How to quantify the business and brand value of sustainability
Corporate action on sustainability and social impact topics like climate change, biodiversity loss, water scarcity, and supplier wellbeing has grown sizably in recent years. Yet despite best efforts, many companies are off track to hit their 2030 goals. For instance, only 5% of companies have high-integrity climate transition strategies, and less than 1% have assessed their dependencies on nature.
To drive meaningful progress on these issues, sustainability needs to be integrated into corporate strategy and business processes, and that can’t happen unless return on investment (ROI) goes hand-in-hand with environmental and social impacts.
Some sustainability initiatives are easier to quantify, such as the cost savings from energy efficiency upgrades, and many organizations are already doing this whether they link financial value to sustainability or not. But what about more challenging topics like the impact of sustainability on brand value or market capitalization? Or the value of underpriced (or unpriced!) and overexploited resources like water and nature?
Without connecting sustainability to ROI and business value, sustainability will always be viewed as a cost center, and you’ll struggle to get the buy-in and financial resources needed to deploy high-impact initiatives. Learn 4 ways to tell the ROI story of your sustainability initiatives and unlock progress toward your 2030 goals.
How to tell the ROI story of sustainability
Businesses leaders often choose other competing priorities over sustainability because they don’t see a clear path to financial value. Communicating this value can be a challenge, considering that sustainability and finance teams tend to speak different languages.
Sustainability teams are well versed in technical language (think CO2e, MWhs, etc.) but may not be used to developing ROI-centered value creation narratives, whereas corporate finance teams and executive decision-makers are rooted in traditional language like ROI and net present value (NPV) and prioritize short-term financial gains.
Bridging this gap is critical to long-term, high-impact action on sustainability. Here are 4 angles to articulate ROI and financial impact so you can gain internal buy-in and link sustainability to business outcomes:
1) Demonstrate the financial value from resource productivity
As mentioned above, corporate finance leaders are focused on maximizing near-term profits and consider value on much shorter time horizons. This has always been a point of contention with sustainability initiatives, which can take years to implement and deliver value over 10-, 20-, or even 30-year timelines.
Resource productivity (efficiency) is an exception to this rule and can be used as a quick and clear demonstration of financial value and ROI. All resources inevitably show up on the income statement, even if they’re hidden in operational or facilities P&Ls. Whether you’re using less resources to get the same output or maximizing output from the same number of resources, using efficiency-driven cost savings as the launching pad for your ROI story is a powerful way to gain initial cross-departmental buy-in.
Also, keep in mind that energy use is just one aspect of resource productivity. What about the utility bill savings from installing water-saving technology? Or cutting disposal costs by redesigning products to create less waste? On a similar vein, saving on raw material costs by using fewer natural resources in production?
For instance, at Home Depot, eliminating Styrofoam and polyvinyl chloride plastic film from packaging used for private-label products resulted in lighter, smaller packages, which increased how many items could be placed on shelves or packed into trucks. While these changes undoubtedly support Home Depot’s climate targets, the retailer doesn’t discuss packaging goals in the context of greenhouse gas (GHG) reduction. Instead, the focus is on efficiency of design, which reduces transportation costs and allows for optimal utilization of space at storefronts.
2) Quantify the business value of sustainability risk mitigation
No company is shielded from sustainability risk – be it the physical risk of reduced crop yields from chronic drought, the regulatory risk of failing to comply with new deforestation laws, or the reputational risk from forced labor allegations deep within your supply chain.
Sustainability practitioners know this all too well. They also know that risks like climate, nature, and water will only become more severe, and the price of inaction is steep. Here are a few ways to make this more concrete to your finance team and key executives:
Draw parallels to the state of climate finance. Although it'll take nearly $300T in global climate finance between now and 2050 to limit planetary warming to 1.5°C, the financial losses from climate change will be almost 5X that if the world continues to warm under the “business as usual” scenario. Delaying action will only make these costs more severe, and the same is true for your business. Bottom line? Emphasize that the costs of mitigating risks today are dwarfed by costs of prolonged inaction.
Use scenario analysis to quantify the price of inaction in your business. To make the price of inaction message hit closer to home, conduct a quantitative scenario analysis to understand how your business would be impacted by various climate, nature, and water risks. Then, quantify the financial impact of these risks. For instance, perhaps you determine that under 3°C of warming, there’s a 50% chance you’ll experience over $1B in damages from flooding at your coastal facilities. What would it cost today to invest in nature-based solutions like marshes, mangroves, and coral reefs to increase coastal resilience? It’s a safe bet these costs will be a fraction of potential future damage.
Issue spotlight: The business value of tackling supply chain emissions
Scope 3 emissions are notoriously hard to address, and high-impact initiatives aren’t cheap. However, reducing Scope 3 emissions can be ROI-positive. In a recent report, CDP found that investing in Scope 3 and other supply chain risks can deliver financial gains of $165B (primarily through new market opportunities and products and services), nearly double the amount required to realize them.
Point to a recent example of costs or consequences. Sometimes, the best way to demonstrate the value of risk mitigation is reminding executives of negative consequences you or another company in your industry experienced in the past. If a climate change-linked natural disaster shut down a critical manufacturing facility, how much did this cost? If you experienced allegations of forced labor, how did this impact your reputation? What was the financial impact of the time and resources allocated to this issue?
3) Explore the business and brand value of sustainability opportunities
In addition to quantifying the financial value of risk mitigation, model the business and brand value gained from capitalizing on opportunities – specifically, the opportunity to create lower-carbon, less resource intensive business models, products, or services.
Sustainable business model innovation often leads to tangible financial benefits (cost savings, new revenue streams, operational efficiencies, etc.). Could waste from your goods be used to create new energy or sold and reconverted as an input for another product? Could bio-based ingredients reduce your raw materials costs? Work with your suppliers and product and innovation teams to explore what capitalizing on these opportunities would require and quantify the potential financial gain.
For example, at Unilever, innovations in biotechnology have allowed the company to replace petrochemicals with 100% renewable and biodegradable plant-based foaming ingredients in its Sunlight dishwashing liquid. On top of yielding signific cost savings, this breakthrough technology could reduce GHG emissions by up to 50%.
Embracing sustainable business models also gives you the opportunity to drive competitive advantage and increase customer loyalty and brand value. Communicating these benefits can be particularly challenging because they aren’t easily quantifiable in financial terms. Here are a few tips on crafting a resonating narrative:
The fact that today’s customers increasingly want to buy sustainable products is nothing new. However, past research revealed a gap between customers’ intentions and actions, where customers often didn’t support their preferences with real-life purchases. That’s starting to change.
In a research study analyzing consumer spending behaviors, McKinsey and NielsenIQ found that sustainability-marketed products accounted for over 50% of growth in consumer packaged goods over the last 5 years. This remained true even during high inflation – sustainability-marketed products enjoyed a 5-year compound annual growth rate (CAGR) nearly double that of conventional products.
Remind executives that rethinking business models and offerings to align with these preferences is a powerful way to boost demand, loyalty, and revenue. For instance, after experimenting with offering oat milk in their beverages, Starbucks found the initiative was so successful that oat milk is now the default at many locations. This shift, which also materially reduces dairy emissions, was first and foremost a response to changing consumer preferences.
If industry trends aren’t enough of a selling point, you could even conduct research among your own customer base to determine appetite for sustainable offerings and use the results to forecast estimated new revenue streams.
Provide leadership with examples of companies that’ve seen great success while embracing lower carbon, less resource intensive business models. For instance, in 2019, Unilever’s Sustainable Living Brands grew nearly 70% faster than the rest of the business and delivered 75% of the company’s growth. Similarly, following the launch of its Made to Matter collection, Target reported the line grew1.5X faster than other categories.
Be sure to support industry examples with forecasted sales and demand for your new goods or services. As mentioned above, you could use data on changing consumer preferences as a multiplier in your sales forecasting model.
Forecast the increase in customer lifetime value (CLV) you expect from new, sustainability-focused brands or services. How many more store visits or online purchases do you anticipate? What’s the price premium of your new product line? Use industry research and data on consumer spending habits, alongside any primary research (such as foot traffic from retail stores piloting sustainability initiatives), to develop accurate metrics.
The fact that today’s customers increasingly want to buy sustainable products is nothing new. However, past research revealed a gap between customers’ intentions and actions, where customers often didn’t support their preferences with real-life purchases. That’s starting to change.
In a research study analyzing consumer spending behaviors, McKinsey and NielsenIQ found that sustainability-marketed products accounted for over 50% of growth in consumer packaged goods over the last 5 years. This remained true even during high inflation – sustainability-marketed products enjoyed a 5-year compound annual growth rate (CAGR) nearly double that of conventional products.
Remind executives that rethinking business models and offerings to align with these preferences is a powerful way to boost demand, loyalty, and revenue. For instance, after experimenting with offering oat milk in their beverages, Starbucks found the initiative was so successful that oat milk is now the default at many locations. This shift, which also materially reduces dairy emissions, was first and foremost a response to changing consumer preferences.
If industry trends aren’t enough of a selling point, you could even conduct research among your own customer base to determine appetite for sustainable offerings and use the results to forecast estimated new revenue streams.
Provide leadership with examples of companies that’ve seen great success while embracing lower carbon, less resource intensive business models. For instance, in 2019, Unilever’s Sustainable Living Brands grew nearly 70% faster than the rest of the business and delivered 75% of the company’s growth. Similarly, following the launch of its Made to Matter collection, Target reported the line grew1.5X faster than other categories.
Be sure to support industry examples with forecasted sales and demand for your new goods or services. As mentioned above, you could use data on changing consumer preferences as a multiplier in your sales forecasting model.
Forecast the increase in customer lifetime value (CLV) you expect from new, sustainability-focused brands or services. How many more store visits or online purchases do you anticipate? What’s the price premium of your new product line? Use industry research and data on consumer spending habits, alongside any primary research (such as foot traffic from retail stores piloting sustainability initiatives), to develop accurate metrics.
4) Communicate the co-benefits of sustainability initiatives
Demonstrating wins against multiple business priorities greatly increases chances for success and approval of initiatives. If one initiative influences numerous sustainability priority areas and has clear business value, it'll yield far more significant returns than scattered initiatives each requiring their own set of resources.
Luckily, many high-impact sustainability solutions inherently drive positive change across a number of verticals. For instance, empowering smallholder farmers with financial resources to embrace regenerative farming or use drought-resistant seeds reduces ecosystem loss, sequesters carbon, conserves water, and boosts yields, creating a better livelihood for farmers and promoting long-term crop security for your business.
Collaborate with your climate, nature, water, and social impact teams to identify these win-win solutions and present them together to leadership. Clearly demonstrate how solutions create co-benefits across workstreams and drive financial value. Here are a few hypothetical examples:
The bigger picture
Marrying ROI with the environmental and social impacts of your initiatives is imperative for long-term, effective action on sustainability and business continuity. Alongside the benefits to people and the planet, good sustainability investments reduce risks and operating costs, preserve social license to operate, drive customer demand, amplify brand value, and promote community engagement.
The more you can articulate the multi-dimensional value of impacts, the more you will win with leadership and build buy-in for sustainability, even among competing priorities.
Need help quantifying the business value of your climate, nature, or water initiatives? Our team helps root your climate or sustainability strategy in ROI and financial value so you can unlock the resources you need and accelerate progress toward your goals.
