importance of sustainability in business essay

importance of sustainability in business essay

The Importance of Sustainability in Business

1. Introduction to Sustainability in Business

Businesses play a crucial role in the transformation towards more sustainable societies. By 2050, companies are likely to be making most of their money with products and processes that do not exist today. However, businesses are facing important dilemmas at both the strategic and operational levels regarding the embedding of sustainability into their core processes. On the one hand, it may be that they lack strategic direction and specific policies, strategies, and practices to guide them to find pathways that are both beneficial for their business and helping society to future-proof our planet. On the other hand, being disruptive in current value chains may expose companies to considerable risks, making them reluctant to invest in pioneering new technologies that are needed to take the next developmental step.

The planet is finite and its resources are dwindling while our population is expanding. At the same time, billions are living without enough healthy food to eat and disease and death could be avoided by safe drinking water and basic sanitation. These are just some examples of the environmental and social challenges that urgently need to be tackled, and that are accelerating into global emergencies, partly precipitated by the world’s production and consumption patterns. Urgent action is needed to break this destructive spiral, thereby ensuring that all people today, and the generations of people that come after us, can enjoy a life that is prosperous, secure, and sustainably equal. Business and policy changes are urgently required in order to build a society that is capable of meeting these challenges.

2. Benefits of Implementing Sustainable Practices

The benefits of implementing sustainable practices within their organization are plenty for a company to embrace the long-term commitment. Indeed, integrating sustainability simply makes a company smarter, more efficient, and more profitable in the long run. As the environment becomes more important to stakeholders (shareholders, customers, employees, suppliers, and communities), many businesses are finding that being good stewards of the environment is in their best interests. In other words, sustainability and business success are becoming synonymous. Businesses in all sectors, not just wineries, large companies, and big box stores, are increasingly conscious of embracing sustainable business practices. However, the number of businesses where sustainability is more than just a development mantra and embraced as an essential differentiator by customers and employees is still relatively few in number.

Many companies recognize the importance of sustainability and corporate social responsibility. Those that do can realize a number of benefits from their actions. Several areas where sustainability can aid a business are financial, market, operative, stakeholder, and risk management benefits. Sustainability in terms of environmental, social, and governance initiatives can lead to direct cost savings as well as an increase in business and promote employee loyalty and productivity. Financial benefits come in the form of reduced operating and capital costs, leading to improved profits and cash flows. Market benefits include leadership positions, increased customer bases and/or loyalty which provides a direct lock in of customer base. For operative benefits, one can contend that sustainability drives improvement in its processes and systems. Stakeholder benefits are fostered by top line growth and increasing market position. Risk management benefits include operational disruptions or damage to a firm’s/acquirer’s reputation in a M&A.

3. Challenges and Barriers to Sustainability in Business

Finally, for SMEs, these include: the lack of historic and cultural change; transparency and community pressure; and image versus substance, attitudes and network relationships. This chapter therefore distinguishes between different barriers facing large and small and medium-sized companies. The conceptual framework providing the basis is the CCAF-model, that was developed in a previous study of the interaction between politicians as regulators in different countries in Europe, with industry as stakeholders and society as the non-stakeholder. In that optimal state, industry steps beyond the numerous legal rules that were made, and follows a public-minded, i.e. sustainable, behavior that is sensitive to societal values and makes one’s best effort to achieve accepted societal goals.

General challenges are internally focused and these include: culture, organizational behavior and resistance to change; operational integration and the inertia of established action patterns; and competitiveness and inadequate information. They are related to the overall directioning of a company to sustainability and therefore are common to all kinds of companies. Specific challenges are related to the size of the company, and the specific context (e.g., sector, country), in which they are implementing a CSR agenda. For larger corporations these include: coping with ad hoc actions; regulatory requirements and increasing pressure; and complexity, standards and reporting. While boards of directors and brand values are tied in first place for the least important issue.

In spite of the often-quoted business benefits that result from implementing a sustainability or corporate-social-responsibility (CSR) business agenda in a company, such as increased shareholder wealth, entering new markets, high customer satisfaction and brand loyalty, innovation and cutting costs, there are several challenges – or barriers – that companies face when trying to take the first steps in the direction of sustainability. All those challenges can be classified into general and specific for large and small-and-medium-sized (SMEs) companies.

4. Successful Case Studies of Sustainable Businesses

A clear demonstration of the key tenets of sustainability is to be found in Nature, Incorporated: Strategic Management Astride the Natural Environment. This seminal book describes how the engagement of communities affects the resources of organizations distanced by time and space from the communities. From the Hawaiian Islands, concern has naturally focused on these deep issues. Hawaii has seven deep water ports, real tourism problems, international and coastal guano birds in crisis, and a community-led Plastic Waste-Free Hawaii initiative. Statewide leadership has naturally pressed forward with the Mayors for 100 percent Clean Energy project and progress. Seven Hawaii businesses clearly recognize there is a vital economic stake in these key drivers for social and environmental sustainability. Companies that engage in committed practices in all three tenets – economic, social, and environmental – demonstrate the potential good of sustainable business practices. These Hawaii seven companies work as partners with government to benefit society as a whole, contribute to bottom line results, and inspire the broader business community.

A sustainable business is one consciously integrating three key tenets: economic value creation, environmental stewardship, and social progress. This consciousness places social responsibility alongside profitability and growth as essential elements of business strategy and success. At their core, businesses are about customers and employees. It follows naturally that strong relationships with, and commitments to, these important constituents should be fundamental to business success. Companies that work to apply sustainable business practices can achieve success on multiple elements of the business balance sheet – social, environmental, and economic. Such goals are particularly important in today’s environment of explosive digital technologies, huge worldwide economic demands, growing awareness and concern about social and environmental issues, and global climate change.

Successful Case Studies of Sustainable Businesses.

5. Conclusion and Future Outlook

Sustainability done properly would have allowed firms to eliminate the stock and create a much more reliable supply chain if managed based on current orders leveraging existing IT systems and hi-technology. Additionally, sustainability would assist decision makers in achieving longer lasting relationships with more flexibility for unexpected events and bond the business more closely to the firm’s stakeholders. This would help decrease the effect of the natural disaster, the potential volatility of international exchange rates and the perhaps following drastic consequences on the balance of trade between the supplier’s country and the rest of the world, exports and sales.

This research shows that it is important for firms to spend significant resources on preparing their supply chains for potential disasters in the future. We demonstrate that normal-risk phenomena can have an effect even a year later that result in an almost 30% drop in revenue. Therefore, part of sustainability must be identifying locations in the world that are at risk and determining how these interruptions may also affect a firm’s supply chain when suppliers are not in the affected area. Businesses need to demonstrate more social responsibility by applying more sustainable development concepts, working more on cultivating and increasing relationships. This is particularly important since COVID-19 has piled up stock in the supply chains and made perishable goods the number one sustainability problem in our contemporary economy.