Through the use of case studies and historical anecdotes of corporate evolution, this article explains the importance of sustainable investing for the long-term success of a business.
Walmart is an American retail corporation with more than half a trillion dollars in revenue in 2022 alone; by finding a way to invest capital to save in the long term, this blue-chip incumbent is counterintuitively at the forefront of sustainability investment. To explain, before 2005, no companies had publicly sought out or invested in large-scale solar energy, even though solar panels had existed for at least 50 years prior. No one was willing to run the numbers for themselves until Walmart came along. In 2005, Walmart installed its first solar roof on one of its trademark retail stores in Mountain View, California. Over the next x years, they would install 105 megawatts of solar panels across 327 stores and distribution centers (enough to power 20,000 homes), making them the top private investor in solar panels among all corporations by 2007. Walmart would continue to launch new energy-saving initiatives that would get them noticed by many notable figures for their work in sustainability. Obama quotes: "A few years ago you decided to put solar panels on the roof of the store. You replaced some traditional light bulbs with LEDs. You made refrigerator cases more efficient. And you even put in a charging station for electric vehicles. [...] More and more companies like Walmart are realizing that wasting less energy isn't just good for the planet, it's good for business. It's good for the bottom line." (2008)
At this point, three years after Walmart began their energy-saving investments, they had begun to see a return in millions of dollars of savings. Despite the financial incentive for their investment in energy efficiencies, Walmart also became a new, unlikely face of sustainability, especially when sustainable development was still a less popular field at the time (the first class of sustainable studies majors graduated in 2011 from Columbia). Walmart's slogan of "Everyday Low Prices" doesn't give it a reputation as a leader in sustainability it implies the opposite. The scale and price control through capital that Walmart possesses is only practical in a business model that necessitates mass consumption. Not only that, but Walmart is especially sustainable when it comes to worker wages and working conditions; it was difficult to foresee the president complimenting Walmart’s means of investment. But these energy investments and PR initiatives led Walmart to where they are today, a seasoned corporation in renewable energy investment, setting a goal for total renewable energy for all retail stores and operation facilities by 2035. Walmart has also set out to encourage and even financially support renewable energy investments for their suppliers. For example, Walmart’s suppliers can opt into power purchase agreements (lowered fixed rate for mass purchases of solar panels) in partnership with Project Gigaton initiatives (a commitment to reducing a gigaton of GHGs by 2030).
Walmart has provided not only an ongoing case study but an outline for other large corporations to follow to invest in renewable energy and reap the PR benefits of sustainable investments, which immediately set the course for other corporations to follow.
While Walmart acted as a pioneer for corporations at the time and since then, many companies, large and small, have adopted similar strategies to develop and integrate financial sustainability within their organization. While this can take the form of many, many initiatives, here are the reasons why investing in sustainability helps companies in the long term.
Risk Management
Social and environmental business risks are primarily seen over the long term. As a result, risk management for these factors — such as water management, local residents, or property safety concerns — requires investments in adaptive and capacity-building strategies to anticipate what is largely outside of the companies’ scope of control.
For example, take Coca-Cola, another large corporation that was forced to shut down all production in 2004 due to a water shortage in their production plant in India, which held them liable to damages costing upwards of 47 million dollars. Since then, Coca-Cola has invested over 1 billion dollars in water treatment and water quality for all Coca-Cola facilities. All water and related risks create stranded assets, which are assets that become obsolete with legal due process or new regulations, which could happen to oil, gas, soda, or any other water-processed goods if new water regulations were to be implemented due to scarcity or contamination. While Coca-Cola learned its lesson after the fact, companies invest in risk assessments to prevent unrecoverable circumstances; the aggregate of risk management nearly guarantees a margin of revenue that is less profitable overall but also less ‘risky’.
Improving risk management comes from optimizing products, which starts at the supply chain. The majority of businesses, especially supplier companies are either directly or indirectly vulnerable to natural disasters, climate change, water security, or even non-environmental, unsustainable practices such as poor labor conditions, civil conflicts, wage inequity, etc. that can disrupt the supply chain. In a survey of 8,000 supplier companies that reported their personal risks to climate change, 72% stated operations, revenue, and social risks were all factors that could be severely affected by climate change.
Financial Performance
Environmental, social, and governance (ESG) sustainability operational efficiencies can lead to significant cost reductions and create social cohesion within a company. Internally, improving operational efficiencies and management of natural resources can lead to upwards of 80% in returns. For example, by investing 2 billion dollars in resource consulting, Dow has saved an estimated 10 billion dollars in energy efficiency and waste/wastewater consumption during manufacturing.
During the 2008 recession, companies that committed to sustainable practices were the most successful. Sustainable companies, especially in the energy sector, are the most stable in recessionary environments. Companies that cut environmental initiatives and other sustainable practices are frequently among the first to declare bankruptcy within the recession period (as a matter of notable correlation). While ESG investing has been a growing conversation, there are still nuisances even among the most sustainable companies. Of the three components of ESG (environmental, social, governmental), companies usually succeed in only one aspect, if any. Oil companies still extract millions of gallons of oil, but serve as impressive outlines for corporate sustainability or sustainable practices within their company (aside from the supply chain obviously), or travel companies that promote social equity but merely encourage their customers to be more environmentally sustainable. Sustainability during times of recession is a strategic imperative, seeing that companies focused on sustainable development on average lasted more often and recovered faster from the recession than unsustainable companies.
Company Appeal
Sustainability is a good look for any company to customers, suppliers, and especially talent. 73% of consumers between the ages of 14-25 prefer to spend on sustainable products. Also, among the employable Generation Z, 49% said they make career choices based largely upon their personal ethics (most of which align with sustainable development). 44% of millennials claimed the same thing.
Employees who chose a company based on sustainability ethics also perform better once at the company. Likewise, once a company integrates sustainability initiatives and inclusive culture, they tend to see a rise in productivity by at least 22%. The same study shows that there is a 27% higher profitability for companies that integrate sustainability.
Public incentives
Tax credits, subsidized loans, cash grants, rebates, and other public incentives for clean production and consumption provide everyone the opportunity to transition into sustainable development initiatives and permanently refute previous economic theories by solidifying them at every business level. These incentives will provide the groundwork for a circular economy (a system where markets incentivize reusing products and ingredients). Governments have always done this to promote practices they deem universally beneficial. Instances of this incentivization have included home ownership in the form of insured mortgages, income tax deductions on the property, improving interest rates during the nuclear family era and on, or creating the need for automobile purchases by developing roads and highways in between communities. The strategy of providing public incentives for mass transition is based on virtually every case study there is on the subject, especially concerning the industry. Although not every public incentive is created equally, the strategy for a green economy must involve meticulous planning that follows equity metrics and is based on environmental justice. The majority of federal legislation that focused on green infrastructure in the last two years noted that most of the subsidies will go to low-income POC communities. While public incentive is beneficial, building new economies from infrastructure and business remodeling requires constant public investment, meaning the ideals of a green economy have to change just as much as business practice does. It is articles such as this one that provide the soft power transition to accelerate change—change that you, yourself, can support by working for sustainable companies, reinvesting in your community, or practicing sustainability in any way that you can.