There is growing evidence that the next generation of consumers, employees and investors views environmental sustainability as a fundamental priority across its activities, as demonstrated through the worldwide youth strikes on climate change and the everyday pressure being exerted through purchasing decisions. Large companies like Nike, Coca-Cola and Nestlé have made significant commitments to sustainability initiatives in response to consumer demand and there is now an onus on many others to start doing the same.
According to a Morgan Stanley report published in 2017, a younger generation of investors now overwhelmingly believes that investment decisions should be made with a view to making an impact. The Institute for Sustainable Investing report found 86% of millennials to be interested in sustainable investing, with that generation twice as likely as the overall investor population to invest in companies targeting social or environmental goals.
Whether driven by customers, current or potential employees, or investors, business leaders can no longer afford to ignore the question of environmental sustainability in their organisations. Rebecca McKay, a partner in the Trowers & Hamlins pensions team, says:
"There is a groundswell of momentum gathering around the green issue and companies need to be much more aware of their own impact because the discussion is becoming so high-profile."
Many of the large companies that have been driven to act have done so as a consequence of crisis, having been forced to be reactive, rather than proactive. Nike, for example, faced boycotts in the nineties as a result of poor labour practices in places like Indonesia, and became a pioneer in establishing transparency in its supply chain as a result.
In the absence of such crises, however, there are signs of a knowing-doing gap: research published by Boston Consulting Group and MIT found that whereas 90% of executives believed sustainability to be important, only 60% were incorporating it into their company’s strategy and only 25% were putting it at the heart of their business model.
“Businesses recognise the importance of this and understand it is of value,” says Alison Chivers, a partner in the London corporate team at Trowers & Hamlins. “But when push comes to shove, there are often other issues that are higher up the agenda. Many business leaders pay lip service to the environment rather than really getting to grips with a strategy that makes their business greener.”
There is a clear distinction to be drawn between those businesses that see these topics as a matter of compliance with the growing body of regulation on minimising environmental damage, and those that seek to excel as a means of achieving a competitive advantage. While companies must undoubtedly address compliance first, particularly in relation to waste management, pollution and human rights, which are of significant concern to investors, they can undoubtedly go further. Indeed, there are now many industry-led initiatives putting pressure on companies to up their game, such as the Global Real Estate Sustainability Benchmark, which is an evaluation system for measuring the performance of property companies and real estate funds against sustainability criteria.
Amanda Stubbs, a partner in the firm’s Environment, Health and Safety team, says one way that businesses can immediately take action is by making their buildings both healthier and more environmentally friendly. She says: “There is clear evidence that if staff feel better about the place in which they work, they will view their employer, and the business as a whole, more positively.
"Having staff committed to what the business is doing locally and within its own premises, is one of the quickest ways of making a difference and improve productivity."
Whether those day-to-day changes involve putting recycling stations within easy reach of every desk, switching from plastic to glass bottles or moving towards paperless offices, the results can help workers recognise that their employer is taking its environmental impact seriously, as well as introduce efficiencies that support the bottom line. Some companies are moving towards using electric vehicles across their businesses in place of petrol or diesel, and there are even now providers that can offer companies access to ‘transport as a service’, whereby businesses get access to a fleet of zero emission vehicles and are charged on a pay-as-you-use basis.
Firms that take the lead on such initiatives win a competitive advantage with their customers, save money, and immediately become more attractive to millennial recruits. Statistics show that greener companies are often more efficient and profitable, if not immediately then certainly in the longer term.
"You have both the very large global organisations taking a lead on this, and the smaller start-ups. The big businesses are taking action because they are in the spotlight, but at the other end of the scale, many early-stage companies are really focused on creating a particular brand for themselves around sustainability, transparency and appealing to the sociallyconscious consumer."
Chivers adds, “The people in the middle are perhaps going to struggle the most with this, because they are of scale already and maybe the benefits of taking action are not so immediately obvious. Those businesses should be encouraged to not only comply but to put together a business case where they can try to link some of these environmental and sustainability issues with strategy, using metrics that they can measure.”
Whether the practical initiatives that make sense for a business are focused on reducing waste, eliminating plastic bags, installing sensors to turn lights off in buildings, improving water usage efficiency, sourcing materials sustainably or reducing pollution across the supply chain, success can only really be achieved through buy-in both at board level and across the business.
“The advantage that younger companies have,” says Stubbs, “is that they are often run by entrepreneurial thinks free from pre-conceived ideas about how things should be done, with fewer long-standing employees resistant to change. They are open to doing things differently from the outset, and that’s why that is where we are seeing real change driven by the belief in doing something better.”
Chivers concludes: “The challenge for all company leaders now is to recognise this as a future trend and appreciate that action is going to be required. The sooner they can get on the front foot, the better positioned they will be.”
She adds, “By factoring sustainability into strategic decisions today, it really is possible to achieve genuine competitive advantages for the future.”
