Thomas Geiger
Senior Director, Strategic Industry and Management Advisory, NTT DATA DACH
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Having come to NTT DATA from a banking background rather than a particular technical discipline means I regard business cases and decision-making through a different lens. Like many business leaders, I have also been considering the economic risks and rewards associated with sustainability. With this article, I aim to inspire readers to look at sustainability with a new, fresh positivity that they can take back to their strategic committees for inclusion in the decision-making process.
Celebrating sustainability
Despite today’s lax legislation, many business leaders already consider sustainability a duty or obligation from outside their organisations and, as a result, a cost to be managed or even avoided. This could turn out to be a short-term or even risky view.
Genuinely working towards the United Nations’ Sustainable Development Goals (SDGs) should be something to celebrate rather than fear.
We know change is going to come, so why not put ourselves in a position of leadership? Many are taking up this mantle, with green energy supplier Bulb Energy winning a lucrative 5% market share in just five years, and US pest control company Aptive becoming one of the fastest-growing companies in the world, thanks entirely to its commitment to the environment.
Genuinely working towards the United Nations’ Sustainable Development Goals (SDGs) should be something to celebrate rather than fear. I add the qualifier ‘genuinely’ here because organisations perceived to be ‘greenwashing’ themselves – claiming sustainable credentials without backing them up – risk serious reputational damage and harsh penalties from regulators or, at the very least, their customers. In a recent pollution case, UK water company Southern Water was fined a record £90 million, on top of negative publicity.
Truly aligning your business to sustainability best practices means considerable change. This can’t be avoided, but there will be clear rewards to be had for those that succeed.
The bottom line
Is sustainability profitable? That is the question at the heart of many of today’s boardroom discussions. In my view, the answer is a definite yes. Tesla is now a profitable business, to the tune of $1 trillion in 2021; the case for electric cars has been made, and an entire industry is shifting. By 2030, Volkswagen has said 70% of its total European vehicle sales will be battery-electric.
Companies that invest in sustainability now will be able to sell more of their goods at higher prices with higher margins in the future.
Consumers have been paying a premium for organically-grown, ethically-sourced groceries for many years now. Value brand Lidl leads the industry in responsibly labelling its animal products, for example, confident that people will pay more for higher welfare standards. (If you still need evidence that carefully aligning yourself to consumer behaviour is worth a premium, look at the prices of Apple’s new iPhones.)
Spending habits are likely to continue to change as consumers experience climate change more directly through flooding, storms and other extreme weather effects. The global Covid-19 lockdowns have no doubt contributed to the re-evaluation of many priorities too. There is also a generational aspect at play. Younger people are already using their spending power differently than their parents.
Based on my careful analysis of all of this, I feel confident companies that invest in sustainability now will be able to sell more of their goods at higher prices with higher margins in the future.
Hiring the best people
The other factors that influence business resilience include employee engagement and performance. Potential employees are already asking NTT DATA about our approach to sustainability during the recruitment and onboarding process. Do you have a plan? Do you have goals? What are you doing about climate change? What difference will you make? The best people with the best skills want to work for employers aligned with their views and aspirations. This means organisations need to know, and communicate, exactly what they’re doing on the global issues employees care about.
Existing members of your team are making decisions about their futures, too; employers must think hard about retaining talent as well as attracting it. The classic interview question “where do you see yourself in five years?” may well apply both ways when it comes to sustainability issues.
Reputation management
Employees and customers make decisions based on company reputation, product quality and pricing all the time. They are increasingly adding a company’s sustainability track record to the list. Seeing fossil fuel exploration companies shift their brand focus to renewable energy is a clear example of this in action. Because of this pressure, I fear organisations that are not seen as committed to the UN’s SDGs may begin to lose their freedom to make decisions about their futures. Customers and potential recruits will begin to look elsewhere.
More and more investors are choosing to tilt their investments towards sustainability-focused companies. Can you afford to be left behind?
It’s not just consumers and employees who care about these issues either. Financial institutions, investors and lenders are taking sustainability into account in their decision making too. Larry Fink, chairman and CEO of BlackRock, writes of climate transition presenting a historic investment opportunity in his 2021 Letter to CEOs. He described more and more investors choosing to tilt their investments towards sustainability-focused companies. With such a big player making such a bold statement about a sustainable future, the question becomes: can you afford to be left behind?
Any shift to sustainability will have a wide range of consequences. Supply chains may need to be reviewed, production processes changed, new materials sourced. Your company might even need to rethink its core values and reasons for being. The transition for businesses will not be easy, but I am confident that the organisations, and the leaders, that embrace opportunity will thrive.
I know that business leaders should act thoughtfully and, if possible, on the basis of facts. But the challenge of creating a sustainable future is certainly unique to all of us in its scope and complexity. Optimism, and a moderately risky approach, may well prove to be the best policy in the face of adversity.
