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How Sustainable Is The Future Of Sustainability?

Sustainability isn't just a fluffy, feel-good concept, it makes business sense

30Nov

Even though new president-elect Donald Trump campaigned on the idea that 'climate change is a hoax' and efforts associated with sustainability are not worth the attention, it doesn't mean that the concept and the US sustainable market are doomed. Regardless of political preferences, the majority of the Americans broadly support clean air, energy, climate progress, and efficiency - and so do businesses.

Sustainability relies on ESG factors (environmental, social, governance) - if you make a profit or benefit from something, make sure future generations and the planet will benefit from those initiatives too. From industrial and business perspectives, sustainability is about addressing issues at the macro level, where efforts are divided into economic efficiency, social equity, and environmental accountability - and then further sub-divided into more specific targets and plans, depending on the sector.

In the US market, sustainability has already gained enough recognition to be considered as one of the top investment trends and something that is going to revolutionize the way businesses operate. However, it's not solely the environmental activities that boosted the popularity of the model. Conventional production methods and environmentally unfriendly initiatives are simply becoming obsolete and have (still strong) but a declining impact on the economy and businesses.

Regarding the fossil fuel and mining sectors, for example, these are rapidly losing their dominant influence. The coal industry has been in decline since 2009, where alternative and cheaper sources of energy began growing in popularity. The instability of oil prices fueled by shifts in oil distribution and tensions in global politics are also not something investors can expect, so this unpredictable future drives cautious investment behavior. According to the EIA's most recent STEO forecast, oil price is expected to rise incrementally in 2017 - from $42.82 to $49.91 per barrel.

As the global population is growing and changing whilst resources are diminishing, the corporate world is undergoing a transformation, and the economy is in a constant state of turbulence - changes in trends and approaches are inevitable.

In his interview with Forbes, Evan Harvey, the Director of Corporate Responsibility for Nasdaq, pointed out that there is already a positive correlation between corporate sustainability performance related to ESG and their financial performance. When it comes to the investment field, transparency and insightful data about companies are what drives interest to stocks. Some stock exchanges have already introduced listing rules associated with ESG disclosure. Trackable metrics on sustainability allow others to better assess risks and investment opportunities and considering that stock indicators are vital, gaining a good reputation is of direct interest to companies.

An example where an industry is exploiting sustainability correctly is ironically the automotive sector, which only decades ago would have been considered the most loyal to fossil fuels. The industry took a big step in production of environmentally-friendly transport and exploitation of renewable energy. Once they received consumer approval and interest in one innovation, electric vehicles. Some manufacturers are now even trying to integrate sustainability across all levels - like building manufacturing plants powered by renewable energy and producing smarter and more efficient machinery with the IoT.

The path of a company transferring to sustainable operations is not easy if it didn't adopt the model initially. Those, who have been in the market for decades or whose production lines can become vulnerable due to sustainable changes, may find it difficult to invest more in ESG, whilst sacrificing profits. Investors who push for more disclosed information and in some cases, even production strategies, don't make it easier either.

One solution may be introducing a sustainable/environmental professional to the board as an advisor, as a necessary in the modern business environment. Changes in investment, consumer, and competitors' behaviors should be enough for organizations to acknowledge that they need to start creating sustainable strategies - if not for the sake of the planet or society, then for their own competitive advantage.

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