The Case for Sustainability

A few months ago I had the opportunity to attend a Live Executive Masterclass in Business Sustainability at INSEAD San Francisco.

Since then, I noticed how prominent and necessary the case for business sustainability is in a world where business continuity depends on it. As an eCommerce professional, I operate in an industry that has been extremely scrutinized over the past few years: from logistics and supply chain costs and impact; to the exceptional rise of fast fashion marketplaces; to the growth of secondary resale branded marketplaces attempting to address the problem of product circularity.

In the following post, I am providing a summary of some of the most critical topics I had the opportunity to explore while at INSEAD, looking at the following:

1. Sustainability as Business Continuity
2. Measuring Purpose & Sustainable Commitments
3. eCommerce Industry Opportunities
4. Recent Regulations

I will then briefly conclude with the view that Business Sustainability is essential to ensure business continuity and it is a business requirement that should be embedded in every corporate strategy focused on long-term impact.

Sustainability as Business Continuity

When decades ago, the concept of acting sustainably in corporate was a ‘nice-to-have’, captured in CSR commitments, today being sustainable is an essential component of every company's corporate strategy. Legislations are evolving to meet the needs of environmental protection, but also to ensure economic longevity beyond ‘greening’. Consumers are more conscious, aware, and educated about their consumption behavioral impact. They want their voices heard and their values met by the brands they consume.

Sustainability is today a business imperative and corporations do and will play a crucial role in driving the sustainability agenda due to their resources, technology, global reach, and economic influence. Traditionally, environmental responsibility, or ‘greening’, focused on operational efficiency and pollution prevention. However, nowadays, sustainability extends beyond that, incorporating broader social, societal, and environmental considerations into corporate strategies.

As per Stuart L.Hart’s paper, Beyond Greening: Strategies for a Sustainable World, a strategic framework for sustainability includes several key elements:

• Pollution Prevention: reducing waste and emissions at the source by integrating environmental considerations into product design and processes. For example, 3M's Pollution Prevention Pays program saved the company over $1 billion by reducing waste and emissions at the source.

• Product Stewardship: taking responsibility for the entire lifecycle of products, from raw material extraction to disposal, and designing products for longevity, reusability, and minimal environmental impact. For example, Xerox's introduction of the first product designed for remanufacturing significantly reduced waste and production costs.

• Clean Technologies: investing in innovative technologies that reduce environmental impact and create new market opportunities, such as renewable energy, sustainable materials, and green manufacturing processes. For example, Interface, a carpet manufacturer, reduced its environmental footprint by adopting innovative technologies and materials, resulting in cost savings and new market opportunities.

• Sustainability Vision: integrating environmental and social goals into the core mission of the company, guiding strategic planning and stakeholder engagement. For example, Patagonia’s commitment to environmental and social responsibility has strengthened its brand and customer base aligning closely with its consumers’ values.

Embracing sustainability can drive innovation forcing corporations to invent solutions, experiment, and revisit their practices. It can also create new markets, particularly in developing economies where recycling programmes and product circularity play major roles. Companies that adopt sustainable practices can gain a competitive advantage through improved brand reputation, customer loyalty, and regulatory compliance. Despite the significant political, social, and economic challenges to achieving sustainability, collaboration among governments, NGOs, and corporations is essential to address global sustainability issues.

Sustainability is not only a moral imperative but also a business opportunity. By integrating sustainability into their core strategies, companies can mitigate environmental risks and seize new opportunities for growth and innovation, ensuring a sustainable future for both business and society.

Measuring Purpose & Sustainable Commitments

One of the critical existing business requirements is how to best measure purpose and sustainability commitments in a world where, traditionally, corporations have operated within relatively short-term and quick business cycles linked to financial stakeholders’ commitments and immediate growth targets.

The 2021 Measuring Purpose - An Integrated Framework paper suggests a truly comprehensive framework for measuring corporate purpose. It addresses the burgeoning interest and initiatives around business purpose, stakeholder impact, and measurement systems, advocating for a three-step process for measuring purpose:

1. MOTIVES - Anchoring the purpose, mission, and vision of a company: ensuring clarity in governance around these elements is critical. This specifically reflects the importance of having consistent values and objectives to achieve long-term vision and actively measure purpose to generate leadership accountability.
2. METRICS - Identifying meaningful business metrics: defining metrics, KPIs, and OKRs that capture inputs, outputs, outcomes, and impacts is an essential exercise for every company. Taking into account challenges given by different timeframes and macroeconomic factors is key. Performance goals oftentimes have shorter window timeframes linked to shareholders’ remuneration, while environmental impact is measured on much longer-term cycles. Capturing these differences is critical.
3. MONEY - Assigning a monetary value for measuring sustainable impact: converting business metrics to monetary value through cost-based accounting and societal valuation​ has become an extremely topical question.​

This framework aims to facilitate critical decision-making for management and stakeholders, enhancing resource allocation and performance assessment.

In recent years, there has been significant growth in the interest and concern regarding the purpose of business, its relationship with shareholders and stakeholders, and its broader impact on society. This has led to various initiatives aimed at identifying data and measurement systems that help companies align their practices with their purpose, understand their dependencies and impacts, and evaluate the effects of their activities. However, the proliferation of these initiatives has often resulted in complexity, making it challenging to interpret and implement them consistently. 

This challenge has emphasized the need for a coherent measurement system that serves the needs of executives, middle management, institutional investors, and policymakers. Financial interests and shareholders’ rewards are still very much linked to short-term impact and a lack of enterprises’ visions focused on the ‘long-run game’. CEOs’ tenures are relatively short, creating discrepancies between sustainable goals and deliverables’ commitments. 

This is where new incentive systems will have to be introduced, focused on longer-term objectives and ambitions, at the cost of incurring higher investments in the short term to set the right business foundations. The appropriate metrics and measurement systems will be essential to prevent any ‘greenwashing’ and easily manipulable results that may lead to misleading corporations’ commitments.

The above-proposed measurement framework provides three key benefits to measurement and evaluation:

1. It allows an organization to capture the financial and non-financial impacts of the full perimeter of its activity. This is critical for both management decision-making and disclosure of the degree to which a company is fulfilling its purpose.
2. Different stakeholders can undertake their assessments of the value of the organization. Investors can assess the quality of the firm as an investment based on a diverse range of numbers. Political and societal leaders can assess the impacts of an organization on the lives of members of specific communities. Employees can assess commitments made to impacts delivered, attaching value to meaningful work, and suppliers can make their assessments of the levels of commitment of an organization based on its vision for impact.
3. Cost-based accounting and valuation answer different questions. Cost-based accounts establish the resources that companies have to expend in correcting detriments or delivering positive outcomes outside as well as within their legal boundaries, whereas valuations capture the net benefits or detriments of a company’s activities and impacts on its stakeholders and shareholders.

In conclusion, by proposing a logical and inclusive model for measuring purpose, advocating a three-step process that includes anchoring the purpose, mission, and vision of the organization, identifying business impact metrics, and assigning monetary values to these metrics, the framework attempts to create an inclusive approach to measuring purpose that creates consistency and alignment. 

This model aims to provide a coherent reporting framework that facilitates internal decision-making and external assessment by investors and stakeholders. 

eCommerce Industry Opportunities

The eCommerce industry has been facing numerous challenges linked to sustainable practices, and increasingly so in recent years. Logistics and fulfillment footprints have been extremely high due to the nature of the industry and the focus on convenient, flexible delivery options to respond to consumers’ demand.

eCommerce businesses have often prioritized speed and ease over sustainability. Offering free delivery and returns, shipping products across the world, and using excessive packaging are some of the practices that have a high price for both businesses and the planet. In fact, in the largest urban areas in the world, carbon emissions from e-commerce logistics are expected to reach about 25 million CO2 metric tons by 2030, according to a study by the World Economic Forum and the Boston Consulting Group.

However, numerous companies have now moved to introducing paid costs for delivery and returns, thus disincentivizing customers to order unnecessary goods based on a whim, and rather forcing them to assume the costs by paying a fee or physically going into a store to complete an online return. 

Fashion items, for example, are one of the most returned product categories in eCommerce. In the United Kingdom alone, the amount of online returns of fashion items produced 750,000 metric tons of carbon dioxide just in 2022. Charging consumers for these costs is part of retailers’ mission to make them more conscious of their choices and of the significant impact that massive delivery networks have on the environment. 

Companies like H&M, Zara, American Eagle were amongst the first to charge for online returns in 2022, looking to address some of the high costs generated by the Covid-19 pandemic. In 2023, according to Narvar, a US-based post-purchase customer software platform, around 40% of online retailers were charging some return fee for shipping an item back to a warehouse, repackaging it, or disposing of it.

As a result, consumers are now more tolerant of assuming delivery costs themselves or leveraging curbside pickup options, traveling to stores to pick up their orders.

In a global marketplace where goods are generally available from multiple outlets, a 2023 survey by Radial, an eCommerce fulfillment service provider, reported that 75% of consumers still rated shipping options as “extremely or very important” when deciding where they shop. 

However, that is changing, as demonstrated by new stats. In a more recent survey by First Insight, 33% of online consumers said they’d be willing to pay shipping costs of at least $10. Three out of four Gen X and Boomer respondents said they’d even agree to pay $20 or more. They also said they tend to spend more during big promotional events. Additionally, online shoppers have become less sensitive and less demanding of rapid delivery, clearly showing a shift in behavior towards more sustainable delivery options. 

Nevertheless, they still value deals and bargains, with only 30% of those surveyed claiming they would pay full price for gifts this year. Between 35% to 50% discounts are still amongst the strongest incentives to encourage shoppers to click on the ‘Place your order’ button.

The other core priority for eCommerce businesses to address sustainable practices is the support of circular economies and recycling programmes. Resale and secondary markets are finding their space on major branded websites and mass online retailers, with trade-in and upcycle programs being offered in categories such as electronics and homeware. 

Apparel companies and high-end fashion brands are already implementing their resale marketplaces on their main websites, encouraging consumers to return to their online destination to resell their unwanted used products. 

It is already predicted that the global secondhand apparel market will be worth $350bn by 2028 and will comprise 10% of the fashion market worldwide by 2025. The Resale Report, written for online fashion thrift store Thredup by data research company GlobalData reveals the sector grew 15 times faster than the broader retail clothing sector in 2023. These figures are telling about both a shift in consumers’ behavior and brand retail strategy to promote product circularity in an attempt to positively impact the retail ecosystem.

Trade-in programmes and recycling facilitation by consumer product brands are also increasingly gaining traction; especially in consumer electronics. Controlling the market for used goods and the overall value chain, allows companies to commit to industry legislations, measuring their impact and achieving their disclosed sustainability targets.

eCommerce businesses will need to continuously adapt and embrace sustainable practices if they want to survive and meet the demands of evolving environmentally conscious consumers and governments. The eCommerce industry has a lot of potential to operate sustainably in the future, leading the way in commerce practices globally. 

Recent Global Regulations

The European Union has been at the forefront of devising and introducing new regulations related to sustainable commitments. 

The 2016 Paris Agreement treaty was a landmark achievement in the global effort to fight climate change, as it aimed to keep the global temperature rise below 2 degrees Celsius by reducing greenhouse gas emissions. Reducing carbon emissions is however only one aspect of how companies can take important steps towards sustainability. One of the most comprehensive and impactful initiatives in recent years is the European Green Deal, approved in 2020. This ambitious plan aims to make the EU climate-neutral by 2050 and encompasses several pivotal measures. Among them is the Circular Economy Action Plan, which mandates that companies design products for longevity, repairability, and recyclability. For example, IKEA has pledged to transform into a circular business by 2030, committing to the use of renewable and recycled materials in response to these regulations.

In the United States, the Securities and Exchange Commission (SEC) has proposed new rules requiring public companies to disclose their greenhouse gas emissions and the financial risks they face due to climate change. This initiative is designed to enhance transparency and hold businesses accountable for their environmental impact. Microsoft, for example, has committed to becoming carbon-negative by 2030, aligning its extensive reporting on emissions and climate risk with these anticipated SEC requirements.

The United Kingdom has enacted the Environment Act 2021, which sets legally binding targets on air quality, water, biodiversity, and waste management. This act supports initiatives like the Extended Producer Responsibility (EPR) scheme, which compels producers to take responsibility for the entire lifecycle of their products, including end-of-life waste management. Unilever is a notable example of a company aligning with such regulations by enhancing its sustainability programs to reduce plastic use and improve recycling processes.

The Task Force on Climate-related Financial Disclosures (TCFD), set up in 2015 by the Financial Stability Board (FSB) has gained international recognition, with many countries mandating or encouraging its adoption. This Task Force was set up on request of G20 Finance Ministers and Central Bank Governors, and it regroups industry experts from various organizations, including large banks, insurance companies, asset managers, pension funds, large non-financial companies, accounting and consulting firms, and credit rating agencies. 

The Task Force members voluntarily dedicate their time and expertise to the work of the TCFD publishing recommendations to help businesses provide clear, comprehensive, and high-quality information on how climate change impacts their operations. Financial institutions such as HSBC have committed to TCFD-aligned disclosures, enabling investors to make more informed decisions based on sustainability criteria.

The evolving landscape of sustainability legislation and regulation is driving significant change across various sectors. Companies are increasingly recognizing the importance of integrating sustainable practices not only to comply with legal requirements but also to meet the growing expectations of environmentally conscious consumers and investors. By adapting to these regulations, businesses can enhance their long-term resilience, reduce environmental impact, and maintain competitive advantage in a market that increasingly values sustainability.

Key Takeaways

Some important concluding thoughts to ensure a bright future for corporations, where business continuity becomes the focus, and where business impact is carefully assessed according to all relevant stakeholders, can be summarized as follows:

• Sustainability as a principle needs to be linked to Business Sustainability and Business Continuity. It has to be embedded into companies' corporate strategies and long-term visions.

• International Regulations are just one side of the problem, but a wider stakeholder vision and approach has to be embedded into corporate values of the future to ensure meaningful impact. However, recent regulations are being introduced and designed to create consistency internationally, providing an inclusive framework for corporations globally.

• Introducing meaningful regulations and sustainability measurement systems is one of the greatest challenges that require careful collaboration between governments, regulators, and corporations to avoid running into ‘greenwashing’ strategies.

• Business continuity has to be defined in light of four major stakeholders:

• • The Nature; 
  • The Public; 
  • Regulators; 
  • Financial institutions;

• Incentives for corporate executives have to be reviewed for the long haul’ and linked to:

• • Product Circularity;
  • Biodiversity Impact;
  • Business Governance;
  • Rights’ distributions between critical stakeholders;