Going sustainable has not only allowed Eileen Fisher save the environment but also on costs. And the company is aware of the exact monetary benefits reaped from these initiatives, thanks to a framework developed by the New York University Stern Centre for Sustainable Business (NYU Stern CSB).

At Maybank's flagship Invest ASEAN 2022 event in June, NYU Stern CSB's Director Tensie Whelan, who is also Clinical Professor of Business & Society, shared that the centre's Return of Sustainable Investment (ROSI) framework calculated that Eileen Fisher's Renew programme generated about US$1.8 million in net benefits in 2019. This included the publicity generated from the programme and profits derived from a new customer base.

Frameworks are a useful tool that companies can employ to uncover the value of sustainability initiatives, which have been ramping up in recent years. As of 2020, global sustainable investments totalled a mammoth US$35.3 trillion, and are expected to hit US$50 trillion by 2025.

However, companies have a key concern when embarking on their sustainability journeys. As many of the benefits are intangible and difficult to measure from a monetary perspective, many are worried that they cannot be financially justified. But companies today must have a clear understanding of the value that their sustainable investments hold. Today, 90 per cent of a company's value is in its intangible assets, compared to 17 per cent in the 70s.

To get the complete ESG buy-in of companies, placing a value on these intangibles is key. This can be achieved through the establishment of a proper sustainability framework and a clear set of metrics. As in the case of Eileen Fisher, having such a structure will help companies better understand the returns on their sustainability investments (ROSIs) and drive smarter decision-making.

 

The sustainability conundrum

While sustainable investing spells good news for the environment and society, organisations face formidable challenges when trying to implement it.    

In her presentation, Whelan noted that the first obstacle lies in having to deal with poor quality data and a lack of transparency. Data derived from ESG reporting is often unaudited and of poor quality. This sometimes means that each company can present different sets of data which cannot be compared and rated. The lack of transparency surrounding ESG performance can also lead to greenwashing - when a company labels an initiative as green or sustainable when it is actually not.

Such discrepancies do not only occur within companies. Externally, multiple rating standards also mean that there is also a lack of consistency in measuring ESG performance. With more than 200 frameworks and standards worldwide, the ratings from one ESG agency can differ from another.

Second, while most companies track their ESG performance, not many adopt the practice of tracking their ROSIs for various reasons. For instance, there may be a lack of communication between the different departments in charge of various sustainability initiatives within a company.

Looking at ROSI may also not be a priority for investors and board members, as they are more focused on the financial metrics on the company's profit sheets, rather than the intangible benefits.

Lastly, companies also often focus on short-term results while negating long-term value propositions. Instead of looking at the costs that can be avoided in the future with certain sustainable investments, companies often shy away from making such financial commitments because of the concern that they might be sizable. This is why the finance departments of companies often exclude the avoided costs derived from sustainability strategies, despite it being a significant benefit.

 

Identify and quantify

With difficulties in quantifying sustainable investing posing the biggest challenge for companies, this is where frameworks come in. They enable companies to measure the tangible returns of such investments, improve the quality of data which eliminates the murkiness that surrounds ESG investments, and allow rating agencies to set common standards.

According to Whelan, putting a framework in place involves five simple steps:

1.	Before investing, companies need to identify current sustainability strategies to determine the best approach. A materiality matrix, which assesses sustainability issues based on certain factors such as business impact, is a useful tool to sharpen such strategies.
2.	Pinpoint the related changes in operational or management practices. This will help better ascertain how these adjustments have impacted financial returns.
3.	Determine the nonmonetary benefits of the sustainable strategy. This means assessing the effects of how sustainable changes have had in areas such as operational efficiency and waste management.
4.	Quantify these benefits financially. After identifying the impacts, companies need to measure whether such changes have resulted in any cost savings.
5.	Finally, calculate the overall monetary value. This helps companies to identify the practices that have had the biggest impact in reducing costs, and which are the ones that need to be further refined.

In today's world, sustainable investing needs to be at the core of every company's business strategy. This is why Maybank regularly assesses how to incorporate sustainable practices within its business operations and investments, while balancing this goal with financial and societal growth. Such moves will help drive new products and services, encourage innovation, boost revenues, reduce costs, and avoid risks. The benefits are holistic.