Jonquil Hackenberg, Head of Sustainable Business at Infosys, explains why sustainability is a central strategic aim for successful businesses.
A green revolution has been on the cards for a while now, with governments across the world promising to deliver on sustainability plans and key initiatives. With Europe now setting more ambitious and cost-effective paths to achieve climate neutrality by 2050 and an evident increase of green jobs, climate change is undeniably on the government’s agenda.
However, despite new initiatives being announced nearly each week, such as Boris Johnson’s recent wind power dream, time and time again major warnings have been ignored which has inevitably led to the declaration of a climate emergency.
When it comes to businesses, consumers have played a key role in demanding drastic change. If a business does not align to the personal values and sustainable practices of the consumer, it may lead to the eventual loss of customers. In fact, a good product is no longer enough to win a consumer’s favour: 47% of internet users worldwide are now ditching products and services from brands that go against their personal values.
It’s obvious that businesses now have to adapt to stay on top and keep their customers happy. It’s no longer enough to provide a quick service or a cost-effective product, it needs to be ethical. To do so, businesses need to ensure that sustainability initiatives remain on top of their lists or they risk losing out to other brands who are leading the charge in becoming environmentally conscious.
The growth of sustainable investors
Sustainable financing has become a key focus for businesses trying to become eco-friendly. Most importantly, it ensures investors take environmental, social and governance (ESG) considerations into account when providing businesses with investment.
The first six months of 2020 saw a staggering $20.9 billion flow into sustainable funds, almost the total sum of all funds in 2019. With a wave of growth poised to increase as we end the year, we now know that businesses who choose to operate sustainably will be rewarded in the long term. Those businesses that refuse to adapt and move with the times have the possibility of losing customers and the financial backing of their shareholders.
Statistics show a clear embrace of sustainability and how consumers are more aware of the consequences of their personal habits. Recent research has shown that 45% of individuals avoid the use of plastic whenever possible, 43% expect businesses to be accountable for their environmental impact, and 41% expect retailers to eliminate plastic bags and packaging for perishable items.
It’s now obvious that businesses who choose to ignore or fail to align their practices to these expectations will lose customers. This will only get worse as time goes on as customer attitudes continue to shift. Surprisingly enough, this isn’t a sustainable business model that shareholders want to back. Instead, they will go ahead and take their investment elsewhere.
The rise of ESG investing: don’t ignore the S and G
With the microscope firmly set on the ‘E’ of ESG, some businesses are guilty of narrowing their scope too much. To ensure ESG success, the whole picture must be taken into consideration – a business’s whole extended ecosystem. If businesses want to succeed, they mustn’t forget the (S)ocial and (G)overnance side of ESG, as pressure from customers doesn’t seem to relent in this area.
When it comes to the social aspect, recent events such as the pandemic and the Black Lives Matter (BLM) movement have cast a spotlight on customers wanting businesses to become more ethical, emphasising the need for diversity and inclusion. In particular, during the BLM movement, we saw significant backlash against businesses who opposed the movement, or who customers felt weren’t doing enough. This backlash wasn’t just online but had an impact on the bottom line too.
To ensure that businesses are truly ethical, factors other than diversity and inclusion need to be addressed. Businesses must also strive for ethical sourcing, must tackle the gender pay gap and prioritise other ethical initiatives. They also have to remember to communicate these important considerations with their customers as consumers no longer tolerate greenwashing or veiled attempts at solidarity.
However, unlike with sustainability, encouraging businesses to focus on the social and governance side of ESG proves more demanding due to the lack of metrics available. This makes it difficult for businesses to measure tangible results as real progression can become subjective. Not only this, but if they fail there is no way that they can be held accountable, proving detrimental in the long term.
The key metrics
It’s clear that both objectives and consequences are the key to results. If businesses and organisations are going to make necessary changes, they need targets they can hit and consequences for failing to reach those targets.
When looking at climate change, metrics should include staggered carbon emissions targets. For example, businesses should be challenged to reduce emissions by 50% by 2025. This way, we can ensure that carbon emissions are continuing to fall as we move closer to 2030. However, as per the ESG matrix, there are other concerns outside of environment and businesses must also be ready to set goals for social and governance concerns.
The only way to guarantee that businesses make this a realistic aim is to ensure that metrics run through the very heart of their plan.
Jonquil Hackenberg, Head of Sustainable Business at Infosys, oversees business transformation related to the future of work, workforce and workplace for FTSE and Fortune 500 companies across Europe.
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