Davos Agenda

Sustainability is now mission critical for businesses. Here's why

A woman checks vegetables at the Biocompany organic supermarket in Berlin, January 31, 2013.

Buying organic, sustainable or Fair Trade goods is more expensive - but this doesn't have to be the case Image: REUTERS/Fabrizio Bensch

Terri Toyota
Head of Sustainable Markets Group; Member of the Executive Committee, World Economic Forum Geneva
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Davos Agenda

This article is part of: Sustainable Development Impact Summit

“Can I afford to buy organic, go sustainable or shop Fair Trade?”

We have all often stood in front of store shelves asking ourselves this question. Threats from climate change, growing inequality and poor working conditions, and other mounting pressures on people and planet tell us that we can’t afford not to.

But with high markups on many ethical and sustainable goods it is clear that our markets, systems and supply chains are not optimized in favour of the consumer. The right choice is often not the easy choice.

Imagine instead a world in which you pay a premium for those products that are damaging to the health of our communities, workers and the environment. A vibrant sustainable market aligns economic and financial incentives, standards and regulations to promote universal access to a generous inventory of affordable and sustainable products.

This is entirely possible.

In 2015, polling group Nielsen surveyed 30,000 people in 60 countries around the world. They wanted to know what influences the way consumers feel about brands – and how those feelings impact buying behaviour.

Nielsen's survey results showed consumers' increasing willingness to purchase sustainably around the globe
Nielsen's survey results showed consumers' increasing willingness to purchase sustainably around the globe Image: Nielsen/Mashable/Statista

The survey found that two-thirds of respondents would happily pay more for sustainable goods.

For millennials, the figure was even higher: nearly three out of four were willing to pay between 10% and 25% more for sustainable products and services. The year before, only half of those polled would have demonstrated a similar behaviour.

Notably, the results showed that in developed markets where consumers face an abundance of choice and where the consequences of extreme social-economic inequality, encroaching environmental threats and limited opportunities for decent, safe work are more remote, the percentage of people willing to pay more was lower.

It follows then that there is much more scope, and demand, for engineering markets and promoting sustainable principles to consumers in emerging and developing economies. Consumers are seeking – and choosing – healthier, greener and more socially responsible options. And they are willing to dig deep.

Given this growing global demand, is the supply of sustainable products and services forthcoming?

Yes. A growing number of businesses recognise that there is a competitive edge here. As executives realise the interconnected nature of poverty, sustainability and equality – the so-called wicked, interconnected challenges – and how they impact business competitiveness, large multinationals are increasingly looking to shore up their resilience.

This year, the investment magazine Barron’s produced its first annual list of the 100 most sustainable companies in the USA. It reported that these companies enjoyed remarkable share price growth of 29% in 2017, compared to 22% for the S&P 500 index.

This trend is not just true within the US. Preliminary results of the 2018 Global Sustainability Index Institute report analysing 400 of the world’s largest companies with a combined market cap of more than $25 trillion indicates “the number of statements on the Sustainable Development Goals (SDGs) had more than doubled. Companies are more vocal on the SDGs in their annual reports due to the positive benefits to company performance and in response to stakeholder interest”.

Businesses are grasping just how much potential profitability and value are on offer. The intangible materiality and value associated with integrating positive environmental and human impact are strategic drivers, which can at the same time reduce costly risks to brand and reputation. Additionally, this approach appeals to an increasing desire and ambition among businesses to create a positive balance in the relationship between equitable growth and prosperity: representing employees, consumers and investors, and preserving the planet as the source of raw materials.

In short, sustainability bolsters the bottom-line, boardrooms and corporate reputations. Good practice is mission critical.

This trend is being reinforced by investors. One notable recent example is Larry Fink, chief executive of the world’s largest asset manager Black Rock, who has appealed to his counterparts in the business world: “Society increasingly is turning to the private sector and asking that companies respond to broader societal challenges,” he wrote. “Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

Encouraging real economic players, investors and governments to work with a common purpose in the pursuit of a global sustainable market movement is one of the key themes of this year’s World Economic Forum Sustainable Development Impact Summit in New York this week.

Have you read?

We recognize that to deliver a global step-change in environmental, social and economic development we need to view the Sustainable Development Goals both holistically and as a proxy for establishing an inclusive, equitable, green and profitable marketplace where sustainable principles drive growth.

This will require a dramatic shift in corporate business models, a re-orientated and mobilised financial system and an enabling environment that promotes regulation and incentivises operations that are aligned to the SDGs.

And this in turn implies an unprecedented convergence of development and commercial interests and an expectation that these stakeholders will work hand-in-hand for the foreseeable future.

Is it possible within the next decade? The cost of not trying is too high.

This is why the World Economic Forum, as the International Organization for Public-Private Cooperation, is offering its platform to help bring together leading institutions to progress this critical transformation.

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Davos AgendaSustainable DevelopmentEconomic Progress
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