The Economics Of... Sustainability
Sustainable culture has been brought to the forefront of consumer decision making, causing Fortune 500 companies and startups alike to learn the importance of sustainability for a growing business in the 21st century. Nielsen forecasts reported that “sales of products with sustainable attributes [made] up 22% of total store sales” in 2018. Consumers have driven this demand and seen the change in corporate marketing to emphasize ethical, organic options from grocery stores, service providers, and shopping malls. So, what definition of sustainability can a business follow in order to align itself with this evolution?
According to Investopedia.com, the three pillars of corporate sustainability are economic, environmental, and social. There is, therefore, a very literal overlap between economics and sustainability in a corporation’s management of assets and decision-making that comply with the standards of its environmental and social pillars. As discussed in my most recent post, “The Economics of… Philosophy,” the balance between morality and profit in business is an age-old debate that has gained particular traction in the new millennium. What, then, is the modern scale and context of sustainable business practices?
Corporate responsibility has become the new Business 101 as sustainability provides a competitive edge to corporations in all stages of growth. The 2018 Global Sustainable Investment Review from GSI Alliance claims that global sustainability investment has risen to over $30 trillion with compound annual growth of 80% globally (Europe, US, Canada, Australia/New Zealand, Japan) from 2014 to 2018, including 16% annually in the U.S. alone. Moreover, spending on sustainable consumer products in the U.S. was over $130 billion in 2018 (Nielsen). As the demand for these products rise globally and domestically, so does the pressure on corporations for strategic cooperation with sustainable practices.
Also referred to as a business’s ESG (environmental, social, and governance) concerns, the three pillars of corporate sustainability emphasize the importance of internal practices that comply with the law and stakeholders. Stakeholder value can range from increased profit-sharing to relationship-building with employees and external partners. According to the 2018 Mckinsey report on sustainability, the financial benefits of an ESG proposition stem from initiatives such as earning regulatory support (governance), increasing employee productivity (social), and reducing costs via energy efficiency (environment). Here we can see an overlap between the economic incentives that these improvements provide and the core values of social and environmental prioritization that are required for stakeholder value; each ESG concern feeds back into the others.
Predictably, the emphasis on sustainable consumption is generational and relies increasingly on technology in what the Environmental Defense Fund calls “Fourth Wave of Environmentalism.” The focus of Fourth Wave goes beyond policymaking and market-based solutions to implement artificial intelligence and data analytics to minimize resource consumption. As corporate sustainability suggests, these technologies and participation in ESG propositions are essential to remaining competitive in a developing economic landscape.
""Fourth Wave technological innovations, including artificial intelligence, [...] data analytics and sensors, allow businesses to lower resource consumption [...] and reduce waste — all while also boosting their bottom line."" -- The Environmental Defense Fund
Works Cited
Tim Koller, Tim. “Five Ways That ESG Creates Value.” McKinsey & Company, Nov. 2019,
www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/five-ways-that-esg-creates-value.
Beattie, Andrew. “The 3 Pillars of Corporate Sustainability.” Investopedia, Investopedia, 4 Dec. 2019,
www.investopedia.com/articles/investing/100515/three-pillars-corporate-sustainability.asp.
Environmental Defense Fund. “Business and the Fourth Wave of Environmentalism.” Environmental Defense Fund, 2019, www.edf.org/sites/default/files/Business-and-the-Fourth-Wave-of-Environmentalism_2019.pdf.
The Global Sustainable Investment Alliance. “2018 Global Sustainable Investment Review.” GSI
Alliance, 28 Mar. 2018, www.gsi-alliance.org/wp-content/uploads/2019/03/GSIR_Review2018.3.28.pdf.
“Sustainable Product Market Could Hit $150 Billion in U.S. by 2021.” Food Business News RSS, 10
Jan. 2019, www.foodbusinessnews.net/articles/13133-sustainable-product-market-could-hit-150-billion-in-us-by-2021.