What Factors Are Accelerating the Rise of the Sustainable Business?

The business world is always changing, and the most successful companies are those that foresee, understand and get out ahead of these changes to retain or expand their competitive edge.

The decade ahead could see a reprise of last century’s “Roaring 20s,” with all its rapid economic growth, inflation and employment gains as the world climbs out from the lingering effects of the COVID-19 pandemic. As the economy heats up, businesses will be looking for ways to take advantage of the growth while mitigating risk and downside. One promising approach is to increase efforts around environment, social and governance (ESG) strategies. Refocusing will help them deal with the trends that are changing global markets.

Government Regulations and Policies

Governments’ environmental policy varies from country to country. This is due in part to the varied priorities and strategies for addressing climate change, varied stages of economic development and even administration changes within governments. Some countries are considering a carbon tax or a cap-and-trade strategy to allow market forces determine emission quantity and/or carbon pricing, while others are passing strict legislation regarding renewable energy development, zero-emission vehicles credits and R&D spending.

China is the world’s number one investor in renewable energy technology with the EU following a close second. In the United States, the Biden administration has indicated that legislation addressing renewable energy, green infrastructure and electric vehicles is imminent.

ESG-Aware Investing

The idea of investing – or not investing – in companies based on their ESG policies started back in the 1970s as social inequities and environmental issues gained importance and relevance. Over the next 50 years, the scale and scope of ESG-aware investing has become so popular that in 2006, the UN released investing guidelines in their Principles for Responsible Investment (UNPRI) and companies like MSCI began measuring, tracking and presenting ESG “scores” as useful investment criterion.

In recent years, young investors have shown increasing propensity to align their investments with their values. In 2020, young investors poured more than $50 billion into ESG-focused mutual funds and ETF’s. At the same time, publicly listed companies are quick to tout their “green” products, strong social contracts and progressive governance so that they can entice this new generation of investors to finance their corporate vision. The good news is that companies with higher ESG scores are outperforming their competitors and delivering better returns at lower levels of risk.

Consumer Sentiment and Behavior

Consumers around the world are no longer willing to allow businesses and governments to ignore the threat of anthropogenic climate change. This is driving an increased focus on sustainable business practices to comply with more stringent environmental regulations and increased public interest. Increasingly, punitive carbon taxes are forcing companies to revisit their energy supply and operational efficiency programs, while aggressively working to reduce, reuse and recycle their waste.

This trend is being accelerated by shifting consumer sentiment as nearly 60% of shoppers are willing to change their shopping habits to reduce their environmental impact. The bottom line is that consumers are demanding that companies change their business practices and become more sustainable or they will take their business elsewhere.

Growth of Renewable Energy

It may not be the only factor, but one of the keys to more sustainable business is energy usage – both its source and its quantity. In response to ESG-related pressure as well as pressure to lower costs across the board, many large businesses have started to “green” their energy supply.

Apple is powering almost all their U.S. energy needs with a 61 MW solar farm in Nevada. Over time, we will see more companies greening their power supplies while public utilities slowly convert their infrastructure to renewable sources.

Maximizing the Triple-Bottom Line

Businesses are being pushed and pulled into adopting more sustainable operations, but fortunately, they don’t have to choose between profitability and sustainability. The tiple bottom line of profit, people & planet is more achievable than ever. Sustainable business practices and green products are more attractive to younger consumers and have a positive effect on revenue. Qualitatively, sustainable business practices add brand value and increase employee happiness and customer satisfaction. In fact, given all these positives, there is little reason not to try and build a more sustainable business.

Intelex can help you with your business achieve its sustainability goals. Learn more about Intelex ESG management solutions and how to boost your business in the decade ahead.

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