatives aimed at improving ESG performance and proving value to society can increase employee loyalty, efficiency, and productivity and improve HR statistics related to recruitment, retention, and morale.

Interested in gaining more understanding of these 6 core advantages of Sustainability-Based Management?  You can learn more and download an editable PowerPoint about Sustainability-Based Management Primer here on the Flevy documents marketplace.

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About Hareesh Ram

Hareesh Ram is a Senior Associate at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates.

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