The onset of the pandemic and the ensuing lockdown have imperilled businesses worldwide. It has inevitably proven tempting for firms to put any commitment to the environment in the back seat as they attempt to recover, especially as some governments reduce requirements and undermine environmental protection. But this is short-sighted: businesses do not have to sacrifice their environmental goals in order to protect their growth. Greening initiatives (i.e., those by which companies can become more environmentally responsible in their operations), whether that be offering environmentally-conscious products or services, introducing green processes internally, hiring employees to promote sustainable practices, or going beyond compliance requirements, can actually help firms.
Using data on 9,236 small and medium businesses in 35 countries across Europe and the U.S., research conducted by Jagannadha Pawan Tamvada, an associate professor in Strategy and Innovation at the University of Southampton, and Mili Shrivastava, a senior lecturer in Strategy at Bournemouth University, suggests that on average, businesses benefit from adapting Environmental, Social, and Corporate Governance-strategies, although the type of greening that gives the most significant benefit may differ between firms.
Based on their research, Tamvada and Shrivastava say there are four main ways that efforts to “go green,” so to speak, by incorporating environmental management systems, obtaining compliance certifications, reducing emissions, and offering green products and services (those born from environmentally responsible operations), can actually benefit businesses. They lay them out as follows …
1. Innovative market niches
By offering new green products or services, a business is more likely to cater to an emerging trend or niche market, which can make the business more competitive. Frugalpac – a UK-based company that makes paper-based packaging for liquids that cut carbon footprints– received a £2 million investment during the pandemic, a time when most other companies were struggling for finance. Already seeing widespread success for their recycled paper coffee cup, Frugalpac’s innovative paper wine bottle, which is similarly made from 94 percent recycled paper, has led to new opportunities and partnerships.
Companies focused on sustainability can rapidly expand by catering to new niche markets internationally. Consider D’light, a company that offers innovative lighting solutions for people who do not have access to electricity. The company has transformed the lives of more than 100 million people across 70 countries through its green product offerings while raising $197 million in investment.
In the fashion luxury space, Kering, which owns Gucci, Balenciaga, Bottega Veneta, and Yves Saint Laurent, among other brands, landed back on Corporate Knights’ Global 100 index of the world’s most sustainable corporations, where it has held a spot since 2016. The group has been spotlighted by Corporate Knights for pioneering Environmental Profit & Loss – or “EP&L” – accounting in 2011, assigning a monetary value to nature’s “services” used by its businesses, including fresh water, clean air, healthy biodiversity, as well as to the company’s negative impacts. It has since developed a methodology/tool for measuring EP&L, which it makes available for “its peers in the luxury industry and other sectors” to use.
Meanwhile, a couple of weeks before Chanel made headlines for its newly-issued 600 million euro ($699 million) sustainability-linked bond, Burberry announced that it would issue “the first sustainability labeled bond issued by a luxury company.” In furtherance of its “longstanding commitment to sustainability and dedication to using its position and influence to drive social and environmental improvements,” the British brand revealed that it would offer up a sterling sustainability bond with green strings attached.
By catering to new niche markets using “green” products and services, these businesses have emerged as future leaders in their sectors. Of course, not all companies are suited to finding such niches, but sustainability can be promoted in other ways like green working practices and processes, for example.
2. Employee motivation
Job seekers are increasingly attracted to companies that care for and about the environment. The employees of firms that promote sustainability are more likely to believe that their employer will care for them, and are more satisfied with their jobs. Such companies create a higher sense of personal and organizational purpose that makes work meaningful. A recent poll shows that millennials and Gen Z’s are more concerned about the environment than any previous generation. By extension, this means they prioritize employers that put sustainability at the forefront.
By some estimates, companies that follow green practices have a 16 percent boost in employee productivity. Although establishing a direct causal link can be difficult, some of the greenest companies, such as Cisco, Tarmac or Stantec, are also considered the greatest companies by employees.
3. More engagement
Beyond employees, greening initiatives signal to external stakeholders, such as investors and customers, that a business is committed to doing good. This can lead to increased investment, and higher customer and stakeholder loyalty, something that is pertinent in the wake of COVID-19 given that there is heightened awareness about the need to protect the environment. For example, highly sustainable companies benefit from superior stock market performance in the long run, according to research looking at American companies in the period 1993-2009. Investors are increasingly questioning firms on their commitment to sustainability, and expecting meaningful steps from them for integrating consideration of such issues into their investing criteria. This is reflected by the tenfold increase in global sustainability investment to $30.7 trillion by April 2019 since 2004.
More recently, Polysolar, a company that makes glazed windows that generate electricity, has secured more than double the investment it sought on crowdfunding platform Crowdcube. And companies, such as Unilever – the consumer goods giant that owns Dove, TRESemme, and Pond’s, as well as Breyers, Hellman’s, and Magnum, among others – have benefited from increased stakeholder engagement and loyalty by adopting greening practices and products, addressing a dark history of environmental exploitation.
It appears that long-plagued diamond purveyors are taking a similar approach, with Tiffany & Co. announcing in 2019 that it would take an industry-first step in diamond traceability by sharing the full craftsmanship journey of its newly sourced, individually registered diamonds beginning in the fall, a move that plays on then-CEO Alessandro Bogliolo’s belief that “customers care about your product—about your brand, about sustainability, about the beauty of your products.”
4. Increased efficiency
Greening processes can also result in efficiency gains by reducing energy costs, allowing businesses to secure green tax credits, improving operational efficiency, and embedding circular economy principles internally. Such gains directly translate into commercial benefits. As many as 75 percent of UK businesses that invested in green technologies subsequently enjoyed commercial benefits, even if financial concerns pose barriers to making these green investments in the first place. For large companies, such as Proctor & Gamble, these gains can run into billions of pounds.
Conversely, in cases where businesses harm the environment, they have to be prepared to incur significant costs. A prominent example is the famous case of Volkswagen, which has even adversely impacted the performance of other German car manufacturers like BMW and Mercedes Benz thanks to its emissions testing scandal.
Jagannadha Pawan Tamvada is an associate professor in Strategy and Innovation at the University of Southampton.
Mili Shrivastava is a senior lecturer in Strategy at Bournemouth University.