Green and profitability: are they mutually exclusive?

Chris Jones, Principal, Industrial and Transportation, says companies should treat sustainability as a business opportunity rather than approaching it as another hurdle to overcome.

With COP26 disappearing into the rear-view mirror and other distractions such as the war in Ukraine and the cost -of -living crisis, people might be forgiven for letting the issue of climate change drift from their consciousness. However, the emergence of unprecedented summer temperatures and hose pipe bans should bring it clearly back into focus.

Of course, it should never be too far away from the top of corporate agendas as we all now appreciate that this problem is not going away, no matter what other issues grab the headlines.  If we don’t mend our ways, these unprecedented events will become more commonplace.

So how do businesses make ‘being green’ part of their culture whilst still being competitive, profitable, and relevant to customers? Indeed, for many businesses, especially those involved in manufacturing or construction, the challenge is firstly, can they even be green?

Many appear trapped in a profit/consumer cycle. Growing acceptance of the problem by governments has meant increased regulation . Furthermore, we as consumers are becoming more aware and demanding that our purchases are sustainable. Negative PR because of poor environmental credentials can derail the best laid plans, although of course the opposite is true.

Businesses therefore need to show they care and develop a sophistication in their messaging as the market for sustainability grows. This new interest in sustainability provides an opportunity for high growth. If possible, businesses should be quick to market but keep quality in mind and tie sustainability to premiumisation. The growing affluence of the middle classes worldwide provide a market for this.

Product testing and innovation should be the target for investment but as markets advance and the landscape becomes more cluttered, consumers will seek out specific sustainability products that suit them. Businesses must therefore understand which consumers are driving this demand and learn to customise messages directly aimed at them.

The businesses that will survive and thrive will therefore be the ones that treat sustainability as a business opportunity and not another hurdle to overcome. They will appreciate that positive action has equal business benefits. Green investment should not be seen as a solution but as an end. This requires business to develop systems which internalise environmental costs from the life cycle of a product or service. The holy grail is to reach a point where they are making the world better by making money.

Of course, businesses are at different stages of this journey currently and it is not an easy or quick process to perfect. Many are accused of being hypocritical, for example oil companies who continue to pollute whilst investing in green technologies or become involved in greenwashing or buying offsets to mask their bad environmental credentials. They may do better to invest in changing consumer behaviour and lifestyles.

What is certain is that there needs to be a collective effort on behalf of businesses. The ‘go it alone’ approach, whilst admirable, is likely to have limited effects.

Investors need to pressure business into more rapid change by insisting on environmental and CSR criteria that companies will be judged on, and credit rating agencies should take more account of environmental risks.

We as consumers need to self-regulate more in terms of not only the choices we make when buying physical products but also our mortgages and financial investments, by selecting those that have invested funds in environmentally friendly companies. This combination of government and self-regulation plus businesses seeing ‘going green’ as an opportunity rather than a challenge is the only way businesses can more rapidly address the environmental challenges, we all face.

For many businesses this will require significant change in how they operate and investment in the right talent to make this happen. This needs to be done sooner rather than later. The Covid pandemic showed how rapidly businesses can change when forced, the challenge of climate change should be taken just as seriously.

A company’s ability to attract and retain the scarce talent available should be on any CEO’s agenda and flexibility in terms of engaging that talent is paramount.