ROI (Return On Investment) Of Corporate Sustainability

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At a recent alumni meeting at my college, I overheard someone say “the sole purpose of a company is to generate returns for its shareholders, so why should I invest in sustainability decreasing my profit and thus the return of my shareholders”.

Although sustainable development is primarily related to protecting the environment and environmental concerns in general, it’s also integrally tied to financial sustainability. Equal emphasis is given to profit in triple bottom-line accounting known as People, Planet, and Profit (PPP). Increasing popularity of sustainable development is not a fad that will pass in due course of time; there is a positive return on investment associated with Sustainability.

There are tangible and intangible benefits resulting from corporate sustainability which ultimately result in upward trending financial performance. A few tangible and intangible benefits are listed below.

Regulatory Compliance:

Compliant organization results in less fines and penalties. For instance, a company which treats waste water within its boundaries in accordance with local regulations avoids fines imposed as opposed to company which hasn’t invested in a water treatment plant.

Eco-efficiency:

Create more while using less resources by increasing recyclability and optimizing processes. Because the resources are put to maximum use and wastage is reduced, it translates to improved financial performance.

Competitive edge:

Companies like Dell and Walmart are choosing their supply chain partners based on sustainability performance and companies with improved performance have an edge.

Risk Management:

Companies which have taken stock of their social and environmental risk are better placed in regards to long term sustainability. Thus they have managed their future risk better.

Attracting Private Equity:

Sustainable investments are on the rise and investors want to put their money in firms which have better assessed their ESG performance and would deliver healthy returns.

Enhanced Brand Image:

As consumer awareness is growing, they are increasingly mindful of company’s effects on the environment and are ready to shift loyalties in case of company being detrimental to society’s larger interests. The Ernst & Young Report on corporate sustainability trends shows enquiries from investors and shareholders are on the rise.

Employee retention:

Employees want to work for ethical companies which take efforts in reducing their footprint and engage in sustainable practices.

The research conducted on financial returns of Corporates investing in Sustainable practices also suggests the same. A Harvard Business Review Blog analyses investment returns of resource efficient companies against other companies. Companies investing in Sustainability, energy efficiency and innovation have posted significantly better numbers.