Turnover matters in companies’ willingness to trade profits for planet: report
COMPANIES appear split on the trade-off between profit and sustainability, a recent study by Standard Chartered (StanChart) has found.
Among the 300 companies across the world that were polled for this study, 54 per cent said they would be willing to make lower financial returns and profits for positive environmental and social impacts. The other 46 per cent prioritised higher profits and financial returns, even at the cost of negative environmental and social impacts.
The way companies lean seems to depend on their turnover: 65 per cent of large corporates said they are or would be willing to trade off financial returns for positive sustainability outcomes, compared with 47 per cent of mid-sized companies.
But the report, titled The Sustainability Commitment Paradox, said that in reality, companies believe that what is good for the planet and good for business are not mutually exclusive. Tangible business and financial benefits can come from sustainability efforts, because when these companies align themselves with the expectations of their target markets, it makes them more appealing to their consumers and investors.
The report defined large corporates as those with turnover of US$2 billion or more, and mid-sized companies as those with US$500 million in gross revenue.
Among the 300 companies in the study, 42 per cent were in Asia; Singapore was among the 10 Asian markets included.
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Commentators who spoke to The Business Times (BT) confirmed that companies with higher turnover were more inclined to engage in sustainable practices. Sharad Somani, head of KPMG ESG in Singapore, said: “They are motivated to drive sustainability initiatives more proactively than smaller enterprises in the current economic situation, due to stakeholder pressures, business opportunities and regulatory requirements.” (*see amendment note)
Parul Munshi, sustainability leader at PwC South-east Asia Consulting, said that businesses with lower turnover tend to allocate their financial and human capital to developing the business until it is more financially secure. Only then are they likely to shift priorities.
Companies with higher turnover tended to value sustainability for its ability to position the firm as a longer-term investment option; 84 per cent of these companies rate sustainability as “important” or “very important”.
Munshi said: “Leading businesses across South-east Asia are discovering that sustainable practices can yield long-term financial benefits, creating a win-win situation”.
In contrast, among companies with lower turnover, only 67 per cent agreed with this sentiment. Somani said: “As companies grow in maturity in the sustainability space, short-term profitability may come under strain, while long-term spin-offs would be substantial.”
Alongside revenue growth, many companies foresee opportunities to cut costs by adopting sustainable operations, in that improving operational efficiency reduces energy and resource use, which in turns lowers costs and improves the bottom line.
Fang Eu-Lin, sustainability and climate change leader of PwC Singapore, said: “This is certainly the view of the emerging ‘double materiality’ concept, in which we observe that indeed, ESG matters can be good for business and good for the environment and society. A case in point is climate – addressing decarbonisation for businesses can help to reduce costs or avoid additional costs.”
However, the “paradox” alluded to in the title of the report is that under 30 per cent of companies have actually set targets or made concrete sustainability commitments. This slow progress can be chalked up to a lack of funding for sustainability programmes, inconsistent data on ESG-related supplier compliance and the concern of optimising shipping to reduce emissions.
Asked how local businesses have responded to the growing emphasis on sustainability and climate action, those who spoke to BT said that while progress has been made in adopting more sustainable practices, efforts may require additional support from the government.
Fang said: “We do see businesses in Singapore taking strong climate action, including setting science-based targets or making stepped improvements.”
However, amid current economic headwinds, “government and industry support can be pivotal in helping Singapore companies fast-track the adoption of sustainability initiatives”, said Somani.
*Amendment note: An earlier version of this article incorrectly spelled Somani’s name as “Sharon Somani”. It is in fact “Sharad Somani”. The article above has been revised to reflect this.
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