Overlap Blog

When it comes to Sustainability, Investors are saying Yes

Large organizations (and their investors) have found ways to make sustainability profitable, innovative, and more efficient than ever.


“We’re all in this together” is a phrase we are hearing a lot lately. But there’s a certain area where this refrain has always existed: sustainability. The idea that we must all work together to help the world and its people isn’t a new one. Fortunately, however, it’s becoming more popular every day. While scrappy grass roots efforts have always been nipping at the world’s heels in an effort to make us all more aware, sustainability is finally getting the recognition it deserves from the global players.

Why Sustainability Makes Sense--and What Businesses are Doing Now

Anyone who has read our blogs knows the numerous benefits of adopting a sustainable business model. This time around, we’re going a little deeper and investigating the “how” as well as the “why” of sustainability.

 

In a March 2020 article, The Boston Consulting Group has pointed out that few companies are able to overcome what the group has identified as “three critical limits” to an innovative sustainable business model. These limits are: an overemphasis on compliance and reporting, a bifurcation of intent, and a primary focus on the company level.

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These obstacles must be overcome, the group argues, before a company can enjoy success. While not every company we list below has overcome all of these challenges, we think they are leading the way in integrating sustainability across the numbers aspects of their business.

Microsoft says “neutral is not enough”

Software giant Microsoft was an early adopter of sustainability. In fact, the company was one of the first major players to commit to becoming carbon neutral. Soon, however, simply vowing to become carbon neutral didn’t feel like “enough,” according to Microsoft President Brad Smith. In response, Microsoft committed to going negative--carbon negative, that is. According to a report from Entrepreneur.com, by 2030, Microsoft has pledged to:

“remove all the carbon emissions the company has ever generated over its existence by 2050. This includes cutting emissions that come from employees' business travel, and from the company's supply chain of manufacturing vendors,” 

 

 

It’s important to note, while we wait for 2030, that carbon negative practices exist here in 2020. Most notably vodka brand Air Co and the country of Bhutan are carbon negative. Microsoft will join their ranks in ten years, and other global heavy hitters are expected to join. Even now, Amazon has made a promise to become carbon neutral by 2040, a goal Unilever plans to best by a year. Unilever has also committed to be more transparent in their packaging and let consumers read for themselves what the carbon “cost” of their goods is.

 

B-Corps like New Belgium make a compelling case

New Belgium is an employee-owned brewing company. The brand has always prided itself on sustainability and since becoming fully employee-owned in 2012, they have made even more significant strides. Their Fat Tire beer is the first “carbon neutral certified” beer, and their employee programs reflect a commitment to conservation and eco-friendliness. New Belgium is, not surprisingly, a “B-Corp,” which is a distinction few other beer brands can boast. Certified B Corporations are, by definition, “businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.”

B Corporation Certification goes hand-in-hand with creating a more positive environment for employees, which is a major recruiting tool. It’s no secret that more and more of the workforce makes decisions about where to work based on the positive impact their work creates. This includes important criteria about how well employers treat their team.

Lego knows

Products that were good enough a generation ago no longer make the cut for today’s consumer. We’ve spoken about it in the past, with brands like Reformation [include past blog] making sustainability as essential to one’s wardrobe as a great pair of jeans.

Other brands may think, “if it’s not broken, don’t fix it,” but that’s not the case with companies looking to widen their appeal and maintain their competitive edge. Consider Lego, unquestioned leader in the toy plastic building brick market. Lego has a winning formula--but that formula isn’t as environmentally responsible as it could be. So, without changing anything, Lego is attempting to change everything. 2030 once again promises to be a great year for the environment as Lego has committed to eliminating its dependence on petroleum-based products by then. The company is off to a solid start with its Lego Treehouse, a set with the highest percentage of sustainably made bricks. Lego VP of Environmental Responsibility Tim Brooks says the treehouse:

“connects strongly to the very reason we are investing so much time and effort in identifying new and sustainable materials. . . to preserve natural resources and fulfill our planet promise.”

 

Investors like CalPERS will spend on sustainability

The majority of assets are managed by a few key firms. Of those firms, according to a 2018 study, more than half look at an opportunity’s stance on environmental, social, and governance issues. The more proactive and positive a company’s stance on these issues is, the more appealing they are to investors.

The California Public Employees’ Retirement System (CalPERS) is the nation’s largest public pension fund. It manages a portfolio worth over $400 billion. And it does not take its responsibilities lightly. A guiding principle that directs their investment strategy is sustainability. According to the California Public Employees’ Retirement System Total Fund Investment Policy, they are committed to putting their investments into sustainable practices. Their handbook states that they are dedicated to “the achievement of sustainable (including environmental, social, and governance factors), long-term target risk-adjusted returns for the Total Fund.

An appendix to this document elaborates:

“We have given an economic framework to what is often called ESG in investing. As reflected in our Investment Beliefs, CalPERS considers that long-term value creation requires the effective management of three forms of capital – Financial, Physical, and Human. This economic approach grounds our sustainable investment agenda in our fiduciary duty to generate risk-adjusted returns for our beneficiaries.”

 

What we are finding is that money will follow sustainability--and that sustainability is a smart investment.

A private firm corroborates this eagerness to invest in sustainability: “ESG issues have become much more important for us as long-term investors,” says Cyrus Taraporevala, president and CEO of State Street Global Advisors.

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Patagonia has the technology--and so can you

Technology is ready to take us to the next level in sustainability. Many companies have already found this out. Patagonia is just one example of a leader in using sustainable technology. The company sources recycled and recyclable material for their clothing, their employees get financial compensation for eco-friendly commuting in electric cars, and their AI controls operational systems like heating and cooling, water usage, and more.

 

McKinsey.com paints an exciting future for technology and sustainability. In a 2019 article, they predict what’s ahead for big corporations and small businesses alike. From electric trucks to plastic recycling, to harnessing the power of hydrogen, the technology to make sustainability happen is right around the corner.

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Conclusion

It’s no longer a matter of “if” companies should leverage everything from HR practices to investment opportunities in favor of sustainability. It’s “how.” Every day, global brands are showing us how technology, innovation, and investment capital can blend with sustainability to create a more profitable world for every one of us. The brighter future is here when you choose sustainability. And while this may seem daunting, keep in mind that the sustainability industry has plenty of tools and resources available to companies who want to start on the path to sustainability.

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