Top Drivers for Sustainability and Responsibility in 2023

Several socio-economic drivers are driving sustainability and responsibility in the business world. Companies that prioritize sustainability and responsibility are more likely to have better financial performance and a positive reputation. Sustainability and responsibility have become increasingly important drivers for businesses in recent years.

By Abhishek Ranjan

Businesses that are seen as good corporate citizens are more likely to be trusted and supported by their local communities. The article discusses the top 10 drivers for sustainability and responsibility in 2023.

Business Case/Top Management Mandate

Many top executives and business leaders recognize that sustainability and responsibility are not just the right thing to do, but also make good business sense. Companies prioritizing sustainability and responsibility tend to have better financial performance, improved risk management, and increased customer loyalty.

For example, Unilever, a consumer goods company, has made sustainability and responsibility a central part of its business strategy. This includes a commitment to 100% renewable electricity by 2030 and a target to halve its greenhouse gas emissions by 2030. Unilever’s CEO, Alan Jope, has stated that sustainability is not just a “nice to have” but a “must have” for the company’s long-term success.

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Tata Consultancy Services (TCS), an Indian multinational information technology company, has committed to becoming a net zero emissions company by 2030. The company’s CEO, Rajesh Gopinathan, has stated that this commitment is not just about environmental sustainability but also about meeting the needs of TCS’s customers and stakeholders and improving the company’s overall performance and competitiveness.

Operational Efficiency

Sustainability and responsibility can help businesses improve operational efficiency by reducing waste, energy use, and other resource consumption. This can lead to cost savings and increased competitiveness.

For example, the hotel chain Marriott International has implemented various sustainability and responsibility initiatives to improve its operational efficiency. These include the use of energy-efficient lighting and appliances, the recycling of guest room amenities, and the use of biodegradable cleaning products. As a result, Marriott has reduced its energy consumption by 25% and water consumption by 20% since 2005.

Mahindra & Mahindra, an Indian multinational conglomerate, has implemented several sustainability and responsibility initiatives to improve its operational efficiency. For example, the company has set a target to reduce its water consumption by 50% by 2025. In addition, it has implemented several water conservation measures, such as rainwater harvesting and water recycling, to achieve this goal.

Labor Satisfaction & Corporate Citizenship

Companies that prioritize sustainability and responsibility often have happier and more engaged employees. This is because employees tend to be more motivated and committed when they work for a company that aligns with their values and contributes to the greater good. In addition, businesses that are seen as good corporate citizens are more likely to be trusted and supported by their local communities.

For example, the outdoor apparel company Patagonia is known for its commitment to sustainability and responsibility, including fair labor practices and environmental conservation. Patagonia’s founder, Yvon Chouinard, has stated that the company’s success is largely due to its commitment to its values and employees. Patagonia has been recognized as one of the “Best Places to Work” by numerous publications and has a high employee retention rate.

Godrej Industries, an Indian conglomerate, has implemented several initiatives to improve labor satisfaction and its corporate citizenship. For example, the company has implemented a “5-Star Safety Rating System” to ensure the safety of its employees. It has also established several community development programs, such as providing clean drinking water and education to disadvantaged communities.

Changing Consumer Preference

As mentioned in the article, consumers are becoming more conscious of the social and environmental impact of the products and services they purchase. As a result, companies demonstrating their commitment to sustainability and responsibility are more likely to attract and retain customers.

For example, the cosmetics company Lush is known for its commitment to ethical sourcing, no animal testing, and environmental sustainability. Lush has a loyal customer base that values these commitments and is willing to pay a premium for its products.

ITC Hotels has shifted away from the usage of Single Use Plastic. Plastic substitution efforts are founded on the reduce, reuse, recycle policy and include special packaging made from compostable material, replacing plastic water bottles with glass ones, trading plastic drinking straws and stirrers and other basic amenities with paper and wooden alternatives. These mark the beginning of ITC’s contributions to making India free from Single Use Plastics.

Brand with a Purpose/Cause-Based Marketing

Consumers increasingly want to know what a company stands for and how it is impacting the world positively. Therefore, companies that can clearly articulate their purpose and how they are contributing to social and environmental causes are more likely to resonate with consumers and build brand loyalty.

For example, the shoe company Toms is known for its “One for One” model, which donates a pair of shoes to a child in need for every pair purchased. Toms has built a strong brand and customer loyalty by clearly articulating its purpose and its positive impact on the world.

The Tata Group, an Indian multinational conglomerate, has a long history of prioritizing sustainability and responsibility. For example, the company’s “Tata Business Excellence Model” focuses on environmental, social, and ethical performance. In addition, the company has implemented several initiatives to contribute to social and environmental causes, such as its “Tata Water Mission”, which aims to provide clean drinking water to disadvantaged communities.

Supply Chain

Companies are under increasing pressure to ensure that their supply chains are sustainable and responsible. This includes issues like fair labor practices, environmental impact, and ethical sourcing. Companies that demonstrate their commitment to sustainability and responsibility throughout their supply chain are more likely to be trusted and supported by their customers and stakeholders.

For example, the clothing company H&M has implemented various initiatives to improve its supply chain’s sustainability and responsibility. This includes using sustainable materials, such as organic cotton, and implementing a code of conduct for its suppliers. H&M has also set ambitious goals to become climate positive and to use 100% circular and renewable materials by 2030.

Wipro, an Indian multinational information technology company, has implemented several initiatives to ensure its supply chain’s sustainability and responsibility. For example, the company has established a “Supplier Code of Conduct”, which sets out expectations for ethical and sustainable practices, and a “Supplier Environmental Sustainability Assessment” program to assess the environmental performance of its suppliers.

Circular Economy

The circular economy is an economic model that seeks to eliminate waste and increase resource efficiency. Companies that adopt circular business practices, such as reusing and recycling materials, can reduce their environmental impact and improve their competitiveness. In addition, using technologies such as the Internet of Things (IoT) and big data can help businesses better track and manage their resource use and waste, leading to greater efficiency and sustainability.

For example, the electronics company Dell has implemented a circular business model using recycled materials and refurbishing and reselling used products. Dell’s circular initiatives have helped the company reduce its environmental impact and improve its competitiveness.

Reliance Industries, an Indian multinational conglomerate, has implemented several initiatives to adopt circular business practices. For example, the company has established a “Green Energy” program which aims to generate electricity from renewable sources and several initiatives to reuse and recycle materials, such as its “Plastic Waste to Fuel” program which converts plastic waste into fuel.

Invisible Stakeholder Engagement and Social License to Operate

Social media has allowed consumers and other stakeholders to easily share their thoughts and opinions about companies and their practices. Companies that are not transparent and responsive to these stakeholder’s risk damaging their reputation and losing customer loyalty.

Companies that operate responsibly and sustainably are more likely to have the support and trust of local communities. This is often referred to as a “social license to operate.” Conversely, companies that do not have the support of local communities risk facing protests and other forms of social activism that can disrupt their operations.

For example, the mining company Rio Tinto has faced protests and other forms of social activism due to its environmental impact and treatment of Indigenous communities. In response, Rio Tinto has implemented various initiatives to improve its sustainability and responsibility, such as improving its relationships with Indigenous communities and reducing its greenhouse gas emissions.

In 2005, when Posco, the world’s fourth-largest steelmaker, signed a memorandum of understanding with the Odisha government to set up a 12-million-tonne-capacity steel project in Jagatsinghpur district, it attracted global media attention for being the biggest foreign direct investment in India, at that point of time, at $12 billion (Rs 52,000 crores). It was heralded as the project that would set Odisha – at the bottom of several development indices – on a high-growth trajectory and make India a steel superpower. However, twelve years and several twists and turns later – mainly in the shape of public resistance to the project and regulatory hurdles – the South Korean steel major has officially withdrawn from the project.

Climate Change Risks and Opportunities for Business

Companies realize that not only do their actions impact the climate, but also the climate impacts them. Thus, the risk and opportunities associated with climate change are equally important considerations as financial risks. The climate change related risks can be physical (acute or chronic), transitional, reputational, or even indirectly impact the fund-raising ability of an organization.

As opposed to waiting till the risk materializes, the companies that take the proactive steps of understanding these climate-related risks can better plan and finance their set-ups and enjoy the long-term benefit of building business resilience and profitability.

For example, due to the rise in the volatility of the availability of inputs along with the increase in regulatory risks and requirements, Volkswagen is now heavily investing in renewable energy to mitigate the risks associated with fossil fuel-based energy. It has set targets of investing 1 billion in renewable energy to power its production factories solely using onsite production and investing over 11 billion to create more electric cars that customers now demand.

On the other hand, Microsoft continuously monitors the climate risks and opportunities and publicly shares them through their TCFD and similar reports. In addition, they have developed an offering of a Carbon neutral cloud where they are continuously expanding the circularity of the cloud infrastructure material, thus allowing the different enterprises to reduce their carbon emissions further. They have also identified the opportunity to shift to low-carbon fuels like hydrogen fuel-backed cells for their data centres to reduce overall carbon emissions.

Compliance, Regulations, and Investors’ Concerns and Demands

Governments, investors, and other stakeholders increasingly demand that companies prioritize sustainability and responsibility. This includes adopting regulations and standards, such as the Sustainability Reporting Standards introduced by 21 stock exchanges, and including environmental, social, and governance (ESG) issues in financial analysis and decision-making. As a result, companies demonstrating their commitment to sustainability and responsibility are more likely to attract investment and meet regulatory requirements.

For example, Goldman Sachs has prioritized sustainability and responsibility in response to regulatory and investor demands. They have set emissions reduction targets, integrated sustainability into risk management, and increased financing for sustainable projects. They have also implemented sustainability reporting standards and engaged with investors on ESG issues to attract investment from sustainability-focused investors and meet regulatory requirements.

Infosys, an Indian multinational information technology company, has demonstrated its commitment to sustainability and responsibility by adopting the Global Reporting Initiative’s Sustainability Disclosure Guidelines and publishing annual sustainability reports. The company has also implemented an “ESG for Investors” program to provide information about its ESG performance to investors.

To conclude, in the current business landscape, companies must embrace sustainability and responsibility practices as critical factors to capitalize on growth opportunities and mitigate risks that can impact the business.

About the Author

(Abhishek Ranjan is ESG Expert.) Views are personal.

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