Why Putting Sustainability at the Heart of Your Business Model Can Thrill Shareholders
The pandemic has temporarily slashed carbon emissions and allowed the planet to take a short breath from its ongoing sprint. During this time in the U.S. alone, it’s estimated that carbon emissions have been cut by an extraordinary number of 11 percent, according to the Energy Information Administration, and in Los Angeles, the skies have never been clearer. However, climate change is a massively growing expense and will be an astronomical cost to the future of the economy and humanity. It’s estimated that by 2100, climate change will cost approximately 10 percent of our global GDP, that’s over $90 trillion, a number hard to fathom.
It’s not a new concept for corporations to have an incentive to address these issues and transition toward renewables and green products, but it increasingly makes economic sense. Let’s take a step back: What even is climate change? It’s quite simple, the earth is a very specific distance away from the sun where the climate happens to be utopian for life as we know it. If we were too close, we’d burn. Too far away, and we’d freeze. The atmospheric chemistry consists mainly of nitrogen, oxygen, CO2 and argon, and then about 10 other gases in low percentages. That’s an amazing balance that results in this molecular soup that sustains us, allows us to breathe and shields us from the sun’s radiation. The CO2 acts as a blanket, and it causes the earth to retain heat; the more we release into our atmosphere, the thicker the blanket and the hotter things get.
For the first time ever, the price of solar and wind energy has become cheaper than the price of oil. That is a resounding wake-up call to any business still clinging to the old ways of doing things. As understanding around the benefits becomes clearer, so does society’s growing concerns for the environment. This has been evident in changes to consumer behavior and purchasing patterns, with higher expectations and demands for environmentally friendly or low carbon products—giving all the more reason for leaders to put sustainability and confronting climate change at the heart of their policies and business model.
Again, the argument of making low carbon decisions because it makes financial sense provides companies with an incentive to pick up the pace; we don’t have much time, as the planet’s temperature increases. However, we can’t be naive and do need to recognize that hydrocarbons still power a majority of the planet and will for quite some time. We are talking about the need to speed up the energy transition we are in. Savvy businesses that have switched to cleaner and greener energy, such as solar, wind and geothermal power, do not just make their customers happy, they also make their shareholders happy as it increasingly makes sound financial sense. For instance, those that install solar today in the U.S. can depreciate 89 percent of the total value in the first year. Also cutting utility rates and lowering overall overhead positively impacts cost of goods, increasing a company’s net margin. For large companies and manufacturers, where costs of goods are essential to margin, modern technology has been transformational in making processes more energy efficient, affordable and easier to implement. This dynamic change means that they are not just ticking one box, they are ticking two, and the ramifications for our planet and industry are significant.
There are two reasons why clean energy has now become a serious contender. Firstly, early clean energy companies are no longer grassroots startups with admirable goals and little commercial knowhow. Many sectors are showing how companies have scaled and become platform leaders that are properly financed and positioned to further evolve. They now have real tangible value that is being monetized. What’s inspiring is they are capable of building serious infrastructure and generating immense amounts of energy, and they are scaling at faster rates than that seen in the early days of the industrial revolution. Clean energy has shed its ‘alternative’ label to become fully mainstream, and its share of the energy market is scaling now.
Secondly, governments have realized that continuing to prop up the dying oil and gas industry with its increasingly outdated processes makes no sense and are progressively directing their firepower toward supporting the clean energy industry through rebates, subsidies and other financial incentives. When governments embrace ambitions for sustainability instead of defending legacy hydrocarbons, it enables companies to invest in solutions at the pace and scale needed to achieve social goals as well as their own. For example, several Nordic countries are almost off petrol vehicles already, and the private equity community’s investment in oil and gas has significantly waned.
Corporate businesses now have an amazing window of opportunity to do the right thing, not only for their customers but also for their business’ bottom line and shareholders. It’s the next generations who face the completion of this transitionary period to a zero-carbon economy. Clean energy has reached the point where it can deliver real economies of scale, and for businesses that are prepared to make the pivot, that is a clear win-win. Switching now will not only reduce their carbon footprint, it will enhance their profitability and shareholder value.
There is a stick as well as a carrot. Businesses are eventually going to be forced to switch to clean energy anyway, so the rewards will be for those who make the move now. It makes far more sense to make the change from a position of strength and take the opportunity to proactively embed it into their business model and operational processes than to be forced and not have the luxury of time to engineer and make good decisions. Clean energy is now and clearly the future; the businesses that get that will reap the benefits, but those that continue to resist it and refuse to get onboard will and already are getting left behind. Confronting climate change for many is finally good for profits, but clearly, it’s essential for humanity—and it’s time to pick up the pace.
Ross Sklar is the CEO of Starco Brands.