Profits & Purpose: How Sustainable Business Practices Become a Competitive Advantage

Sustainability. Social consciousness. Upcycling. Pre-cycling. Global warming versus climate change. What does it all really mean and why should you care?

Written by Lisa Cassidy

Well, as a business owner, you are in a unique position. Businesses have the ability to tackle sustainability issues linked to consumption, waste, recycling, clean energy, education, equality and climate change (to name a few) more so than individuals - and faster than government. But even more importantly, businesses have a lot to gain financially.

In today’s environment, endorsing and implementing sustainable business practices has a competitive advantage. Not only can it help you cut costs, increase market share and motivate the best people to work for you, it can propel your business to the top as a market leader.

For the past few weeks, I have been taking a course in sustainability through the Harvard Business School. The main questions I had going into this course were – what does it mean for businesses to be sustainable and what would it take to motivate businesses to operate sustainably? What I learned was 1) that the definition of sustainability is much broader than I expected and 2) profitability motivates businesses more than good intentions, but good intentions can lead to enormous success.
 
According to Professor Rebecca Henderson of the Harvard Business School, when a business is motivated to "Do Well" a.k.a. make money and "Do Good" a.k.a. solve social and environmental problems, they create a “Shared Value Opportunity” – basically the intersection between the two.

“Doing good” translates to such things as reclaiming waste, operating more efficiently, utilizing clean energy, reducing inequalities between people and offering fair wages, quality education and clean water.

“Doing well” is about profitability.  It requires decisive action and leadership to move away from the safety of “business as usual” and take risks.  

The Business Case for Change
There are a number of business models that enable companies to balance sustainability and profitability.  The first is the Cut Costs Business Model. In my experience, this is the easiest model to incorporate and the most prevalent.  Businesses who leverage sustainable practices, like recycling and energy management, are rewarded with lower costs and increased profits.

The second model is the Raise Price Business Model.  In this model, businesses charge a premium for adopting more sustainable business practices. If the customer values the sustainability effort, they are likely to pay more for the “same” good or service. We see a willingness to pay more for sustainably produced products and services like coffee, tea, building materials and so on.

The Increase Market Share Business Model rewards first movers. When companies are first to incorporate sustainable business practices and remain price-competitive, they are likely to increase their market share compared to those who offer non-sustainable alternatives. This is even possible in highly commoditized markets where margins are razor thin.

Then there is the Entirely New Business Model. This model takes shape when companies disrupt the industry by developing new, sustainable technologies, products or services to replace older, less sustainable alternatives. A prominent example of this is the creation of clean, renewable energy over fossil fuels.

The Emotional Case for Change
As we see through the above stated business models, there is definitely a business case for change.  The real question becomes an emotional one. Do you have the courage and the passion to break away from “business as usual” and take a risk? 

“Only those who will risk going too far can possibly find out how far it is possible to go.”
​— T.S. Eliot.