Balancing Profitability In The Age Of Sustainability And Corporate Responsibility – The world is full of uncertainty. Enormous challenges – including climate change, poverty and inequality – are at the forefront of everyday life and seemingly becoming more urgent.
One thing that is not certain about a sustainable business strategy is the need for change.
Balancing Profitability In The Age Of Sustainability And Corporate Responsibility
The overall goal of a sustainable business strategy is to positively impact the environment, society, or both, while benefiting shareholders. Business leaders are increasingly realizing the power of sustainable business strategies not only to solve the world’s most pressing challenges, but also to drive the success of their companies. However, defining what sustainability means, reinforcing clear and achievable goals, and developing a strategy to achieve those goals can be daunting.
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One common way to understand a company’s sustainability efforts is to use a concept known as the triple bottom line.
The triple bottom line is a business concept where companies must commit to measuring their social and environmental impact in addition to their financial performance, rather than focusing solely on profit generation or the standard “bottom line.”
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The triple bottom line can be broken down into the “three P’s”: Profit, People and Planet. Companies can use these categories to conceptualize their environmental responsibility and identify any negative social impacts they may contribute.
From there, companies can integrate sustainable practices into every aspect of their operations – including supply chains, business partners and the use of renewable energy – to positively impact society and the environment in addition to making a profit.
In a capitalist economy, the success of a company depends largely on its financial performance or the profits it generates for shareholders. Strategic planning initiatives and major business decisions are typically designed to maximize profits while minimizing costs and minimizing risk.
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In the past, most companies’ goals were focused solely on economic impact and growth. Now, purpose-driven leaders are discovering that they have the power to leverage their businesses to make a positive difference in the world without compromising financial performance. In many cases, adopting sustainability initiatives has led to business success.
The second element of the triple bottom line emphasizes a company’s social impact or its commitment to people.
It is important to distinguish between shareholders and stakeholders in a company. Traditionally, businesses favor shareholder value as an indicator of success, which means they strive to generate value for the company’s shareholders. As companies increasingly embrace sustainability, they have focused on creating value for all stakeholders affected by business decisions, including customers, employees and community members.
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Some simple ways that companies can impact people – and serve future generations – include ensuring fair employment practices and encouraging volunteerism in the workplace. They can also look outward to create big changes. For example, many organizations have established successful strategic partnerships with nonprofits that share a common cause-based goal.
The final aspect of the triple bottom line concerns the positive impact on the planet.
Since the birth of the industrial revolution, large corporations have contributed staggering amounts of environmental pollution, which has been a major driver of climate change and environmental problems. According to a report by the International Energy Agency, the global energy industry released 135 million tons of methane into the atmosphere in 2022.
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Businesses have historically been the biggest contributors to climate change, and they hold the keys to positive change. Many business leaders now accept their social responsibility to do so. This effort is not solely on the shoulders of the world’s largest corporations – all businesses have opportunities to make changes that reduce their carbon footprint. Adaptations such as using ethical materials, reducing energy consumption and simplifying transport practices are steps in the right direction for long-term sustainability.
To some, adopting a three-pronged approach may seem ideal in a world that emphasizes profit over purpose. Innovative companies, however, have shown time and time again that good can be done well.
The triple bottom line does not inherently value social and environmental impact at the expense of financial profitability. Instead, many companies have benefited financially from committing to sustainable business practices.
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“In many cases, it’s possible to do the right thing and make money at the same time,” says Harvard Business School professor Rebecca Henderson of sustainable business strategy. “In fact, there is good reason to believe that solving the world’s problems offers a trillion-dollar economic opportunity.”
Example: According to an IBM consumer report, half of consumers are willing to pay a premium for sustainable products. Furthermore, purpose-driven consumers—those who choose products and brands based on their alignment with their values—represent the largest market share at 44 percent.
In addition to helping companies capitalize on the growing market for sustainable goods, embracing sustainable business strategies can be very attractive to investors. While companies use the triple bottom line internally, environmental, social and governance (ESG) metrics are third-party measures of those procedures, and companies are held publicly accountable for focusing on more sustainable practices in addition to financial gain.
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In terms of sustainable business strategy, evidence increasingly shows that companies with promising ESG metrics tend to achieve superior financial returns. As a result, more investors are beginning to focus on ESG metrics when making investment decisions.
As the world’s most pressing challenges evolve, leaders with purpose are needed to lead initiatives that can bring about positive change—but bringing about that change is no easy task.
“Finding these opportunities and enabling them requires both real courage and hard work,” says Henderson in the Sustainable Business Strategy. “Often companies with a purpose – beyond simply making money – take the first step.”
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Although the road ahead is long and uncertain, it is important not to get discouraged. The first step towards achieving sustainability goals starts with the individual. Little by little, companies can unite around a common goal and make a real, measurable impact.
“It’s not just about applying your values; It’s necessary,” says Henderson. “A shared purpose can make companies more productive and innovative. But most importantly, in the end [our values] are all we have.
Are you interested in learning how to lead your organization towards positive change? Explore Sustainable Business Strategy, one of our business courses at Society, and discover how you can become a purpose-driven leader. Not sure which course is right for you? Download our free flowchart. Open Access Policy Institutional Open Access Program Guidelines for Special Issues Editorial Process Research and Publication Ethics Article Processing Fees Certificates of Award
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Received: August 2, 2020 / Revised: August 11, 2020 / Accepted: August 20, 2020 / Published: September 1, 2020
Sustainability has evolved into a major topic for organizations and organizational researchers. To meet changing societal demands, organizations must adapt their long-term strategies and incorporate environmental and social aspects into their product offerings and decision-making. However, at the same time, companies must meet short-term profitability needs and shareholder demands. An organization’s sustainability commitment, strategy or vision is influenced by several influential factors, for example, top management commitment or stakeholder integration. These factors have mostly been studied individually without association. As such, the following study aims to create a holistic view and framework of organizational impact and sustainability. The framework was validated by comparison with industry practice in interviews with sustainability managers in the chemical and automotive industries, which are highly relevant in the context of sustainability. The results of the interviews suggest that the identified influencing factors attributed to the four layers of the framework, organization, top management, project team and project, are applicable to industry representatives. The view and impact of specific influencers may differ between companies and industries. The study further provides insight into the actual state and future direction of corporate sustainability (CS) management in practice.
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In recent times, the continuation and acceleration of environmental degradation has become a concern in society, politics and business.
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