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Make a Stronger Business Case for Sustainability

Jul 9, 2024 | Public | 0 comments

Leaders can’t escape the global imperative to reduce the contributions businesses make to environmental degradation, but deep down, many harbor doubts: Can a profit-driven organization also be sustainable? Pressure to grow revenue and control costs is constant. How can a leader feel confident in pursuing more sustainable choices and defending them to boards and shareholders sensitive to the often higher costs of greener approaches?

The dueling pressures to do business sustainably and to maximize profits leave many leaders stuck, unsure what to do. Many falsely categorize sustainability as a compliance issue, taking a wait-and-see approach and aspiring to do the minimum. But they miss new opportunities and are less prepared for the energy transition away from fossil fuels. As with any major disruption, companies that take smart steps forward can carve out an advantage and avoid being left behind.

Some CEOs may succeed at rallying stakeholders to support green initiatives based on principles alone. But the practical reality for many leaders is that they must build a business case for sustainability. We believe that focusing on the classic economic levers of the marketplace can give leaders a framework for thinking creatively about how to find a path that does right by both the business and society. We’ll explain how our framework provides three pathways to profitably and sustainably creating new value for society, customers, and companies.

Frame the Sustainability Opportunity in Economic Terms

Our framework can help build a case for sustainability-driven strategic opportunities by using the levers of cost reduction, creating a willingness to pay more, and reaching new customers, illustrated by the traditional price-demand curve. (See “The Classic Profit Maximization Framework.”) Applying this accepted economic logic, one can make the business case for sustainability when choices affecting costs and demand expand the profit rectangle or avoid reducing it. We look at examples of how to do so below.

1. Sandvik, “How Electrification Is Changing Mining,” New Scientist, Sept. 22, 2021, www.newscientist.com.

2. J. Ewing, “Electric Vehicles Could Match Gasoline Cars on Price This Year,” The New York Times, Feb. 10, 2023, www.nytimes.com; and L. Runkle, “Is a Tesla Worth It? We Compare All the Numbers to a ‘Normal’ Car,” FinanceBuzz, Feb. 7, 2024, https://financebuzz.com.

3. D. Toto, “Change at the Molecular Level,” Recycling Today, July 31, 2020, www.recyclingtoday.com.

4. “FGX to Scale Up Use of Eastman Tritan Renew on Start-Up of New Methanolysis Plant,” press release, Eastman, Jan. 31, 2023, www.eastman.com.

5. J. Daystar, J. Golden, R. Handfield, et al., “Retread Tires in the U.S. and Canada,” PDF File (Muscatine, Iowa: Bridgestone Bandag, July 2018), www.bandag.com.

6. E. Mugnier, C. Farhanghi, S. Kley, et al., “The Socio-Economic Impact of Truck Tyre Retreading in Europe,” PDF file (Ernst & Young, October 2016), www.etrma.org.

7. V.D.R. Guide Jr., and J. Li, “The Potential of Cannibalization of New Products Sales by Remanufactured Products,” Decision Sciences 41, no. 3 (August 2010): 547-572.

8. P.C. Godfrey and E.R. Tenuta, “Clean: Lessons From Ecolab’s Century of Positive Impact” (Hoboken, New Jersey: John Wiley & Sons, 2023), 4.

9. Ibid., 113.

The post "Make a Stronger Business Case for Sustainability" appeared first on MIT Sloan Management Review

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