What Is Sustainability? How It Works and Why It’s Important

Interest in sustainability issues is becoming mainstream as more people realize the impacts that their business and personal decisions have on the planet and society. Those impacts include dangerous weather patterns and rising temperatures attributed to burning fossil fuels, as well as pollution, loss of biodiversity, deforestation, and other environmental issues. In recent years, sustainability has also come to encompass economic and social issues, such as poverty, pay inequity, human rights abuses, and lack of racial diversity.

What Is Sustainability?

In general terms, sustainability is the ability to maintain a specific rate or level. In a business context, it’s about maintaining or improving profitability without doing harm. Until recently, conversations about sustainability typically dealt only with slowing climate change and preserving the planet’s natural resources for generations to come. But the concept has evolved to include economic, social, and corporate governance issues, including achieving better standards of living and equity. Laws and company policies are changing to promote greener, more equitable ways to live and work.

Key Takeaways

• Sustainability has three pillars—environment, economy, and society—that are sometimes called planet, profit, and people.
• More people than ever expect their employers, vendors, and policymakers to take sustainability seriously and be transparent about their progress. Some people prioritize where they work and shop based on those efforts.
• Supply chain transparency is necessary to grasp the full extent of a company’s environmental, economic, and social impacts so that a company’s leaders, employees, and customers can make more informed decisions.

Sustainability Explained

In 1987, the United Nations first defined sustainable development as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” This movement entails considering the ripple effect that decisions and actions have on the environment and society for years to come.

Steps that governments and organizations are taking to reduce their environmental impact include using more efficient and renewable energy sources, such as solar and wind power; recycling nonrenewable resources, such as plastics; conserving water and other natural resources; reducing all forms of waste; scaling back travel and offering remote work opportunities to reduce carbon emissions; and prioritizing relationships with other businesses based on their sustainable practices.

Additional measures include providing good working conditions, closing the gender pay gap, sourcing materials only from companies that treat their workers justly, and conducting business operations transparently.

Why Is Sustainability Important in Business?

Sustainability is a vital concern for businesses because it matters to their employees and customers and affects the bottom line in numerous ways. A study by McKinsey and NielsenIQ published in February found that US sales of products by companies saying they adhere to environmental, social, and governance (ESG) best practices rose an average of 28% over the last five years, compared with only 20% from companies that don’t make those claims.

This shift in public values is making some workers reconsider employers. 86% of employees want to work for companies that care about the same issues they do, a 2021 PwC survey found. And a 2022 survey from IBM’s Institute for Business Value found that 67% of job seekers are more willing to apply for jobs at companies they consider environmentally sustainable; however, only 21% of employees believe their current employers fall into that category.

Additionally, a recent Edelman survey indicates that investors think businesses that embrace sustainability are more likely to have better long-term returns. Part of the reason is that sustainable business practices reduce energy, waste, travel, raw materials, and other costs. Embracing ESG is also becoming a regulatory requirement in some countries. The European Union, for example, requires companies to disclose their ESG practices, while the U.S. Securities and Exchange Commission is considering mandating that publicly traded companies report to investors how their operations’ carbon emissions affect the climate.

How Sustainability Works

Sustainability requires governments and organizations to make decisions today while considering what happens for future generations. The idea is that without major changes to the way businesses and consumers conduct themselves in the three areas described below, standards of living and working will decline long term.

Three Pillars of Sustainability

The key to sustainability is to consider a policy’s or business practice’s effect on three pillars—environment, economy, and society—instead of focusing only on short-term gains. In a business context, the sustainability concept is also known as corporate social responsibility, whereby an organization thinks about the greater good and lasting impact on people, the planet, and profits when making decisions.

Sustainability Challenges in Business

There’s little debate that ESG best practices make good business sense by helping companies enhance their brands, attract new customers and employees, retain current ones, and ultimately boost their profitability and market capitalizations. 93% of respondents to a 2022 global survey by Savanta Research and CIO adviser Pamela Rucker said that sustainability and social issues are more important to them than ever, yet 78% of them said their companies aren’t doing enough. Among the challenges cited: Business leaders are bombarded with myriad other priorities, they face shareholder pressure to focus on short-term profits, they lack reliable data to set goals and measure progress, and they lack automated processes to report ESG metrics.

On the data front, consider the example of a supermarket chain that stocks thousands of products and might have questions for each manufacturer. Are a particular coffee brand’s beans grown using sustainable farming practices? Are the workers who pick the produce paid a living wage? How about the factory workers and truckers? And are those factories and trucks energy efficient? Answering these kinds of questions requires gathering lots of data that supply chain partners may not have readily available or are reluctant to share. Supply chain transparency can be elusive.

Sometimes, businesses find it difficult to evaluate their own progress because they collect data only at a superficial level instead of digging into key metrics that would answer important questions. For example, only 20% of HR professionals say their organizations assess diversity, equity, and inclusion (DE&I) metrics to a high or very high degree, according to a 2022 survey by HR.com and The HR Research Institute. As a result, a mere 9% say their employers’ DE&I initiatives are highly effective.

Sustainability Benefits in Business

Sustainability isn’t a fad. An Accenture study revealed that 99% of chief executives from top organizations think it’s crucial to their company’s long-term success. Why? Because it’s important to their customers, employees, investors, and regulators—and ultimately to their financial health.

Take the financial services industry. In a 2021 report by Morgan Stanley’s Institute for Sustainable Investing, 79% of the 800 US individual investors surveyed—and 99% of respondents who are millennials—said that investing in socially conscious companies matters to them. Banks are also paying attention, as they’re under regulatory scrutiny to screen their loan portfolios for ESG risks.

Businesses also stand to benefit by charging more for their sustainably produced goods and services. Consider that half of consumers surveyed in 2021 by the IBM Institute for Business Value said they were willing to pay a premium for products branded as sustainable or socially responsible.

This sense of obligation extends to where people choose to work. More than two-thirds of employees across industries surveyed in 2022 by Savanta said they would consider leaving their organization for one that focuses more on sustainability. For employers, the ability to attract and retain top workers is a competitive advantage and provides significant savings on recruiting and training costs. Finding inventive ways to reuse materials and reduce air travel, as well as heat and cool facilities and ship products more efficiently, are additional ways to reduce costs.

Investing in sustainability can also improve a business’s reputation and help it connect with customers and employees in a meaningful way through shared causes. However, organizations must be careful not to “greenwash” their sustainability efforts—that is, misrepresent them for public relations benefit. That can end up damaging their reputation.

Building a Sustainable Business Strategy

Companies should follow these steps when creating a sustainable business strategy.

1. Develop an initial sustainability assessment
   Assess business practices through the lens of the three pillars of sustainability—environmental, societal, and economic progress. For example, manufacturers should consider how to reduce unnecessary waste and improve the energy efficiency of their factories and means of transporting goods. Companies of all kinds should evaluate their working conditions and those of suppliers and partners while ensuring that their people are paid and treated fairly. Leaders at all organizations can choose to operate transparently, promote diversity and inclusion within their ranks, and strengthen relationships with vendors that take sustainability seriously.
2. Determine goals and key performance indicators (KPIs)
   Choose appropriate KPIs that will show progress. For instance, a business may want to reduce energy consumption by 10% within one year. First, it must track companywide energy use to find the benchmark level. Next, it should set interim goals, such as reducing energy consumption by 2.5% each quarter. By assessing the data quarterly, the business knows if it’s on track.
   If a manufacturer wants to use 100% recycled packaging within five years for its 10 product lines, it may focus on switching one product line’s packaging every six months and consider meeting that target an indicator that it’s on track to meet its five-year goal. A restaurant chain that wants to switch to using produce only from sustainable farms within three years may need to secure 12 new produce suppliers to replace current vendors. A KPI could be adding a new sustainable supplier every three months.
3. Implement, measure, and adapt the plan
   Put the plan into action, measure progress, and evolve the strategy as needed. Evaluating efforts frequently will show successes and which areas require more attention. How often depends on your KPIs. The company that wants to become more energy efficient will review energy usage quarterly, at a minimum, but it may also look monthly to see if usage is declining as expected.
   Revisiting and revising a sustainable business strategy are crucial to making the biggest impact. Sometimes, things change. Say the restaurant chain suddenly must replace 20 vendors instead of 12. It may want to update its KPIs or change its goal. Or if the chain reaches its goal sooner than initially planned, it may want to create new ones that further improve its environmental or social impact.

Examples of Sustainability in Business

Multinational retail company Woolworths South Africa, which sells apparel, food, and other goods, made it a goal in 2007 to sell only products with a measurable sustainability attribute, including those with ethically sourced materials and recycled or reduced packaging. Woolworths examined production practices across its supply chain, gathering data from vendors that included water usage, ethical sourcing, and sustainable farming practices. It now tracks sustainability metrics for about 10,000 product SKUs.

Deutsche Bank committed to moving its databases to more current versions in part to cut its energy consumption by more than 50%, lowering costs in the process. Other examples include food producers implementing sustainable farming practices, manufacturers reducing their products’ and businesses’ carbon footprint, and companies of all types ensuring that their employees are treated equitably.

Companies are also banding together. Coca-Cola Europacific Partners and brewery Lion teamed to form the not-for-profit organization Container Exchange Services, which is rallying Australia’s beverage companies to help meet national targets for reducing plastic pollution through a concerted recycling effort.

Future of Sustainability in Business

Sustainability in business is empowering employees and customers to make more informed decisions based on readily available data on products, operations, and supply chains. That includes companies providing information related to sustainability on their websites, in their marketing and advertising, and on their product labels.

Globally, 85% of consumers say they’ve changed purchasing habits over the last five years in favor of more sustainable options, according to a 2021 report by Simon-Kucher, a strategy and pricing consultancy. But consumers also expect businesses to step up their efforts. Studies have shown that people are frustrated with the lack of ESG progress, and some governments are intervening, with mandatory disclosures related to climate-related impact the most common.

Customers are asking the right questions. The issue is that many businesses don’t have all the answers. Increased supply chain transparency will enable them to know definitively—and show their employees and customers—whether their decisions positively or negatively affect the environment and society.

Embed Sustainability in Your Business with Oracle

Oracle offers a variety of cloud services that can stand alone or work together to help businesses become more sustainable. Oracle Fusion Cloud Supply Chain Management, for instance, builds in features that help customers and their suppliers identify and reduce their energy consumption. Oracle Fusion Cloud Enterprise Performance Management lets customers capture ESG data across their organization to help them develop a plan and visualize progress. Oracle is also adding ESG capabilities to Oracle Fusion Analytics to empower business leaders to make more sustainable decisions. And the company has developed industry-specific cloud solutions in retail, automotive, and other sectors that directly address sustainability All these services fall under Oracle Retail, which operationalizes sustainability across product assortment planning and supplier evaluation, run on Oracle Cloud Infrastructure, whose cloud regions are powered by renewable energy.

Sustainability FAQs

What does sustainability mean?
Sustainability means maintaining a certain level or rate. For example, preventing deforestation by planting as many trees as are cut down or using renewable energy sources such as solar and wind power.

What are the three pillars of sustainability?
Sustainability extends beyond the impact that actions have on the environment to include their impact on the economy and society.

Why is sustainability important to businesses?
As more people demand that companies take sustainability seriously, it influences who those people work for and buy from and thus each company’s bottom line and reputation.