Can sustainability be a competitive advantage?
Sustainability has often been seen as a nice-to-have. An investment that can be deferred until next year if times are tough and budgets get slashed. But the world is changing, buffeted by shocks from all angles. We’re on the edge of a radical transformation. ‘Business’ must change and the businesses that become sustainable and grab the opportunities this transformation presents will be the leaders of the future. Right now, sustainability can be a competitive advantage. In future, it will be the status quo.
Five reasons why sustainability can be a competitive advantage
Here are five reasons why sustainability can be a competitive advantage:
Cushion the business from cost increases
Supply chain resilience
Attracting, retaining and motivating great people
Changing procurement policies
New ways to deliver value
1. Cushion the business form cost increases
Costs of energy and raw materials are going up and will continue to rise, especially if the true cost becomes baked in (e.g. through carbon pricing). The cost of waste disposal will increase too.
We’ve been following a linear model of take-make-consume-waste. We’re using the earth’s resources at a faster rate than they are being replaced. We’re disposing of waste and creating emissions and pollutants faster than the earth can deal with them.
Sustainability is about moving from this linear model of consumption to one which is circular, where materials and ‘waste’ are reused, and toxic emissions eliminated.
Businesses that have reduced their energy usage are reaping the benefits now. Those that are generating their own electricity are cushioned from price rises.
Businesses that have cut waste and are moving towards circularity are ahead of the game.
2. Supply chain resilience
Supply chain issues are high on the agenda for many businesses right now. Solutions can often be found within the sustainability space.
California produces a third of America’s vegetables and two thirds of its fruits and nuts. Prolonged drought means thousands of acres of agricultural land are currently lying idle. Current forecasts suggest that droughts will affect three quarters of the world population by 2050. Farmers who have developed farming methods that use less water and recycle water could have a huge competitive advantage over those who haven’t.
The last couple of years have seen shortages of glass and cardboard. As supply chain teams scramble to find alternatives and businesses work out how to absorb skyrocketing costs, any businesses that have already reduced their demand for cardboard (e.g. through packaging redesign and elimination) or glass (e.g. through developing return and refill options) are in an enviable position.
3. Attracting, retaining and motivating great people
44% of millennials and 49% of Gen Zs say they’ve made choices about what they do and who they work for based on their personal ethics (Deloitte Millennial and Gen Z survey).
Your success depends on attracting and retaining the best people.
People are increasingly choosing employers that are delivering a clear sustainability plan – actions, not just targets. The boldest businesses will attract the best people.
What would you say if someone asked you about this during the interview process? Would they pick you?
4. Changing procurement policies
As your customers increase their sustainability ambitions, they'll demand you do the same. With large corporates and the public sector looking ever deeper into their supply chains we’re going to see a trickle-down effect which affects the procurement approach within all businesses.
The NHS is a great example. They’ve published a ‘net zero supplier roadmap’. From April 2027, every business working with them (regardless of size) will have to publish a carbon reduction plan that considers all their direct and indirect emissions. From 2030, they’ll have to show that they’re making progress in reducing these emissions.
The NHS is huge – anyone who supplies anyone who supplies anyone (etc) who works with the NHS will be touched by this.
If we add in procurement by the rest of the public sector and large corporates (many of whom are taking a similar approach) then it’s hard to imagine any UK business that won’t be affected. If you’re ahead of your competitors in becoming sustainable then you could capture market share.
5. New ways to deliver value
‘Sustainability’ presents new ways to deliver value to your customers and consumers. If you can sense and respond to changing consumer and customer needs, you can get ahead of the market in developing new products, services and business models.
For example, gas engineers who train in heat pump installation or food brands who develop plant-based alternatives to popular products can capitalise on their existing reputation whilst supplying new products and services to their existing customers. And, if they get there before their competitors, then they will attract new customers as well.
Some examples
A McKinsey study of 615 large- and mid-cap US publicly listed companies from 2001–15, concluded that those which take a long term view (which is essentially what sustainability is) outperformed the rest in earnings (+36%), revenue (+47%), market capitalisation and return to shareholders and job creation.
The poster child is Patagonia which has shown that a company can grow into a global $1bn revenue company in an inclusive and purposeful way.
Interface is another large, commercially successful businesses which has long had sustainability baked into what it does and how it does it.
For both Interface and Patagonia, sustainability and responsible business practices are seen as authentically part of their brand identity. This has created loyal customers and consistent growth.
Unilever has also shown that focusing on purpose and sustainability makes financial sense. “In 2018, Unilever’s Sustainable Living Brands grew 69% faster than the rest of the business, compared to 46% in 2017” (source).
Make sustainability your competitive advantage
Sustainability can be a competitive advantage. So how do you achieve that?
Move from talking about sustainability to acting on it – and doing so in an ambitious, collaborative way.
Integrate sustainability into your strategy. Shift it from being seen as a peripheral compliance function to being a core part of who you are, what you do and how you do it.
Understand and measure your current impact on people and the planet across your whole value chain. Then you can set targets and plans for improvement.
Every time you make a decision, ask what the impact will be on people and the planet.
Identify your key assets and capabilities – and ask yourself how those can be most relevant and useful in a sustainable world. What new opportunities are there?
All of those are articles in themselves but hopefully that gives you some starting points!
For more practical advice on how to get clarity on what steps to take to scale up your impact, check out my FREE Scale Up Your Impact Guide: