Blog #2: Sustainability as a competitive advantage

McKinsey’s article, “The Global Forces Inspiring a New Narrative of Progress,” discussed the possible implications of new global forces on the business environment, including changes in resource consumption driven by technological advances. As a civil and environmental engineer, I think the changing dynamics have the potential to align business strategy with sustainability goals, two trajectories that have appeared to run counter to each other since the start of the industrial revolution. Methods such as industrial ecology and renewable energy use are becoming more appealing to cooperate strategy, not only for their social implications and appeal to conscientious consumers, but also for their cost saving implications.

The perceived impact of societal expectations on business strategy can be witnessed by the recent growth of products and companies promoting their sustainability practices. A quick search of the websites of the top 3 fortune 500 companies, Walmart, Amazon, and Exxon Mobile, shows a desire of successful companies to showcase their own global consciousness and sustainability (Links to sustainability pages: Walmart, Amazon, ExxonMobil).  For companies considering their success over the long-term, this makes sense in the context of climate change. The United Nations has called climate change “an existential threat to human existence.” Last November more than 11,000 scientists around the world publicly declared climate change an emergency and called for urgent action (UN News article: Climate Change). As the impacts and reality of climate change become increasingly more prominent in the public eye, companies who disregard this social concern may find it harder to compete with those who do.

The good news is that being sustainable has never been easier from an economic and technological standpoint. According to EIA predictions, solar and wind energy will dominate new electricity generation in American for 2020, and account for about 76% of new generation (Forbes article: "Renewable Energy Prices Hit Record Lows"). Even without subsidies, renewable energy prices are falling to levels less than traditional fossil fuels. Advances in automation and the internet of things also makes it easier for companies to implement efficiency and reduce energy consumption and associated costs. Circular economies are increasing in popularity and implementation resulting in less waste generation and thus less costs for the treatment and management of wastes.

An article in the Harvard Business Review, “Yes, Sustainability Can Be a Strategy”, analyzes the role sustainability has on successful strategy (HBR article: "Yes, Sustainability Can Be a Strategy"). Some argue that sustainability best practices have become so widespread that they no longer offer a competitive advantage. Others believe that a competitive advantage can be had for those that adopt innovative sustainability models that differentiate themselves from their competition. The authors’ research and analysis confirmed that the adoption of common sustainability practices were associated positively with market valuation multiples while the adoption of strategic sustainability practices were significantly associated with both higher market valuation multiples and higher return on capital. This confirms the idea that innovative sustainability practices can help a company’s competitive advantage.