Environmental risks have a significant impact on organizations as it affects investment decisions, stakeholder interactions and government regulations.These risks have become more apparent particularly in the last decade as droughts, heat stress and floods affect the world’s industries, populations and ecosystems. Due to this, major corporations worldwide have been raising the bar higher in terms of meeting stakeholder expectations on sustainability. Proper management of an organization’s energy, natural resources and waste has a substantial effect on its environmental performance. This is why sustainability has now become an essential ingredient to ensure an organization’s long-term success.
In line with this, an empirical study conducted by The Guardian showed that organizations with high-sustainability and environmental performance create more value to their shareholders and stakeholders. These organizations gain more competitive advantage as they continually attract and keep more committed employees and loyal customers compared to low-sustainability organizations.
As long as organizations continue to meet their stakeholder’s expectations on responsible environmental and social practices, their credibility and reputation will also continue to increase. Sustainable organizations also help preserve the natural resources that they depend on as they contribute to the conservation of the Earth’s land, water and energy through their environmental advocacies and sustainability programs.
Some of the major corporations around the world have either directly or indirectly impacted the environment over the past decades. For these organizations, they have an even more crucial role to play in environmental preservation, since oftentimes their organization depends on the natural resources they use. As sustainable companies take action to protect the environment and preserve natural resources, it also increases their chances of thriving in the globally competitive market.
Another finding from the study conducted by The Guardian showed that in a span of 18 years, highly sustainable companies have dramatically outperformed the ones with low sustainability in terms of stock market and financial measures. The annual above-market average return for the highly sustainable organizations was 4.8% higher than their competitors. The high-sustainability companies also performed much better as measured by their return on equity and return on assets. Thereby showing that sustainable companies have better chances of improving and increasing their profit margins.
In order to implement a successful sustainability program, organizations must strictly follow and uphold their own code of conduct and standards of practice across all the participants of their program. The NBS study suggested that when maintaining a code of conduct, the standards of practice should be measurable and attainable in such a way that it is moderately difficult to achieve. Continuous improvement of an organization’s environmental performance is important, however, it is also imperative to keep in mind that lax standards will hinder sustainability improvement while overly difficult standards may be discouraging or unattainable.
Maintenance of a code of conduct has been just the initial step towards the advancement of an effective sustainability program, compliance with those rules is another. This is why administering a rewards system can motivate employees to comply and follow sustainability program requirements. Nevertheless, rewards do not have to be in the form of monetary incentives. A simple award or recognition given to key participants can be implemented to motivate employees to participate and support the sustainability advocacy. Common rewards to participants include the awarding of certificates to members accompanied by program-related marketing tools to enable stakeholders to recognize the sustainability efforts of the company.
Independent auditing motivates organizations to comply to their industry standards of practice and code of conduct. Audits tend to be less effective when performed by internal auditors of the organization. In addition, third-party audits promote transparency and integrity of the sustainability program. Third-party audits can include the employment of an external auditing organization or the engagement of sustainability experts and thought leaders of the community to participate in the audit. An example of a renowned third party auditor is the environmental management standards issued by the International Organization for Standardization (ISO) or the ISO 14001 series.
Disclosing an organization's sustainability report and environmental performance to its stakeholders serves as a good motivator for organizations. In addition, organizations with good environmental performance gain a competitive advantage against those that have poor performance or those that do not disclose their sustainability report. Sustainability reporting can be as easy as publishing audit results on the organization's website. The organization can start building on that as they continue to collect and compile more complex data, such as water use, waste management or use of environmental management systems throughout the years.
Obtaining certifications publicly recognizes organizations for meeting established sustainability standards. Successful completion and accreditation helps companies gain credibility to help legitimize the firm's sustainability program. Certification is not merely a futile exercise to satisfy stakeholder expectation; it offers an opportunity for continued development and enhancement of management practices, paving the way to achieve a more sustainable business. As mentioned earlier, the ISO 14001 is a well-recognized example of a third-party certification. ISO 14001 requires organizations that seek certification to conform to a series of detailed procedural documentation requirements in order to commit to continual improvement of their EMS, comply with industry laws and regulations, and work to achieve sustainability.
Organizations that effectively measure and manage their environmental performance inherently have more staying power in the business industry. These companies are more resilient and more adaptable to change as they understand how to continually improve their processes, reduce costs, comply with regulatory requirements and stakeholder expectations, as well as explore new market opportunities.
Renowned sustainable organizations have emerged as leaders in the management of environmental risks and impacts. Due to this, the Financial Times and London Stock Exchange (FTSE) Group established the FTSE4Good Environmental Leaders Europe 40 Index . The FTSE4Good was developed to identify European companies with leading sustainable business practices. The FTSE4Good Index was designed to be utilized as the basis and benchmark of retail and institutional investment products for organizational stakeholders; such as shareholders and potential investors who wanted to gain profit and invest in European companies that have the best sustainable business practices.
In March 2014, the FTSE released their annual FTSE4Good Environmental Leaders Europe 40 Index . Nestlé , an international food producer and a household name for countries all over the world, topped this year’s list. Because of Nestlé’s dedication to environmental sustainability, it has remained to be the only infant formula manufacturer included in FTSE’s responsible investment index.
Nestlé utilizes their Environmental Management System (EMS) to implement their policies and standards on Environmental Sustainability. Their policies are based on a continual management cycle improvement that endeavors to advance Nestlé's efficiency, quality and productivity through the use of fewer resources and less waste. In the past year, Nestlé has reached their target and succeeded to improve their resource efficiency as 61 Nestlé factories (12%) achieved zero waste for disposal (2012: 39 factories, 8%). In addition, the company has achieved their target two years early as it has reduced its overall energy consumption per tonne of product by 23% since 2005 (2012: 21%).
A runner-up of this year’s FTSE4Good Environmental Leaders Europe 40 Index is HSBC Holdings , a global financial services company. In 2012, HSBC’s Group Chief Operating Officer, Sean O'Sullivan, sought to improve the company's financial performance by adopting a long-term sustainable business model. As a strategy designed to empower employees and deliver innovative products to customers, HSBC has set sustainability goals to be delivered by HSBC Technology and Services, which employs around a third of their workforce and is in charge of running our operations, including real estate, IT infrastructure and supply chain.
One of these goals is to reduce annual carbon emissions per employee by a tonne between 2012 and 2020, from 3.5 to 2.5 tonnes. Indices such as CDP , a global disclosure system for companies to report their environmental impacts and strategies to investors, demonstrated that HSBC already has one of the lowest carbon footprints per employee among international banks.
Another organization included in this year’s FTSE4Good Index is the global pharmaceutical company GlaxoSmithKline . The pharmaceutical company is committed to managing and reducing the environmental impacts of their operations and products across their supply chain. GlaxoSmithKline has set ambitious goals to reduce carbon, water and waste across its value chain – from the sourcing of raw materials and the impacts of factories, to the use and disposal of products by patients and consumers. By using resources more efficiently, and collaborating with stakeholders to take on sustainability challenges, GlaxoSmithKline was able to reduce its organizational costs and enhance competitiveness in the industry.
Consequently, GlaxoSmithKline became the first company to be awarded with a global certification to the Carbon Trust’s Water Standard in recognition of its year-on-year reductions in global operational water use. In the past year, the company was able to use 2% less water in its operations. In addition, they are also the first company worldwide to announce that all new respiratory drugs will only be launched in dry powder formulations, which have less than 10% global warming potential than HFA inhalers.
The increased awareness of environmental impacts brought about by climate change has led to greater political and social demands on organizations to reduce their environmental footprints and adopt the belief that good environmental performance makes good business sense. As organizations are confronted with environmental issues, instilling sustainability values to firms have a direct impact on securing sustainable economic success.
The establishment and management of an organization's environmental performance are considered an important way of incorporating sustainability in corporate decision making. Many firms utilize third-party auditors such as ISO’s 14000 standards to sustain various aspects of environmental management. ISO 14001, in particular, is set to describe a framework that companies can use to set up effective environmental management systems (EMS).
According to a review by the Network for Business Sustainability (NBS) , environmental key performance indicators and audits are critical components of EMS since it can add value to firms by determening the long-term success of a business.
ESG factors of an organization enhance a firm's investment value as investors, financial analysts and stakeholders are now more receptive in investing and patronizing sustainable businesses. Leading sustainable organizations are submitting their environmental performance information to satisfy the expectations of their own shareholders since sustainability reporting makes firms more attractive to the investment community.
Environmental indicators and audits also help firms meet their core business needs as it allows regular monitoring of environmental performance against a firm’s goals and objectives. It also supports the creation of action plans to improve an organization’s environmental performance in case its objectives are not met. Thus, these tools assist firms to continuously improve their environmental performance.
Environmental indicators and audits help firms publicize environmental activities and show that their practices conform to stakeholder expectations. This solidifies an organization’s credibility in its environmental initiatives and also enhances a firm’s corporate reputation on sustainability.
As a renowned sustainability solutions provider to a wide range of industries, FCS can talk about the environmental risks and opportunities to help improve an organization's environmental performance. FCS can also provide expert advice on environmental consulting to various industries and companies to help bolster profitability and ROI by measuring their carbon footprint and achieving sustainability in business. In addition, FCS helps organizations by managing their carbon intensity and implementing energy management plans through the execution of an in-depth life cycle assessment (LCA) to help reduce energy, waste and resource consumption.
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