Business Benefits of Implementing Sustainable Development Strategies
Studies have shown that by developing effective sustainable development strategies a business can enhance its competitive advantages (Lu et ah, 2016; United Nations Global Compact, 2014); this is essential to business future achievement and is considered an opportunity for development and innovation. According to KPMG, almost 75% of the N100 companies—defined as the top 100 companies by revenue in 49 countries—released annual sustainability reports highlighting the importance of adopting and reporting the effort of achieving sustainable goals (Blasco & King, 2017).
Real estate is likely to follow other sectors where companies are starting to report their ‘total contribution’. Public disclosure of data is a fundamental component of a sustainable development strategy in real estate industries and aims to bring greater consistency and clarity to companies’ performance. This fact enhances further stakeholders’ access to quality environmental, social and corporate governance performance data that clearly states the positive direction within the sector. Investors’ interest in non-financial data has also grown rapidly (EPRA—European Public Real Estate Association, 2017) and so these strategies will improve the brand and the marketing of the business (Keeys 8c Huemann, 2017). This is also confirmed by the fact that according to the CFA Institute more than 73% of investors take environmental, social and governance (ESG) indicators into account in their decision-making process because they help them manage risks (CFA Institute, 2017).
Research undertaken by the TIAS Business School at Tilburg University identified that strong ESG practices in the real estate sector can help drive better performance and shareholder returns over time, as these items are positively related. This link leads real estate investors to increasingly take into consideration ESG as a way to identify portfolio risk and opportunity. It also highlights the importance for real estate companies and funds to report more ESG data to the market and engage with investors on their performance (Brounen & Spek, 2017). A further study also suggested that in order to assess the company’s improvement in social factors, a socio-ecoefficiency was proposed, and findings showed that the company has developed a socially supportive management system at the company, community and social levels. Companies must operate in alignment with CSR to deliver advantages to individuals and society, and the social indicators ensure maximum company’s stability and higher competitiveness and business sustainability (Caiado etal., 2018).
It is expected that the process of reporting in line with the sustainable development guidelines will facilitate a greater understanding of the environmental, social and governance impacts associated with the company’s activities, leading to the working environment among other benefits (Groenewald & Powell, 2016). This fact, apart from a better performance of the employees and their general wellbeing, helps a company to attract and retain talented employees. The high qualified employees take into account the SDGs of the companies there are working for. While sustainability reporting was seen in its roots as a manner to build confidence and enhance reputation, it has now developed into a strategic instrument that is also used to promote sustainable decision-making processes, boost organisational development, improve the performance, engage stakeholders and attract investment.
The basic motivation for a company to adopt SDGs is the managing of risks. Real estate companies must address different sustainability risks along their entire operating procedure, for example some have regulatory implications leading to monetary fines, others have reputational impacts leading to loss of customers or even loss of investors. For these reasons, managers especially in multinational companies who want to improve the management of them decide to integrate sustainability risks into the overall governance architecture because these companies outperform those that do not (PwC, 2014). Also, during the recent decade investors have been demanding better operational performance of the managers of their real estate assets and governance over their capital (Vanags & Butane, 2013).
The integration and implementation of SDGs to businesses’ policy and everyday business decision-making, leads to a general improvement of management. Managers have recognised the significance of taking financial, environmental and social variables into account and measuring the impact on organisational and social costs and benefits, enabling businesses to comprehend their present effect, recognising what needs to be improved and identifying future growth opportunities (Scott & McGill, 2018). Through the effort and the administrative changes that are being made, there is a great impact on internal engagement because of breaking down silos and increasing understanding between departments (PwC, 2014). The structure which is set up in order to develop efficient and meaningful reporting (set, monitor and measure the KPIs) creates confidence and stimulates value creation. It can also be a strong instrument for stimulating inner change and decision-making by integrating performance management.
In addition, through these changes in management all employees of a company are aware of the challenges regarding SDGs and beyond them. This is the first step toward managing them. The UN global goals offer a new chance to bring global development issues to the surface and at the same time offer a powerful mechanism to create multi-sector coordination on solving complex problems (Chakravorti, 2015). The companies which are more active in multi-sector coordination gain experience in playing a leading role and face problems. In addition, a great advantage for businesses’ management is that companies whose activities conflict with national priorities will experience a competitive market disadvantage. Finally, businesses that already comply with the SDGs are more likely to have company plans that comply with new national legislation. As domestic policies change to fulfil global goals, companies will be compelled to adapt their activities, and those that are already working towards the SDGs will be ready for this change.
Marketing is always a very important tool for companies to improve the communication of their strategies and actions with investors and clients. For these reasons, for example CSR and ESG are concepts widely used by companies due to the positive impact on the performance of the companies. In a similar way, the SDGs could become part of a company’s competitive advantage if approached in a strategic way. The adoption of SDGs is in fact an extension of CSR to more complex goals which focus on the tripod of economic, social and environmental sustainability. A global survey highlights that CEOs perceived benefits from SDGs because it increases attractiveness, through the use of marketing tools, for potential and existing employees (Sahut & Pasquini-Descomps, 2015).
What is important to emphasise is that the adoption of SDGs is not an action serving only marketing. A prevailing view on the positive impact of SDGs activities is to enhance a firm’s image known as ‘SDGs advertising’ effect. From a marketing perspective, adopting a policy of sustainable development would provide costs and benefits similar to those of an advertising campaign. Often, a strong relationship exists between a company’s reputation and its ratings in social responsibility. Although the impact of ESG advertising seems bigger for firms whose clients are individuals, this is not the case for SDGs as they give directions to investors. Sustainable development is a strategic product sold to clients by a company and this product brings more positive revenues the sooner it is created, with late followers receiving less value from it (Sahut 2015). Developing mechanisms for integrating sustainable development management into day-to-day company decision-making is a must in the shift to more meaningful and efficient reporting. The establishment of common metrics on social and environmental issues will help real estate companies satisfy the growing expectation for reporting. At the same time, leading real estate companies are already trying to integrate a sustainable development philosophy and are seeking means to measure their wider impact and contribution to society at both an asset and corporate level.
Effective reporting generates confidence, promotes value creation and can be a strong instrument for stimulating inner change and decisionmaking through integrated performance management. Not surprisingly, WBCSD’s Reporting Matters initiative in collaboration with Radley Yeldar demonstrates that data on sustainability is becoming increasingly crucial for sound investment decisions. The disclosure quality differs widely among the involved parties, but study demonstrates a general enhancement. Developing regulation and standards is essential to this step towards improved disclosure practices, as is an understanding of the role non-financial data and information play in ongoing performance (United Nations Global Compact, 2014). Besides official reports, businesses are increasingly using a range of channels to communicate strategy and results for sustainable development. Mainly large multinational businesses and small and medium-sized enterprises will take advantage of public reporting and advertising their input to SDGs. Corporate websites, social media channels, events, product and service labelling, marketing and advertising are just a few of the many efficient ways of communicating sustainable development to stakeholders. While reporting was originally seen as a manner of building confidence and enhancing reputation, as mentioned it has now developed into a strategic instrument that is also used to promote sustainable decision-making processes, boost organisational development, drive better efficiency, engage stakeholders and attract investment (United Nations Global Compact, 2014). Moreover, social and environmental (combined with economical) concerns can yield productivity benefits to a company.