28 Jul Sustainability as Competitive Advantage
Written by: Alberto Cremonesi, member of the Board of Directors of Impact Hub Global Network
How is sustainability and its underlying issues – such as climate change and water scarcity – affecting business performance? What impact will the disparity between rich and poor have on the future value of a company? Growing population and ageing demographic, scarce resources and rising sea levels – how will they inform business strategy and new models?
The reality is that – regardless of your beliefs around climate science – the world we live in is rapidly changing. What worked in the past will just not get you there in the near future. COVID-19 has perhaps shed some light onto the fragility of our value chains – nothing compared to what climate change alone will cause when some of the most dramatic forecasts will – when, not if – take place.
Now, this is not mere doomsday rhetoric but rather solid business acumen – sustainability will create commercial winners and commercial losers, and embedding practices and models within the company makes good business sense.
The opportunities that sustainability brings outweigh by far the risks involved and encompass both the operational and the strategic side of a business. Think for example about the regulatory environment in which companies are moving, with increasing laws and market-based instruments to protect the use of resources and promote alternative approaches; or the rising price of certain input materials due to their unsustainable use in the past, which eventually impacts the cost of doing business. These market forces and the necessary regulatory compliance can put enormous pressure on business but also represent a great opportunity for change, for experimenting with alternative resources or new ways of operating.
Avoiding operational disruption will soon be the next new challenge, and sustainability may prove an advantage. As we have seen with the recent global pandemic, our value chains are quite exposed to external factors. While in this case, it was an epidemic, it is worth considering how the rapidly changing climate and its devastating consequences – increased temperatures, floods, desertification – might affect entire nodes of a value chain. Limiting and eventually offsetting the exposure to such externalities it then becomes vital regardless of industry or sector. A challenge that is also strongly related to that of the utilization of stranded assets – like water. What will a company which core operations depend on such a limited resource – like beverage companies for example – do when all the water is consumed?
Sustainability represents a competitive advantage not only in terms of operations but rather at strategic level too. The lowest hanging fruit is perhaps brand recognition and protection. While there are trends showing a growing customer base willing to turn to more sustainable brands across pretty much all industries, what is clear is the impact that not being sustainable may have on a brand. Stories of inhuman working conditions or complete disregard for the environment have seriously damaged more than one brand in the past.
Business models are consequently impacted. Trying to do more with less has pushed many companies not only to question their own mindsets but to reinvent completely the way we do things. Closed loops or cases of sharing economy are excellent examples of how rethinking the way in which companies can deliver values has been extremely successful.
A last but equally important consideration is to look at the impact of sustainability on the workforce. Studies show how better social conditions and improved environmental spaces can increase and boost performance and staff retention. But even more importantly, companies that make of sustainability a core goal are simply more appealing to new talent, they are able to attract and galvanize the most important element for a winning company, its people. Which, eventually, will be the single most important competitive advantage.
About the author:
Alberto is a member of the Board of Directors of Impact Hub Global Network and the founder of Impact Hub Phnom Penh. His focus is on the field of social entrepreneurship and social innovation, non-for-profit management and corporate non-market strategies. He is particularly interested in understanding the processes through which entrepreneurs construct new models and markets, and the growth and scaling up processes of new ventures in order to maximize economic and social impact. Alberto has been living and working in Asia for over 15 years.
Alberto holds an executive MBA from IE Business School. In life, he continues his quest to find the perfect espresso coffee outside of Italy.