3 Insights on How to Assess the ROI of Sustainability

 

Corporate sustainability is no longer seen as just a costly PR move used to appease social pressure; it can truly prove to be both cost saving and profitable when implemented the right way. The issue with measuring the return on sustainable investment is that there are a number of benefits that are hard to numerically quantify. Sure, it’s easy to measure the return on using more energy efficient lighting or cutting back on waste disposal fees, but how does one accurately estimate the ROI on social improvements that lead to more motivated employees and ultimately greater productivity? Because implementing a sustainable project requires a good deal of capital upfront, it’s important to be able to calculate both the quantitative and qualitative benefits, and how they will contribute to your ROI, in order to make profitable decisions. Before I get into how you should assess your ROI, I want to quickly touch on questions to ask yourself before making the leap into a sustainable venture.

Sustainability should be built into the DNA of your company. Start by asking yourself: “What is it that I’m selling?” This will help you identify how your product or service contributes to society and if you’re really solving problems that people need solutions for, or if you’re just contributing to over consumption. Next, ask yourself: “How do I produce this?” Dare to question how you are producing, and be willing to invest your time and money in order to change your production model and replace your materials with more sustainable methods. Those who are willing to invest in solving real problems with real solutions in order to make a real difference are ultimately the ones that will make sustainability profitable.

Green1

3 Key Insights:

  1. Brands with Purpose Grow Faster

Over the last decade we’ve definitely seen a spike in brands that integrate a purposeful stance within their business. This is a direct response to an over taxed planet and poor human working conditions around the world, and has been substantiated by a market demand for such purpose driven brands. Consumers have moved from passive to active consumption, and their influence on corporate responsibility no longer validates the fundamental incongruity between harmful business practices and compensation through charitable donations. Establishing a purpose that is meaningful to consumers and authentic to the brand is the best way to become a profitable, sustainable living brand. You have to connect with people on a value driven level, inspire them to be a part of a broader movement. It’s about raising a call to action. Trends show consumer patterns where people are looking to be seen as what they buy, they want their consumption to reflect their views and their values: we are what we consume. Jonathan Atwood, VP of Communications & Sustainable Living for Unilever NA, explains how, “50% of our growth in 2014 came from brands that have a purpose, and grew 2X as fast as the other brands within Unilever with better core operating margins.” He further goes on to highlight their successful Dove Real Beauty campaign, “taking on a societal issue around real beauty and self-esteem among young girls, Dove has been able to reach over 15 million girls since the inception of the campaign. The social purpose is very well defined, while on the product end we’re seeing plastic reduction and other [conservation] efforts.”   Purpose driven brands are taking considerable market share, and are creating the ability to do powerful, good things in the world.   For more information on developing and launching your brand, download my webinar Launch My Brand: 6 Week Program for a comprehensive understanding.

 

  1. The Relationship Between Human Impact and Profits

Human capital is the core of every business, with companies stating that “people are our most important asset”. This isn’t just a warm-cuddly, team motivating statement; there is a direct connection between human impact and profits, meaning lower risk, higher potential return and greater resilience.   Providing employees with the necessary infrastructure and then measuring their engagement, retention and diversity is essential. Companies with higher employee engagement end up having higher productivity and higher revenue growth. Additionally those that promote diversity, such as women on the board of directors, have higher returns on equity and lower risk. It’s a great financial investment to make social improvements for employees, as this not only benefits shareholders, but clearly the employees as well. At the end of the day, any capital investment has to make financial business sense. It’s when the investment takes a little longer to pay off in dollars and cents that the conversation between sustainability director and CFO becomes a little more challenging. CFO of WeSpire, Tom Matlock, explains how “CFO’s put only 17% relative weight on the qualitative narrative of social and environmental impacts compared with 73% weight on financial return and payback when considering capital investment.” Clearly there is a financial gain from these qualitative benefits, but the tricky part is expressing them in quantitative terms to validate their expense. WeSpire is a great employee engagement platform that enables individuals and entire organizations to drive a measurable, positive impact. You can use their ROI calculator, which measures thousands of actions, to determine the hard dollar savings generated from each employee action. Take a closer look as Wespire offers some amazing tools http://www.wespire.com/.

 

  1. Natural Resource Conservation Has a Direct Effect on the Bottom Line

The above points are long term investments and require a more creative, nuanced approach when justifying them on a financial basis. Some measures, like waste diversion and efficiency improvements, show their return right away and therefore are easier to approve. These are the proverbial low-hanging fruit. Not to say they aren’t important, it’s just that it’s easier to express their value in cost savings as they have a direct effect on the bottom line. When we talk about actions that affect the bottom line, we are generally speaking about improvements made to help the environment and conserve natural resources.   This could mean diverting waste, reusing “dead” material, improving energy efficiency, conserving water, recycling, reducing plastic and packaging waste and countless other actions. All of these actions when implemented can easily be measured and monitored for cost savings, as they inherently improve on efficiency. McGee Young, founder of MeterHero, says, “There is a period of instability coming that’s going to affect the weather, the availability of resources and the cost of doing business.” According to Young, operating under the wrong set of assumptions is probably the No. 1 cause of death among companies. “If your company doesn’t adapt, a startup will come along, and you will likely get blown out of the water, because your business processes were designed for an era of surplus. Other companies will eat your lunch. It’s really all about your ability to think beyond your current market.”

At the end of the day, venturing into the sustainable industry is no small undertaking. Whether you’re converting your business to be more environmentally and socially responsible, or if you’re launching a brand where sustainability is built into the ethos of your business, both take a tremendous amount of savvy and industry know-how. Here at Scaling Retail we are highly experienced and offer invaluable industry insights, and provide our clients with real measurable results. We don’t just believe in following trends for the sake of being trendy, we ensure our clients are making decisions that will have both short term and long term financial returns. Please contact us at Scaling Retail to learn more about sustainable business building. And don’t forget to stay connected with us on: Instagram – Twitter – Facebook – LinkedIn!

 

Our Sources: