By Lily Faragher
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“I just don’t see how this will pencil.”
This term has become the bane of my existence in the world of social-focused consulting.
“Pencil-ing” for those who are blissfully unaware of the phrase at the center of all of my work-related existential crises, is the dilemma individuals face when they can’t co-relate the solution we suggest with immediate increased monetary benefit to their organization.
Organizations understand that increasing their efforts to become more inclusive, ecologically engaged and generally socially aware benefits their bottom line. I mean, if they didn’t think so, I, and many other people would be out of a job.
However, what they often don’t perceive is that becoming more inclusive requires a shift in mindset from prioritizing short term profit exclusively, to balancing profit and long term interests. This, as evidenced by my favorite phrase, is something that can be difficult to explain to someone focused on increasing quarterly earnings, especially after the consecutive financial blows many organizations sustained throughout the pandemic.
Sustainability pays off
It pays longterm to be sustainable. A 2020 MSCI study found that since the introduction of Environmental, Social, Governance (ESG) frameworks, the higher a company’s ESG score, the lower their cost of capital. Further, a study of 2000 reports examining the relationship between ESG and corporate financial performance (CFP) found that the business case for ESG investing is empirically well founded. ESG impact on CFP appears stable over time, demonstrating the value of long-term investment.
When we encourage people to take the jump, this is why. Quarterly earnings will take a hit through the first few years of sustainable investment if done properly. However, the long term financial and social benefits greatly outweigh short term costs. Benefits of investing sustainably go well beyond reducing energy bills, but extend into the communities organizations serve. Healthier staff, healthier cities & better brand perception are just some of the positive outcomes of sustainable investing.
How to start
However, it can be hard to start. Although I poke fun at those hesitating to make the jump, I understand that the framing of social and environmental investments is often suggested simply as ‘the right thing’ to do. Social pressures and changing rhetoric surrounding the latest trends and movements can make it seem impossible to choose where to invest even if organizations want to. It is difficult to make the case to invest in what seems like a moving target, that has no financial value.
When looking to invest in social and environmental upgrades, it is important to consider changes that are aligned with your brand’s purpose, and the communities and environments your organization engages with. Using these pillars will allow your organization to make changes that will improve your alignment with brand image while avoiding falling into fads.
Make sure you can easily articulate your brands ‘purpose’ and your consumer base. Ask yourself, what does your brand stand for? What was the original need that established your organization? Who are you aiming to help? What are the needs of that demographic? What are some of the defining causes that people in those target demographics tend to care about? The questions you struggle to answer will help inform where you should start. Once you have filled in these blanks, small initiatives and campaigns are a great place to start, this way, you can find out what makes your clientele excited, and what aligns best with your businesses long term goals.
Cotopaxi and Lemonade are just two examples of companies that have changed their outlook to push their companies, and industries to become more sustainable, helping their bottom line in the process.
Tripled bottomline
American athletic company, Cotopaxi has appealed to the classic outdoorsy consumer by addressing challenges related to their supply chain and labour practices.
The company, who once maintained questionable labour practices and dependance on new, plastic-based materials has made changes to become more sustainable and transparent. These changes have included establishing strict company guidelines that commit to transparent labour processes, while also upholding the use of only repurposed or responsibly sourced materials come 2025.
Since these commitments in 2020, Cotopaxi saw an initial loss in profit, but have since tripled their bottomline, thanks in part to their commitments to social and ecological sustainability.
Start small
Lemonade, an American insurance firm, is also committed to making changes that matter for their consumer. Realizing insurance was an industry that did not appeal to a younger generation of socially engaged youth, Lemonade decided to change how people understand insurance by investing only in sustainable enterprises, while also donating all unclaimed policies back to causes clients care about. This has led to the company becoming the leading insurance firm among people under 40, gaining a share of the market quicker than any other insurance company ever has.
What these organizations have done demonstrates that efforts to become sustainable don’t need to be complex.
Starting small is the most sustainable way to move forward, and can often be informed by a companies brand identity, and what your consumer cares about.
