Return on sustainability investment
“However beautiful the strategy, you should occasionally look at the results.”
- Sir Winston Churchill
Companies serious about sustainability inevitably reach a point when they realise they must speculate to accumulate. Without making major investments, they know they cannot realise the manifold benefits of doing business sustainably – for instance, lower risks, new revenue streams, better customer relationships and improved competitive positioning.
As with all major investments, the need to show a return is paramount. But with sustainability, assessing returns involves considering not only monetary gain but a range of wider issues, particularly the impact on brand value and the company’s contribution to society.
Achieving a measurable and unequivocal return on sustainability investment is not easy. For many companies, the equations have too many dimensions. Our clients in the utility sector are experiencing just this. They have to weigh up the likely value of return against value of investment; comparing this against units of carbon reduced per units of investment; and factoring-in trade-offs between the brand value added through adopting a particular market position versus the commercial benefits of a more flexible approach. But unless these companies start to communicate a clear and understandable position on the link between profits, investment and benefits to society, tensions with customers and regulators will reach breaking point, and a vicious cycle of declining investor confidence could ensue.
Return on sustainability investment can take many forms whether at the macro level of investment in new equipment, products or services, or at the micro level of investment in community or employment initiatives. Leading companies have identified that a new mindset is needed; traditional three-year payback horizons do not consider longer-term implications, for example in relation to climate change or the ability to attract talented new employees.
Innovating for sustainability
Innovation pipelines are needed to nurture ideas that may one day form an investment proposition. These pipelines should allow sustainability benefits to be identified alongside financial return so that the ideas that challenge traditional revenue models are not stifled at birth.
For some, the answer to achieving and proving a return on sustainability investment lies in partnerships that use new technology to create mutually beneficial market positions. They enable companies to share risks and achieve scale in their solutions.