Modern supply chains are global, and are therefore vulnerable to natural disasters and civil unrest. Climate change, water scarcity, and poor labor conditions in much of the world increase the risk. McKinsey reports that the value at stake from sustainability concerns can be as a high as 70% of earnings before interest, taxes, depreciation, and amortization.
In the largest study on climate change data and corporations, 8,000 supplier companies (selling to 75 multinationals) reported on their level of climate risk. Of the respondents, 72% said that climate change presents risks that could significantly impact their operations, revenue, or expenditures (Harvard Business Review)

Companies that are not operating sustainably face two types of Risks:

1. Stranded assets – some companies have assets on their balance sheet that are heavily dependent on ecosystem services. This means that these assets can become liabilities if ecosystems are further impacted by for instance climate change or loss of biodiversity. In the Netherlands it is estimated that pension funds have €510 billion euros worth of investments that are currently at risk of becoming stranded assets (in Dutch).
2. Revenues at risk – the transition towards more sustainable business is a risk for laggards. As more and more companies are adopting sustainability as a core strategic driver for lasting success, the bar is being raised for their competitors. Not acting in time or accurately can lead to revenue losses.

Our cases:

• How Ørsted’s transition towards a business that is focused on offshore wind, was partially triggered by the oil price fluctuation.

The value of a good reputation is not easy to measure. In a way, a company’s reputation is the intangible asset of brand equity. The value of a reputation is best measured in hard times. For instance, during the 2008 recession, companies with superior environmental performance experienced lower cost of debt by 40-45 basis points. In other words: because these companies operated in a sustainable manner, their financers trusted them more, resulting in a lower cost of debt.

Our cases:

• How Van Straten Medical’s transition towards a circular model made them a contestant in BNR’s Green Quest and resulted in public recognition from the Dutch minister for health care as “a shining example of the circular economy”
• How Ørsted’s  share price performed 6 times better than their incumbent competitors’ stocks.
• How Ace&Tate is getting more response on their sustainability communication than on any other topic.

Resilience is a characteristic of healthy companies (and ecosystems, by the way). Sustainable companies have the ability to survive system shocks such as climate events better than ‘normal’ companies. But also financial crises appear to have a milder impact on sustainable companies. This is primarily caused by better value chain and stakeholder management.

During the 2008 recession, companies committed to sustainability practices achieved “above average” performance in the financial markets, translating into an average of $650 million in

incremental market capitalization per company. Additionally, companies with superior environmental performance experienced lower cost of debt by 40-45 basis points.

More recently, during the first months of the corona crisis, the top quartile most sustainable companies were hit less violently than the bottom quartile (least sustainable companies). In the period February 17^th 2020 to 23^rd March of the same year, the most sustainable companies lost 29% in share value. The least sustainable companies lost 38% in share value. And when the markets started to bounce back (period 23^rd March till April 17^th) the most sustainable companies grew their share value with 19% versus the 17% of the least sustainable companies.

Our cases:

How Verstegen managed to mitigate supply chain issues during the Corona crisis, by building partnerships throughout the chain (and found win-win solutions for their production challenges)

A more sustainable business model can help boost a company’s financial performance. Whether the revenues come from adapting to changing customer demands in existing markets, entering new growth markets, or by adopting new (circular / regenerative) business models– sustainability pays off. Companies can also charge higher price premiums based on positive corporate responsibility performance. These premiums can structurally reach 20%, depending on the sector.

A focus on sustainability can also unlock opportunities for process and logistics savings. WalMart, for example, aimed to double fleet efficiency between 2005 and 2015 through better routing, truck loading, driver training, and advanced technologies. By the end of 2014, they had improved fuel efficiency approximately 87% compared to the 2005 baseline. In that year, these improvements resulted in 15,000 metric tons of CO2 emissions avoided and savings of nearly $11 million.

Our cases:

• How Ørsted Accelerated its market capitalization,with stable EBIT, by 250%
• How the Pure Goat Company managed to create a new product category by using only sustainable ingredients for their infant formula
• How Van Straten Medical is growing their business by re-inventing themselves to offer a circular solution model

These is tremendous impact to be made on the cost side of the business. Significant cost reductions can result from improving operational efficiency through better management of natural resources like water and energy, as well as minimizing waste. One study estimated that companies experience an average internal rate of return of 27% to 80% on their low carbon investments. In 2013, GE had reduced greenhouse gas emissions by 32% and water use by 45% compared to 2004 and 2006 baselines, respectively, resulting in $300 million in savings.

In a fully circular model, waste is not present – just like in nature. This triggers an incredible resource efficiency that is beneficial to both customer and producer. In a circular model all material is re-used, repaired, or recycled. In that order, as this makes full use of the materials at hand.

Our cases:

• How Van Straten Medical managed to cut the costs for their clients with up to 75%, whilst improving their own margin and market share
• How Lono Côte d’Ivoire is using the greatest freely available waste stream as a valuable resource for an entire country (link).

Much of the strategic value of sustainability comes from the need to continually talk with and learn from key stakeholders. Through regular dialogue with stakeholders and continual iteration, a company with a sustainability agenda is better positioned to anticipate and react to economic, social, environmental, and regulatory changes as they arise. More importantly: the frontrunners in integrating sustainability into their business models will find increased efficiency in adapting new regulations and avoiding fines and penalties, as they tent to be ahead of the curve. In some cases, the frontrunners will determine the new industry norm of are asked to help create the new legislation.

Our cases:

• How Van Straten Medical is creating the blueprint for legislation due to it’s frontrunner role in circularity.
• How Yoni raised the bar on open and honest communication in a very traditional market.

A company’s performance on sustainability impacts it’s recruitment efficiency. Both in hiring new talents and retaining inhouse talents. Studies show that firms with greater corporate responsibility performance can reduce average turnover over time by 25-50%. It can also reduce annual quit rates by 3-3.5%, saving replacement costs up to 90%-200% of an employee’s annual salary for each retained position.

But more importantly, firms that moved towards a more sustainable business model (sometimes even by ‘merely’ adopting environmental standards) have seen a 16% increase in productivity over firms that did not adopt sustainability practices. Effectively this gives you a free day of work per week, per employee.

Our cases:

How Verstegen moved from a traditional family business, struggling to attract new talent, to a preferred employer brand as a result of their sustainability progression.