Climate change, population growth, resource scarcity and species extinction are some of the challenges faced by our world today. Despite the increasing demand among stakeholders for higher transparency on the way that businesses manage environmental, social and governance issues, there is still skepticism as to whether investing in sustainability gives companies a real competitive advantage.
The fight to save our planet has turned into almost a ‘pitched battle’ between governments and companies; companies and NGOs and at times NGOs and governments says Nidumolu, Prahalad and Rangaswami (2009) . They argue that this relationship resembles that of a three-legged race; ‘where you might feel that you are moving forward with two untied legs but the third tied leg holds you back’. These entities are often engaged in intense debate as to what is the most effective way forward to achieve sustainable development: Is it through tougher regulation? Or more educational campaigns to raise awareness among consumers hoping that this would put pressure on businesses? Given the mixed evidence in the academic literature (where some studies have found a positive association between sustainability and financial performance while others have found either a negative or neutral association), a vast majority of executives would argue that a trade- off has to be made between selecting larger social impacts and the financial costs of doing so.
Yet, this perception might not be true as there is a growing body of research that shows sustainability has been the root of organizational and technological innovations which impacts positively on companies’ bottom line. For example, Cisco had traditionally regarded used equipment it received as scrap and recycled it at a cost of $8 million per year. In 2005, a dedicated recycling unit was set up with clear objectives. The reuse of equipment rose from 5% to 45% in 2008 and the recycling costs fell by 40%. Procter and Gamble conducted life-cycle assessments to calculate the amount of energy to use its products. They found that through the use of cold –water washing, the use of electricity will be reduced significantly and begun the journey of developing cold-water detergents.
Indeed, sustainability is a key driver for innovation. The Copenhagen Convention Bureau further illustrates how sustainability can play a role in driving innovation:
1. Sustainability promotes increased efficiency- This entails exploring and changing product designs to reduce input of materials and wastages as with the aforementioned companies. Businesses will work towards improving their operations and processes to become more efficient. Sustainability thinking helps to prompt the question of what can be done to reduce the footprint of the final product.
2. Sustainability breaks silos and promotes collaboration: achieving sustainability is a global challenge and a need which can only be tackled through partnerships and alliances. Typically, such collaborations would exist between suppliers, customers or even competitors who are willing to innovate to achieve a greater outcome.
3. Sustainability drives businesses to move from tactical to a strategic and innovative culture: We live in a world where resources are constrained. Businesses that thrive are those which have the vision to find ways to use resources more efficiently and disrupt the market. For some businesses, change is almost constant and innovation defines their organizational culture.
Dr Renard Siew is a researcher based at the Centre for Energy and Environmental Markets (CEEM). His research interest lies in sustainability/ integrated reporting, ESG research, socially responsible investment (across different asset classes: equities, infrastructure and property/real estate), climate change, sustainability strategy and green construction for the building/infrastructure sector. Renard did his PhD at UNSW with the support of the Australian Postgraduate Award (APA) Scholarship. He has published in international refereed journals on various sustainability issues in Asia.