Environmentally sustainable practices lead to more profits – Univ. study says

14 / 07 / 2019

• Sustainable Development

The University of South Australia has conducted a study that came with a conclusion that environmentally sustainable practices lead to stronger profits. Environmental sustainability leads to better margins through efficiencies and higher stakeholder trust.

Sustainability is good in view of spreading awareness among consumers and investors about the importance of eco-friendly practices, according to the university’s new report.

The study examined 24,393 businesses across multiple sectors from 41 countries with varying economies, and consistently found that businesses that adopted environmentally sustainable practices came up against fewer financial barriers – leading to stronger profits.

“Different industries are more environmentally intensive, and different countries have different regulations and markets, so the impact of ESPs (environmentally sustainable practices) varies somewhat from situation to situation, but when we look at the pattern as a whole, it is very consistent,” lead author of the report Dr Rajabrata Banerjee said.

“If a business tries to be more environmentally friendly, it will benefit financially.”

Researchers found that a company is more appealing for investors and customers if it has an ethical approach to the environment.

It’s also becoming more widely understood that businesses that are environmentally unsustainable are, ultimately, also economically unsustainable.

“Previously there was not so much attention on what the firm was doing, only on profitability,” co author of the study associate professor Kartick Gupta said.

“But now, there is so much focus from all stakeholders – investors, the government, the public – they all want to know that not only are you making profit, but you are also contributing to a positive society.”

One of the key ways businesses became more profitable through improved environmental practices was by cutting back on their resource consumption.

For companies in intensely polluting sectors or in economies with strict regulatory standards, a strong environmental track record helped “firms stand out and find more favorable operating terms.”

The report also found that the more competitive the industry, the bigger the advantage of strong environmental practices.

This effect increased where such measures went above and beyond mandated minimums. According to researchers, this suggests these companies face less scrutiny from lenders and stakeholders and enjoy greater customer loyalty.

The improved performance was measured across a range of factors including mitigating risk, higher profit, return on assets, average sales, growth and lower cost of capital, as influenced by ESPs in three categories: emission reduction, product innovation, and resource reduction.

“Hopefully, this can be a real driver for positive change, leading to a cleaner environment because it is better for business,” associate professor Gupta said.