It can be challenging to make the case for why companies should invest time, money and potentially even change their business models to orientate towards sustainability goals. In this article we are going to share our five top reasons why companies need to address sustainability – beyond the noble imperative – and how these will affect the bottom line.

There are five areas that all businesses should consider when determining how sustainability will affect their bottom line and ability to operate – customers, regulations, physical risk, employees and stakeholders.

Customers care about sustainability and are changing their behaviour accordingly

A recent study by BCG in the UK showed that 76% of consumers are trying to play their part and they expect brands to do the same. 30% of consumers are compelled to action, either switching brands or advocating (positively or negatively) as a result. Millennials and Gen Z are particularly active here.

Businesses that do not recognise this customer change risk losing customers, are likely to see sales dip accordingly, and may ultimately lose their social license to operate – e.g. the recent backlash on H&M’s greenwashing.

This also applies to B2B customers with giants like Walmart, Meta and Amazon all turning their attention to their supply chains and beginning to mandate sustainability action for anyone who wants to keep them as a customer.

Businesses that do take sustainability action in an authentic way are winning new customers and reaching new markets. A recent Oxford economics study estimate values the green economy at $10.3tn globally in 2020 prices by 2050.

Regulators, including governments, are mandating sustainability through laws and incentives.

Over 90 countries have set net-zero emissions targets, committing to help prevent the most harmful impacts from climate change. The UK Government, for example, has committed to net zero by 2050, a 78% reduction in emissions by 2035 and is using 100s of regulations to enforce this rule. Globally, the US has the Inflation Reduction Act, China is aiming for net zero by 2060 and the EU is leading the world on overall sustainability regulation enforcement with CSRD and CSDDD being refined currently.

Specific industry regulators are also stepping up their rules, especially for high polluting industries. For example the International Maritime Organisation has mandated a 20-30% reduction in emissions for all vessels under their remit. Regulated and non-regulated industries should check with their governing or unification bodies for rules, guideline and incentives available for their industry.

Regulations of either type typically include reporting and action upon sustainability characteristics and will require time and investment to meet. Not meeting these may result in fines or even loss of licence to operate.

Physical risk from sustainability risk is damaging operations

Sustainability instability can lead to physical danger for your business and operations, for example with increased flooding interrupting delivery of materials or increased absence from work due to inaccessible workplaces causing safety inadequacies.

To keep a smooth flow of operations in the long & short-term companies therefore need to contribute to decreasing the impact of such operations. Carbon emissions have contributed to 2023 being the Northern Hemisphere’s hottest on record with extreme floods in Libya & Hong Kong, wildfire smoke reaching thousands of miles across America, sea warming at a record level and record ice shrinkage – all of which have caused physical disruptions for companies and must be addressed as a collective to avoid a future where these get worse and cause increasing instability.

If the physical impacts do not reach operations directly, they can also increase costs – for example, to redirect supply chains after events such as grain chains after the Ukraine invasion began, or whilst customers readjust their spending patterns after having to rebuild houses after a hurricane.

Employees are increasingly motivated by an employers’ sustainability policies 

A recent McKinsey study found that 72% of employees valued purpose before profits and found that there was a significant productivity rise for companies whose values were aligned with their employees – companies that are aligned with their employees values therefore often see a increase in output compare to those who are not.

Oil and gas firms for instance are experiencing significant challenges with recruitment both from the point of view of a reduction in their application and acceptance numbers, as well as obstacles in finding the new skills they need for the energy transition. Both of these challenges significantly impairing their operations and productivity.

Stakeholders care as they see more risk and experience their own sustainability pressure

Many other types of stakeholders in businesses are concerned about sustainability challenges or experiencing their own pressure that they are passing onto their customers. Banks, for example, are being forced to build climate risk into their considerations which will affect finance and investment criteria. Access to finance therefore may begin to require climate data, and could be harder to access/more expensive if climate goals are not met.

Insurers are also building in climate risk elements, raising premiums as operations become more risky and, in extreme circumstances, such as in some areas of California with regards to fires, refusing to provide insurance at all.

All of these areas can be mitigated by a strong sustainability position for your business. By assessing, making a plan to address, and getting ahead of the competition on relevant elements of sustainability for your business, you can turn many of these challenges into advantages.