Paying off: How sustainability delivers measurable return on investment
3rd February 2022
Sustainability isn’t going away. The importance of it for businesses continues to increase.
While outlooks on post-pandemic economic recovery are occasionally divided, customers, partners, employees, and investors are all paying greater attention to organisations’ sustainability credentials.
So, does this mean your business has to compromise profit for sustainability? Far from it. Today sustainability measures can offer measurable return on investment (ROI).
Reporting on sustainability
Companies of all sizes are bringing a new level of seriousness to sustainability reporting. New tools, standardisation, and ratings are making reporting processes easier for businesses to carry out and stakeholders to comprehend.
According to the Governance and Accountability Institute, 92% of the S&P 500 companies published a sustainability report in 2020, up from 90% in 2019.
ESG outperforms peers
Beyond just reporting on sustainability, acting on initiatives has proven results for businesses. BlackRock chief Larry Fink’s 2021 letter to CEOs highlighted this development.
He pointed out that purposeful companies, with better environmental, social, and governance (ESG) profiles outperformed their peers by as much as 81% in 2020 – a trend that was even more pronounced in that year’s first quarter downturn.
Market-wide findings aside, how can you ensure that the investment you make in sustainability pays back?
One way to measure the ROI of your environmental efforts is to split it into parts that can be separated and reported on:
1. Financial performance
It’s crucial that organisations follow through on their ESG goals and deliver meaningful impact. But, at the end of the day, the bottom line matters too.
For many industries, however, the days when sustainability came at the cost of profit are long gone. Sustainability practices now comes with real and measurable impact on balance sheets.
Organisations with space and the capability to install and operate their own forms of renewable power can make significant savings on their energy costs.
They can also generate income through Power Purchase Agreement (PPA) contracts that deliver excess renewable power to the grid at a fixed rate.
Don’t have the space or conditions to generate your own renewable power? A corporate power purchasing agreement (CPPA) allows organisations to buy renewable electricity directly from a generator.
Often longer-term contracts (10-15-year deals are common), CPPAs reduce risk for both parties by locking prices over a longer term than liquid electricity markets.
As well as generating or purchasing renewable power, businesses can both support the electricity system and generate significant savings.
Agricultural business, Sundown Products, was able to reduce its costs by £35,000 by simplifying complexities and removing the financial risk of electric asset flexibility.
Building flexibility into your electric assets also allows your organisation to participate in demand side response markets by reducing their electricity consumption when demand is high or increasing it when supply outweighs demand.
Lowering cost of ownership
Electric vehicles (EVs) can also reduce costs through sustainability by offering a lower total cost of ownership (TCO) than internal combustion engine (ICE) vehicles.
While EVs can often appear the more expensive option on the surface, many fleet owners are finding the TCO is lower, thanks to support grants and cheaper mile-for-mile energy costs than ICEs – with zero tailpipe emissions.
Commitment to sustainability is also increasingly linked to your organisation’s brand and reputation.
Sustainable practices and policies that show tangible environmental results are key in meeting the demands of different stakeholders, audiences, and demographics.
Unlike financial, reputational ROI is trickier to measure. For example, a CPPA that allows you to directly point to your source of renewable power could deliver reputational ROI, but it can be difficult to attribute an increase in sales directly to reputation.
There are two main groups that offer ways for organisations to measure the ROI of their sustainability strategy:
Younger demographics, like Gen Z, are often found to be more likely to buy from sustainable businesses. However, more so than previous, young generations are more critical of companies’ activities and more alert to greenwashing.
Surveys and social media monitoring can help you establish the role that sustainability commitments play in winning and retaining the next generation of customers.
By making your commitment to sustainability clear, you can put your brand in front of an audience who shares your values.
If an investment firm as large as BlackRock is putting ESG front and centre of its strategies, then others would do well to follow suit.
Whether your organisation is a publicly traded multi-national or venture-backed start up, investors’ perception of your long-term value offers an indication of reputational ROI from sustainability.
Of course, stats that can show sustainability delivers on growth and cost reduction can also be key to winning over investors.
Recruiting and retaining the best employees is a challenge for every business, but one exacerbated by an ongoing skills shortage in many industries.
Purposeful sustainability practices can help you stand out from the rest of the market and offer another way of measuring the ROI of sustainability efforts.
Organisations can make sustainability a core value that is vocalised and promoted internally. Feedback, either in the form of surveys or conversations from job candidates, current employees, and exiting staff can offer tangible data and information on the impact sustainability has on recruitment and retention.
Ready for a new sustainable strategy?
Proving that sustainability delivers ROI to leadership can bring together measurements from across your business from its financials to its reputation and its ability to hire and keep the best employees.
However, the end goals of sustainability measures should also include measuring your environmental impact. We can help you get started.
Drax’s renewable source electricity supply reduced customers emission by 2.8 million tonnes in 2021.
Whether you’re looking for a renewable supplier or to generate savings by optimising your operations, Drax can help you find solutions that deliver ROI on sustainability.Get in touch