Sustainability

What is 'Sustainability'

Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is comprised of three pillars: economic, environmental and social - also known informally as profits, planet and people. Sustainability emerged as part of corporate ethics in response to perceived public discontent over the long term damage that a focus short term profits can cause. For example, a factory pouring its waste into a nearby body of water to avoid the short term costs of proper disposal can cause environmental damage that is much more expensive in the long term. Sustainability encourages business to frame decisions in terms of years and decades rather than on the next quarter's earnings report, and to consider more factors than simply the profit or loss involved.

BREAKING DOWN 'Sustainability'

The push for sustainability is obvious in the areas like energy generation where much of the long term thinking used to be focused on finding new deposits to outpace the drawdown on existing reserves. Some electricity companies, for example, now publicly state goals for a percentage of generation to come from sustainable sources like wind, hydro and solar.

Challenges of Sustainability

Moving towards sustainable production has been a complex process for energy companies, but the impact hasn’t necessarily been negative. By reorienting some of the decision making around longer timelines, some of the higher upfront investments in efficiency and renewable sources are easier to justify. Of course, investors must also adjust their expectations of returns knowing that a company committing to sustainable development of resources may have more modest earnings results in the near term.

Sustainability and Brand Protection

A similar trend has emerged in intimate consumer products - the things we put on and in us like food and cosmetics. Many companies have found themselves in the public crosshairs for actions that would have once been applauded like cost cutting measures such as offshoring production for cheaper labor. This practice, well good for the bottom line, often comes at the price of compromised worker safety and security. The clothing industry experienced this after the 2013 Savar factory collapse in Bangladesh. As a result, many of the companies that are most sensitive to consumer backlash - retailers and restaurants - have announced sustainability plans to reduce carbon footprints, packaging waste, animal suffering and so on.

These large retailers and restaurants are ultimately making a decision to protect their brand in the eyes of their customers, but these decisions filter all through the supply chain. When a company like Walmart commits to sustainability, it means that producers and suppliers all over the globe now have to report on their business practices. If there are practices that are unsustainable, the suppliers will have to phase them out in order to keep their biggest customers. Although the commitment to sustainability is far from universal, it has already started to shake-up global supply lines that were once based solely on finding the lowest cost producer, no questions asked.