Understanding the ROI of sustainability

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Many finance and investment managers find themselves having to prove the profitability and ROI of sustainability and ESG initiatives, but don’t often find the benefits in the balance sheet.

Companies find themselves increasingly pressured to push ESG initiatives forward; from investors to employees and regulators, it is quite difficult, and, frankly, not the smartest move, to ignore the demand for sustainability.

Once businesses finally choose to embrace sustainability, finance or investment managers are pressured to look for measurable and tangible data on the profitability or ROI of such sustainability initiatives.

However, many fail to understand that balance sheets might not be the place to look for such data, at least not all of it. But where can we look for the return of investment of sustainability and prove it is indeed worth the money and resources?

ROI sustainability

At the end of the day, companies should not worry about sustainability more so than with any other investment, and so it should not be measured or treated any differently in that regard. What is truly crucial is to understand the impact such investments can have on the future of the company, financially or otherwise, one way or another. 

Is the ROI of sustainability tangible?

Is the ROI of sustainability tangible? This we believe is a good first question to ask ourselves when dealing with the task of understanding and measuring the return of investment of sustainability initiatives. 

It is important to note because this is perhaps the most common mistake, looking for solely tangible data and measurable financial statistics in order to prove sustainability a successful, efficient or worthy feature of company practices and activities. 

Engage employees in the sustainability strategy

Find out how we help drive engagement throughout the company

Nonetheless, we cannot disregard tangible aspects of sustainability benefits. As James Stacey, a partner at sustainability consultancy ERM, states, “Understanding ROI is really all about understanding how the sustainability agenda or a subset of it (…) interacts with a business’s revenue, costs and the assets and liabilities it’s got on its balance sheet”. He also notes how each ESG issue will have different financial impacts, so it is important to understand there is no such thing as a one-size-fits-all approach. 

The intangible benefits of sustainability

It is also important to get out of the financial mindset every once in a while and look beyond the purely monetary benefits of sustainable actions. Let’s take for example talent attraction or retention, as employees increasingly demand for company and personal value alignment

Employee engagement becomes a trickier beneficial aspect of sustainability to measure financially, but not less important. However, there might be some light to this in understanding how to measure the cost of employee turnover, both financially and culturally. 

ROI sustainability

Another good example of the intangible or non-financial value of sustainability is that of regulations. It is difficult to measure the return of investment of complying with regulations and standards, it is however increasingly important for investors, and compulsory in order to be able to continue operating in some cases. 

As a final example, reputation is a very important aspect worth noting, and one that, once again, it is difficult to measure financially or quantifiably, but, can you put a price to your reputation as a responsible business?

The ESG issues and sustainable initiatives companies choose to pursue, and how they choose to pursue them will directly affect their brand reputation and public image for better and for worse. 

On another note though, reputation can have a measurable impact as consumers and stakeholders consistently choose to support your business and its practices, which at the same time helps them achieve a more sustainable behavior. 

The sustainable reputation guide

How and why your company should strive to achieve a sustainable reputation

Employee engagement and the ROI of sustainability

And while accountants and revenue officers still struggle to find the best ways to translate the ROI of sustainability into tangible and financial data, sustainability and non-financial reporting is slowly getting more robust, which in turn gives more transparency to ESG related benefits and why companies should indeed invest in it. 

An example of this robustness is the engagement of stakeholders in the sustainability strategy of the company, as a means to find alignment and coherence and fight bad reputation and unengaged employees, among other things. 

employee engagement

Sustainability cannot be a one department or one policy thing, it is only ever effective and productive when we integrate it throughout the company, meaning our sustainability strategy cannot thrive if it is not at the heart of employees’ and other relevant stakeholders’ everyday work and purpose.

Through our technology we help companies establish ESG impact objectives for employees in regards to the sustainability strategy of the company. We are able to activate and track employees’ impact, creating engagement that translates into improved ESG metrics, reputational value and an overall positive impact for the environment and society.