Sustainability based savings
Sustainability has climbed to the top of the agenda for many in the finance world – as awareness of the world’s environmental, social and governance challenges has been transformed.
As attitudes among the public and policymakers continue to shift, the finance sector has responded, with sustainable finance now a hot topic for investors and businesses around the world.
As sustainability-based finance becomes increasingly sophisticated, with new frameworks, initiatives and financial products emerging – the financial benefits cannot be ignored.
Improving risk management
Global supply chains are vulnerable to events out of their control, including natural disasters. Climate change and reduced access to water in many parts of the world are factors that increase risk.
To counter these threats, many of the world’s biggest companies have invested billions of dollars to safeguard their supply chains.
In 2018, chocolate maker Mars, one of the world’s largest buyers of cocoa, launched a plan to overhaul its cocoa supply chain.
The plan – called Cocoa for Generations – places the interests of the smallholder farmer at the core, aims to safeguard forests, and creates a pathway for cocoa-growing communities to thrive.
The company pledged a $1 billion investment over 10 years to 2027.
‘For 40 years we’ve been working to achieve sustainable cocoa production,’ says John Ament, Global Vice President – Cocoa, Mars Wrigley. ‘While we’ve made progress, including reaching 180,000 farmers with sustainability certification, we are impatient with our pace of progress and of the cocoa sector overall.‘
Improving financial performance
Evidence continues to show that sustainable companies deliver significant positive financial performance.
Significant cost reductions can result from improving operational efficiency through better management of natural resources like water and energy, as well as minimising waste.
A focus on sustainability can unlock opportunities for process and logistics savings.
US retailer Wal-Mart launched a sustainability initiative in 2005, to double its fleet’s efficiency by the end of 2015.
Specialised driver training and collaboration with truck manufacturers helped the company achieve its goal, while producing annual savings of $1 billion, while reducing CO2 emissions by 650,000 metric tons.
Doug McMillon, Wal-Mart Stores president and CEO, says: ‘By doing the right thing, a business is setting itself up for a solid and successful future. And by focusing not just on price – but on “cost” as well – a business is tackling social and environmental sustainability at the root.’
Building customer loyalty
Consumers perceive high levels of product performance in products from sustainable companies, while sustainability information has a positive impact on the way consumers view a company.
Several studies show that overall sales revenue can increase up to 20% due to corporate responsibility practices.
At the same time, companies can charge higher price premiums based on positive corporate responsibility performance.
The IKEA Sustainability Report published last year, confirmed 2019 was the first year in which the climate footprint of the company decreased – while the company also enjoyed business growth.
These results were driven by an increase of renewable energy in the production of IKEA products, plus significant increases in the energy efficiency of its lighting and appliances.
Lena Pripp-Kovac, Chief Sustainability Officer at Inter IKEA Group, says: ‘FY19 marks an important milestone as this is the first year where we continued to grow – but our climate footprint decreased.
‘With 6.5% growth in sales, we managed to decrease our climate footprint by 4.3% in absolute terms.‘
Alex Miller, journalist
This article was first published in Student Accountant in March 2020