Corporate sustainability as a catalyst for business success

In an era of heightened and ever-evolving enterprise competition, businesses globally are strategising cost-effective, eco-friendly, sustainable and inclusive solutions. The significance of sustainability and climate change have become pivotal in shaping the long-term business prospects of most organisations. Hence, it has become imperative for businesses to embed sustainability in business strategies and investments. 

Sustainability is driving business transformation and ushering new business models, introducing new environmental benchmarks and redefining valuation criteria. Throughout this evolution, corporate decisionmakers play a vital role in facilitating this transition. 
Today, critical action lies in integrating sustainability in the business model and all other aspects of the operating model, from environmental, social and governance (ESG) perspectives. However, what are the primary advantages that sustainability can deliver and what are the specific areas that should corporates work on to revamp their business models and ensure sustainability?

Sustainability as a driver of financial performance

A Harvard University research notes that organisations with sustainability embedded in their business strategy perform better than others. Comparing 90 ‘high sustainability companies’ and 90 ‘low sustainability companies’, the study reveals that the former outperformed the latter on crucial economic indicators. The report revealed significant improved across metrics such as 47 percent increase in stock market performance, 61 percent enhancement in cumulative returns on return on assets (ROA) and 23 percent notable rise on return on equity (ROE). 
Similarly, the Corporate Leaders Group study claims the worldwide average internal rate of return (IRR) of energy efficiency initiatives has risen by 23 percent. Evidently, investing in sustainable solutions, energy efficiency and low-carbon initiatives protects and preserves the natural resources and climate.  

Environmental and financial KPIs are interdependent

Many organisations have highlighted sustainability as an integral component of their brand identity. It is universally acknowledged that the connection between sustainability and reputation is direct, providing improved access to human, financial and natural capital. Clearly, integrating sustainability into business strategies, models and operational approaches can yield multifaceted advantages for organisations. 
For instance, sustainable practices increase profits and lead to better financial leverage. In fact, during COVID-19, organisations with a high focus on sustainability demonstrated increased resilience, leading to a higher stock value. Similarly, a Harvard Business Review 2016 study reported that even during the Great Recession of 2008, the US organisations with commitments to sustainability showed above-average performance (average of US $ 650 million in incremental market capitalisation) compared to those that did not. 

Sustainability drives innovation and collaboration
 
The sustainability challenge compels the stakeholders to embrace different mindsets, presenting new opportunities for organisations to create innovative solutions. This extends beyond enhancing operational efficiency; it includes seeking ways to streamline costs. These efforts have a direct and positive influence on overall profits, net working capital (NWC), productivity and key financial and operational metrics. 
COVID-19 has revealed that crises and fundamental societal shifts facilitate collaboration and business partnerships. In today’s corporate landscape, businesses are intricately linked through a network of interdependencies, all operating within established parameters and driven by a shared mission. This ecosystem cultivates a spirit and culture of collaboration.

Sustainability impacts employees and customers 

Sustainability can significantly impact the workforce, emerging as key factors in talent attraction and retention, employee satisfaction and loyalty and employee motivation and performance. In today’s work, individuals are drawn towards the narrative of ‘something good transcends cash flows’. Just as the customers closely scrutinise a corporate’s brand values, employees too seek out organisations that are committed to sustainable practices. 
Recently, there have been instances of organisations shifting away from prioritising profit. For example, a software corporate and an e-commerce giant faced scrutiny and backlash, from environmentalists, even and their own employees resulting in having to defend contracts with oil and gas industries. As a result, ultimately, one of them was compelled to withdraw from developing custom AI tools for extracting fossil fuels. 

It’s a long road to sustainable goals

Regrettably, the world remains off course to meet the Sustainable Development Goals by 2030, with organisations falling behind in meeting their sustainability targets. Therefore, there is a pressing need to break free from the outdated legacy systems and develop more sustainable models. A forward-looking approach with a fit-for-future vision is vital to navigate towards scalable digital excellence and business resilience.  

The good news is that the corporate world is taking notice. Currently, nearly all major corporations worldwide publish sustainability reports and establish objectives. Over 2,000 companies have adopted science-based carbon reduction targets, while approximately one-third of Europe’s leading public enterprises have committed to achieving net-zero emissions by 2050. 
Today, organisations, especially larger ones, face more stringent regulations concerning climate transparency. Consequently, reporting has emerged as a crucial element of every sustainability strategy, playing a pivotal role in ensuring accurate climate disclosures. Organisations are now mandated to provide detailed information regarding their efforts to reduce emissions and control energy consumption.

It is undoubtedly a watershed moment for corporates. Their role in advancing sustainability presents an opportunity to shape a future that is environmentally conscious, socially equitable and economically robust. They have the potential to serve as catalysts for global transformation. By aligning profit motives with social and environmental impact, the legacy they leave extends beyond financial success – it demonstrates their commitment to a world where business thrives alongside the well-being of our planet and its people. 

(Rajasekar Rajagopal is Assurance Leader, EY Global Delivery Services. The views reflected in this article are the views of the writer and do not necessarily reflect the views of the global EY organisation or its member firms)