The effects of climate change and global warming have created serious doubts over the continued existence of mankind. Why are we still debating the merits of marrying sustainability with business profitability?

From muted conversations to war cry

In the race to accelerate economic growth, many imbalances have been created in the ecosystem, so much so that the very survival of our planet is at stake. It is therefore important that the conversations around sustainability and business profitability translate into a war cry to save the Earth and our future.

Overhauling the existing economic framework: thinking beyond GDP

For the longest time, business leaders have been fixated on ways of maximizing value for their shareholders. However, in this crumbling social world order, GDP is not the only yardstick to measure economic performance.

Considering the seriousness of the matter, there is an urgent need for businesses to look beyond the bottom line and pursue a stakeholder-centric approach, which essentially means operating a business with a focus on environmental, social, and corporate governance (ESG) metrics.

Popular notions of sustainability – recycle and reuse – need to evolve and each one of us has to “rethink” and “re-imagine” new possibilities of doing business. Perhaps there is also a need for more structured benchmarking and reporting.

Investing for a better future: ESG (Environmental, Social and Governance)

There are many reports that cite the direct correlation between sustainable practices, share prices, and business performance.

According to a 2018 global survey by FTSE Russell, an index provider, more than half of global asset owners are currently implementing or evaluating ESG considerations in their investment strategy.

In 2018, Bank of America Merrill Lynch found that firms with a better ESG record than their peers, produced higher three-year returns, were more likely to become high-quality stocks, were less likely to have large price declines, and were less likely to go bankrupt.

Image: Bloomberg

Apart from that, businesses with ESG principles built into their long-term growth strategy, can mitigate risk and drive profitable growth by investing in sustainable innovations that positively impact the world. Through improved corporate governance, they can attract the best talent and build the most relatable and effective marketing campaigns.

Focus on “material” matters

Companies like us, which track their greenhouse gas emissions and implement internal carbon pricing, are always better prepared for a regulatory future where carbon is priced. This underscores a new trend in sustainable investing that focuses on “material” issues that impact a firm’s valuation. Materiality differs for each industry. Forward-thinking investors look for concrete evidence in a company’s annual reports to ensure that the business is focused on material ESG issues rather than a traditional commitment to sustainability.

To say the least, there are some obvious green shoots. However, it depends entirely on us whether they become a full forest or remain just pockets of green.

Read the rest of the article at World Economic Forum