Environmental, social, and governance issues, the contemporary term for which is “sustainability”, are now playing a much more prominent role in Corporate America. Consumers are registering their concerns about how companies make their products. Talented millennial employees are voting with their feet by leaving laggard companies behind. Meanwhile, new technologies are making it easier for sustainability investments to pay off in the middle to long term.
The business case for sustainability is broad:
• A strong commitment to sustainability can boost a company’s reputation with customers and employees.
• It can generate political capital with government regulators, who may then grant the company greater freedom of movement.
• It isn’t just about limiting downside risk; a company can also create profitable new products and services to address the urgent needs such as those associated with scarce water supplies and greenhouse gas emissions.
• Finally, some sustainability investments can pay for themselves through reduced energy consumption and waste over the long term.
BlackRock, the largest asset manager in the world, recently said, “Environmental, social, and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects.”
Companies should tailor their sustainability efforts to their commercial priorities. Coca-Cola devotes many resources to creating cleaner water supplies in developing countries. Barrick, a large mining company, works to preserve the local ecosystems where it digs. Since the tragic collapse of the Rana Plaza factory in Bangladesh in 2013, garment retailers such as Walmart have contributed to improving working conditions for workers. Almost all the major car companies are investing in electric vehicles.
Although companies can do these things because it is the “right” thing to do, it really is good business that does pay dividends. Studies of large companies have shown that companies that have strong commitments to sustainability outperform other companies.
For example, a recent study of the world's 500 largest companies found strong sustainability performance correlated highly with premium market valuations, above market growth rates, and below-market costs of capital. A 2017 study by Bank of America supported these results.
How does this apply to a small business in SWFL? One only has to look at local Blue Zones projects to find a prominent example. Blue Zones Project is a community-wide well-being improvement initiative to help make healthy choices easier for everyone in Southwest Florida. Among the local companies participating are Arthrex, Artis Naples, Mel’s Diner, and NCH Healthcare System, to name a few.
As noted above, a key consideration for small companies’ sustainability efforts is to be relevant to a company’s business. For example, companies in the food business might focus on contributions to food banks, builders might support organizations such as Habitat for Humanity, and businesses serving children might support early childhood education.
We think that small businesses have something to learn from their larger business brethren. Businesses of all sizes that invest in sustainability are more likely to be winners in the long run.
About the Author: Seymour Burchman is a Managing Director at Semler Brossy Consulting Group and can be reached at firstname.lastname@example.org. Mr. Burchman is also a volunteer with the Naples Chapter of SCORE that offers free and confidential counseling to small businesses. To register, call 239-430-0081 or visit http://naples.score.org/mentors. A counselor will contact you within 48 hours. Please include your name, email address, and contact phone number.