In Troubled Times, Sustainability Is More Important Than Ever
Companies are in survival mode – adjusting their forecasting to ensure profits, focusing on the near-term and reducing expenses throughout the organization. As organizations feel their margins increasingly impacted by a triple threat of rising inflation, talent shortages and supply constraints, they’re going to look for areas to cut.
One of those areas, according to a recent Gartner survey, is sustainability. After polling 128 CFOs and CEOs in various industries, Gartner’s survey showed that investments in sustainability, as well as in mergers and acquisitions, will likely be two of the first areas to face cuts in today’s difficult business environment.
This mindset, however, conflicts with the path policymakers — both in the U.S. and abroad — are creating with legislation designed to incentivize and reward those who invest in sustainable business practices. Just this month, Congress passed the Inflation Reduction Act of 2022, which includes around $370 billion in clean energy and climate investments over the next 10 years.
While politicians will debate the best ways to fight climate change, there’s no denying that a focus on sustainability will be required in the future – and operationalizing the best business practices cannot be achieved overnight.
It’s troubling to me that so many companies look at sustainability investments as an either/or situation. To me, this is an illusion. Why is it that tightening the belt and pursuing sustainability are so often viewed as competing business goals when they’re frequently sides of the same coin? When it comes to the production and transportation of goods, sustainability is synonymous with improved efficiency, smoother operation and greater resilience in the face of crises and disruptions – all attributes that businesses must prioritize when in survival mode.
Take, for example, improving reverse logistics to create new revenue streams (or strengthen existing ones), identifying circular sources of fuel or raw materials to cut down on sourcing expenses, eliminating empty miles and inefficient transportation practices – all of these provide benefits not only to the planet, but to our bottom lines as well.
Spring of 2020 was certainly one of the most difficult and tumultuous times in recent memory for business leaders. During those early months, as the pandemic crisis slowly unfolded, FourKites hosted a Global Sustainability Virtual Summit on the importance of emphasizing sustainability at such a difficult time. In it, we heard from the likes of HP, Coca-Cola, Henkel and more on how sustainable business practices are often also profitable ones as well.
There’s something else at play here as well: A lack of consensus, both internal and external, on what sustainability best practices should be.
Another recent survey, this one carried out by L.E.K. Consulting, interviewed 400 global C-suite and senior executives from large and small companies in various industries. They found that just over half (51%) of these leaders, 28% of whom work at companies with more than $10 billion in annual revenue, reported that they were willing to sacrifice short-term financial performance to achieve long-term sustainability goals.
The catch? For most of these leaders (58% to be exact), their organizations could not agree on what those tradeoffs should actually be. They cited “significant differences of opinion within the leadership team,” preventing their organizations from balancing short-term priorities or moving forward with long-term sustainability goals.
One of the biggest obstacles standing in the way of this consensus is lack of standardized metrics and KPIs. This in turn contributes to a significant delay in actions being taken by companies to achieve ESG goals and objectives. As was said during our sustainability panel at the beginning of the pandemic, “What gets measured often is what gets done in business.”
There’s no doubt that sustainability is finally being considered a priority in almost every industry. Over 700 of the largest 2,000 publicly-traded companies have made some form of net-zero commitment, while 59 of the FTSE 100 have committed to achieving net-zero by 2050. Fully two-thirds the S&P 500 have set emission reduction targets of some kind.
Companies that can find a way to balance sustainability with profitability will be the winners in both the short- and the long-term. However, this is obviously easier said than done. The businesses that can achieve this delicate balance will have attitudes, cultures and operations that are centered not only on capital but on talent and innovation as well. Instead of adopting a fixed, scarcity mindset, they’ll be the organizations whose leadership possesses a clear vision of the company’s future growth.
These companies will figure it out – emphasizing efficiency and sustainability now to prop up profitability – while those who lack such visionary leadership will continue to favor short-term gains in a down economy while putting precious little action toward their business’ long-term viability.
There was something else about Gartner’s survey that was particularly interesting. In it, 45% of respondents said their digital and technology investments would be one of the last things they chose to cut – making technology one of the most secure categories of business investment in today’s troubled financial landscape.
I find this interesting because technology is a critical first step to achieving long-term sustainability. Now is the time to establish the standards that will guide us safely through the next several decades. We as a country and as a people need to work toward a standardized and aligned set of sustainability KPIs across industries, companies and partners.