Fullscreen background image

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.

Speak Your Mind

Green Tip

Pay bills online.It’s usually free, and you can sign up for email reminders so you won’t be late.