Sustainability for Commercial Success

Customers and partner organisations want to do business with sustainable companies.

There is of course a cost involved in becoming more sustainable, and sometimes the investment required is considerable, however, this can be justified (beyond the upside for our planet) if it puts your business on a stronger commercial footing. One could also argue that there will be no planet on which to conduct business if we do not make enough progress quickly enough on climate and environmental issues.

How Sustainable is the Technology Sector?, a new iResearch Services report based on a study of 550 technology industry executives across 11 countries, shows how intrinsic sustainability has become in a business context. The great majority of tech companies surveyed (89%) said it is important to be viewed as a sustainable and ethical brand.

As an interesting aside, this fell to 80% in the US. How to account for this small anomaly? Why would 20% of US respondents consider it unimportant to be seen as sustainable and ethical? One compelling supposition is that this may be a hangover from the non-ESG-friendly rhetoric and policies of the Trump Administration. Hopefully, the Alka-Seltzer is taking effect and that hangover is dissipating.

Attractive for customers

In the main, though, tech companies appreciate the power of sustainability, and many expect their actions to deliver commercial benefits. Our aggregated data shows over half of the total technology companies surveyed expect more customers (52%) from being sustainable and 38% anticipate better returns.

Digging deeper into the motivations for companies to become more sustainable, we found the top two reasons were sustainability being a vital part of their vision, values and demands from consumers and clients. But the reason ranking third varies slightly from country to country. In China and Spain, for instance, it is pressure from competitors; whereas companies from the US, UK and Australia plump for reputational considerations. India, Japan and Italy opt for being a responsible employer as their biggest motivator.

Partnerships with purpose

Naturally, companies are not merely inward looking on sustainability matters. As well as responding to demands from consumers and clients to become more sustainable, they are also demanding sustainability standards from their partners. Over half (55%) of the respondents think it’s very important for their commercial partners to follow sustainable practices, as one of their primary considerations. Overall, the demands are highest in Japan and China, and lowest in France and India.

There is now a clear commercial imperative for companies in the tech sector to take sustainability seriously and up their game. Companies that behind the curve will come under growing pressure from partners and customers to get their house in order – or may simply pay the price of losing out on business and valuable strategic alliances.

Engaging employees

There is also an employee engagement dimension at play. Companies we spoke with believe that following sustainability practices motivate their employees to work harder, as the same values are being shared between a company and its workforce. This belief is most apparent in India, where 78% of the respondents selected this as a key value sustainability can bring to their businesses, followed by 68% in China and 66% in the US. It hardly needs stating that businesses in which people are more dedicated to the job will likely deliver better results than those with lower levels of employee commitment.

The prevailing view is that sustainability programmes can drive genuine value. A McKinsey Global Survey from 2020 found that 83% of C-suite leaders and investment professionals expect ESG programmes will contribute more shareholder value in five years than today.

But the McKinsey research also underscored the point that ESG investment is seldom a quick fix. Respondents tended to choose making a contribution to long-term value over short-term value.

This aligns with the findings of ESG and Financial Performance, a research paper by NYU Stern Center for Sustainable Business and Rockefeller Asset Management which aggregated evidence from over 1,000 studies published between 2015-2020. Among the key takeaways from this substantial piece of secondary research is that sustainability initiatives at corporations appear to drive financial performance due to factors such as improved risk management and more innovation; and improved financial performance due to ESG becomes more marked over a longer time horizon.

One tech company with highly ambitious sustainability plans is Amazon, which aims to achieve net zero carbon emissions by 2040, 10 years ahead of the goal set by the Paris Agreement on climate change. If it is to succeed, Amazon will have to harness a raft of new technologies, which is why it has created the US $2 billion Climate Pledge Fund to invest in tech start-ups developing climate-friendly solutions.

As Matt Peterson, head of the Climate Pledge Fund, told CNBC, “If it happens to be that the companies we invest in do well and they become the next Tesla or they return a multiple of our investment, then that’s great. It shows that it’s a validation of what it is, but it’s not the main focus of the fund relative to the broader strategic goal.”

Amazon is striving for sustainable solutions that help deliver on commercial objectives – an aim we are seeing reflected across the sector. While it’s doing so on a scale far greater than most, it’s certainly not on its own in pursuing this principle.