Why is sustainability good for business?

[Reading time: 5 minutes]

The effects of climate change are being felt around the world. This year, water restrictions have been imposed in France. Severe droughts in Spain, the U.S., and Brazil have affected agriculture, and in September 2024, massive rains flooded parts of Central and Eastern Europe. Heat waves, rising sea levels and other natural phenomena such as hurricanes are expected to intensify in the coming years as the Earth continues to warm. Solutions are urgently needed.

Globally, there is a growing awareness and concern about the effects of climate change on the environment. This topic has become an integral part of news reports and people are becoming more informed about the challenges ahead. It has led to shifts in public opinion, people’s values, and expectations. Indeed, according to Nielsen IQ 2023 Sustainability Report, 69% of people regarded sustainability as more important over the last two years, and 84% of global consumers take into account sustainability factors while choosing a brand.

In the face of shifting customers' expectations, upcoming legislation and restrictions, and environmental factors, businesses will have to adopt more sustainable practices. Businesses will need to comply, there is no way around it.

Change must happen now. Waiting to adapt business practices means missing an opportunity to get ahead and gain a strategic advantage. Here’s why:

1. Now is the best time to make changes

Upcoming legislation in favor of the environment will engender major changes in the way businesses operate. European climate law set the goals of cutting net emissions by at least 55% by 2030 and becoming climate neutral by 2050. The Circular Economy Action Plan also contains strategies to make certain industries more circular. Among these actions are:

• Making circular products the norm.

• Increasing recycled content in products, while maintaining their performance and quality.

• Enabling high-quality manufacturing through innovation, greenhouse gas reduction, training programs.

• Rewarding products based on their sustainability criteria.

The EU Landfill Directive and the Directive on Packaging and Packaging Waste set the goal to recycle 60% of municipal and packaging waste by 2030. In the automotive industry restrictions and requirements will be introduced as well, namely the use of recycled content in car components. The EU has set targets to reach 25% recycled plastics in new cars by 2030, of which 25% should be recycled from end-of-life vehicles (ELVs), and to recycle 30% of plastics in ELVs.

All these upcoming regulations will directly affect how businesses operate. Companies will need to abide by those new rules at the risk of incurring fines and penalties. This implies significant restructuring of operations and practices, which demands time and resources. Getting a head start on these challenges allows for more robust planning and, at the end of the day, better cost efficiency.

2. Competitive advantage

Businesses that are already shifting to more sustainable practices ahead of the upcoming regulations will learn, adapt faster, and gain a competitive advantage. It will position them as leaders and preferred partners within their market.

Sustainability strategies affect how end buyers perceive a brand. A study by the Institute for Business Value (IBM) demonstrates that 84% of global consumers consider sustainability an important aspect when choosing a brand. Another study published by the International Journal of Engineering Business Management shows that people would happily move to another brand because of certain Corporate Social Responsibility initiatives. And globally, more than half of consumers asserted they were willing to pay more for environmentally conscious brands.

People are increasingly conscious about their buying decisions and are more likely to identify and convert with brands that go the extra mile for the environment.

3. Reputation & long-term loyalty

Empathy has become an important criterion, and this is reflected in how people choose to consume. People grew more conscious about social and environmental issues and are now more liable to choose brands that align with their own values. Businesses that put CSR at the core of their value proposition give people the possibility and agency to do different.

This in turn, can elevate a brand’s reputation, enhance consumer loyalty and trust in the long term. Reputation is a valuable asset that helps businesses stand out. Some companies have wrongly made claims about sustainability and have been accused of greenwashing, making consumers and legislators more skeptical. Therefore, it’s crucial to consider that scrutiny is expected to increase when it comes to sustainability and social impact claims.

Alleging sustainable actions won’t earn consumers’ trust anymore. Businesses need to prove their effort with verified facts and as much transparency as possible. A Nielsen IG report demonstrates that consumers hold brands, before governments, most responsible for sustainable progress. Another research found that 77% of consumers are likely to stop buying from brands that are found guilty of greenwashing.

In short: There is a lot of potential for businesses to win customers by doing good. But only companies that transparently document and communicate their CSR initiatives have all the keys on hand to earn loyal and long-term consumers.

4. Financial Performance

Reputation is connected to financial performance and market value. Evidence shows that CSR initiatives have proven efficient at boosting financial performance in the long-term and stock value; A study published in the Journal of Business Ethics demonstrates that a firm’s stock value increased by an average of $80.5 million after winning an environmental award. If people are more and more concerned about social and environmental issues and willing to do something about it, it is only natural that this be reflected in the demand for more sustainable alternatives on the market. Hence resulting in more sales for this category of products and services.

Studies also shed light on the correlation between brand reputation and the increase of brand equity; The value premium that a company generates from a product with a recognizable name, when compared to a generic equivalent. The more reputable a brand is the more a business’s brand equity is liable to grow. Good and transparent CSR strategies allow marketers to create impactful campaigns to win the trust of consumers, which ultimately may lead to an increase in the market value of the firm.

5. Work Culture

Purpose-driven people tend to look for companies that fit their values. In a study by the Institute for Business Value, 7 out of 10 company employees said that they would be more likely to stay with an employer that had a good reputation for environmental sustainability. In addition, nearly 3 out of 4 asserted that they expected their employers to take action on CSR issues.

Well communicated CSR initiatives within a company can increase employee engagement and retain talent, giving employees a sense of ownership. It is also known that employees make the best brand ambassadors; Employee statements are more trustworthy and reliable than most other means of public relations. Investing in CSR is smart because the returns come in many forms. These include employee branding, increased team loyalty and motivation, higher retention rates, and greater success in recruiting new talent.

In a nutshell

There is a real sense of urgency when it comes to transitioning to more sustainable practices. Some of that urgency stems from upcoming legislation such as the European Green Deal. Those policies will play a major role in accelerating the circular transition. Businesses will have to adapt to new rules and while this will require some adjustment, the advantages of incorporating CSR strategies are many and clearly outweigh the effort:

• A growing majority of people consider sustainability while choosing a brand, CSR initiatives give brands a clear competitive advantage.

• They help build trust with customers and earn their loyalty in the long term. CSR strategies help fortify a brand’s reputation.

• They can boost financial performance as a result.

• They help attract and retain talent inside the company.

There is no time to waste, change must happen now.