Surviving in a Scorching Economy: 10 Tough Questions for Business Leaders
Interrogating Business Heads: Essential Inquiries Regarding Sustainability Investment
The Trump administration's tariffs are causing a stir, leading to increased costs and reduced output for the U.S. economy. In this heated environment, businesses with global supply chains are grappling with a tough question: should they slash investments in sustainability to save money in the short term, or maintain their long-term value? As costs surge, business leaders need to consider the consequences of cutting corners on sustainability.
Scaling back on environmental efforts could potentially harm relationships with global partners, alienate employees, and tick off consumers who appreciate eco-friendly businesses. Every business head will face the challenge of deciding whether to budget for sustainability, despite the cost, or risk losing the benefits it brings in the long run. This guide aims to help leaders make smart decisions for their companies.
1. Will ditching sustainability lead to greater long-term problems than benefits?
Investing in short-term reductions of emissions, renewable energy, or supply chain resilience may seem appealing due to immediate cost savings. However, it could lead to long-term vulnerability. Climate impacts, damage to reputation, and penalties from regulations are just a few of the risks associated with neglecting sustainability. PG&E's failure to upgrade grid infrastructure resulted in an estimated $30 billion liability for damages from wildfires, according to the New York Times.
2. How reliant is your business on partners that demand sustainability at the table?
Many multinational clients and procurement partners now mandate sustainability metrics. Companies such as PG&E, which failed to align with GRI, ISSB, or SASB, may end up on the wrong side of the preferred supplier list. The impact is particularly felt in sectors like apparel, electronics, automotive, and food. If your business depends on a global value chain, slashing your ESG investments could mean losing coveted partnerships.
3. Will slashing sustainability lead to straining relationships with employees, consumers, and communities?
Employees, consumers, and communities value companies with a purpose. Cutting ESG efforts to trim down costs could result in lower morale, higher turnover, customer churn, and social license to operate issues-intangibles that can quickly morph into significant concerns. Patagonia's commitment to sustainability has kept its loyal customers and employees flocking in.
4. How will shareholders react to a reversal of sustainability commitments?
Institutional investors are increasingly focusing on sustainability as a measure of governance and future readiness. Although some shareholder segments might support near-term margin improvements, others, including pension funds and ESG-focused funds, may divest from companies that appear to be backing out on sustainability. Before making cuts to your ESG budget, consider the potential shift in your investor profile.
5. What amount of compounded value does your business gain from investment in sustainability?
Efficient operations, proactive compliance, and responsible sourcing are just a few ways sustainability can benefit your company in the long run. Though these investments may not show up on the current balance sheet, they create long-term competitive advantages. What will you miss out on if you abandon the ground you've already gained? Unilever's Sustainable Living Brands have outperformed the rest of its portfolio by a whopping 69%.
6. Can your company afford to lag in sustainability innovation?
In many sectors, companies are investing in sustainable innovation, such as electric fleets, biodegradable packaging, zero-waste operations, and inclusive hiring practices. If your competitors surge ahead while you trail behind, your market relevance could dwindle significantly. Ørsted, a top offshore wind energy player, moved faster than European energy giants, outpacing them in the green transition.
7. Have you consulted your stakeholders before scrapping sustainability?
Before making any cuts, consult your board, investors, employees, NGOs, and community leaders for their insights. Often, stakeholders advocate for reprioritizing—not abandoning—ESG commitments. Transparency can protect your brand and build credibility, even in times of retrenchment. Interface, the carpet maker, worked closely with NGOs, suppliers, and customers on its sustainability plan, likely keeping brand trust intact during challenging times.
8. Are you taking advantage of available public incentives for sustainability?
The Inflation Reduction Act (IRA) and state-led green grants offer billions to companies investing in sustainability. Forgoing ESG funding now could result in missing out on tax credits, rebates, and partnerships that offset costs and de-risk long-term investments. Don't miss out on opportunities to turn sustainability into a net gain.
9. Can you rebrand sustainability as a profit driver, not just a cause?
Sustainability and profitability ideally go hand in hand. ESG investments boost efficiency, cut waste, and lead to cost savings. By viewing sustainability as a key performance indicator, not just an extra, leaders increase the likelihood of success. IKEA's focus on circular practices and renewable energy cuts waste worldwide, saving the company money in the process.
10. What story do you want to tell about your company in five years?
Will your company be remembered as the one that pivoted towards a sustainable future, or one that retreated when the heat was on? Leadership is about more than just surviving the quarter. It's about shaping a story that inspires confidence, pride, and progress. The choices you make today will mold your company's legacy, especially during times of climate change and economic uncertainty. Take the lead on sustainability and create a brighter future for your company.
The Bottom Line: Keep the Green in Greenbacks
During these difficult times, realigning budgets is a necessity. However, scrapping your company's commitment to sustainability may prove costly in the long run. Business leaders must balance short-term cost savings with long-term stakeholder value and market expectations. Sustainability is not just a corporate responsibility-it's a strategic advantage. Embracing eco-conscious practices can help your company stay competitive in today's world.
- As the costs rise due to tariffs in 2023, should businesses invest in biodegradable packaging or other sustainable offerings despite the initial cost, to ensure long-term resilience and customer appeal?
- In a world where tariffs disrupt traditional business models, can companies afford to neglect sustainability innovation, such as electric fleets or zero-waste operations, risking market irrelevance in the future?
- When making budget cuts due to increased tariffs, will slashing investments in ESG (environmental, social, and governance) initiatives lead to strained relationships with employees, consumers, and communities, causing intangible yet significant long-term impacts?
