July 21, 2012

How to make a business sustainable

For a business to be sustainable, it must provide both a return to investors but also not be judged to bringing harm to society
Sustainability quadrant

A business must deliver value both to community and shareholders to be sustainable

Today’s society demands that businesses provide positive outcomes for the community (over and above the pure economic contribution that business makes such as taxes paid and jobs provided) and will move against those that do not: eg. Asbestos, tuna fishing, Nike shoes, the mining industry).

The two axes are related because embedding business practice that provides a “return to the community” also improves returns to shareholders. In today‚Äôs market, the PE ratio is driven by “hygiene factors” rather than pure profit performance; the sounder the business’ reputation, the higher the PE, the higher the share price. “Hygiene factors” include:

  • Transparency
  • Innovation
  • Ability to attract and retain quality people
  • Governance
  • Strategic clarity

Moreover, cause-related marketing, properly tailored to the product or brand, can build greater consumer loyalty and help maintain market share. Addressing community concerns often reduces risk and operating cost. A business focused on sustainable business practices has the capability to attract and retain higher quality talent.

Jacaranda can help senior management review business operations, determine where there is potential to bring harm to society, recommend changes that will be in the business’ interest (eg. reducing waste, adding value, motivating employees), and develop the implementation strategy (including internal and external communications).