Why Sustainability Is An Essential Part Of Digital Transformation

Digital transformation Sustainability January 2, 2023

Sustainability Is An Essential Part Of Digital Transformation

As the world grapples with climate change and environmental degradation, businesses are increasingly looking to implement more sustainable practices and policies. In a 2022 study of 850 companies worldwide, 80% said they plan to increase their investments in sustainability. In another report by Deloitte, 90% of executives believe sustainability is essential; however, only 60% of organizations have sustainability strategies.

The challenge lies in the need for more authoritative implementation of sustainable initiatives, commitment issues from the board, and skill shortage. But companies that bridge these gaps and combine high levels of digital innovation with sustainability outperform their industry peers, with 3.1% higher operating profits and greater returns for shareholders (Accenture).

Key Aspects of Sustainability

Environmental protection, social responsibility, and adherence to good corporate governance are the key factors of sustainability. Through ESG (an acronym for Environment, Social, and Governance), businesses can reduce their environmental impact, improve stakeholder relations, and build a stronger financial future.

According to a report by EY, almost two-thirds of investors believe that ESG factors are material to their investment decisions. Not just this, businesses that are seen as more sustainable are more likely to attract customers, investors, governments, and talent.

Rising Demand for Sustainable Products Among Consumers

The global economy is rapidly shifting to a more sustainable future, driven by consumer demand for products and services that are eco-friendly, ethical, and socially responsible.

This trend has been especially prominent in recent years, as the coronavirus pandemic has forced people to become more mindful of their environmental impact. The evidence of this shift is everywhere and can be validated by the following factors -

  • Consumer Awareness - As reported by Accenture, 83% of consumers believe it’s extremely important for companies to have a positive impact by designing products intended for reuse or recycling.

  • Consumer Intention - In the same survey by Accenture, it came out that more than half of the consumers would pay more for sustainable products designed to be reused or recycled. Furthermore, 70% of purpose-driven shoppers pay an added premium of 35% for sustainable purchases, and 57% are willing to change their purchasing habits to help reduce their negative impact on the environment(Source).

  • Consumer Action - According to Forrester research, 68% of motivated consumers constantly look out for brands that reduce environmental impact, 61% put in the effort to find energy-efficient labels when making purchases, and 47% buy organic products regularly.

Regulations Concerning Environment Impact

  • Paris Climate Agreement - The Paris Climate Agreement is a global agreement to address climate change. It was adopted in 2015 and has been signed by almost all countries worldwide. Under the agreement, countries must commit to reducing their emissions of greenhouse gasses and work towards keeping global temperatures from rising more than 2 degrees Celsius above pre-industrial levels.

  • Legally-Bound Targets - While Sweden and Germany have legally binding net zero targets for 2045, the UK, Canada, Japan and others have a 2050 net zero commitment. This clearly shows how stringent these regulations are and how clear the motive is.

  • EU’s Taxonomy Regulations - The EU’s Taxonomy aims to improve sustainable activities across the European Union. It also regulates businesses based on how environmentally sustainable they are, affecting not only EU businesses but any organization that does business in the EU.

Sustainability Reduces Costs

According to McKinsey & Company, sustainability lowers costs significantly and can affect operating profits by up to 60%. As reported by the World Business Council for Sustainable Development, companies with a sustainability focus can see a 5-7% increase in their bottom line. This can be done by -

  • Reduce, Reuse, Recycle - By looking for opportunities to reduce, reuse, and recycle materials, businesses can save on the cost of resources and disposal fees. For example, Oren’s Hummus (a Mediterranean restaurant) saves $1,720 per year by replacing plastic sauce cups with reusable ones.

  • Energy Efficiency - Investing in energy-efficient lighting, heating, cooling, and other energy-using equipment can help businesses save on energy costs. Additionally, businesses can use renewable energy sources, such as solar and wind, to reduce their dependence on traditional energy sources. For example, Wynn Resort in Las Vegas, with 2716 rooms, will reduce its utility bills by 75% from the 160-acre solar farm it invested in.

  • Use of Sustainable Materials - By using eco-friendly materials, such as recycled paper or bamboo, businesses can save on the cost of purchasing materials and benefit from reduced emissions and waste. For example, Nike Inc. now weaves more efficiently, reducing the raw material and labour time needed to make each shoe, reducing 3.5 million pounds of waste since 2012.

  • Making Minor Changes - Ultra-thin bottle designs to lower plastic use, reducing carton thickness, replacing polystyrene with PET, reducing secondary packaging size, and similar minor changes can bring about significant transformations. For example, Nestle’s flimsy plastic water bottles have an ultra-thin design, which significantly pushes down the packaging and shipping costs.

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Sustainability Attracts Talent & Improves Productivity

In a recent survey, nearly half of the respondents and 75% of millennials said they would be willing to accept a smaller paycheck to work for an environmentally responsible company.

More than 10% of workers even said they’d be willing to go as far as to take a $5,000-$10,000 pay cut. With an increasing need for resources, a lack of shift towards sustainable initiatives will lead to organizations losing out to their competitors who do.

Not just this, a study by Harvard Business School found that companies that focus on sustainability saw a 19% increase in productivity and a 10% decrease in employee turnover. Even a Deloitte study shows that companies with an inclusive culture have 22% greater productivity, leading to 27% higher profitability.

Final Words

Thus, sustainability initiatives are beneficial for the environment and businesses that are looking to reduce costs, increase revenue, and remain competitive in an ever-changing digital landscape.

By taking advantage of sustainability initiatives, entrepreneurs can ensure that their digital transformation efforts are forward-thinking and future-proof.

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Written By

A technology veteran, investor and serial entrepreneur, Mohan has developed services for clients including Singapore’s leading advertising companies, fans of Bollywood movies and companies that need mobile apps.

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