Our aim at Global Bright Futures is to have sustainability teams and CFOs work side by side in developing and implementing sustainability strategies and business practices. The language used by sustainability teams can often feel alien to finance professionals, yet both want the same outcome, which is the long term success of the business. Increasingly, long term financial success depends on successfully tackling sustainability risks and issues a business faces. In other words, sustainability risks are business risks.
In addition to reducing business risk, tackling sustainability issues presents new opportunities for long term business growth. Consumers and investors are now more aware of sustainability issues than ever before and factoring them in their purchasing and investment decision making respectively. Furthermore, embracing sustainability can present significant cost savings as well as market opportunities. All of these are speaking the CFO language.
A 2015 Neilsen study of consumers across 60 countries shows that 66% of consumers globally are willing to pay more for sustainable products, up from 50% in 2013 and 55% in 2014. Interestingly, income levels do not affect consumers’ willingness to pay more for products. In fact, the study shows that those in lower income brackets are 5% more willing to spend more on products and services from companies committed to sustainability.
A case in point of consumers’ appetite for sustainable products is the success of Unilever’s Sustainable Living brand, which grew 50% faster than the rest of the business and “delivered more than 60% of Unilever’s growth in 2016”.
Looking to the future, ignoring this trend research will likely leave companies paying the price as competitors that lead the way in sustainability will take a bigger share of their market.
Investors are also becoming thirsty for companies with good sustainability performance. In 2016, global sustainable investment assets were valued at $23trillion, a 25% increase since 2014, and represents 26% of all professionally managed investments. According to a study conducted by Boston Consulting Group in May 2016, 75% of senior executives in investment firms consider a company’s sustainability performance to be material in their investment decision making and almost half would not invest in companies with a poor sustainability performance. Investors are also reaping the rewards for incorporating sustainability into their investment decisions. A Climate Action and Profitability report published by CDP in 2014 shows companies leading in their climate change management are generating 18% higher Return on Equity than the laggards and 67% higher than those that are not participating in the CDP at all. These leading companies also provide more stability to investors, with 50% less volatility in earning. Analysis published by Morgan Stanley in 2015 had similar findings, where sustainable funds averaged higher performance and lower volatility than traditional funds over a 7 year period between 2007 and 2014.
With sustainability performance becoming increasingly interlinked with financial performance, can we get the two teams to start working closer together and speak each others’ language? We at Global Bright Futures think so! A good start would be to analyse the financial benefits and value of a sustainability goal and make this a part of the overall financial objective.