As the effects of climate change intensify, businesses are increasingly held accountable for their environmental impact. From rising carbon emissions to resource depletion, the lack of an adequate sustainability strategy accelerates the climate crisis and exposes businesses to significant financial liabilities.Â
However, by adopting sustainable practices, businesses can mitigate these risks and position themselves for long-term success. Continue reading as we delve into the environmental and financial consequences of neglecting sustainability and share some actionable steps to help you avoid these costs. Â
The environmental implications of sustainability neglectÂ
Below is a snapshot of some of the environmental implications of sustainability neglect and how inaction accelerates climate change.Â
- Increased carbon emissions: The global energy sector, driven largely by businesses, accounts for over 70% of total greenhouse gas emissions. If businesses do not transition towards sustainable practices, global emissions could rise by nearly 16 percent by 2030, pushing the world towards a catastrophic 2.7°C temperature increase.
- Resource depletion: Current business practices are depleting natural resources at an alarming rate. The UN estimates that by 2025, up to two-thirds of the world’s population could be living in water-stressed regions. Additionally, global demand for critical minerals, essential for industries, is projected to grow by 500% by 2050 if unsustainable extraction continues.
- Waste and pollution: Approximately 400 million tonnes of plastic waste is produced each year and around 8 million tonnes of this ends up in oceans. Businesses create a significant amount of waste and can play a major role in tackling plastic pollution. To put it into perspective, one study found that 56 companies are responsible for 50 percent of the world’s plastic pollution, illustrating the difference businesses can make. Â
- Biodiversity loss: Business-related activities such as deforestation and industrial agriculture are contributing to biodiversity decline, with 1 million species currently at risk of extinction. Deforestation rates remain high, with 10 million hectares of forests lost annually. This destruction leads to a significant loss of habitats and carbon sequestration capabilities.
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The financial implications of sustainability neglectÂ
Increased operating costs
Energy inefficiency and reliance on non-renewable resources lead to higher operational costs. For example, companies that fail to implement energy-efficient processes may witness energy costs increase annually as fossil fuel prices continue to rise. The SEAI finds that businesses could save a minimum of 10 percent on their energy bills by simply implementing low-cost energy efficiency measures. Moreover, they could save even more by switching to renewable energy sources.Â
Regulatory fines and compliance costs
Governments are increasingly introducing stricter environmental regulations. In 2020, environmental non-compliance fines in the EU totalled over €1 billion. Companies that fail to meet new regulations and comply can face substantial penalties. Although the penalties for non-compliance with the CSRD are unclear, the penalties for non-compliance with its predecessor, the NFRD, ranged from fines of €25,000 to imprisonment for individual directors.Â
Loss of investment and capital access
Investors are increasingly focused on ESG criteria. Businesses that do not align with sustainable practices may risk losing out on investment opportunities. A survey by Morgan Stanley found that 85 percent of individual investors are interested in sustainable investing. Additionally, BlackRock, the world’s largest asset manager, has pledged to exit investments that present a high sustainability-related risk, which could severely affect non-compliant businesses.
Reputational damage and loss of consumer trust
Consumers are becoming more conscious of sustainability. A global Nielsen study revealed that 66 percent of consumers are willing to pay more for sustainable brands. Businesses neglecting sustainability risk losing market share, particularly among younger consumers, with 73 percent of millennials stating they would change their consumption habits to reduce their environmental impact.
Supply chain disruptionsÂ
Unsustainable practices increase the risk of supply chain disruptions due to climate change and resource scarcity. The World Economic Forum estimates that climate-related supply chain disruptions could cost companies globally around $1.2 trillion annually by 2030 if they do not take action to make their supply chains more resilient.
Missed growth opportunities
Companies that fail to adopt sustainable business models risk missing out on growth in emerging markets. The UN shares that sustainable business opportunities could generate $12 trillion in market opportunities by 2030. Businesses that don’t innovate towards sustainability may fall behind competitors who are capitalising on these new market trends.
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How to avoid the costs of sustainability neglectÂ
- Integrate energy efficiency: One of the quickest ways to reduce costs and lower carbon emissions is by improving energy efficiency. Invest in energy-efficient equipment, lighting, and heating systems, and adopt renewable energy sources such as solar or wind. Businesses can see significant reductions in operating costs while enhancing their environmental performance.
- Sustainable supply chain management: Re-evaluate your supply chain to minimise environmental impacts. Opt for suppliers who prioritise sustainable practices, reduce waste, and have lower carbon footprints. Incorporating circular economy principles, like reusing materials, helps reduce costs and resource depletion.
- Adopt circular economy principles: Shift towards a circular economy by reducing waste, reusing products, and recycling materials. This reduces environmental impact and can create new revenue streams from waste materials. For example, rethinking packaging design can lead to lower costs and appeal to environmentally conscious consumers.
- Regular ESG reporting: Businesses should regularly assess and report on their ESG performance. Transparent ESG reporting helps build trust with consumers and investors while keeping the company accountable for its sustainability progress. It also helps identify areas where improvements can lead to cost savings and reduced environmental risks.
- Upskill employees in sustainability: Investing in your workforce’s sustainability knowledge is key to driving change within the business. At ISS, we offer a range of practical sustainability courses so you can equip your team with the skills they need to lead sustainability initiatives. Explore our courses today to ensure your organisation stays ahead of the curve.
ConclusionÂ
The environmental and financial costs of neglecting sustainability are significant. Unsustainable practices contribute to higher emissions, resource scarcity, and lost market opportunities. On the flip side, businesses that embrace sustainability stand to benefit from reduced operating costs, enhanced reputation, and increased resilience against climate-related disruptions. By integrating the above recommended best practices, businesses can safeguard both their financial health and the environment. However, it remains critical to address the sustainability knowledge gap amongst your team to ensure a sustainable and profitable future for your organisation.Â
