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Sustainable companies are not profitable.

You’ve been living under a rock if you haven’t noticed the massive uptrend in companies getting on board with sustainability practices and trying to figure out how their particular business can be more conscious of its impact, and rightly so. As the IPCC’s latest report outlines how we’re on a clear trajectory to overshoot the “safe level” of 1.5 °C, with many of the effects of global warming being felt already. But is it true that sustainable companies are not profitable?

Global Temperature rises

It’s become a bit of a trend for companies to tout their sustainability commitments, but it’s not just because everyone’s jumping on the bandwagon. Social and environmental pressures have definitely played a role, but companies are also realising that incorporating sustainability can actually give them a leg up on the competition and improve their reputation. Not forgetting the moral need to be more environmentally proactive. 

The thing is, lots of companies are implementing these practices without really knowing if they’re making a difference to the bottom line. So in this blog, we’re going to delve into the ways you can measure the economic impact of your sustainability initiatives, and how you can weave sustainability into your overall business strategy. Sound good? Let’s get started!

The Facts and Figures on sustainable spending

Research from Aldermore has found that UK SMEs invested an average of £61,250 on sustainability initiatives in the last year.

The research also found that the average SME business plans to spend a further £78,392 on sustainability in the coming year – an increase of 27%.

Sustainable working was one of the key trends highlighted in top business ideas for 2022.

Following COP26, the UN summit on climate change hosted in Glasgow, it’s clear that the UK’s small business population is undergoing a significant green transformation. But why the upsurge in these shifts now, especially at such a cost to SMEs?

Consumer habits cause green actions

Aldermore conducted the same survey among SMEs at the start of 2021. Then, only 12% of businesses saw sustainability as a significant priority.

Such a jump in sustainability consciousness in just 12 months is impressive. It points to a  number of eco-friendly drivers. The chief instigator, of course, is consumer behaviour.

One aspect of maintaining successful sustainable efforts through business and their long term viability is developing an attribution model that accurately measures the economic impact of sustainability initiatives. While companies may be able to accurately measure the costs of sustainability projects, they may not be able to determine their impact on revenues with the same reliability. This makes it difficult for companies to determine the return on their investment and to make investment decisions based on the impact of sustainability initiatives.

Connecting the dots between business spending and consumer behaviour

To address this challenge, companies need to connect customer behaviours and their perception of social and environmental commitment from companies with their interest and decision-making processes. A bit of a mouthful, huh. Simply put, companies must understand how sustainability initiatives impact customer behaviour and how they can use this information to drive business results.

One way to do this is to anchor your entire company around your sustainability efforts, rather than trying to tack on a sustainable initiative onto your business.  

Who Gives A Crap offers a more environmentally friendly toilet paper that is “good for your bum and great for the world” as they say. Their products are 100% plastic free and have options made from 100% recycled paper or 100% bamboo. Further more, 50% of profits are donated to help build toilets for communities in need around the world. Instead of trying to do this themselves, Who Gives A Crap focus on making a great product, communicating what they’re doing to the public and then they’ve partnered with a number of community organisations and charities on the ground who are experts in rolling out sustainable projects effectively, instead of WGAC starting one from scratch. 

Who Gives A Crap advert

via Who Gives A Crap

Your branding matters

Using toilet humour to great effect across their social media and advertising, Who Gives A Crap really leans into the playful fun side of branding and isn’t shy about it. Incorporating vibrant creative design and colours they really promote the idea of ‘feeling good, doing good’ through philanthropy all the while delivering a very high quality product that people return for over and over again. 

Be more Who Gives A Crap

Who Gives A Crap is upfront and inspiring about their philanthropy, admitting that their initial contribution of $2,500 Australian dollars made to WaterAid was a ‘splash’ in the ocean. However, by creating a donation system early on, as the company has expanded, so has the amount they’ve been able to donate. Their customers who support their mission have played a significant role in achieving this growth. Remember, it’s acceptable to begin small when giving back, but with proper budgeting, your donations and passion for social responsibility can grow within your business.

Be Choosey

To fully integrate sustainability into your business strategy, you need to go beyond measuring the economic impact of sustainability initiatives. You need to think of sustainability as a competitive advantage rather than an altruistic or necessary effort. To see the social and environmental impact of initiatives as another operational project that has a profit and loss account.

Consumers play a critical role in this shift towards sustainability. They need to accept that it is not only good to make money solving social and environmental problems but also necessary if we want that impact to stick. Consumers will be an ever growing decider as they become more thoughtful when they buy products and understand the social and environmental consequences of their purchases, which in turn reflects the environmental consequences of your company. They can support companies that align with their values and show social commitment. Or they can tell everyone on TikTok how you’re greenwashing. The choice is yours. But by working together, companies and consumers can create a more sustainable future for all.

What to do

Businesses should focus on creating products and services that not only address customers’ functional and emotional needs but also their social and environmental concerns. By doing so, they can differentiate themselves from their competitors and attract more customers who are willing to pay a premium for sustainable and socially responsible products.

allbirds shoes

A notoriously difficult market to break into and dominated by a few of the biggest companies in the world, shoes and trainers. But the sustainability minded Allbirds did just that. 

Fashion in general has had some serious bad press in the last number of years, due to the gargantuan waste and pollution involved in creating its products. Especially fast fashion trends designed to be worn only a small number of times before falling apart. Not only did they launch with highly admirable sustainability ambitions but they’ve become the go to lounge shoe for trendsetters and cool kids alike. Allbirds are on track to cut their footprint in half by 2025. Then reduce it to near zero by 2030 all while being a carbon neutral company, focusing on using natural fibres over synthetics. Which in turn has an effect on those who wear them and their health. 

These efforts to be a truly sustainable company with the environment at the heart of their inception has gained Allbirds a loyal following that will continue to purchase from them and tell others about them. It has also allowed Allbirds to rise quite quickly through the ranks in the shoe industry, no small feat. 

Around we go

As is to be expected, achieving sustainability and profitability at the same time is easier said than done. Companies need to find ways to measure the economic impact of their sustainability initiatives, which is a challenge. While at the same time thinking about how sustainable business models can generate revenue.

One way to achieve this is by adopting circular economy principles. The circular economy is an economic system that aims to eliminate waste and maximise the use of resources by designing products and services that can be reused, repaired, or recycled. By adopting circular economy principles, companies can reduce their environmental impact while also creating new revenue streams. For example, a company that sells smartphones, Such as Reboxed,  could offer a repair service for their devices, which would generate additional revenue while also reducing the amount of electronic waste that ends up in landfills. 

circular economy graphic

Adopting Renewable Energy

Another way to achieve sustainability and profitability is by investing in renewable energy. Renewable energy sources such as solar, wind, and hydropower can help companies reduce their carbon footprint while also saving money on energy costs. Many companies have already started investing in renewable energy, and some have even become 100% renewable.

Sustainable supply chain practices

Companies can also achieve sustainability and profitability by adopting sustainable supply chain practices. This means working with suppliers who share their values and have sustainable practices in place. By doing so, companies can reduce their environmental impact and also ensure that their products are made under fair and ethical conditions.

small beer founders

Did someone say beer? Small Beer, London’s first B Corp™ Certified brewery, has married not one but all of these initiatives. Showing that where there’s a will, there’s beer. And that if they can do it, there’s little excuse for bigger players with more capital not to. 

Small beer touts some impressive responsible sustainable credentials. Drastically cutting the water needed to brew their beer,  where industry standard typically requires 8-10 pints of water for every pint of beer brewed (wow),  Small Beer designed a brewing kit that requires just 1 ½ pints of water to brew one pint of Small Beer. Since embarking on their first commercial brew in 2017, they’ve saved 6.5m L of water, all while constructing their brewery to run on entirely renewable energy sources, and use entirely recycled or recyclable packaging. 

We raise a pint to these beer brewers. 

Show me the money?

Another important aspect of creating a sustainable business is to focus on long-term thinking rather than short-term gains. While it may be tempting to prioritise profits in the short-term, this can often lead to negative consequences in the long-term, such as reputational damage or worst of all environmental harm. Sustainable businesses must be willing to make investments in their operations, such as transitioning to renewable energy sources or reducing waste, even if the immediate financial returns may not be as high. However, over time, these investments can lead to significant cost savings and positive impact on the environment and society, which can ultimately benefit the bottom line.

One example of a company that has successfully integrated sustainability into its business model with huge success is Patagonia. The outdoor clothing and gear company has been committed to sustainability for decades and has made significant investments in areas such as sustainable materials sourcing, reducing waste, and promoting fair labour practices. While these initiatives may have initially been seen as costly, they have ultimately led to enormous increase in brand loyalty, positive media attention, and financial success. In fact, Patagonia’s revenue has continued to grow year after year, with sales reaching over $1 billion in 2019.

The brand’s founder Yvon Chouinard’s announcement last year that the brand would now be donating all its profits to fighting the climate crisis was met with huge scepticism in the industry. But this bold move has only further strengthened the company’s foothold in their market and stance on the world stage, proving that big business is not at odds with environmentalism. 

Patagonia mural

So, are sustainable companies profitable?

Sustainability and profitability don’t need to be mutually exclusive concepts. Today’s businesses can create value for both their shareholders and society by adopting sustainable business practices. By measuring the economic impact of their sustainability initiatives, adopting circular economy principles, investing in renewable energy, and adopting sustainable supply chain practices, companies can create a more sustainable future while also making the big bucks. As consumers, we can also play a role in this by supporting companies that prioritise sustainability and socially responsible practices. Together, we can create a more sustainable and prosperous world for future generations.

An important aspect of creating a sustainable business is to engage stakeholders in the process. This includes employees, customers, suppliers, and the local community. By involving stakeholders in sustainability initiatives, businesses can build a sense of shared purpose and commitment, which can lead to increased engagement and loyalty. For example, a company may involve employees in sustainability efforts by providing training on how to reduce energy consumption or encouraging them to participate in community clean-up events. Similarly, a company may engage customers by promoting sustainable product lines or offering incentives for eco-friendly behaviours, such as recycling or using public transportation.

Ultimately, creating a sustainable business requires a shift in mindset and a commitment to balancing economic, social, and environmental concerns. While it may require upfront investments and long-term thinking, sustainable practices can ultimately lead to increased profitability, brand loyalty, and positive impact on the planet. As consumers become increasingly aware of the environmental and social impact of their purchases, businesses that prioritise sustainability will be well-positioned to succeed in the years to come.

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