With issues such as climate change, ocean pollution, drinking water safety and socio-economic insecurity knocking at our door, embracing sustainability in all areas of activity and at all levels emerges as a matter of urgency, not choice.
Transitioning to a green economy and a net-zero future has become a priority for governments around the world and many organisations subscribe and are actively engaged in this transformation. Focusing on environmental, social and governance (ESG) principles is critical for the preservation of natural ecosystems, reducing reliance on fossil fuels, minimising carbon emissions, fostering economic growth and laying the foundation for a better future.
However, there’s less involvement coming from the private sector. Statistics reveal that many companies are falling behind when it comes to embracing sustainability and ESG. Although 90% of business leaders acknowledge the importance of sustainability, only 60% of businesses have developed a strategy in this respect. So, while there’s a lot of interest in this area, there’s not enough action to put things into motion.
This is rather concerning since the private sector is the driving force of the economy, accounting for over 60% of GDP in most countries. What’s more, the Carbon Majors Report has revealed that just 100 companies produced 71% of all global GHG1 emissions since 1988. An analysis by Richard Heede at the Climate Accountability Institute in the US sheds more light on the matter and nominates the top 20 companies that have contributed to 35% of all energy-related carbon dioxide and methane worldwide, many of them being investor-owned.
Therefore, the responsibility for protecting the environment and creating a healthier planet for future generations falls as much with private companies as it does with government organisations and authorities.
But what can possibly happen if businesses refuse or fail to fall in line with the current sustainability standards and objectives? A lot of business leaders and managers are unaware of the negative consequences that come with going against the trend and ignoring the green transition, so let’s see what one can expect.
Environmental damage
Each business, regardless of size or sector has an environmental footprint. As shown by Richard Heede’s report, large companies in the energy industry like Chevron and ExxonMobil have a much bigger impact on the natural ecosystem, but that doesn’t mean smaller enterprises don’t cause any harm to the planet. With small to mid-sized companies (SMEs) making up roughly 90% of businesses worldwide, their combined contribution to global emissions is considerable.
So, every company that doesn’t invest in sustainability and chooses to ignore the negative effects that their activities have on the environment is part of the problem. The carbon dioxide emissions produced by companies can result directly from their operations, or indirectly, from the consumption of energy supplied by an energy provider or their supply chain.
Implementing effective waste management systems, increasing recycling rates, acknowledging the importance of baling the cardboard, investing in energy-efficient equipment and switching to renewable energy are some of the measures that all companies can adopt to reduce their carbon footprint and protect the environment.
Reputation damage
In a day and age where eco-conscious consumers judge companies based on their green credentials and spend more time and money on making thoughtful shopping decisions, being labelled as a non-sustainable business can cause irreversible damage to a company’s reputation.
The demand for environmentally friendly and ethically produced goods and services is increasing and people expect companies to respond to their needs. The disregard for sustainability practices and the lack of action in this respect is bound to attract a negative reaction from consumers, investors and public opinion. The backlash can be even more severe if a company engages in greenwashing, a deceitful practice where businesses only mimic sustainability in order to reap the benefits.
Legal risks
While earning a bad reputation is extremely damaging to a company, facing legal actions can put it out of business. Most countries around the world have implemented strict regulations and policies around ESG to address growing environmental and socio-economic concerns. This ensures transparency and helps companies communicate their sustainability progress to the rest of the world.
Businesses that don’t comply with relevant standards in their region risk facing hefty fines and penalties and even entering time-consuming and expensive legal battles. In some cases, companies can even lose their license for not aligning their practices with the ESG regulations.
Poor performance
Neglecting sustainability is also detrimental to business performance. Many companies don’t realise that adhering to ESG standards by ensuring the health of the environment and the well-being of the local communities can help them build stronger supply chains, become more resilient and unlock new business opportunities.
It’s also important to mention that investors also place a great deal of importance on companies’ ESG performance. Therefore, businesses that don’t have a solid sustainability strategy in place are less likely to attract investors and secure funding, which will negatively impact their performance and bottom line.
Inability to attract or retain talent
Apart from attracting investors, companies also have to focus on attracting and retaining top talent. Just like consumers, professionals want to work for companies that share their values and vision and have strong ESG credentials. This makes businesses that don’t prioritise sustainability less attractive for skilled professionals and also increases the rate of employee turnover.
Final thoughts
Although embracing sustainability and advancing on the path to a green economy is not an easy endeavour, the risks of inaction far exceed the challenges and obstacles. Businesses have to decide if they want to face the negative consequences listed above or step forward into the future by focusing on sustainable development.