OPINION: Jaap Bastiaansen, Partner, Nexus Climate, believes that companies aren’t yet taking a strategic approach to building their business and sustainability together. He sets out his recommended formula for success.
In today’s rapidly evolving business landscape, companies are increasingly pressured to align financial value creation with positive environmental and social outcomes. However, despite this growing pressure, many companies are still not doing enough to address these challenges. The urgency for action is greater than ever, as market expectations, regulatory requirements, and environmental impacts continue to intensify. Successfully navigating this landscape requires a strategic approach that integrates sustainability into the core business model, leverages innovation, and effectively manages trade-offs.
Integrate Sustainability into Core Business Strategy
To balance financial performance with sustainability, businesses must embed environmental and social considerations into their core strategy. This involves integrating sustainability into every aspect of decision-making, from product development to supply chain management. By fostering a culture of sustainability throughout the organization, companies ensure that every department and employee contributes to this overarching goal.
A comprehensive approach to measuring and driving this integration can be captured with a general value creation formula:
Sustainable Value Creation =( Revenue−Costs)+Sustainability Impact
Where Revenue represents the total income from business operations, Costs include all operational expenses, and Sustainability Impact quantifies the diverse environmental and social effects of the business. This includes reductions in carbon emissions, resource efficiency improvements, and positive contributions to biodiversity, among other metrics.
This general formula provides a framework to balance profitability with positive sustainability outcomes, ensuring that financial value creation also generates tangible environmental and social benefits. For example, if a company implements circular economy principles—such as recycling and product longevity—this formula helps assess both the financial performance and environmental outcomes.
Adopt Sustainable Business Models
Embracing sustainable business models is critical for reducing environmental impact while driving financial growth. One effective approach is integrating circular economy principles—such as recycling, reuse, and extended producer responsibility—into business practices.
For example, the Sustainable Value Creation formula applies here as:
Sustainable Value Creation=(Revenue from Circular Economy Products − Costs of Circular Economy Practices) + Sustainability Impact
This framework allows companies to measure both the financial returns from circular products and the broader sustainability outcomes. For a hospitality business, focusing on water savings might involve the installation of smart, controllable water systems that monitor real-time water consumption, encouraging guests to take shorter showers or reduce unnecessary water usage.
Water Savings in the Hospitality and Restaurant Industry
Water conservation presents a significant opportunity for businesses to reduce operational costs and enhance sustainability performance. In industries like hospitality, where water usage can be high, the formula can be further customized:
Sustainable Value Creation=(Revenue−Costs from Water Use)+Water Savings Impact
Here, Revenue remains the total income, while Costs from Water Use represent operational expenses directly related to water consumption. Water Savings Impact reflects the environmental and financial benefits from water-saving initiatives, such as installing smart water systems, reducing shower times, or using water-efficient irrigation in gardens.
In the hotel industry, water-saving initiatives may include:
- Smart water systems in guest rooms that allow guests to track and reduce water usage, helping them become more conscious of water consumption.
- Low-flow showerheads and faucets, reducing overall water consumption while maintaining guest comfort.
- Greywater recycling systems that reuse water from sinks and showers for purposes like landscaping and cleaning.
- Water-efficient laundry practices, offering guests the choice to reuse towels and linens to cut down on washing cycles.
For example, a hotel might install a smart irrigation system that adjusts water usage based on weather patterns, significantly reducing water use for landscaping. This would directly reduce the Costs from Water Use, while the Water Savings Impact would contribute to a more sustainable operation and increase customer satisfaction through eco-friendly initiatives.
In the restaurant industry, businesses can save water by:
- Serving water only when requested, thereby reducing the overall water demand.
- Implementing water-efficient dishwashing systems, which reduce water waste during daily operations.
- Installing smart taps in restrooms, which turn off automatically, preventing unnecessary water loss.
These initiatives, while reducing operational costs, also generate a positive Sustainability Impact by contributing to resource conservation and minimizing the environmental footprint.
Set Clear Sustainability Goals and Measure Progress
Establishing specific, measurable sustainability goals aligned with business objectives is essential for driving progress. Companies should implement robust monitoring systems to track key performance indicators (KPIs) across various sustainability dimensions, ensuring that efforts are effective and on track.
In the context of water savings, for example, hotels and restaurants might aim to reduce water usage per guest or customer by a set percentage. Smart systems can be installed to monitor water flow, giving businesses real-time insights into their consumption patterns.
To set and measure these sustainability goals, companies can use formulas such as:
Goal=Target Reduction in Water Use
Sustainability KPI = Current Performance in Water Efficiency // Target Performance
For a hotel, a specific goal might be to reduce water consumption per guest by 15% over a year. This can be achieved through a combination of smart showers, greywater recycling, and guest engagement programs that encourage water-saving behavior.
Engage Stakeholders and Foster Partnerships
Active engagement with stakeholders is crucial for gaining insights, building trust, and amplifying the impact of sustainability initiatives. In the context of water conservation, hotels can involve guests in their efforts by using smart water systems that provide real-time feedback on water usage, allowing guests to consciously reduce their consumption.
Additionally, partnerships with water conservation organizations or tech firms can help businesses adopt cutting-edge technologies for water savings, like smart irrigation systems for landscaping or advanced water recycling technologies for non-potable water uses.
Prioritize Value Creation Opportunities
Identifying and capitalizing on opportunities to create value through sustainability is key to balancing financial and environmental/social goals. Water savings offer substantial opportunities for value creation. For example, by using smart water systems that monitor and adjust water usage in real time, businesses can ensure minimal wastage while maintaining customer comfort.
In restaurants, water-efficient dishwashing systems and smart taps can significantly reduce water consumption. Meanwhile, hotels can benefit from low-flow fixtures and greywater recycling systems that lower water-related costs and contribute to the overall sustainability strategy.
Manage Trade-Offs with Guardrails and Dynamic Decision-Making
Balancing financial and sustainability goals involves navigating trade-offs effectively. To manage these, companies should use guardrails and dynamic decision-making:
Set Clear Guardrails
- Financial Guardrail: Define a minimum revenue threshold to ensure financial stability. For example, ensure revenue remains above a set percentage of past performance.
- Sustainability Guardrails: Establish minimum acceptable levels for sustainability metrics, such as:
- Water Efficiency: Set specific targets for reducing water consumption per guest or customer.
- Resource Efficiency: Define a percentage improvement goal.
For example, a hotel might set a guardrail ensuring water usage does not exceed a set amount per guest per day. This can be managed through the use of smart systems, greywater recycling, and efficient fixtures.
Implement Dynamic Decision-Making
- Monitor Continuously: Track financial and sustainability metrics regularly using dashboards.
- Adapt Strategies: Develop flexible strategies to adjust to changing conditions while meeting guardrails.
- Prioritize: Balance actions based on impact and feasibility, favoring long-term benefits.
Review and Adjust
Regularly assess the effectiveness of guardrails and strategies, incorporating feedback and performance data to make necessary adjustments.
- Feedback Loops: Use stakeholder input to refine strategies.
- Continuous Improvement: Update approaches based on new insights and changing conditions.
By using guardrails and dynamic decision-making, companies can manage trade-offs effectively, balancing financial performance with sustainability goals to ensure long-term success.
Conclusion
Incorporating sustainability into business strategy is no longer optional but a necessity for long-term success. Business schools, as recently finalised by my Chief Strategy Officer program at INSEAD, are increasingly embedding sustainability into their core programs, highlighting its importance in modern business education. This trend underscores the growing recognition that sustainability must be a central aspect of strategic planning.
Water savings, in particular, offer a multitude of opportunities—from smart water systems in hotels that track guest usage to smart irrigation systems in gardens and water-efficient practices in restaurants. These efforts not only reduce operational costs but also contribute to long-term environmental resilience.
As the market continues to evolve, companies that successfully integrate sustainability into their core operations will be best positioned to thrive in the coming years, ensuring both financial growth and a positive environmental impact.
