SUSTAINABILITY: Why great companies are investing in it in a big way

BY ROBIN FISHER, SENIOR AREA VICE PRESIDENT, SALESFORCE - EMERGING MARKETS

The days when companies could view sustainability as a “nice-to-have” are long gone. Far from being something tacked on for the sake of good PR, sustainability is an urgent business imperative. We are, after all, no longer just navigating a crisis—we are facing a new reality. Climate change, racial inequality, and the pandemic are all profound realities that have changed what we expect of businesses.

Companies need to embed sustainability and responsibility by design into the core of their business. It is not separate. The companies that do this early will lead and drive great value for their business and for all. And, outside of the business imperative, regulatory changes will soon require Environmental, Social and Governance (ESG) reporting, with many countries starting with climate change. This data is becoming essential to financial filings, corporate reputation, employee recruitment, and customer engagement, and helps build trust with all stakeholders.

That focus on sustainability isn’t just something companies should feel obligated to do either. It’s also something that customers want and which, ultimately, makes good business sense.

THE DESIRE FOR SUSTAINABILITY

It’s easy for organisations to underestimate how much demand there is for business to embrace sustainability. But the numbers are actually pretty significant. Some 90% of customers, for example, expect corporations to live up to a set of values higher than shareholder return.

And while value and ease of purchase are still the main drivers of purchase decisions, sustainability is becoming a bigger factor. A 2019 survey, for example, found that 47% of internet users worldwide had ditched products and services from a brand that violated their personal values. The number one reason for doing so was environmental concerns.

The events of 2020 will have only accelerated consumer demands that companies operate more sustainably. Outside of the images of clean air and wildlife repopulating once barren rivers that came with lockdowns around the globe, the parallels between COVID-19 and the climate crisis are clear.

A stark drop in pollution in Wuhan, when comparing NO2 levels in early 2019 (top) and early 2020 (bottom).

NASA Earth Observatory

The pandemic has, for instance, shone a spotlight on inequality faced by many in the world today. Those with the least are being impacted the most by the virus, with low-income households more likely to have underlying medical conditions that make them vulnerable to COVID-19, or work in a sector that was shut down, leaving them unable to be able to do their job from home.

Similarly, low-income households are impacted most by the effects of climate change — living closer to air polluters or areas more susceptible to natural disasters. In both crises, we have learned that bold action to stem the challenge early is far more efficient and effective than trying to fix things later. Evidence of the degree to which people understand this urgency can be seen in the changes people are demanding of the organisations that look after their money. In late 2020, for example, The Scottish Widows Fund announced that it will dump £440m worth of company holdings that fail its Environmental, Social, and Governance (ESG) tests.

Of the 30 most polluted cities in the world, 21 were in India in 2019. The images of New Delihi’s India Gate war memorial were taken in October 2019 (Above) and in April 2020 (below), an unintended climate benefit of the coronavirus lockdowns

The rapid development of vaccines and treatments for COVID-19 has also shown people what corporations and governments are capable of doing when they recognise that there is an immediate problem. Collectively, people have started wondering what would happen if the same urgency were applied to the climate crisis.

And it’s worth underlining how much of a crisis it is. Despite considerable reductions in local and international travel thanks to COVID-19, 2020 was still the hottest year in history. A 2020 report by Greenpeace Southeast Asia and the Centre for Research on Energy and Clean Air, meanwhile, found that globally, air pollution has a $2.9-trillion economic cost, equating to 3.3% of the world’s GDP.

BUSINESS SENSE

Those figures alone should tell you that sustainability makes good business sense. The monetary cost of pollution and climate change comes directly from people’s pockets, making them poorer in general.

That’s to say nothing of the working days lost to ill health caused by air pollution, nor the devastating impact a natural disaster or extreme weather event can have on a company’s operations.

Beyond just preventing losses of productivity in the long term, operating in a sustainable manner comes with tangible business benefits right now. While it’s difficult to put an exact number on how much better businesses with a solid focus on sustainability do than their counterparts, the growth in sustainably-led investing is illustrative.

Over the past few years, environmental, social, and governance (ESG)-led investing has grown exponentially. In fact, the value of ESG-driven assets almost doubled over four years, and more than tripled over eight years, to hit US$40.5-trillion in 2020.

Driving that growth has been the belief among investors that ESG investments provide a win-win scenario where they can help save the planet while netting positive returns. And, to a large extent, that’s held true. A 2020 study found that 60% of sustainable funds outperformed the market over 10 years.

EMBRACING REGULATION

It’s also worth noting that businesses will find it increasingly difficult to operate unless they have sustainable practices in place. Governments around the world are enacting ever stricter environmental regulations as they try to curb emissions. And with the US having rejoined the Paris Climate Agreement, following the inauguration of President Joe Biden, it’s likely that the quest to curb global emissions will regain momentum in the coming months.

Nation-states aren’t just using their legislative might to push sustainability either. They’re also using their wallets. Norway’s sovereign wealth fund (the largest in the world), for example, recently sold the last of its portfolio of oil and gas companies. And in 2020, it dumped five coal companies based on an assessment against the fund’s new stricter coal criteria, “unacceptable emissions” and damages to UNESCO’s world heritage sites.

Rather than baulking at these new levels of regulatory and monetary strictness, however, organisations should view them as an opportunity to look at their own practices and ways of doing business. In fact, this pivot is a surefire growth strategy, builds positive brand reputation, increases customer engagement and builds trust with stakeholders. It is even a smart tool for employee recruitment and retention, with 70% of employees wanting to work for purpose-driven companies.

MAKING THE CHANGE

How individual companies go about making the changes necessary for a sustainable future will vary, but it’s absolutely clear that all companies should keep the interests of their stakeholders — employees, customers, partners, communities and the environment -- top of mind when it comes to sustainability.

They should also bear in mind that they can make an impact outside of their own business operations.

At Salesforce, for example, we are working with 60% of our suppliers to set emission reduction targets. We’ve also committed to delivering a carbon-neutral cloud to our customers and to reach 100% renewable energy for our global operations by 2022.

Additionally, we’re advocating for clear and consistent science-based climate policies that facilitate a just and equitable global transition to a 1.5°C future. Further, we’re committed to supporting and mobilising the conservation, restoration, and growth of 100 million trees by the end of 2030. Since that particular goal was announced, we have supported 19 projects throughout the world. Critically, we have already funded more than 10 million trees.

A great example of this on the ground is the Eden Reforestation Projects. With support from Salesforce, it is producing, planting, and protecting 2 million trees in Ankarafantsika National Park and 8 million mangrove trees in the Betsiboka River Estuary, both in Madagascar.

Workers planting stems at one of the Eden Reforestation Project’s sites.

The project will employ 150+ full-time and seasonal workers who receive a fair wage to produce and plant trees, patrol, and fight forest fires.

We’re also actively pursuing green building certification for global office spaces and enabling our employees to incorporate sustainability while working from anywhere.

We are, of course, not the only large organisation taking on this level of change. Some 90% of the S&P 500 now produce ESG reports, and Morgan Stanley has declared that ESG will define the next decade of investing.

That said, we will only likely reach our climate goals if there is a broad coalition of corporates working towards the same goals.

Workers planting stems at one of the Eden Reforestation Project’s sites.

A COLLECTIVE EFFORT

A 1.5°C degree future will require a transformation of unprecedented pace and scale. This transition is achievable but it will require collaboration, as well as regulatory changes and technological advances. Every individual, institution, government, community and corporation has an essential role to play.

That means individuals, businesses, countries and government officials will have to step up to the urgent challenge of climate change. This climate emergency is only going to be solved by reshaping every aspect of our economy, from agriculture to transportation, to financial services, to consumer goods and more.

Business has a particularly important role to play. Now more than ever, it is of vital importance for businesses to become climate advocates. We’re facing down irreparable harm to our planet, so we need all businesses to use not only their influence but also their core competencies and rapid innovation to create solutions that will tackle climate change. Climate change is the biggest issue that humanity has ever faced, and it’s here, and we have to move fast.