Corporate sustainability: Financial performance reloaded

TJOPA RAMABELE

Many would struggle to oppose the notion of climate change as the biggest threat to mankind in the recent past and unfortunately, in the countless moons to come. It is not surprising then, that the environmental and social issues have come to dominate the boardroom. The environmental and

social considerations and contributions of both small and large businesses are widely expected to impact financial performance positively – or is that not the case?

A brief flashback will duly lay out some perspective on how the prevailing organisational sustainability inherited its character from the concept of economically sustainable development and socially moral underpinnings of intergenerational ecological equality.

Though the major harmful effects to the environment only began during the first two Industrial Revolutions, mainly through the use of fossil fuels, the damage is now at the tipping point of even endangering human existence.

The major world bodies began to seriously consider sustainable development at the Rio Earth Summit of 1992, which brought about the formation of the UN Commission on Sustainable Development (CSD).

Then in the year 2000, a push for sustainability into mainstream business was initiated under the UN Global Impact in pursuit of aligning business operations to the Compact’s principles enshrined in the Human Rights, Labour, Environment, and Anti-Corruption components.

A myriad of other reporting frameworks around the globe then propelled the sustainability movement forward to its current integrated form of reporting that entails the economic, environmental, and social aspects of

reporting corporate performance.

So far so good!

The question remains for the corporate shareholders as the ‘traditional’ stakeholders: What’s in it for us, financially? Put another way, how does the adoption of sustainability practices positively affect profit?

Adopting an ESG (Environmental, Social, and Governance) system is one way to increase corporate value and, consequently, investor share value.

ESG applies third-party measures to assess a firm’s sustainability potential through the environmental, social responsibility, and governance dimensions reflected in the company’s ESG report.

Moreover, the positive corporate image cultivated through the ESG initiative attracts more investor capital and reinforces the company’s going concern aspect.

The governance aspect of the ESG framework will not be emphasized, as it is considered an overarching requirement of any corporate governance initiative. With regard to the ESG social

aspect, an internal focus on employees involves fair labour practices, promotion of workplace diversity, training and development – both personal and professional.

All these contribute to a high employee retention rate, which saves costs that would otherwise be incurred through recruitment of skilled talent.

Focusing on the environmental ESG component, the benefits can be realized through operational efficiency and cost reduction, both of which are encompassed by sustainable resource management.

For example, energy-conserving technologies, such as eco-friendly lighting and equipment, help decrease energy consumption, which leads to lower utility bills and increased cost savings.

Waste reduction initiatives also come in handy, such as reducing water consumption through efficient water resource utilisation. Just on a basic level, it is apparent that sustainable-savvy efforts directly increase the financial bottom line through lower expenses driven by efficient habits.

Needless to say, more avant-garde solutions will bring about even more favourable outcomes. Indeed, the efficiency approach to sustainability means that we have a convergence of economic and environmental interests.

Though precedence is generally not prescribed regarding environmental and social components, the environmental aspect appears to take precedence. Without a proper environment that any organic species needs for existence, we cannot even fathom engaging in socially-oriented deliberations.

As the saying goes, ‘We do not inherit the earth from our ancestors, we borrow it from our children.’