Nov 29, 20216 min read

Risks and Opportunities of a Sustainable Business Strategy

Updated: Jun 21, 2022

Research by: Ekjot Sodhi

Sustainability KPI Measurement and Reporting

Sustainability is a new source of competitive advantage in business and it is now business-critical to prioritise ESG factors. Embedding sustainability and ethical business practices into business strategy are key for both large and SME businesses - who according to the World Bank account for around 90% of global businesses and contribute approximately 40% of the GDP. Sustainability risks in business must be prioritised and opportunities taken advantage of to remain competitive. Businesses need protocols setting out how strategic plans, return on investment, sustainability/ESG KPIs will be actively governed on projects, contracts and reported as part of monthly reporting to safeguard socio-economic issues and sustainable value within the business. This is critical to mitigate risks to revenue and profits from inaction and to maximise funding opportunities for growth and value creation. Three key KPI examples that should be monitored and reported include:

Environment: Carbon footprint and emissions
Social: SME representation
Governance: Gender pay gap and balance on boards

Opportunities from the Falling Cost of Renewable Energy

Figures reported by Statista from the 'Our World in Data' series evidences some positive outcomes with the use of renewable resources. In the year 2010, electricity generated from solar photovoltaic cost showed a global average of $378 to generate in terms of Megawatts whereas, by the year 2019, cost had decreased to as low as $68 - which is significantly cheaper and more economical as compared to nuclear and coal power. It is also reported that the price of wind energy has also decreased since 2010, both onshore and offshore.

Sustainability Risks and Opportunities in Business

Sustainability risks in business include environmental, socio-economic, and governance risks. There are several risks associated with not prioritising sustainability factors - read the Southern Water pollution case study while others include shareholder rebellion in the ExxonMobil and Chevron case examples. The CMI's 'Blue Print for Balance' paper highlights risks and opportunities of having a balanced board for effective governance. Risks of inaction should be mitigated not just within each business but across the supply chain, value chain, and the entire business ecosystem. The UK government has taken this bold step in the right direction with their transforming 'Infrastructure Performance Roadmap'. The consequences of inaction can be vast resulting in decline in reputation which will ultimately result in a loss of customers and competitive advantage. These issues can be identified and mitigated by embedding sustainability into strategy from the onset. Compliance can be governed by independent audits to minimise risks of greenwashing via payroll audits, carbon cost audits and ESG audits.

Volkswagen case study

The popular German car brand Volkswagen in September 2015 was found guilty by the Environmental Protection Agency of cheating in their carbon emission testing by devising a software named as “defeat device” in its diesel engine that could detect that a vehicle was being tested and that vehicle's performance could be erroneously amended accordingly to showcase better results. According to the (BBC), Volkswagen admitted to fitting the device in 11 million cars globally, 8 million of which were in Europe. Volkswagen launched a special marketing campaign in America to sell its diesel cars claiming that the car will release very low emissions, but the brand later admitted to being guilty of cheating carbon emission testing. As a result of this scandal the company had to deal with the following:

3.7% and 11.6% fall in sales and production compared to the previous year.
£4.8bn fines from the scandal leading to severe quarterly financial losses.
20% diminution in sales and profit following the scandal in 2016 (Guardian)
37% loss of shareholder value (Hustle)

The Body Shop Case study

The Body Shop, a successful brand in the UK since 1976, is popular for its ethical and sustainability initiatives. The Body shop maintains its ethical business practices and ESG reputation in several ways. With 80% of the world still involved in animal testing, The Body Shop has been against animal testing since its inception and strictly does not launch products where animal testing is legal. Body Shop has run a fair trade community programme since 1987 in countries with low economic opportunities (such as in Ghana and India) providing financial independence to women in these communities in line with the UN 17 Sustainable development goals (SDGs). Body Shop created a refill initiative to reduce plastic by 25 tonnes yearly and aims to be 100% recyclable by 2025. With 85% of its women workforce afforded equal pay and flexible working, it consistently reports positive KPIs on investments.

68% of the brand packaging is recyclable aiming to be 100% by 2025.
13.8% mean gender pay gap in 2020 down from to 43.4% in 2018
£500m increase in revenue to £800 in 2018 from £300m in 2011
76% gross profit margin in 2018 from 59.7% in 2011

Source: Craft.co.uk The Body Shop Metrics

Sustainable Investments

Responsible or sustainable investments are investments business make that will not lead to environmental, social, or governance issues, while giving back to communities, creating opportunities for growth and sustainable value by safeguarding long-term financial and economic performance. In January 2021, Reuters reported increased demand for investments in ESG funds driving US managed assets up by 29% to nearly $1.7 trillion. McKinsey have similarly identified ESG as linked to positive cash flows recommending these five levers as a checklist for ESG decision-making - driving growth, optimising costs, reducing legal intervention, increasing employee productivity and maximising return on capex investments. Other opportunities related to sustainable investments include:

Reduced environmental and socio-economic impact
Employee well being, satisfaction, and retention
Attracting high returns and increased revenue
Customer retention and increased shareholder value

Our Services & Outputs

Infrastructure project: cost assurance audits, systems, payroll, HR audits & protocols
SME Business Strategy: 5-Yr strategic business plan, financial statements
Fintech/Transformation advisory: minimising risk and optimising business case ROI
Sustainability & ESG: pay-gap, carbon cost audits, reporting, ESG finance training
Training: delivering case-based training, for buy-in to technology & staff upskilling
Independent advisory: on strategy, cost optimisation & digital transformation.
Steering Group (CSR): cost assurance and audits on infrastructure projects/contracts

Infrastructure Projects - Tips & How can CFBL Consulting help

Cost assurance: implementing capex people, process, systems & controls
Protocols: training & designing project/contracts process, tools, templates
Independent cost audits: verifying actual/ defined cost on cost/open book contracts
Systems auditor: examining financial records, controls and cost systems for integrity
Pre-audit diagnostic: identifying risks on cost-based/open book alliance contracts
Independent contract auditor role: Undertaking internal project/contract auditor role
Legal records: facilitating records for legal compliance on cost/open book contracts
Payroll audit: Independent HR, payroll, carbon cost, gender pay-gap/balance audit
Business case: Implementing capex strategy/developing investment business cases
ESG Finance training: upskilling staff/supply chain on ESG KPIs in decision making
ESG protocols: training & designing controls, tools and templates for ESG reporting

SME Business Strategy -Tips & How can CFBL Consulting help

Developing/implementing strategy: sustainable business strategy for growth/scaling
5-Yr Strategic business planning: financial statements, analysis for funding & grants
People training & upskilling: business and supply chain engagement and training
Independent Fintech/Transformation Advisory: minimising risk and optimising ROI
Capex Investments: optimising grants, funding R&D tax credits & capital allowances
Financial management: tax, planning & implementing financial controls for resilience
Finance business partnering: providing strategic advice in financial decision making

Sustainability & ESG Strategy - Tips & How can CFBL Consulting help

Developing and implementing sustainable business strategy for SME growth/scaling
Sustainability/ESG strategy: implementing, carbon measurement and benchmarking
HR/Payroll audit: Independent HR, payroll cost, pay-gap gender balance auditing
Sustainability & ESG: strategy implementation, carbon cost auditing/impact reporting
ESG Finance training: upskilling staff/supply chain on ESG KPIs in decision making
ESG protocols: training & designing controls, tools and templates for ESG reporting

Fintech & Digital Transformation Advisory - Tips & How can CFBL Consulting help

Commercial systems: advisory on commercial, contract, cost, audits & projects
Financial systems: advisory on financial, HR, management and reporting systems
ESG KPI reporting: Insight and benchmarking for reporting and competitive edge
Independent advisory services on payroll, project, contract, cost, audit and reporting
Independent advisory on technology that best aligns to strategic goals benefit
Training: delivering case-based training, for buy-in to technology & staff upskilling