When making commitments to reducing their carbon footprints, reducing waste, recycling more, and pursuing other environmentally-friendly initiatives, companies must consider the financial implications for the business. Good news: many analyses show that these efforts, even ones that require a cash outlay, typically save money over time by reducing costs going forward (see our article on Sustainability’s ROI).
As we have noted previously, a recent study by E&Y not only confirms this good news, the study somewhat counterintuitively finds that “bigger is better.” We say “counterintuitive” because it may seem more manageable and less expensive to take small steps to address environmental concerns, particularly for companies that are just embarking on this type of program. However, the EY study shows that businesses that take fewer actions struggle more to implement them than those that take bigger steps.
Here’s even more good news that is often overlooked: economies and individual companies that embrace policies and practices to support the environment (and note that is not restricted to reducing CO2 emissions) often find that not only do those initiatives provide financial benefits, they also generate value under the “S” and “G” pillars of ESG.
Environmental sustainability and the “S” pillar
Consumers, especially younger generations, are becoming increasingly aware of environmental issues in supply chains—they want to know the source of the food on the grocery store shelves, they read labels, and they reward companies that pursue sustainable agricultural practices. Food Business News reports that over two-thirds of Gen Z respondents surveyed by Morning Consult, a Washington-based global intelligence company, said sustainability has at least some impact on their food and beverage choices, including 32 percent who said it has a major impact.
There is a relationship between climate change, extreme weather, how food gets to the table, and what it costs to get it there. For example, in the United States a significant portion of Florida’s citrus crop was damaged or destroyed by Hurricane Ian, and corn production has been significantly impacted by drought in the Midwest. Gen Z-ers may be more aware of this connection between climate change and food availability than older generations.
As individuals, consumers cannot affect weather patterns but they (we) believe our collective actions can have a positive impact on climate change and improve sustainability overall. Morning Consult found Gen Z consumers are more likely than older generations to engage in environmentally-friendly practices such as composting, recycling, and purchasing “imperfect” produce to reduce waste, and these are habits are likely to “stick” as Gen Z-ers get older and become an even more influential consumer group.
Young consumers are not just modifying their own behaviors to help make the world more sustainable, they want to know what companies are doing in this arena. Morning Consult says that more than half of the Gen Z-ers they surveyed stated they take time to research products and learn about companies’ sustainability initiatives. They want the businesses they support through their buying power to reduce water and food waste, commit to being emissions-free, and use sustainable or regenerative farming practices.
Of course, it almost goes without saying that they want companies to use recyclable packaging, but they want more than packaging. Morning Consult says that fair trade labels are becoming more important. “Younger shoppers increasingly view sustainability as an all-encompassing topic that includes social and economic factors in addition to environmental concerns.”
Not just consumer-facing businesses
While E, S, and G are clearly not siloed issues for consumers, this applies to other sectors of the economy where consumers have less of a direct impact. A not-so-obvious example is the energy sector, which unfortunately has been politicized in the U.S. Consider the (mis-named?) Inflation Reduction Act that was signed in 2022 and has been termed the most consequential climate bill in U.S. history. The bill provides $369 billion in incentives (largely tax breaks) for clean energy, electric vehicles, facilities that manufacture batteries and solar panels, and pollution-reduction efforts.
Not only will this benefit the environment—and in saying that, let’s not brush past both the economic and humanitarian imperatives to get serious about the fight against climate change—the incentives in the bill are predicted to add as many as 912,000 jobs per year in the clean energy sector in the U.S. over the next decade. In other words, helping the environment will also be good for the livelihoods of those who live in communities that will help to produce clean energy.
This job creation will support a just transition to a clean energy future, as we explained in a previous posting. The world should not push to decarbonize (“E”) without considering the impact on people’s livelihoods (“S”). Getting back to the “good news” theme – we can have both clean energy and good jobs. New research from the Washington Center for Equitable Growth shows that as employment in the fossil fuel industry declines over time, expanding the renewable energy sector in the U.S. will actually benefit U.S. workers, especially those who live in areas where fossil-fuel extraction industries are particularly important in terms of employment.
The research shows that, in terms of occupational classification, green jobs are more similar to fossil-fuel jobs than to all other jobs in the U.S. labor market—and green jobs tend to be in occupations that pay more. This suggests that as the renewable energy sector grows, it will offer high-paying job opportunities, especially for low-skilled workers, in states that have historically depended on the fossil fuel industry for jobs. Here again, E and S are not in separate silos — supporting the E pillar can support the S pillar of ESG.
Supporting sustainability indicates good governance
Good corporate governance and sustainability also go hand-in-hand. Corporate policies that support sustainable values—both environmentally and socially-minded—help companies to establish a workforce and workplace culture that encourages employee engagement. This requires more than just composing a good mission statement. If management is not willing to take concrete steps to reduce the company’s environmental impact in industry-appropriate ways, and embrace gender equality in both management and the overall workforce, what message does that send to employees and shareholders?
To support good environmental practices and treat its employees well, a business needs strong governance. Otherwise, managers and supervisors can “go rogue” and undermine the culture and image a company wants to cultivate (those “Best Places to Work” rankings do matter). Good governance on environmental and human capital management issues signals good governance overall, and good governance protects a business against the reputational damage that a lack of governance invites.
E, S, and G form a virtuous circle
The interconnections between E, S, and G affect a company’s long-term growth and profitability (that’s what “sustainable” means). Companies that participated in the EY study mentioned above reported that, “robust environmental sustainability programs helped them to recruit and retain employees, create positive brand perception and reinforce purchasing behaviors” among clients and customers. In EY’s words, it turns out that what’s good for the planet is also good for business. Companies that are committed to supporting both the environment and their employees and recognize that good governance is needed to reinforce that perspective understand the economic benefits of doing so, creating a virtuous circle of E, S, and G practices.
Investors and corporations rely on OWL’s data to analyze the interconnections across hundreds of metrics that reveal a company’s actions (or lack thereof) related to E, S, and G. Contact us to learn how your ESG analyses can go beyond silos to achieve an integrated view of sustainability.