Environmental improvements can pose financial challenges for small companies. But ignoring sustainability could cost more in the long run, and even small changes may help your bottom line.
The sustainability movement has come a long way since the first Earth Day on April 22, 1970. Environmentally conscious business practices that for decades were considered a feel-good niche are becoming an imperative these days, as companies large and small recognize the wide-ranging benefits of going green. Beyond the potential cost savings of boosting energy efficiency and reducing waste, sustainability efforts make businesses more appealing to stakeholders, from consumers and employees to investors and business-to-business customers. (For more on how individual investors can take advantage of these trends, read our story, "The Value in Values-Based Investing.")
Still, many small and midsize companies are just now dipping a toe into environmental waters—and for good reason, says Bonnie Benhayon, global environmental business development executive for Bank of America. "Entrepreneurs have to look at what these moves cost in light of the need to manage their businesses in a profitable way, especially coming out of a recession that was very difficult for them," she says. That also means that a conversation with key advisors is an important first step in starting to green your business.
The good news is that while sustainability efforts may seem to require a major financial commitment, there are cost-effective steps that the owners of any business can take to embrace environmental stewardship. You can start small, Benhayon says, perhaps beginning with an energy audit. Many local utilities provide free on-site consultations on how to use less fuel or electricity, and simple changes such as improving insulation and installing timers for lighting can save money. If you lease commercial space, you might talk to your landlord about instituting a recycling program or managing energy consumption, while if you own your building, you could consider composting or installing solar panels or even a wind turbine. With your employees, you could promote first steps—reusable coffee mugs and water bottles—or you might organize a company-led community cleanup. Such efforts may help both the environment and your community.
Those looking to do more could emulate the approaches of larger companies, which look for measures that can deliver simultaneous business and environmental benefits, says John Hodges, director of financial services for BSR, a global organization that consults with companies committed to sustainability. "We generally think of corporate social responsibility as two halves of an equation," he says. "Can I help my bottom line by being more efficient, and what are the sustainability opportunities in terms of growing my business?" For example, a giant retailer committed itself to installing solar panels on the roofs of its stores—and ended up being able to generate energy, rather than merely consume it. The investment in technology could eventually pay for itself, and in the meantime it insulates the company from fluctuating power costs. And a famous natural foods chain grew from a single retail shop to a national powerhouse by feeding rising consumer interest in organic food and social responsibility.
Smaller businesses interested in sustainability might seek ways to reduce the carbon output and environmental impact of their operations. For example, whether you own a single delivery car or a fleet of trucks, you could consider transitioning to hybrid vehicles. Or, if you have a company campus or property that requires landscaping services, check to make sure your vendor uses environmentally friendly products. "These are great ways to integrate sustainability into business practices," says Benhayon. "As you get more sophisticated, you can set longer-term goals for your company." For example, you might commit to recycling half of your waste by the end of 2015—and then talk publicly about your efforts. This also requires careful management of your strategy for paying for such initiatives—a process during which your Financial Advisor or small business banker can help.
Be sure, however, not to overstate the impact of your initiatives. If you make inflated or unsubstantiated environmental claims—known as "greenwashing"—you can expect to get called out on social media, Benhayon warns.
These days, many businesses find that innovation and sustainability can lead directly to profits. Developing a new line of products or services that target environmentally conscious consumers and businesses can be a lucrative growth area. "We live in a resource-constrained world, so companies that develop products and services to help manage resources better have a huge market opportunity," says Hodges, who notes that small companies that supply larger firms have an added incentive to go green. "There's a huge trend by large companies to create codes of conduct for their supply chains that include social and environmental aspects," he says. "So if you're a supplier to large companies—or to midsize firms that supply major corporations—you may be required to adhere to higher standards, and to make sure that your own suppliers do so as well. It's a trickle-down effect."
But owners of small businesses might not want to wait until they're forced into sustainable practices. They can take the offensive, tracking trends in consumer demand and staying on top of environmental regulatory proposals that could affect a particular industry. New regulations may generate green market opportunities as companies look for help in complying. And businesses that have embraced environmental stewardship can market themselves to companies likely to value that aspect of a business.
Whether you're just setting out on the sustainability path or looking to expand your efforts, now is a great time to consider the role of sustainability in the future of your company. "If you haven't looked at green initiatives in years, perhaps because you've been busy keeping a business alive, it's time to take another look," says Benhayon. "Today, sustainability is more than good for the earth—it's potentially good business."