Sustainability can be profitable
By K I Woo
The pursuit of sustainability is a powerful path to reinvention for all businesses facing limits on their resources and their customers’ buying power.
A Harvard Business Review article, Making Sustainability Profitable said that it also means tremendous competitive advantages and larger profits.
More than 1,000 global companies
Boston Consulting Group and World Economic Forum researched more than 1,000 companies with revenues of between $US25 million and $US5 billion that developed profitable sustainable business practices.
These organizations were in Latin America, Africa, the Middle East, Asia, and the South Pacific.
Three distinct approaches
To make their environmental efforts pay off financially, these companies used three main approaches.
First, by taking long-term views; companies initially invested in more-expensive sustainable operational methods that eventually led to dramatically lower costs and higher yields.
Others undertook bootstrap conservation approaches. They started with small process changes that generated substantial cost savings that were used to fund advanced technologies and in more efficient production.
Thirdly, some extended sustainability efforts to their customers and suppliers. In the process, they devised new business models that competitors had difficulty emulating.
Collectively, these companies demonstrated economic development and environmentalism trade-offs are often unnecessary.
Egypt’s first organic cotton farm
Egypt’s first organic cotton farm Sekem spent years honing sustainable cultivation methods that began paying off in the 1990s when it began moving into organic cotton.
Using organic farming techniques, Sekem helped reclaim arable land from the Sahara that had been spreading into the Nile delta.
The soil absorbed more carbon dioxide from the atmosphere, decreasing greenhouse gases, and cotton crops needed 20% to 40% less water.
Farm costs were lowered, yields improved by almost 30 per cent and Sekem produced a more elastic cotton than its competitors..
As a result Sekem developed a more sustainable financially viable and environmentally friendly business model.
Today, Sekem has become one of Egypt’s largest organic food producers.
Taking a Systems Approach
Normally, it’s difficult for companies to recognize that sustainable production can be less expensive.
Companies must fundamentally change the way they think about lowering costs, They must believe that initial investments in more-costly materials and methods will lead to greater savings down the road.
It also requires a willingness to buck conventional financial wisdom by focusing not on reducing each production part’s cost but by increasing the overall system’s efficiency.
Increasing whole system’s efficiency
China’s Zhangzidao Fishery Group focused on increasing its whole production system’s efficiency by adopting an ancient integrated multitrophic agriculture (IMTA) farming methods.
Rather than maximizing single species production and gaining profits through economies of scale, Zhangzidao created a balanced ecosystem of scallops, sea cucumbers, sea urchins, abalone, and other interlinked species.
“Some species provide food for the others, so fewer have to be fed from external sources.”
Zhangzidao reduced waste by converting fish by-products into harvestable crops. Unlike single-species fish ranching, IMTA didn’t exhaust seabeds and eliminated the need of moving cultivation from bed to bed to allow depleted areas to recover.
The company also adopted simple bottom sowing practices (similar to pruning): scallops were moved from overcrowded beds to more sparsely covered areas to increase growth rates, weights, and yields.
Bottom sowing reduced disease and, like organic farming, created a natural carbon sink that absorbed more greenhouse gas than it releases.
With its low-tech conservation efforts, the company began funding additional cutting-edge artificial-reef technology investments that fostered marine life, for seaweed propagation and algae farms.
Focusing on increasing profitability per cultivation unit, rather than by per species cultivated, the company realized growth and higher profits.
Over a four year period, Zhangzidao sustained a compound annual growth rate of 40%, in an industry where the average is just 13%, and EBITDA margins of 31%.
Extending sustainability efforts to customers
An Indian company Jain Irrigation Systems built a new business model by helping its impoverished customers adopt micro-irrigation systems.
It taught its customers how to use micro-irrigation systems more effectively through precision farming, which increased output by optimizing the balance between fertilizers, pesticides, water, and energy. The farmers could use less water but still increase yields.
Because many small farmers couldn’t purchase Jain Irrigation’s systems without financing, the company began helping customers apply for government subsidies.
It also made a daring move into the wholesale agricultural commodities trade—promising to buy some of the crops its customers grew with its equipment.
This new business model helped Jain overcome its competitors.
For five consecutive years, the company experienced compound annual revenue growth of 40% and EBITDA margins of 18%—both well over industry averages. Twenty per cent of revenues now come from its agricultural wholesale business.