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 composed of three pillars: economic, environmental and social - also known informally as profits, planet and people. Sustainability emerged as a component of corporate ethics in response to perceived public discontent over the long-term damage caused by a focus on short-term profits.

For example, a factory that allows its waste to flow into a nearby body of water to avoid the short-term costs of proper disposal can cause expensive and significant long-term environmental damage. Sustainability encourages businesses 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 evident in areas such as energy generation where the focus has been on finding new deposits to outpace the drawdown on existing reserves. Some electricity companies, for example, now publicly state goals for energy generation from sustainable sources such as wind, hydro and solar.

Sustainability Challenges

Moving towards sustainable production has been a complex process for energy companies, but not necessarily a negative one. By basing decisions on longer timelines, some of the higher upfront investments in efficiency and renewable sources are easier to justify. Investors have had to adjust their expectations for returns because a company that commits to the 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 such as food and cosmetics. Many companies have been criticized for exploiting cost-cutting measures such as offshoring production to obtain cheaper labor. This practice, although beneficial for the bottom line, often comes at the price of compromised worker safety and security. This occurred in the clothing industry following the 2013 Savar factory collapse in Bangladesh when over 1,100 people died. 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, and animal suffering.

These large retailers and restaurants are protecting their brand in the eyes of their customers, but these decisions also filter through the supply chain. When a large company such as Walmart commits to sustainability, producers and suppliers worldwide who supply WalMart must report on their business practices. If there are practices that are unsustainable, the suppliers must phase them out to continue to serve WalMart. 

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