The business value of sustainability is here

Andrew Winston gets a trifle – shall we say – frustrated when asked whether (and how) sustainability investments generate payback to the corporate bottom line. That’s understandable, given Winston has a passion for helping businesses see the value in sustainability and has spent the past 20 years in countless meetings, advising business leaders and answering that business case question. He has also authored or co-authored four books that make the case for sustainable business practices, including Net Positive: How Courageous Companies Thrive by Giving More Than They Take, written with former Unilever CEO Paul Polman in 2021.

The right question, Winston says, is “What value does sustainability generate for an entity over time?” He answers: “a great amount.” For example, the brand value for companies that make sustainable investments is immeasurable. Are your customers loyal? Do people want to work for you? Do communities welcome you? These metrics of brand value, in many cases, track directly to your sustainability efforts.

Winston is fairly hopeful for a person who contemplates the end of life on earth every day. One reason is that Winston has not seen a pulling back from sustainability investments and commitments recently – even with war, social unrest, and concerns about stubborn inflation. “It makes sense,” he says. “When investors, customers, and employees are all asking for progress on sustainability, chief executives are not going to pull back.”

And that gives Winston some cause for optimism. Increasingly, he believes, the corporate world is recognizing that doing right for the Earth and its people is also doing right for business (and vice versa).

Andrew Winston: There’s this really interesting base assumption that sustainability investments don’t pay off. And I challenge the whole question, because what’s strange about it is everything in business is an investment. Nothing is free. We make choices about capital investments and human capital investments every day. And business leaders have to make hard choices at times. But if you substituted in another word and said, ‘Well, how do we know that quality pays off? How do we know that R&D pays off? How do we know that marketing pays off?’ All those things cost money.

And so the question is, what value does it create for the business? And in some cases, how fast? For certain kinds of capital investments, people want very quick payback. If you invest to make your factory run more efficiently, you hope that pays back quickly, with a certain internal rate of return. But other things have always been long-term investments – your R&D, investments in your brand, investments in your people. Why is that question asked about sustainability versus all the other things?

But to answer more directly, sustainability creates value in all the ways anything else does.

There are a couple of big buckets that companies will find value in, things like cost savings, reducing your risk, driving revenues (that is, selling more stuff through innovation), and there’s building your brand. And brand value is not some kind of theory – it’s actually 80% to 90% of the market cap of the S&P 500.¹ So, your intangible value, which is a bunch of things – how loyal you are your customers, do people want to work for you, do communities welcome you – those things matter. And they’re enormous value creators.

There are other things you do under the name of sustainability that might be harder and more complicated, like looking at human rights within your supply chain, making sure there’s no child labor or slavery. Some of those things will cost more upfront. If people are not making a living wage, it will cost more to pay them more. But then it’s a different question. Don’t we want to stop doing things that exploit people in the name of maximizing profit? How good is it for the brand if we’re the only one still paying less or with human rights problems in the supply chain?

How does that make your customers or your employees feel? We live in a very transparent world. Increasingly, customers want to know everything about a product – where it came from, who made it, whether they were paid a living wage, and on and on. This sustainability story is the core of your brand and business story. And if you can’t tell a very good story, you’re not going to stay relevant for very long, and you won’t be profitable.

Winston: We used to talk about green washing, now it’s green hushing. Hushing means they’re going to continue doing the work of reducing their carbon footprint and innovating around sustainability – all the things that create value for them. They’re just not going to talk about it as much because they don’t want to tick off those who are politicizing it. And, in a way, I don’t care if they don’t talk about it that much. What matters is the work. What matters is whether, for example, carbon emissions are coming down, waste is being reduced, supply chains are becoming more humane, and so on.

But I do think it’s really risky for companies to publicly pull back just because Tucker Carlson or someone else is mad at them. I think they look silly. Take the recent blowup over M&Ms.² We start laughing because this is so absurd. It’s a candy, right? Yes, it’s happened repeatedly that people who are against what they see as change or the broadening and diversifying of society are very loud. But they’re actually a minority. And they hold a minority of the economy. Honestly, I think companies are going to keep going. I just can’t see business pulling back from things that are actually helpful to them. And we’re now seeing pushback from business – bankers in Indiana are lobbying against those state attempts to stop ESG investing.³ They still want to use ESG as a screen on risk and as a way to satisfy customers who want ESG funds.

Winston: I’ve been in this space for 20 years. I have mentors who’ve been doing this for 40 years. I’ve seen waves of recessions and global issues. In every kind of major downturn or global pressure, sustainability has taken a back seat. People have gotten fired, departments have shrunk. The pandemic was the first time that didn’t happen, and sustainability efforts actually accelerated. So, we saw a rapid increase in commitments on carbon reductions and on social issues like diversity goals. The fundamental reason for this is that the megatrends are real. Climate change is not a model in a spreadsheet to debate anymore. Everyone is feeling it, everyone is seeing it. Companies are feeling it directly in their value chains. If decarbonizing lowers your costs (which it does), makes you a better customer and supplier, and pleases employees, why would you stop doing it – no matter what’s going on?

With the invasion of Ukraine, we saw that countries – especially in Europe – needed to quickly get off Russian oil and gas. So there have been some short-term contracts for liquid natural gas from other countries. But it looks like countries are mostly accelerating their transition to renewables so they don’t have this problem again. A lot of what we call ‘sustainability’ is better in stressful times. Getting more efficient, for example, is core to sustainability, as is using less energy and water and producing less waste. These are things that help in tough times.

But it’s fair to say CEOs have a lot going on.

Winston: The stakeholder pressure from investors, customers, and employees – if any one of those groups is pressing hard on something, company leaders have to pay attention. And if all three of them are pressing on the same thing, you know it’s pretty serious. And investors have been asking a lot of questions. Business customers are demanding that their suppliers measure and report their carbon so they can talk about the impacts of their full value chain. And employees and young people are demanding this. All those forces are still accelerating.

The companies that are leading on sustainability are going to come out so much better if they continue to lean into this because their business is going to come out leaner, smarter, more resilient, and much more attractive. It’s a world where we’re at a 50-year low on unemployment,⁴ where competing for talent is everything – especially if a lot of your audience is in the tech sphere. It’s really hard to get the best talent, so you have to show you have values – that you’re doing what’s right. And that’s good for your business.

Winston: Investors tend to be split about this. They ask questions about quarterly profits. But they also ask a lot more questions relating to ESG, to systemic risk. I co-wrote my most recent book with Paul Polman, who ran Unilever for a decade. When he came in, he made sustainability core to the business. He stopped quarterly reporting to investors. Some left, then came back because the company was doing great. The investor pool changed over time to the ones who understood the long-term-value story.

And the planet has to be at the table as one of the stakeholders. It is what we rely on. We also have to think of future generations. There’s a really big, tough question of how do you bring the value of the future into today’s calculations? That’s the crux of what started sustainability as a concept 30 years ago. You’re doing things today that could sacrifice the ability of future generations to thrive. There’s a lot of belief in technology – in Silicon Valley –that will solve it all. But there are actual physical limits. There’s only a certain amount of fresh water in the world, there’s a certain amount of stable climate, and we’re using that up. The only thing that adds to the system every day is energy from the sun. Our entire society is going to depend on the sun, because wind power is also basically sun power. That will be how we power everything. The marginal cost of renewable energy is zero. It’s pretty hard to compete with zero.

Winston: The clean economy is coming way faster than most people can wrap their heads around. That means clean energy vehicles, zero carbon emissions, [technologies for] building efficiency, water efficiency technologies, new kinds of materials to replace plastics or reduce packaging. These things will drive jobs.

For example, there are far more people working now in solar and wind than in coal or natural gas. There’s only like, 60,000 people or so who work underground in coal mining now.⁵ That reduction has not been because of some war on coal; it’s been driven by the business itself as it got more efficient.

What’s the point of doing this work if I thought we were doomed? It’s always a mixed bag. We face serious climate challenges. There are going to be problems, there’s going to be pain, but a couple of things are moving pretty inexorably. The clean economy is one of them. We’re now past it being seen as a “green” thing or the “right thing” or whatever. It’s just flat out cheaper. I’ve talked to the CEO of the biggest utility in the U.S. This company used to be the biggest carbon emitter in the country – one of the biggest in the world. Now it’s moving very quickly to all renewable. I said to him, “It’s just because it’s cheaper, right?” He’s like, “Yeah.” It wasn’t a complicated conversation.

Winston: It isn’t, but businesses have always had to change the way they operate, or they don’t stay relevant. My father worked at IBM for 35 years, starting with mainframe computers and typewriters and then helping develop the first PC. IBM could have stuck with typewriters, but they wouldn’t have lasted. Famously, Blockbuster did stick with what it knew – physical videos – and it faltered and disappeared after the emergence of no-late-fee rentals and line video streaming. Companies always have to change the way they operate, because there is no status quo, and there are different and better ways to operate. And, once the norms change about what society expects of a company, there’s no going back.

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