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Sustainability and the Bottom Line

To many observers, “sus­tain­abil­ity” is a trendy buzz­word, evok­ing a lifestyle image of tree-hugging peo­ple wear­ing beads and san­dals. Detrac­tors per­ceive sus­tain­abil­ity and envi­ron­men­tal ini­tia­tives as an infringe­ment upon prop­erty rights and eco­nomic lib­erty in gen­eral. How­ever, forward-thinking busi­ness and pol­icy lead­ers per­ceive a dif­fer­ent mean­ing. In a hard-nosed busi­ness con­text, sus­tain­abil­ity has prac­ti­cal impli­ca­tions for the basic pil­lars of busi­ness per­for­mance: rev­enue growth, expense reduc­tion, and risk abate­ment. This alter­na­tive per­cep­tion sees sus­tain­abil­ity not as an eco­nomic restric­tion, but as a guid­ing prin­ci­ple for busi­ness growth and profit in spite of resource scarcity. In this con­text, sus­tain­abil­ity is wholly com­pat­i­ble with eco­nomic growth in the face of finite resources. This arti­cle explains why.

Regard­less of our polit­i­cal lean­ings, we all share uni­ver­sal eco­nomic con­straints: lim­ited time and resources. One of those resources, energy, is an ingre­di­ent of all busi­ness activ­i­ties. This is true with­out excep­tion. No con­tracts are ful­filled or oblig­a­tions met with­out some con­sump­tion of fuel or elec­tric­ity. As the vol­ume of eco­nomic activ­ity grows across the globe, so does the demand for lim­ited energy sup­plies. The most obvi­ous impli­ca­tion: ris­ing energy prices. Other commodities—including min­er­als, build­ing mate­ri­als, even food and water—are sub­ject to the same mar­ket forces.

Expense reduc­tion may be the most obvi­ous reward of applied sus­tain­abil­ity. Energy expenses can be reduced by effi­cient tech­nolo­gies as well as smart energy behav­ior. When energy waste is reduced through­out a sup­ply chain, the result is a lower cost of pro­duc­tion and higher profit mar­gin on final goods and ser­vices. The impact on finan­cial per­for­mance is dra­matic, espe­cially for busi­nesses with thin oper­at­ing mar­gins. For exam­ple, it’s not unusual for hos­pi­tals to achieve a four per­cent oper­at­ing mar­gin (rev­enue net of expenses but before debt and earn­ings dis­tri­b­u­tions). At a four per­cent mar­gin, $25 of rev­enue yields only one dol­lar of oper­at­ing income; con­versely, one dol­lar in energy sav­ings is one whole dol­lar of oper­at­ing income– the same impact as receiv­ing $25 in revenue!

Increas­ingly, sus­tain­abil­ity pro­vides oppor­tu­ni­ties to make rev­enue. In part, this is due to grow­ing con­sumer demand for goods and ser­vices that are pro­duced with a min­i­mum of envi­ron­men­tal dis­rup­tion. Gov­ern­ment con­tract­ing reg­u­la­tions as well as mar­ket alliances increas­ingly require sup­pli­ers to demon­strate waste and emis­sions reduc­tion in their busi­ness processes. In other words, sus­tain­able attrib­utes con­tribute to prod­uct mar­ketabil­ity. Sus­tain­abil­ity thus becomes an eco­nomic advantage.

Why not main­tain the busi­ness community’s sta­tus quo? This is a par­a­digm in which energy and other resources are sim­ply a cost of doing busi­ness and gen­er­ally ignored. Forward-thinking busi­ness lead­ers under­stand that resource sup­plies are not sta­tic. They are sub­ject to deple­tion as well as sub­sti­tu­tion. In either case, busi­ness decision-makers must adapt to chang­ing tech­nolo­gies and mar­ket con­di­tions. Sus­tain­abil­ity, through its poten­tial for waste reduc­tion, is a hedge against the busi­ness risk of scarce inputs. By reduc­ing the vol­ume of energy and other inputs needed to earn each dol­lar of rev­enue, busi­nesses are off­set­ting the risk of ris­ing input prices and pro­tect­ing their profit mar­gins. In addi­tion, the adop­tion of renew­able fuel and power sources pro­vides a mea­sure of resource flex­i­bil­ity and inde­pen­dence from energy sup­pli­ers. By adopt­ing these tech­nolo­gies now, busi­nesses gain valu­able expe­ri­ence to pre­pare them for tomorrow’s inevitable resource short­ages and shifts in tech­nol­ogy. Busi­nesses that fail to antic­i­pate these changes will be forced to scram­ble for solutions.

For the astute busi­ness leader, sus­tain­abil­ity is nei­ther fad nor fash­ion. Sus­tain­abil­ity sup­ports eco­nomic growth and earn­ing power in the face of change. A sus­tain­able busi­ness is one with the means to nav­i­gate tech­nol­ogy evo­lu­tion and chang­ing resource availability.

Christo­pher Russell
Energy Man­ager
Feb­ru­ary 2011

Comments

  1. Nancy Munro says:

    I agree with your thoughts on sus­tain­abil­ity. It’s funny how com­pa­nies think they will last for­ever– look at who used to be big but isn’t around any more, Arthur Ander­son, Wool­worth, Sun and more. I recently read a blog post by Adam Har­tung, a Forbes colum­nist on the topic of growth http://bit.ly/fNKD1r most exec­u­tives only hope for 2–5% increase in rev­enue but if you look at Groupon or Apple they had tremen­dous growth when many of the tra­di­tion­ally suc­cess­ful com­pa­nies had declines because they just keep doing what they always do.

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