6 Reasons why sustainability is important in business
13 October 2022
‘Sustainability’ in business is the practice of operating without negatively impacting the environment or society.
A sustainable business considers environment, social and economic aspects, including social equity and economic development. In this article, we discuss 6 reasons why sustainability is important in business, and how it can even bring a competitive advantage.
1. Sustainability is timely and vital
With a growing awareness on the ecological crisis facing our planet, it’s clear that governments, businesses, and individuals are all part of the problem, as well as part of the solution. Businesses that overlook these issues are playing with their own survival, because they rely on nature for production and a stable society for sales.
The human footprint of climate change is undeniable. As individuals, we have cultivated a consumer society where low-cost products sell regardless of the damage done to our planet. In businesses, profitability has always been king; we have created economic systems where the aim of fair distribution has not yet been materialised. Oxfam states that the world's richest 1% have more than twice as much wealth as 6.9 billion people. Sustainability is timely and vital for business creation and development.
2. Changes in customer behaviour
Customer behaviour has evolved with the rise of ethical consumerism, and data shows that large consumer markets are gravitating towards a more sustainable lifestyle. For example, Deloitte's Sustainability Consumer report stated that 85% of consumers in the UK adopted a more sustainable lifestyle in 2021 during the COVID pandemic, and a third of consumers looked to buy from businesses with strong sustainable credentials.
In addition, it’s important to recognise the increase of purchasing power of the largest first and second-living adult generations - Millennials and Generation Z. These generations are considered conscious consumers who are willing to pay a higher price for sustainable products. Therefore, as this market grows, it makes financial sense for businesses to adopt sustainable policies and products.
3. Increase in sustainable initiatives and regulations
Initiatives to promote the long-term safeguarding of our environment and eradicating social problems are also on the rise. In 1992, more than 178 countries adopted Agenda 21 known as the Sustainable Development Goals (SDGs). The SDGs recognise the importance of business success in creating a sustainable future.
At a country level, governments are working towards a sustainable future, by implementing new rules and regulations that directly affect businesses. In April 2019, the United Kingdom introduced new energy and emission rules that required all large companies to report on their annual energy use and greenhouse gas emissions in their annual reports. By 2021, the UK Government set an ambitious climate change target into law, aiming to reduce emissions by 78% by 2035, compared to 1990 levels.
Similarly, disclosure of information through sustainability reporting and sustainable certifications such as Fairtrade, Global GAP and Rainforest Alliance are rising worldwide. These trends reflect the importance of sustainability for businesses as a way to build consumer confidence and improve corporate reputations. It also highlights the need for more green-skill professionals in industry.
4. The rise of sustainable finance
External investment is important for businesses to help them grow and innovate. The rise of sustainable finance means that more investors are taking into account environmental, social, and governance (ESG) factors when making investment decisions. According to the business media brand Edie, the global green finance market has grown from $5.2bn in 2012 to more than $540bn in 2021.
Although sustainable finance still represents a low percentage of total global investment, it is accelerating and enabling sustainable businesses to access capital.
5. Embracing doughnut economics
Capitalism has failed in many areas. The system relies on year-on-year economic growth but has failed to fulfil a promise of fair wealth distribution, while ignoring the impact it's had on the environment.
New economic ideas are being developed where sustainability is at the core. Kate Raworth (2012), a professor at Oxford University, developed the Doughnut Economics Theory, which respects ecological boundaries as it focuses on reducing environmental overconsumption and managing poverty.
Although there’s still a long road ahead to fully embracing this economic model, doughnut economics has been trialed in cities such as Copenhagen, Dunedin, Nanaimo, and Portland. Of course, doughnut economics does require businesses and consumers to adapt. For example, in Amsterdam, some products include additional charges that account for their carbon footprint as part of the toll of farming. So, the move towards a more sustainable economic system will need to be embraced by society for it to succeed.
6. ‘Looking green’ is not enough
There’s a big difference between traditional and sustainable business models. Although they each share the ultimate goal of business survival, traditional business models primarily focus on profit. On the other hand, a sustainable business should focus on making a positive impact on some of the most urgent social and environmental problems. To achieve this, businesses have to embed sustainability into their business model and balance the cost/benefits of their product or service.
Growing consumer groups, like Gen Z, value trust and transparency, and are savvy at spotting greenwashing tactics used by many brands to wrongfully appear sustainable. Being a sustainable business takes time, money and resources. Brands that falsely claim to be green through their PR and marketing campaigns are at risk of losing consumer trust.
For a business to have longevity, it needs the skills to solve, create and innovate under the parameters of a sustainable future.
If you’re interested in learning more about sustainable business innovation, then join our online course in MSc Sustainable Business. You’ll discover, challenge and rethink business practices to help industry reduce and mitigate its environmental, social and economic impacts.