How sustainability and ESG programs drive results to the bottom line

Sustainability and ESG programs are not just current business trends – if executed properly, they can help increase profitability.

In brief

• To maintain current customers and attract new customers, all businesses today must consider sustainable practices.
• A well-designed sustainability operating model enables an enterprise to act responsibly while also reducing costs and driving growth.

Sustainability and environmental, social and governance (ESG) are two of the most popular terms used within corporate America in 2022. Few topics are discussed more at the C-suite and board levels, and with pressure coming from stakeholders, government regulators, shareholders and customers, they are clearly a corporate priority.

We often accept ESG programs as a necessity and assume there will be higher costs to accommodate these initiatives. However, sustainability programs can be a platform to drive profitability. Asset management, production and operations leaders have the chance to not only do good, but also drive down costs and increase top-line growth through more sustainable operating practices.

EY research shows that sustainable operations aim to reduce waste and costs, eliminate unnecessary processes and harmful materials, increase worker safety, and minimize potential downtimes of critical services with improved asset performance and increased profitability through a more efficient use of resources, time and people.

Properly maintained equipment operates more efficiently and generates less waste. In addition to driving down costs, organizations that market their sustainable operations will improve their connection to consumers and increase growth.

Sustainability from the top down

To capture the next generation of customers and stay one step ahead of an increasingly competitive market, organizations are leveraging ESG as a strategic business opportunity. Not only are customers more concerned with a product’s environmental footprint, but board members are also sensitive to a market where clients expect products and services produced with sustainability in mind.

Board discussions today focus on sustainable solutions that are designed to satisfy the “triple bottom line” of people, planet and profits. They know a sustainable operation will keep organizations relevant in the market and that sustainability can produce profits in both the short and long term.

And today, boards are committed to strategies that are sustainability-related and executed with a clear line of sight to meet key performance indicators. These include the ability to sell as a recognized organization that promotes sustainability while reducing operational costs and risks to bolster margins on products and services.

How to build a more resilient business model

A sustainable business model is one that not only cares for the environment and its people, but one that is resilient and able to adapt to regulatory and market conditions. A business model aligned with sustainability also yields benefits that in turn may improve profitability, including:

• Improving brand image and developing a competitive advantage
• Increasing productivity and reducing operational costs
• Increased ability to comply with regulations
• Attracting employees and investors
• Reducing waste and increasing recycling
• Making shareholders happy
• Increased ability to measure performance, assess opportunities and quickly try out new solutions

Organizational performance reporting helps to reduce costs, attract investment and increase public perception. Sustainability efforts can help improve outcomes with investors, regulatory agencies and insurance companies by helping to improve the public perception of the organization.

An increasing number of investors require indices that are aligned with their investment objectives and their personal or institutional values. What’s more, indices like the S&P 500 ESG (SPG Global) provide investors the framework to evaluate organizations.

As an organization shifts to a sustainability mindset, employees need to be freed up from mundane tasks and empowered with quality information to make data-driven, informed decisions to meet committed performance indicators. 

Going the distance with sustainable practices

In today’s environment, embedding sustainable practices across an organization’s portfolio and culture demonstrates a commitment to leading practices in asset management toward sustainability. With clear information that can represent how an organization works in balance with sustainable practices, companies can elevate themselves to market leaders.

As organizations commit and dedicate efforts, morale and productivity will improve even as sales increase and costs decrease. It’s the ultimate win-win achievement for shareholders, consumers and employees.

Sustainability is the key to people, planet and profits. With pressure coming from stakeholders, including governments, regulators, shareholders and customers, the enterprise must include sustainability in its long-term strategy.

In the short term, many organizations are willing to accept the higher cost of goods sold to support ESG initiatives. Some leaders view this as a requirement to survive given the pressures coming from their customers. Ultimately, organizations that can drive down costs through more sustainable production and operations will not only survive but will emerge as leaders in both top-line growth and having tremendous impact to the bottom line.

A crawl, walk, run approach is recommended to achieve profitability with sustainability

Jay Ratliff, Senior Manager, Ernst & Young LLP, and Jaime Porto, Manager Ernst & Young LLP also contributed to developing this article.