Is it possible to achieve both profitability and sustainability or are businesses forced to choose between the two? No doubt profits are the inevitable target for any business strategy. But what if the key to long-term business success lies in rethinking how we balance profitability and sustainability? Enter green strategies.
Finding the Right Balance Between Sustainability and Profitability
In today’s corporate environment, adopting a green strategy is about balancing sustainability and profitability rather than prioritizing one over the other. Since striking this balance may boost long-term viability, competitiveness, and brand reputation, companies must include sustainability in their respective strategies in a way that maximizes profitability.
Businesses that put sustainability first frequently aim to enhance procedures and provide more effective goods. Early adjustments like adopting eco-friendly materials, embracing digitalization, and implementing recycling programs can be included in long-term planning to help reduce hazards before they become too expensive. Moreover, monitoring progress toward long-term sustainability goals and short-term profitability goals makes it easier to spot discrepancies and implement corrective measures.
By adopting a holistic approach that aligns environmental responsibility with business management strategies, companies can ensure steady profits over time while maintaining a commitment to sustainability. Careful consideration of these factors allows businesses to thrive financially while acting responsibly.
Nowadays, sustainability has grown to incorporate business operations, inequality gaps, shipping, transportation, and drastically reducing carbon emissions rather than just tracking them and monitoring climate change. With this, balancing sustainability and profitability has become more challenging.
This balance requires significant investments that may not yield immediate financial returns. Achieving sustainability also requires a commitment from all levels of an organization, from leadership to employees, and requires time and resources over several years.
Moreover, neoclassical economics, a philosophy associated with the technocentric paradigm, emphasizes short-term financial gains over long-term sustainability, assuming that technological progress will always offset resource degradation. This mindset, commonly adopted by stakeholders—particularly investors—continues to shape many practices and prevent the widespread adoption of sustainable approaches. However, the gap between formulating and implementing green strategies presents a critical opportunity to challenge this mindset.
Green strategies allow companies to directly confront the shortcomings of neoclassical economics by showcasing the observable, long-term advantages that come from sustainability. The implementation process shows that technological solutions alone cannot stop environmental deterioration, and that resource preservation and profitability may coexist with sustainability initiatives. Businesses are challenging the neoclassical focus on short-term benefits by adopting sustainable practices and demonstrating that sustainability over the long term is a necessary component of profitability. They also demonstrate that these initiatives could eventually generate financial success.
Sustainability Transformation Strategy
Companies with high sustainability goals require astructured transformation strategy to overcome challenges. During the transformation process, businesses need to address several issues that hinder change, such as initial costs, supply chain difficulties, consumer preferences, regulations, awareness gaps, impact measurement, reporting requirements, competing priorities, and stakeholder engagement. Consequently, triple bottom line (TBL) and Environmental, Social, and Governance (ESG) frameworks were developed to incorporate and address these multifaceted issues. They promote a balanced approach by emphasizing key factors such as transparency, credibility, stakeholder engagement, and continuous improvement.
People, planet, and profit are the three dimensions that TBL uses to evaluate a company’s success, taking into account social and environmental aspects in addition to financial outcomes. ESG, on the other hand, provides a more structured set of standards by which investors may assess a business’s long-term risks and possibilities concerning governance, social responsibility, and environmental impact.
These frameworks view sustainability and profitability as complementary rather than conflicting goals by focusing on the four pillars of sustainability. Therefore, for these frameworks to be effective, then several factors must be taken into account: transparency, relevance, credibility, measurability, continual development, and stakeholder participation. Due to a track record of proven success, many multinationals like Unilever, Amazon, Ikea, Google, and Microsoft have embraced these frameworks.
Leveraging Innovation for Strategic Advantage
Fostering an innovative culture and being prepared to invest in new technologies that promote sustainable growth are additional solutions for overcoming challenges and ensuring much-needed balance. Sustainable innovation guarantees that a company can stay competitive while contributing positively to the environment.
As a result, a contemporary notion dubbed sustainable innovativeness arose, which consists of using new solutions (new products, new technology, and new modes of organization and management) in all areas during sustainable strategy formulation. This concept led to the development of sustainable business model innovation (SBMI), which integrates sustainability into a company’s operations to unlock potential. The case study of the Unilever Sustainable Living Plan (USLP) can serve as a successful example of sustainability-driven profit through innovation.
Introduced in 2010, the USLP aims to increase positive social impact and separate commercial growth from environmental effects. The plan has driven business growth and profitability, with ambitious goals for 2030. The USLP’s success is attributed to its commitment to transparency, collaboration with NGOs, and investment in innovation. Unilever has inspired a wave of change across the consumer goods industry, with competitors increasingly embracing sustainability practices.
Another successful example is Hitachi, a global leader in innovation and technology. Hitachi’s long-term growth is fueled by R&D, sustainability, and collaboration. The company invests in new technologies, reduces emissions, and promotes ethical sourcing. Cross-functional teams drive innovation and value creation. Hitachi prioritizes talent cultivation and organizational resilience, maintaining a competitive edge and ensuring sustainable growth.
Thriving in an Eco-Conscious Market
Sustainable strategy formulation is not just about ethical responsibility—it is a smart business move that safeguards profitability and helps position leaders in an increasingly eco-conscious market. Businesses may set themselves apart by including sustainability in their main plans by utilizing frameworks such as ESG and TBL. Green strategy innovations, such as circular economy principles and eco-friendly materials, not only prepare operations for the future but also provide the groundwork for steady profitability. Businesses may maintain their competitiveness, resilience, and responsibility as stewards of the environment and sustain their profits by implementing a comprehensive strategy that combines sustainability and profitability.
Change is never easy. It disrupts patterns, habits, and expectations. But while it brings about a sense of discomfort, it also invites one to explore new perspectives, practices, and values. Whether at the personal, societal, or organizational level, change is an essential element of progress.
The complexity of change is no exception to sustainability reporting, which requires companies to measure and disclose their social, environmental, and economic impacts. Companies make significant changes in their operations, culture, and stakeholder relationships. When done right, sustainability reporting is crucial to achieving long-term viability, competitive advantage, and social impact.
The sustainability report, as Global Reporting Initiative (GRI) CEO Eelco van der Enden puts it, “is the end of a long journey of transactions and actions that define the company’s approach to sustainability.” With over 30 years of experience in financial and sustainability senior management roles, Van der Enden assumed the position in 2022, coinciding with the 25th anniversary of the GRI. Before becoming CEO, he was senior partner at PwC leading the ESG platform for tax, legal, people & organization, served on the GRI Board, and was chairman of the Tax Policy Group of Accountancy Europe.
In an interview with Cristina Mihailoaie, business unit manager of The KPI Institute’s Research Division, Van der Enden emphasized the growing recognition of the GRI brand among the users of the standards, from accountants to regulators. He also noted the widespread acceptance and rapid evolution of sustainability reporting in conjunction with the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG).
Why Sustainability Matters
According to KPMG’s survey in 2022, 96% of G250 companies (the world’s 250 largest companies by revenue based on the 2021 Fortune 500 ranking) and 79% of N100 (a worldwide sample of the top 100 companies by revenue in 58 countries, territories, and jurisdictions) report on sustainability or environmental, social, and corporate governance (ESG) matters. Of the top 250, 78% use the GRI standards.
Among the surveyed companies, 75% in the Americas, 68% in Asia-Pacific and Europe, and 62% in the Middle East and Africa use the GRI’s reporting standards. However, Van der Enden stressed that there is still an uneven adoption of sustainability practices across different regions. He cited Europe as an example, with the Netherlands having a low rate of 20.25%, while Italy and Turkey boast a 90% rate.
The rising popularity of sustainability reporting is driven by various factors, including capital markets and investors. Van der Enden explained that institutional investors are concerned about sustainability and managing sustainability risks and risks related to socioeconomic factors, such as workplace safety and climate issues. In addition, companies face reputational risks from society, employees, suppliers, and clients. He said that to mitigate these risks, companies must reassess their supply and value chains and adopt more sustainable business practices, especially with the current reorientation to new suppliers.
By demonstrating its commitment to sustainability, a company can establish trust and credibility among stakeholders. Other advantages include attracting and retaining talent, strengthening brand identity, and enhancing reputation. Being a pioneer in an industry will bear risks but also high rewards. When an organization engages in sustainability reporting while its competitors do not, this represents a significant competitive advantage, according to Van der Enden.
Reporting on sustainability is more than just meeting compliance standards. It can drive changes in the organizational culture. Furthermore, Van der Enden supports mandatory sustainability reporting and legal regulations because, in his experience, it can drive systemic change. “The best way is to regulate it in. If possible, establish a global comprehensive baseline constraint, and then enact it into national law to change the mindset and behavior of companies.”
Sustainability Reporting Is Important Regardless of Organizational Size
Although larger companies may have more resources to invest in sustainability reporting, small and medium-sized enterprises (SMEs) cannot afford to overlook it. Van der Enden explained that SMEs are integral parts of the supply chain. With this, sustainability reporting is not only essential for demonstrating their own commitment to responsible practices but also for meeting the demands of larger companies and consumers for sustainable practices.
“This trickle-down effect highlights the importance of education and training for understanding the entire supply chain, especially for smaller enterprises that provide necessary goods, tools, and services to larger organizations,” he said.
According to Van der Enden, SMEs need to prioritize sustainability reporting to remain competitive in the global market, as manufacturers receive requests from clients in Europe and the US to provide information on their sustainability practices and report on their social and environmental impact. “If you cannot provide this information to your clients, you will lose the contract to those competitors that can.”
Challenges in Sustainability Disclosure
When asked about the challenges companies face regarding sustainability reporting, Van der Enden highlighted the selection of key performance indicators and data gathering. He emphasized the importance of having a data extraction system to easily obtain relevant information.
To ensure best practices in sustainability reporting, the CEO provided three recommendations. First, he suggested speaking with colleagues from other organizations who have already undergone the reporting process and used the GRI. Second, he recommended exploring the GRI Academy’s training programs. Lastly, he urged organizations not to be afraid of sustainability reporting, as it is becoming increasingly common and necessary.
“If you decide to report, do it well,” he advised. “Misrepresenting impacts is as bad as misrepresenting financial data, and we all know that misrepresenting financial data is usually seen as financial or bookkeeping fraud. Sustainability reporting is an investment, and it will prepare you for what is to come.”
Collecting and reporting is just one part of the equation, as organizations need to learn how to use data for performance improvement. Van der Enden’s point of view on education is that there is still a significant gap to close, although the topic is not necessarily recent.
“I think that the interesting part is that people who work in compliance and administration still regard sustainability as something extra, on top of what they have to do, and they do see it as a holistic model, as part of everything else they do,” said Van der Enden. This outlines the need for more education among professionals to change their mindset first and then their practices. He stated, “You need to have a good understanding of your supply chain, your manufacturing processes so that one can truly grasp the depth and ramifications of sustainability for your business.”
In January 2022, the European Commission published The European Sustainability Competence Frameworkor GreenComp. It identifies a set of sustainability competences to feed into education and training programs to help learners develop knowledge, skills, and attitudes that promote ways to think, plan, and act with empathy, responsibility, and care for the planet’s and the public’s health. GreenComp also aims towards business growth and development as the niche of sustainability-driven businesses is growing fast.
At a policy level, GreenComp is an initiative from the European Green Deal as a catalyst to promote learning on environmental sustainability in the European Union. It also provides a common ground to learners and guidance to educators, specifying a consensual definition of what sustainability as a competence entails. Moreover, it was created to support education and training programs, including lifelong learning.
Building on this foundation, GreenComp may be used by corporate trainers to translate the sustainability strategy of their companies into training content and programs. This approach may help the employees and other stakeholders to act for sustainability. As a result, learners may become systemic and critical thinkers, as well as develop agency, and form a knowledge basis required for caring about the planet’s present and future state.
Furthermore, cultivating sustainability competences among employees may enhance innovation and adaptability at an organizational level and may also support the CSR strategy.
Main Concepts Definition
Sustainability is defined as “prioritising the needs of all life forms and of the planet by ensuring that human activity does not exceed planetary boundaries.”
A sustainability competence empowers learners to embody sustainability values and embrace complex systems to take or request action that restores and maintains ecosystem health and enhances justice, generating visions for sustainable futures.
Learning for environmental sustainability aims to nurture a sustainability mindset from childhood to adulthood with the understanding that humans are part of and depend on nature. Learners are equipped with knowledge, skills, and attitudes that help them become agents of change and contribute individually and collectively to shaping futures within planetary boundaries.
GreenComp consists of four competence areas that correspond to the definition of sustainability and each competence area contains three competences. In total, 12 sustainability competences taken together to make up the building blocks of the sustainability competence for all people.
As illustrated in Figure 1 below, the competence areas and competences are numbered for reference purposes. This does not imply a sequence of acquisition or hierarchy as all 12 competences are equally important. As such, learners are encouraged to develop all of them.
The four competence areas are intertwined, and sustainability is a competency that encompasses all four. The 12 sustainability competences are also linked and interconnected and should be considered as a whole. While we encourage learners to acquire the 12 competencies, they are not needed to have the highest level of proficiency in all of them, nor do they need to have the same level of proficiency in all of them. Indeed, GreenComp suggests that sustainability as a competency is comprised of 12 components. Each of the 12 competences is further described in learning outcomes in terms of knowledge, skills, and attitudes. There are 169 learning outcomes in total.
How Businesses Can Use Greencomp
GreenComp can be used in many ways in the business environment, especially through training programs targeting the employees, as well as mentoring and coaching programs targeting the leadership level. Here are some examples:
Development and execution of CSR strategies. GreenComp may provide a framework for a holistic, integrated approach.
Development and execution of Innovation strategies. GreenComp may set a common working framework for discussions and initiatives where any employee who wants to contribute can do so.
Business development. GreenComp can serve as a compass in finding new business opportunities and new business partners in the niche of sustainability-driven businesses.
Corporate sustainability (CS) represents a business approach that creates long-term shareholder value by embracing opportunities and managing risks derived from economic, environmental, and social developments, Yale University states. Organizations are increasingly realizing that their long-term success and profitability depend on measuring the financial impact of CS initiatives for several reasons: enhanced risk management, increased cost efficiency, greater investor demand, and improved brand reputation—ideas that were highlighted in a 2022 paper from the International Journal of Economics and Management.
The NYU Stern Center for Sustainable Business developed the Return on Sustainable Investment (ROSI™) framework as a methodology used to evaluate the financial performance and returns generated from sustainability initiatives. It aims to measure the economic benefits derived from sustainability investments and assess the value created for the organization.
ROSI™ assists decision-making processes, resource allocation, and the prioritization of sustainability investments based on their potential financial returns. The framework also facilitates communication with stakeholders (i.e. investors, customers, and employees) by quantifying the financial value created through sustainable practices. The sustainability drivers of financial performance and competitive advantage based on ROSI™ methodology can be consulted below (see Figure 1).
Entities need to follow a clear set of steps to implement the ROSI™ methodology, per The NYU Stern Center for Sustainable Business:
Identify material sustainability practices.
Determine the potential benefits that might drive financial and societal value from sustainability-focused practices.
Quantify benefits derived from the sustainability practices.
Derive a monetary value for the benefits.
The main advantage that ROSI™ brings is helping companies make a compelling business case for sustainability, driving both financial value and positive societal impact while advancing sustainability goals, as NYU Stern concludes in a report published in 2021.
HSBC Bank USA and the NYU Stern Center have launched the Food and Agriculture Sustainability Strategies Framework, based on ROSI™ to help food and agriculture companies make a business case for sustainable initiatives that deliver financial value and societal impact. The framework identifies twelve sustainable strategies and describes practical suggestions for calculating returns. It serves as a strategic tool for unlocking the advantages of sustainability and driving real change in the industry.
According to Forbes—and adapted to adhere to The KPI Institute’s KPI naming standards—% Return on investment (% ROI) is a KPI that measures the efficiency or profitability of an investment or compares the efficiency of several different investments. This metric is also used to measure and evaluate the financial impact of organizational sustainability initiatives, making it easier to understand the value proposition of certain environmental, social, and governance (ESG) criteria used in socially responsible investing. A positive % ROI score indicates a profitable outcome, as the gains generated from the investment exceed the costs incurred (see Figure 2).
An article from Brightest presented findings based on data gathered between 2020 – 2023 from five top companies that measure the ROI of sustainability. It stated that companies like HP Inc. ($3.5B), Unilever ($1.2B), McKesson ($227M), Nike ($50M), Anheuser-Busch ($7.5M), and Medtronic ($2.2M) earned extensive profit from internal cost savings actions based on sustainability criteria like energy efficiency or waste reducing. By demonstrating the financial value of sustainable practices, % ROI enhances the business case for social investment and encourages stronger ESG administration, balancing monetary performance with social and environmental impact.
ROSI™ and % ROI are valuable tools for measuring the financial impact of sustainability initiatives. ROSI™ goes beyond traditional metrics, helping companies understand the value of sustainability strategies. Meanwhile, % ROI quantifies the fiscal returns generated, enabling data-driven decision-making. Together, they support making informed choices, practicing accountability, and leaving behind a positive environmental and societal impact while delivering long-term financial value.
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Editor’s Note: This article was originally published on August 14, 2023 and last updated on September 17, 2024.
The EFQM Model, or the European Foundation for Quality Management (EFQM) Excellence Model, is a globally recognized management framework that allows organizations to achieve success by measuring where they are on the path toward transformation. The EFQM Model helps them understand the gaps and possible solutions available and significantly improve an organization’s performance.
The excellence also recognizes the role that organizations play in supporting the goals of the United Nations (UN). Those goals have also helped to shape the latest edition of the EFQM Model. It covers the UN Global Compact (ten principles for sustainable and socially responsible business) and the UN 17 Sustainable Development Goals, which are a call to action for all countries to promote social equity, sound governance, and prosperity while protecting the planet.
The strategic nature of the EFQM Model, combined with its focus on operational performance and results, makes it the ideal framework for testing the coherence and alignment of an organization’s ambitions with the future and referenced against its current ways of working and its responses to challenges and pain points.
The EFQM Model in 2020 has seven criteria:
Purpose, vision, and strategy: An outstanding organization is defined by a purpose that inspires, a vision that is aspirational, and a strategy that delivers.
Organizational culture and leadership: Organizational culture is the specific collection of values & norms that are shared by people and groups within an organization that influences, over time, the way they behave with each other and with key stakeholders outside the organization.
Organizational leadership relates to the organization as a whole rather than any individual or team that provides direction from the top. It is about the organization acting as a leader within its ecosystem, recognized by others as a role model, rather than from the traditional perspective of a top team managing the organization.
Engaging stakeholders: Having decided which stakeholders are the most important to the organization, i.e., its key stakeholders, and independent of the specific groups identified, it is highly likely that there is a degree of similarity in applying the following principles when engaging with key stakeholders.
Creating sustainable value: An outstanding organization recognizes that creating sustainable value is vital for its long-term success and financial strength.
Driving performance and transformation: Now and in the future, an organization needs to be able to meet the following two important requirements at the same time to become and remain successful.
Stakeholder perceptions: This criterion concentrates on results based on feedback from key stakeholders about their personal experiences of dealing with the organization – their perceptions.
Strategic and operational performance: This criterion concentrates on results linked to the organization’s performance in terms of the ability to fulfill its purpose, deliver the strategy, and create sustainable value.
Nowadays, an organization’s primary focus is to maintain continuous business development and the high satisfaction of its stakeholders while facing the pressure to reduce resource utilization and changes in the business ecosystem. Hence, the way organizations cope with competitiveness, data processing, and customers’ needs and taking a proactive approach in the market have become the main concerns in their strategic agenda.
By benchmarking themselves against their environment, organizations learn how to better position themselves in the market and assess their performance levels compared to their competitors, and secure sustainability based on the three world-known sustainability pillars: society, environment, and economic.
Ultimately, the application of a sustainability strategy enables a recalibration of improvement initiatives and strategic approaches to provide better products and services while using fewer resources to benefit the planet, the economy, and society.
Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars: economic, environmental, and social, also known informally as profits, planet, and people.
Sustainability encourages businesses to frame decisions in terms of environmental, social, and human element impact for the long-term rather than on short-term gains, such as next quarter’s earnings report. It influences them to consider more factors than the immediate profit or loss involved. Increasingly, companies have issued sustainability goals, such as a commitment to zero waste by a certain year or to reduce overall emissions by a certain percentage.
The ultimate framework of sustainability is described in the UN Sustainability Goals, which set targets to be realized by 2030. Countries have announced their Sustainability Goals and are expected to be followed by leading organizations. Those organizations would design their own Sustainability Strategic Objectives to align with those of the UN SDGs.
The UN Sustainable Development Goals Agenda is a plan of action for obtaining 17 improvement objectives for society, environment, and prosperity by 2030. The Sustainable Development Goals and targets are integrated, indivisible, global in nature, and universally applicable, taking into account different national realities, capacities, and levels of development and respecting national policies and priorities.
The Sustainability Accounting Standards Board (SASB)’s Materiality Map determines sustainability issues that are likely to affect the financial condition or operating performance of organizations within an industry. SASB identifies 26 sustainability-related business issues or General Issue Categories, encompassing a range of disclosure topics and their associated accounting metrics that vary by industry.
For example, the General Issue: Category of Customer Welfare encompasses both the Health and Nutrition topic in the Processed Foods industry and the Counterfeit Drugs topic in the Health Care Distributors industry.
With SASB standards, companies can benefit from greater transparency, better risk management, improved long-term performance, and stronger, more valuable services. All of these while providing investors a more accurate picture of their sustainability performance to improve their image and contribution to the SDGs.
SASB standards and tools are helping organizations because they identify a handful of ESG and sustainability topics that most
directly impact the long-term value creation; implement principles-based reporting frameworks including Integrated Reporting by the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD); and communicate sustainability data more efficiently and effectively to investors.
SASB can be a core part of any reporting system. Whether used alone, alongside other reporting frameworks, or as part of an integrated report, SASB standards and metrics enable companies to communicate with investors in a detailed, powerful way. SASB standards and tools enable organizations around the world to identify and manage financial-material sustainability issues and communicate these issues to investors.
Today, organizations face unique challenges, from climate change and resource constraints to urbanization and technological innovation. Although financial statements provide valuable information on tangible assets and financial capital, investors are increasingly interested in how organizations also manage sustainability issues that affect their long-term value and the global economy.
