Adopting Sustainability to Drive Business: The Intangible Value Created by Sustainable Business Practices
We look at how being a sustainable business can add the value and benefit reputation, leadership and revenue streams
A business’s good reputation is one of its most important assets. Reputations impact on your ability to attract and retain the best people and secure customer loyalty. A good reputation can also give you the opportunity to charge a premium for goods and services and give you a competitive advantage when similar goods or services are available at a similar cost and quality.
Sustainability is still an emerging concept for business. Those performing consistently well can use sustainability as a lever for enhancing their reputation and differentiating themselves from competitors. As sustainability becomes more mainstream – and it won’t take long – then those without a sustainability strategy will experience the damaging effect of a bad reputation.
Reputation enhances business value
Studies show that company valuations are increasingly influenced by the ‘intangibles’ of the business; these can be summarised as reputation, but include:
- Strong management and leadership team
- Employee quality
- Patents and related technologies
- Ability and history of innovation
- Customer loyalty
A recent analysis conducted by Ocean Tomo highlighted the gap between tangible assets value and company value widening significantly between 1975 and 2010 across the top 500 S&P companies
The Value of Reputation
It is not just large corporates that rely so much on the intangibles for company value. Small to medium sized companies perhaps rely even more so on the goodwill embedded in their customer base, supply chain and their ‘name’.
A strong sustainability strategy has the ability to create a powerful reputation driving company value. The following examples illustrate how sustainable behaviors can create value in this way:
Leadership: Business is familiar with the concept of ‘first mover advantage’. There are certainly advantages to being an early mover in sustainability. Leadership in this area offers that company a raised profile, attracting new customers, securing partners of choice and opportunities for a ‘seat at the table’ to debate and influence policy. Leadership can exist on any scale spanning local communities, local industry, through to regional and international stages.
Innovation: Being innovative is great for reputation! The Apple corporation brand is built almost entirely on their reputation as an innovator. When that falters so does their share price. For BASF, a leading global chemicals company, their corporate strategy intrinsically links sustainability to innovation. “We create chemistry for a sustainable future… through science and innovation we enable our customers in almost all industries to meet the current and future needs of society”. Innovation isn’t limited to mega-companies. Small and medium sized companies have the advantage of agility and flexibility to innovate immediately in response to changes in their local market.
Brand value: The top 10 in the global top brands survey 2012 as reported by Brand Finance include global leaders in sustainability such as GE and Walmart. Demonstrating leadership and responsibility as part of a sustainability strategy is a proven contributor to the intangible value of businesses.
Protecting company value
As a good reputation can create value, so can it destroy value. Here are a few tips on protecting your sustainability reputation:
Avoid green washing
The more vocal your sustainability posturing, the more you will be subject to the scrutiny of NGO’s, environmentalists, the media and competitors to expose any chinks in the sustainable armour. Tell the truth, be transparent and if necessary, wait until the whole story is a good story before you tell it.
Avoid those who could destroy you by association
Your reputation can be damaged by those around you. A good sustainability strategy should ensure that you choose your suppliers, customers and operating partners with care, lest their poor performance rub-off badly on you.
Good decisions are made on complete, reliable and valid information. Business should invest in systems and processes that ensure they have accurate financial, environmental and social (employee) data on which to plan, implement and evaluate their sustainability strategy.
All internal and external communications should be consistent. Inconsistent behaviors and messages from one function will impact negatively on the whole.
Bad news, badly presented news, or good news mis-represented all have the potential to damage a company valuation, and limit the success of any sustainability strategy.
In the next article we address the ‘how to’ question for implementing a sustainability strategy centered around the four ‘linking elements’; transparency, efficiency, corporate governance and employee satisfaction. 4: How to Create a Sustainable Business
Simon Humphrey is the UK Managing Director for Impact Sustainability. Impact sustainability provide sustainability performance management software. Note: All images and diagrams included in this document were designed and created by Simon Humphrey.