Don’t Cut the Sustainability Budget

By Cory Searcy and Payman Ahi

The coronavirus pandemic has stretched companies around the world to their financial breaking point. BP, Renault, and Lufthansa are just three big name companies that have slashed their workforces over the last few months, and thousands of other businesses may never return. In such an environment, it’s not surprising that companies would consider cutting their spending on sustainability initiatives.

A recent survey by Globescan and BSR found that nearly half of 102 participating companies expected their sustainability spending to be reduced over the next 12 months. This is despite the fact that the same survey found that the majority of participants believed the pandemic will enhance the need and relevancy of corporate sustainability. The urge to reduce sustainability budgets in a crisis is understandable: they were also reduced in many companies following the financial crisis over a decade ago.

Undoubtedly, companies must prioritize their immediate survival and protecting the jobs, health, and safety of their employees during this difficult time. While the value of sustainability programs for business and society has been previously recognized, many sustainability initiatives may seem superfluous with Covid-19 still raging. Companies should do what they reasonably can to preserve and extend these efforts. Sustainability initiatives can better prepare companies to deal with the pandemic’s aftermath, as well as unknown crises in the future.

The business case for sustainability is well-developed, with common benefits focusing on improving competitive advantage, risk management, and innovation. Arguments are also being mounted to defend against budget cuts during the crisis. For example, a recent online article by Clément Fournier argued that responsible companies can better recover consumer confidence, anticipate regulatory changes, build resilience, and prepare for lasting change. The Covid-19 crisis has shown that the case for sustainability initiatives in a company’s supply chain is particularly strong.

Sustainable supply chain initiatives can protect a company’s long-term viability by preparing it to withstand unexpected shocks. Sustainability initiatives in the supply chain emphasize, for example, visibility throughout the entire chain, including the ability to track issues such as raw material extraction, manufacturing, and product transportation. A clear line-of-sight throughout the entire supply chain is critical to identifying problems, but this gets more difficult in lower tiers of the chain. Closely connected to supply chain visibility are issues such as the need for strong supplier development and collaboration, monitoring and measuring supplier performance, and ethical sourcing. All of these require up front and ongoing investments.

Sustainability priorities can vary widely between companies, but one prominent long-standing focus is supplier working conditions. Discoveries of poor working conditions, even deep in the supply chain, often attract widespread negative attention. The pandemic is further exposing dire working conditions and has underlined the need to intensify focus on issues such as worker health and safety, emergency response, and living conditions for on-site workers. Reducing budgets for sustainability initiatives could potentially expose a company to long-term reputational risks or supply disruptions. More importantly, it could unnecessarily expose workers to risks to their health and safety.

Sustainability initiatives should be embraced by companies, however, they are not a panacea and they come with no guarantees of business continuity or expansion. Moreover, what counts as sustainability spending can be debatable, and initiatives can also vary widely in their scope, emphasis, and desired outcomes. Companies will need to be proactive in identifying their sustainability issues that matter most, whether they are focused on some or all of working conditions, emissions, resource use, or other issues. The pandemic has highlighted the need for all companies to revisit their strengths and vulnerabilities. Sustainability initiatives must continue to play a strong role in corporate planning, due diligence, and improvement.

Of course, in many companies, budget cuts will be unavoidable. Managers faced with difficult decisions may have no options other than cutting some sustainability initiatives. But, it is critical that companies fully understand the value of their sustainability initiatives before doing so. Cutting or reducing key sustainability initiatives could have unanticipated consequences, particularly over the long-term. Spending on sustainability initiatives is often portrayed as discretionary, but remember it may be critical to the company’s ability to maintain or resume its core activities.

About the Authors

Cory Searcy is Professor of Industrial Engineering and Environmental Applied Science & Management at Ryerson University in Toronto, Canada. His research focuses on sustainable supply chains, performance measurement, and auditing. He is currently serving as the Vice-Provost and Dean of graduate studies at Ryerson.

Payman Ahi is Full Sessional Lecturer of Global Management Studies in the Ted Rogers School of Management at Ryerson University. His research focuses on sustainable supply chains, sustainability metrics, and sustainable business practices.