Article based on a Forrester study and Devoteam thinking.
On 14 July 2021 the European Union (EU) launched the European Green Deal: policies which will help reduce net greenhouse gas emissions by at least 55% by 2030 across its 27 member countries . Through these measures each Member States committed to participate in the effort and reduce their emissions by 2030. But the European member states are not the only ones adapting and investing to reduce their carbon footprint according to the World Business Council on Sustainable Development (WBCSD) “200 of the world’s largest corporations commit to net zero emissions by 2050”*
There’s no doubt that climate change and global warming have become a universal concern. Everyone from worldwide organizations to private and public companies, and from governments to citizens are aware of the climate emergency and the urgent need to start taking big steps to reduce their carbon footprint.
According to the United Nations General Assembly there are still 16 other Sustainable Development Goals to address. In that case, why do companies not invest massively to reach those?
One plausible reason could be that they struggle to choose where to focus their energy and investment, because they don’t always recognise the return on investment (ROI) behind their sustainability choices and actions: “the corporate world often wrestles with the cost balance of investment in sustainability versus the actual returns that make sound business sense.”, 2021 “Assess Your Own Sustainability ROI” Forrester study.
Meet legal demands (local, regional & international)
Today regional organizations are implementing measures to standardise and integrate the varying sustainability and environmental regulations from across the world. With the new European Green Deal, all member states have to follow disruptive environmental directives. The Renewable Energy Directive requires that by 2030 40% of their energy production comes from renewable sources. Globalization won’t be of any help to countries reluctant to obey the European law as the EU has already put a carbon price on imports to compel disinclined countries to come round. As a result, the whole market is affected, and both public and private companies are faced with the choice of taking concrete action to reduce their carbon footprint – which can require a fast turnaround – or risk paying the price. A decision that becomes all the more pressing when you consider how many stakeholders, from clients to suppliers, will evaluate their future business behaviour against these new rules to only support compliant companies.
Relocate costs, save money
When companies try to find ways to reduce their impact they start questioning their consumptions, processes and naturally implement optimization and rationalization strategies. In that way sustainability is strongly linked to cost optimizations, and thus money saving. When it comes to Green IT, which consists of approaches to reduce the global CO2 footprint of IT of a company, specialists sometimes need to apply a FinOps approach. Indeed, to reduce the footprint, first they need to identify the impact on each scope (1,2,3) but some may be blurry, as for data centers footprint for instance. As hyperscalers don’t provide companies with a clear vision of their data centers’ impact on scope 3 the only other way to get the information is to calculate it with a Finops approach. Because of the link that exists between cost and consumption. The more we consume the more we pay for what we consume. Based on this approach, the IT department will try to find out where they pay the most to identify where they consume the most and thus have the biggest CO2 impact. By cutting or reducing this expenditure item they will also reduce their CO2 footprint (not always proportionally but still).
Meet stakeholders’ demands & new needs
More and more organizations are starting to realize the wider impact of not acting more sustainability. One company even estimated that if it hadn’t acted proactively in implementing sustainability initiatives, it could have lost 10% of customers that demand sustainability data in their renewal contracts.” (“Assess Your Own Sustainability ROI,” Forrester research). Similarly, all stakeholders are increasingly conscious of the impact of their consumption choices on both society and the environment.
Let’s discover UNILEVER experience on the matter:
- In 2009, the CEO of Unilever, Paul Polman, decided to halve the company’s environmental footprint by 2020, while doubling its turnover. To achieve this Unilever developed the Unilever Sustainable Living Plan (USLP) in 2010 and set new corporate sustainability program standards.
- “The company committed to helping more than a billion people to take action to improve their health and well-being and to resource all agricultural raw materials sustainably by 2020.” — Benoit Leleux & Jan Van Der Kaaij, Winning Sustainable Strategies
- The results are impressive. According to Unilever, its sustainable living brands not only deliver more than 60% of Unilever’s growth but also grow 50% faster than the rest of the business. Critically, reducing risks and costs through the USLP has helped Unilever avoid over €1 billion costs and, in the process, deliver a total shareholder return of over 230%.
What this demonstrates is the pressing need for companies to rethink their product and adapt their business model to clients and shareholders’ new desires, over the coming years, with the world’s limited resources and the concept of circularity in mind.
Be attractive to your employees and new candidates
In addition to meeting new desires from clients and stakeholders, companies also need to take candidates and employees’ desires into consideration. They need to understand what their candidates are looking for to better attract them, but also what their current employees need to be fulfilled in their work environment to retain them. These desires are really different from one generation to another but various studies show the growing importance of “purpose” and sustainability in the population. It seriously concerns the millennials whom two in three would be ready to quit their job if they don’t find a purpose (beyond profit) in their position (The 2016 Deloitte Millennials study), but it’s a broader tendency when it comes to value. If people from the other generation would not quit their jobs “for sustainability” they are more and more aware and attentive to companies’ plans for sustainability. Think about the millennial’s parents, they are being educated by their children every day on Sustainability. Their children are being taught how to recycle waste at school and then they show their parents, making them feel guilty if they do not put the plastic bottle in the right bin!
Let sustainability initiatives fuel innovation
“The whole history of humanity shows that it is when it is confronted with considerable constraints that it achieves the appropriate changes, in particular technological and cultural,” wrote Jacques Attali, a famous French economist, for the “Investir, Les Echos” newspaper. Sustainability standards, achieved through social, environmental and economic constraints, force people and companies to innovate and create value. The Forrester research “Factors driving the ROI of sustainability” gives us concrete examples on the tech side: “From the use of automation and machine learning, which limits human intervention on the factory floor, to recapturing heat in a data centre, sustainability and decarbonization initiatives can lead to innovative internal R&D. Efforts to meet sustainability goals have resulted in breakthroughs in optimising cooling systems, power, water usage, and networks”. But constraints are only the starter buttons; companies need the right engine to fully support their change of direction. And this powerful tool is technology. As we’ve touched upon already, a growing number of start-ups have already developed tech solutions to reach their Sustainable Development Goals (Edtech, Healthtech, Cleantech).
Each year the Earth Overshoot Day (EOD) the date marking when humanity’s resource consumption for the year overtakes Earth’s ability to regenerate those resources – comes round earlier. And, with this date falling on 29 July this year, this means that for the last five months of 2021 we’ll be going even further into the red. As global resources keep decreasing, the stark dilemma facing all our planet’s stakeholders is adapt or die. At an individual level it means we must all change and streamline our consumption. But to achieve the UN’s universal Sustainable Development Goals and, ultimately, survive, the market must evolve towards a more sustainable economy. If the current trend continues, the only companies which will survive and thrive are those who have rethought their products, adapted their business model and introduced more circular economy practices to respect the planet’s limited resources. In other words sustainability is the only path towards economic resilience.
Investing in sustainable development brings several benefits. These cover short, mid and long term benefits that impact a company’s reputation, business and chances of survival.
But thriving in a world with limited resources requires a profound change, a transformation.
Devoteam overview of short- and long term advantages:
How can companies bring about such a change without destroying their business? Digitization and technology can certainly help them become more agile, more adaptable and evolve towards a more responsible business model.
If you want to know more about the opportunities technology offers towards a sustainability transformation, keep posted, a series of articles is coming for you!