What are the costs of sustainability initiatives

sustainability Report Creation

What is the Cost Associated with Corporate Sustainability Initiatives?

Corporate sustainability initiatives are becoming increasingly popular as a means to increase customer satisfaction, improve public opinion, and reduce marketing expenses. But how much do these programs cost?

What Are Corporate Sustainability Initiatives?

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The costs of a corporation’s sustainability programs can vary greatly depending on the size and scope of the program. Setting up and maintaining corporate sustainability programs can be very costly, but many benefits come with these initiatives. In this article, we’ll take a look at some of the expenses you can expect when setting up a corporate sustainability initiative along with some of the research-backed benefits you might see in return. In the end, we’ll be trying to answer one simple question: are sustainability initiatives worth it?

Corporate sustainability initiatives are efforts undertaken by a corporation to reduce its negative environmental and social impacts. Sustainability initiatives can take many different forms, from improving the recycling process to creating a sustainable production line.

How Much Does It Cost to Implement a Sustainability Program?

Setting up and maintaining corporate sustainability programs can be very costly, but many benefits come with these initiatives. Generally, costs can be broken down into three categories:

  • Setup Costs – The initial set-up cost for a new corporate sustainability program will depend on its goal and scope; however, data suggest that setup costs are usually the most expensive.
  • Ongoing Costs – Ongoing maintenance costs for corporations differ according to what type of goals or objectives they have dedicated their program towards achieving. If your initiative involves dedicated staff, their salaries will be a continual expense. If it involves regular material costs, that will go here as well.
  • Sunk Costs – Sunk costs are investments that cannot be recovered once they’re made. For instance, if a company produces several hundred t-shirts for an event that must be thrown away because the event was canceled, this would be considered a sunk cost.
Spending breakdown

As was mentioned above, these costs will vary wildly between organizations and initiatives. However, research has provided average spending benchmarks which show around 65% of spending on setup costs, 30% on ongoing costs, and 5% on sunk costs. These numbers should be treated as suggestions rather than guidelines.

Are they worth the cost?

The costs of implementing a corporate sustainability program will vary depending on the size and scope of the initiative, but many benefits come with these types of efforts. Some of those benefits include:

Increased Profits

For the first time in history, the majority of consumers are willing to pay more for products and services from companies deemed sustainable. According to a GreenPrint survey, the actual figure is as high as 64%.

Survey

In addition, according to a study published by MIT Sloan Management Review, companies that were transparent about their sustainable practices were able to increase profits in the aftermath of negative events, even if they didn’t act immediately. The same article found organizations should be more transparent about sustainability issues because “communications will decrease uncertainty and improve trust.” This, in turn, leads to more people buying a company’s products or services.

Increasing Customer Retention

Sustainable practices make customers feel as though they are doing something good for the environment when they purchase from a corporation, and this increases retention rates. Research has shown that 74% of consumers would buy different brands if it meant offsetting their carbon footprint. That’s a significant amount!

Sustainable initiatives can enhance brand value and reputation by signaling to consumers that you take sustainability seriously. These goals reflect positively on customers, employees, business partners, and investors which also helps strengthen operational relationships with all stakeholders.

Increased Employee Satisfaction

Many businesses find that employees appreciate working somewhere where they feel their contributions are going towards something good for everyone involved. In fact, according to a study published by Harvard Business Review, one highly polluting company was able to reduce its carbon footprint by 20% while simultaneously increasing profits because its employees were happier with their work environment.

The company was able to reduce its total salary expenses by 5% by hiring more employees for fewer hours, which led to increased job satisfaction and lower turnover rates. Employees also enjoyed the fact that they were doing something good for the planet without having to make big sacrifices. As a result, morale went up and productivity increased significantly.

When things aren’t sustainable, they eventually have to stop”. @Anders Ankarlid

Regulatory Compliance

Regulatory Compliance

The largest driving force behind corporate sustainability initiatives is government policy changes aimed at enforcing sustainable practices within businesses. One example is Executive Order 13514 signed by former President Obama. This order aimed to increase sustainability within the Federal Government by requiring agencies and departments to reduce their carbon emissions and energy use as well as increasing water conservation.

Policies like this come into existence regularly, and sustainability initiatives help companies pre-emptively address them.

Some policies are in place to ensure that companies utilize sustainable practices when manufacturing their products. For instance, the European Union’s Restriction of Hazardous Substances Policy was implemented to reduce the amount of dangerous chemicals used in everyday items manufactured by businesses.

Companies with sustainability initiatives tend to be more prepared for these types of laws because they have already taken proactive measures towards creating sustainable products and services. This reduces expenses associated with fines or lawsuits related to being out of compliance with regulations.

Bottom line

While implementing corporate sustainability programs can provide some great benefits, there is one especially important risk that must be considered, the cost associated with these initiatives could outweigh the benefits received if companies fail to measure or manage those costs effectively. Whether or not the benefits outweigh the costs will depend entirely on the company’s ability to maintain a proper budget for sustainability efforts and allocate investments accordingly. If a budget is maintained, it will ensure that income and return on investment (ROI) stay strong, even when expenses are high. In this scenario, corporate sustainability initiatives are definitely worth the costs.

About the Author

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Based in Dubai for over 10years, Peter Caush is the founder of Sandpaperme.com and TheSchoolAgency.com.
A trusted authority on digital marketing Peter is passionate about helping SME’s grow their business in the Gulf region. 
When he’s not in the office Peter enjoys playing squash, often more times than his knees can cope.

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