Deloitte Live 

Risk Advisory: Developing a business case for sustainability

Growing evidence indicates that sustainable business practices increase revenues, prevent losses by reducing risks and enhance efficiency of internal processes. Yet, a recent study indicated that 98% of sustainability initiatives fail to meet expectations due to lack of senior level support.

Key facts

  • A survey by estimated that companies experience an average internal rate of return of 27% to 80% on their low carbon investments, usually within 3 to 5 years
  • According to Harvard Business Review, top 100 global companies with sustainable initiatives experienced significantly higher mean sales growth, return on assets and profit before taxation than companies in the control group between 2006 and 2010.
  • Simultaneously, adoption of sustainable strategies also reduced average annual turnover and quit rate resulting in major savings for HR-related costs.
  • In one of the largest customer surveys, two-thirds of customers declared that they would prefer sustainable products over non-sustainable ones if the price difference was between 10-20%.
  • In a 2019 open letter, 477 world’s richest investors called for greater transparency on environmental, social and governmental (ESG) indicators.

Despite number of advantages stemming from implementing sustainability-centered initiatives, a badly communicated and unsystematic approach threatens to flip the benefits of sustainable practices into the risks of greenwashing. Overreliance on “do the nice thing” argument fails quickly in face of financial challenges and the call for “good morals” can easily confine all sustainability attempts to the marketing department. In the meanwhile, senior leadership is deemed to reduce more significant behavioral changes if unjustified by cost-related outcomes in the future.

Can investments in CSR substitute for poor performance in sustainability?

Sustainability initiatives are driven by the desire to make companies future-fit. This requires engagement across departments and hierarchies, out-of-the-box thinking, innovations, trust and ability to risk, fail, measure, learn, stand up again and do all this in multiple rounds as quickly as possible. In contrast to that, CSR is driven by the need to protect a good reputation. It is a form of indirect communication to internal and external stakeholders, often handled solely by the marketing department. Where CSR is about enlightened self-interest, sustainability is about smart business.

Therefore, engaging in CSR only limits access to the full scope of benefits that can be reaped from a more holistic and systemic approach, as advocated by sustainability practitioners. These include increased productivity (average 16%), reduced average turnover rate (by 25-50% over time), related saved replacement costs and many others. Some researchers indicate that in global companies based in the USA systemic sustainability efforts can have equal effects on productivity improvement as  3 700 USD increase in annual salary.

Sustainability in the Czech Republic

In many realms, the Czech Republic is doing well, a 2019 Europe Sustainable Development report placed the country on the 8th position amongst EU countries in performance on Sustainable Development Goals. Repeatedly, over 50% of market survey respondents indicate a preference of responsible products. Most Czech startups already consider sustainability in their products and services. Associations and NGOs such as Byznys for society or INCIEN gather their partner companies to exchange experience and generate new ideas.

When it comes to visible and easily marketed outcomes, we rule. But these are the aspects which reap only limited long-term benefits. Such long-term benefits include savings from efficient internal processes and waste management, preparedness for upcoming legislative changes in the EU, innovations which replace products with services, financially stable and well-monitored investments in environmentally responsible assets.

Developing a company-specific bussiness case

In addition to the “do the nice thing” rationale, the International Society of Sustainability Professionals (ISSP) identifies two other reasons for undertaking sustainability initiatives:

(1) capture opportunities; and
(2) mitigate risks.

It is the role of a well-designed business case to support these two with adequate and company-authentic data.

What is Sustainability and what it is not

Sustainable business practices focus on improving environmental, social and governance performance in areas of business interest or (and) impact. Building upon the so-called PPP (people, planet, profit) concept, sustainable initiatives do not cause harm while staying profitable, at least in the long term. Traditional CSR activities, such as classical non-expert volunteering which generates minimal value for both internal and external stakeholders is often excluded from this definition.

A result of this exercise helps companies in making well-informed decisions, address blind spots and capitalize on strengths. It can be called an ROI, a financial analysis, a future-fit assessment but most importantly, it must “speak the company language“.

Communicating about climate change

The impact of climate change often becomes a dark topic to communicate. However, people have only a limited emotional capacity to absorb bad news before elevated negativity causes stories and engaging in solution-searching platforms stimulates motivation and feeling of control. For such complex projects, these are critical assets and need to be protected.

Engaging stakeholders

Most of the numbers needed as input data are difficult to mine, predict or guess. Getting them requires an in-depth knowledge of the company and its internal processes and most importantly cooperation across hierarchies and departments. Sustainability is a cross-cutting issue and as the experience with implementing gender-responsive initiatives teaches us, we know that they work if implemented, but they hardly ever get to the phase of full-scope implementation. Therefore, if time is taken away from busy people, it must be worth it.

As common wisdom says, it is good to undervalue and overperform, an approach which can help sustain a good reputation of all sustainability-minded projects. This is the more important in case when drafting of the business case requires complex inputs across departments. Therefore, the data gathering and processes of developing a business case for sustainability have to serve primarily as trust-building exercises which build a ground for cooperation on addressing sustainability gaps in the future rather than a show off for the marketing department.

Deloitte Green: Overview of our services

  • Development of a company-specific business analysis for sustainability.
  • Non-financial reporting in the area of ESG (Environment, Social and Corporate governance).
  • Complete review of internal processes in support of preparedness for regulatory changes, e.g. Single-use plastics directive, Action Plan for Sustainable Finance.
  • Supply chain monitoring.
  • Complete documentation for the management of risks arising from climate change and communication with local and EU authorities.
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