Balancing Sustainability and Profitability Doesn’t Have to Be a Zero-Sum Game
As part of Solutions Review’s Contributed Content Series—a collection of articles written by industry thought leaders in maturing software categories—Dr. Stefan Sigg, the Chief Product Officer at Software AG, explains why sustainability and profitability initiatives don’t have to compete.
Somewhere between a looming global recession, rising geopolitical tension, and shrinking profit margins, corporate sustainability landed under what’s arguably its biggest stress test since the United Nations first coined the term “ESG” in 2005. Exactly how many organizations are putting their sustainability projects on the back burner amid all this pressure? It’s hard to say since the deprioritization of initiatives tends to happen quietly and without the fanfare we see at their launch. The numbers we have shed light on the importance companies place on sustainability versus commercial objectives and how a shift in perspective can make all the difference.
Software AG’s annual Reality Check survey asked over 2,000 senior IT decision-makers across the US, Canada, the UK, France, and Germany about the balance between digital transformation and sustainability projects. The results showed the vast majority are focusing on a false dichotomy between improving their organization’s sustainability and improving commercial performance. The top finding was that 95 percent of respondents consider sustainability a top or high priority, but 84 percent admit it gets sidelined by commercial objectives in more challenging economic times. Many (82 percent) would even make the cost-driven decision to pay regulatory penalties instead of spending on sustainability.
Driving this disconnect is that the majority (87 percent) tackle sustainability and digital transformation separately. This ties into what author Jim Collins calls the “Tyranny of the OR,” a restrictive approach to decision-making that pushes people to believe that things must be either A or B, but not both simultaneously. Luckily, Collins offers a solution via the “Genius of the AND—finding a way to achieve A and B at the same time.” By synthesizing these initiatives, companies can make smarter technology investments and position sustainability as a selling point for customers, investors, and employees.
Sustainability is Good for Sales
Companies want to buy from other companies who are serious about sustainability. Almost every respondent (97 percent) says an organization’s sustainability credentials and a product’s sustainability positioning are essential or important in their buying decisions. This connection between top-line sales and sustainability policy could be enough to prompt investment.
Investors are also looking at sustainability. Many companies (87 percent) believe they will lose investors if they don’t have a clear sustainability strategy. There are signs of this being institutionalized. The US Labor Department issued new pro-ESG rules, the EU and the SEC have issued disclosure rules or are preparing them, and investment rates in ESG are soaring. These movements are ushering in a cultural change for the global financial landscape, and savvy organizations can take advantage of how they frame their investments.
Finally, a very real connection exists between retaining good employees and adhering to sustainability goals. According to our research, 84 percent of companies believe they are likely to lose employees without a clear sustainability strategy, and 29 percent say they’d leave their employer within a year because that company doesn’t match their values. This is especially true for fostering and growing young talent. Deloitte research shows that 90 percent of Gen Z and millennials try to reduce their environmental impact, and only 18 percent say that their employers are committed to fighting climate change. Without a clear sustainability strategy, keeping quality, skilled employees to ensure efficient operations and high-quality products and services for customers will be harder.
Combining Tech and Sustainability
IT leader respondents have also seen that investment in digital transformation makes them more resilient. So much so that 69 percent of respondents plan to divert resources from other areas into their digital transformation efforts, and 27 percent already have a suitable budget. With the “Genius of the And” approach, organizations should combine their digital transformation and ESG goals on critical investments. Our research found the technologies that have the most positive impact on their sustainability efforts are: cloud (45 percent), data integration (28 percent), and edge computing (27 percent).
Moving to the cloud is one great example of an initiative that simultaneously serves commercial and sustainability interests, especially given the cloud products already in place by IaaS (Infrastructure-as-a-Service) providers. Microsoft Azure said it is 93 percent more energy-efficient and 98 percent more carbon-efficient than on-premises alternatives. On top of that, innovations within cloud platforms, such as the AWS Graviton 3 Chip, help reduce energy by 60 percent. All in all, cloud migrations are the equivalent of taking 22 million cars off the road per year, according to Accenture.
Data integration, combining multiple data streams to inform advanced analytics and decision-making, significantly impacts tracking sustainability efforts and avoiding the risk of operating in the dark. Fully understanding the initiatives in play, along with success and operational efficiency, requires a level of integration beyond simply laying a pathway between two platforms. Today, only 36 percent of IT leaders say that they cannot effectively track the progress of sustainability initiatives to determine whether they are effective.
Edge computing pushes computing power and automated decision-making closer to the point of impact and can boost sustainability and efficiency. Suppose a factory’s power consumption needs to be reduced by 2 percent to meet sustainability targets. Edge devices can recognize energy-saving opportunities at the point of data capture and make them automatically. This reduces power consumption by shortening transmission distances and the time it takes to see positive outcomes. In contrast, relaying data to offsite analytics software and then back to the device could be done in stages with batches of data and therefore take hours or days.
Changing Course Cannot Wait
While the macroeconomic climate has reduced the focus on sustainability for some, it can’t be put on the shelf. A wait-and-see approach goes against what stakeholders and shareholders expect: a reduction in environmental footprint and greater societal impact.
Organizations struggling with sustainability must shift their internal discussions from altruistic projects that might hinder financial performance to using the right tools and resources to achieve more meaningful impacts. Research shows it will take new technology investments and cultural changes to drive sustainability and financial gains. It’s not enough to spend on new solutions. Organizations need to change their process and convey to stakeholders how they can embrace Collins’ “Genius of the AND” to make this possible. With this mindset, organizations can invest in initiatives that help the planet and its bottom line.