The concept of CSR/Sustainability is one that lots of corporations are still grappling to come to terms with. While some see it strictly from the do-good angle, which is not bad, but which tells only half the story, it is important to clarify that for businesses, sustainable business practices are essentially about business being in harmony with the environment such that due to its conscious steps taken by the business, the right conditions invariably exist for repeat and new business to be conducted and profits gained. In other words, ‘sustainability is business’.
That last bit was taken directly from a paper, “The Synergy Between Sustainability & Finance Functions”, delivered by Eunice Sampson and Oliver Obu at a Nigerian Stock Exchange-organised (with support from Dangote Group) training on sustainability for financial analysts, accountants and communications practitioners.
Clearly, the NSE takes its remit strongly to help ensure that companies listed on the exchange are habitually responsible while being profitable. The NSE knows that only when sustainability is treated as a serious matter will Nigeria, with albeit the largest economy in Africa, be able to play in the same corporate league as the more advanced nations of the world. It was an enlightening affair, the core lessons from the paper which we here try to render.
WHAT SUSTAINABLITY IS FROM A BUSINESS PERSPECTIVE
It is the ability to exist constantly by building a culture of sustainable practices which include at the minimum, not harming people or the planet, and at best, creating value for stakeholders. It is also ability to focus on continuously improving environmental, social, and governance (ESG) performance as well as managing any negative material environmental or social impact (in a company’s operations, products, or across the value chain).
MYTHS ABOUT SUSTAINABILITY
Amongst the myths is that Sustainability is an unnecessary drain on corporate finances, as well as the other one from some finance types who argue stridently that the practice does not have any direct positive impact on business bottom-line. Eunice and Oliver then go on later in the paper to show how those myths had been overturned by some of the world’s most successful corporations.
They argue instead that Sustainability has become, for good provable reasons, an important factor in business strategies, for which reason large multinationals and mid-sized companies are increasingly taking long-terms view towards managing environmental and social risks.
As well, many companies recognize that by addressing environmental and social issues, they can achieve better growth and cost savings, improve their brand and reputation, strengthen stakeholder relations, and boost their bottom line.
They are also of the view that strategic integration of sustainability prepares companies to better anticipate and understand long-term trends and to better predict the effect of resource use, and to address stakeholder expectations
THE RESULTS ARE IN:
HOW SUSTAINABILITY HELPS FINANCIAL INDICES
DuPont–Improvement in resource efficiency
DuPont is a US company that makes industrial chemicals, synthetic fibres, petroleum-based fuels, lubricants, pharmaceuticals, building materials, packaging materials, cosmetics ingredients, agricultural chemicals, etc. Studies have shown that improvements in resource efficiency in energy and water have led to significant cost savings and lower environmental impact. DuPont cut costs by $2 billion in the last 10 years by investing in energy efficiency equipment while reducing greenhouse gas emissions by 75 percent.
British Petroleum (BP) –Erosion of Brand value & Bottom line
BP is a good example of how a company’s brand value can be eroded by poor sustainability policies. Its vessel was involved in the 2010 incident, considered to be the largest marine oil spill in history (4.9 million barrels). Due to the Gulf of Mexico oil spill, BP lost more than $32 million a day in brand value. BP’s market value dropped from $184 billion to $96.5 billion, roughly 48 percent in a period of two months. It also resulted in $4.525 billion in fines and penalties. And as of 2018, cleanup costs, charges and penalties had cost the company more than $65 billion.
Wal-Mart –Cost Savings on Logistics
Wal-Mart aimed to double fleet efficiency between 2005 and 2015 through better routing, truck loading, driver training, and advanced technologies. By the end of 2014, they had improved fuel efficiency by approximately 87% compared to the 2005 baseline. In that year, these improvements resulted in the avoidance of 15,000 metric tons of CO2 emissions that could have been emitted in business operations and also resulted in nearly $11 million in savings.
Dangote Example – Its 7 Pillar approach is intended to infuse sustainable culture into every aspect of its business.
By leveraging its growing sustainability management system and structures, the Dangote Group is able to identify risks and opportunities, and proactively minimize the risks and optimize the opportunities. Its sustainability practices is helping improve its engagement with stakeholders, giving it listening ears to their concerns and compelling the company to manage its externalities better
WHY FINANCE EXPERTS SHOULD INVEST IN SUSTAINABILITY
Essentially, sustainability is about contributing to a better and safer environment. Hence finance experts are encouraged to support investments in sustainable projects and ideas, not because this is a ‘nice to have’, but because it helps ensure that the business remains compliant and does not fall foul of the laws, helps avoid big fines and penalties that could cripple the business, supports proactive risk management and avert risks with potential to bring down the business, sustains the business’ social license to operate, builds public goodwill and customers loyalty that sustains the business’ profit and sustainable growth.
The authors concluded by citing the results from a major 2015 study carried out by the Ellen MacArthur Foundation and McKinsey which demonstrated that the adoption of sustainable practices could help boost Europe’s resource productivity by 3 percent by 2030, generating cost savings of €600 billion a year and €1.8 trillion more in other economic benefits.
On a corporate level, developing a good environmental and social reputation can contribute to a willingness among customers and investors to pay a price premium, which directly affects the company’s bottom line. On the contrary, poor sustainability practices result in damaging incidents and non-compliance issues that could completely crumble the business and take it out of operations. The old myth that sustainability is optional is no longer tenable. Sustainability is business
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