The term "sustainability" carries a great number of definitions in several industries. However, no matter the field, the core idea of the word means the same thing to everyone: to continue, to carry on, to keep going, etc. In this post, I'm focusing on the concept of sustainable business practices. Believe it or not, such a process does exist, as I've learned from the pages of Gregory Balestrero and Nathalie Udo's Organizational Survival: Profitable Strategies for a Sustainable Future.
To the environmentalists, and many others, the idea of organizational survival through sustainable practices seems like an A+ method of going about business, leading to a prolonged existence in your field as well as an added bonus of staying alive on the planet a bit longer. However, many on the financial side have spoken against the practice, stating reasons such as the cost and their question of its importance (due to it not being a requirement). But where there's a mass, there's at least one willing to go against the grain. Therefore, I decided to ask financial advisor Rebecca True about her take on the idea of sustainability, after reading her thoughts in Chapter 8 of Organizational Survival, "Does Corporate Sustainability Create Measurable Value?"
Kyle Dowling: How would you define "sustainability"?
Rebecca True: It's the ability to endure over the long run. Throughout my work with authors Gregory Balestrero and Nathalie Udo on Organizational Survival, I focused on the economic and financial factors of a sustainable strategy, including the considerations that organizations should take to benefit their ability to endure in the marketplace for a long time, such as profitability. Profitability is the essential question businesses must successfully address, and being able to operate with a sustainable endurance strategy over the long run is a big part of the profitability equation.
KD: From a financial standpoint, what has been the argument against the practice?
RT: It's been largely based on whether it's possible for the return on sustainability investments to exceed the potential expenses and lengthy timeline involved for implementing these types of initiatives. Some people may argue that there are more upfront expenses associated with implementing sustainability, additional costs associated with stringent manufacturing and purchasing requirements, and more expenses with providing more generous employee benefits.
Implementing sustainability can be an arduous procedure. Companies may find they have to pass up potentially lucrative business opportunities that don't meet their strict social, environmental or ethical guidelines. Sustainability is an evolutionary process; it's not overnight.
When I was asked to collaborate on this book, I hadn't given much consideration to whether companies that invested in sustainability were more profitable than others that weren't so focused on it. I had a lot of reservations about whether the impact could be measured in tangible ways that translated to increased revenues and positively impacted investor returns. I would say my skepticism is probably similar to the feeling many within the financial industry have felt about this topic.
KD: Has it at all become a more attractive and acceptable idea within your industry?
RT: I'm seeing a gradual shift of perception not only among members of the investment community, but also among investors. The investment world is coming to the conclusion that sustainable business practices are more attractive. If they weren't already coming to that conclusion based on supporting evidence on the positive financial impacts of sustainability, then certainly the demands of wealthy investors have helped solidify that it's a more attractive proposition.
KD: You mention that sustainability leads to financial success over the long run. Approximately, how long until organizations begin to see results from practicing sustainability?
RT: "Over the long run" can mean different time periods to different organizations, and depending on the scale and magnitude of the sustainability initiative being undertaken. Publicly traded companies report their financial data on a quarterly basis which is extremely short-term, so any financial results that are less than a year or two is usually considered short-term. I consider long-term as three or more years at a minimum, but many organizations may consider long-term as 10 or more years. Most of the large organizations and analyses we studied and referenced in the book considered long-term as 10 years or more.
It's important that organizations understand it's not necessarily an overnight implementation; results aren't overnight either. They would be wise to appreciate that sustainability is about improving the long-term endurance of companies and communities. Endurance by its nature is a long-term proposition.
KD: Can you explain your theories that suggest sustainability has a positive impact on corporate financial performance?
RT: There are four primary ways:
- Properly managing stakeholders
Companies that successfully manage the collective expectations of their customers, investors, management, employees, suppliers and communities typically enjoy fewer disruptions in their supply chain and stronger customer loyalty.
- Providing reputable benefits for companies
Reputation enhancement can improve supplier and customer relationships, leading to increased profitability. Fair labor practices, along with health and safety standards, can reduce a company's exposure to potential litigation and risk.
- Enhancing operational efficiency
Improving operational efficiency leads to innovation and competitive advantages which also contributes to positive financial performance.
- Emphasizing long-term perspectives on business objectives
Businesses that focus on long-term business plans tend to outperform those that do not because prioritizing long-term corporate objectives over short-term ones is proven to contribute to more stable earnings growth and less downside risk during tougher economic environments.
KD: Historically, there have often been arguments between finance and ethics (in some companies). Do you feel good ethics can improve an organization's bottom line?
RT: Absolutely. Ethics is one of the most critical elements of long-term sustainability for organizations. Reliable corporate ethics can make a big difference not only with non-financial aspects of sustainability, but also in terms of financial governance, reporting, auditing, and accountability. Good ethics and quality management are synonymous and can drive shareholder value.
KD: Can sustainability lead to an increased ROI? How?
RT: Definitely. Sustainability initiatives lead to a more engaged workforce, better and more efficient operations, a more loyal and satisfied customer base, better relationships with stakeholders, greater transparency, a more collaborative community, and a better ability to innovate which can all be contributing factors to superior financial performance over the long term.
KD: Financially, do the benefits of practicing sustainability outweigh the risks?
RT: I would say so. Sustainability leaders work to integrate social, environmental, ethical governance into their business strategy. From a financial standpoint and otherwise, they tend to be leaders in their industries. They are better managed and are more forward-thinking. They are focused on the long term and are better at anticipating and mitigating risks. When business leaders adopt strict metrics to evaluate and scrutinize different aspects of sustainability processes, management has a better grasp on the overall details of the company.
KD: What advice do you have for companies that want to practice sustainability?
RT: Get informed. Read Organizational Survival. The book offers business leaders an in-depth road map for planning a viable sustainability strategy for every type of organization. Then, understand that this is a long-term business strategy that will pay off if you are committed to taking a few steps forward at a time. Set appropriate expectations for monitoring the return on investment of any sustainability initiatives that you implement, and track your progress so that your initiatives remain a long-term priority.
KD: Have you received any flak from others in your industry for your stance?
RT: Since this book has just recently been published, I'm looking forward to engaging in more dialogue with my peers and others on sustainability. I hope that my colleagues in the financial industry and other business leaders will take a serious look at the work that we've done in this area and arrive at informed conclusions of their own.
Sustainability is here to stay. I'm confident that pursuing sustainability within organizations creates measurable value over the long term. Superior value creation and risk mitigation is a competitive advantage for organizations and both are very important contributors of enhanced profitability.
Rebecca True is the founder and president of True Capital Advisors where she advises families, business owners, and executives on portfolio and asset management, personal or business credit, retirement and estate planning, and protection from unnecessary taxes. With more than 15 years consulting and financial services experience, she is a certified financial manager (CFM) with a degree in economics from the University of South Florida.
For more by Kyle Dowling, visit his site.