The Business of Sustainability

How one important business concept has evolved over the past decade. 

In the eight years since Michael Pollan released The Omnivore’s Dilemma and Eric Schlosser’s Fast Food Nation appeared on-screen the way we think about food in this country has changed dramatically. In fact, “sustainability” continues to be an integral part of our society, business and culinary cultures.

These days, the notion of sustainability seems to have matured from an environmental, “Save the Earth” focus to one that preserves natural resources as well as a business’ bottom lines, industry veterans say. With more chain and independent restaurants, and other food companies developing charters and SOPs devoted solely to the cause, sustainability is now part of the foodservice industry’s fabric. What may have started as a simple marketing gimmick now has real dollars attached to it. What’s sustainable for the Earth and future generations can also, first and foremost, be sustainable for business and budgets.

“What’s loud and clear is that even though most operators do have social and environmental factors at heart, they do want to contribute to their bottom line and need to see financial profitability advantages if they are to move down the path of sustainability,” says Wade Hanson, a principal at Chicago-based research firm Technomic.

Being sustainable isn’t just a nice thing to do, says Hanson. It has real business incentives. According to Technomic’s research, 63 percent of consumers say they are more likely to visit a foodservice operation they view as socially conscious. Further, 53 percent of foodservice operators say that having an actionable social responsibility strategy will be necessary to remain competitive in the next 2 years.

Still, says Hanson, “an operator doesn’t want to get involved unless they think it will benefit their business. They have to see the cost reduction or they have to see a demonstrated return on investment.”

“Whether you believe in climate change or not doesn’t matter. There is a great business case for investing in sustainable practices, not just doing so out of the goodness of your heart,” says Nick Sterling, Natural Capitalism Solutions (NCS), a Colorado-based, 501(c)(3) non-profit sustainability education and consulting organization. NCS has worked with The Cheesecake Factory and other restaurant companies, drills down the main business benefits of adopting more sustainable practices to include improved investor confidence, risk management and energy, water and waste cost management.

We asked Sterling to list the top business incentives behind becoming more sustainable. Here’s what he pointed out:

Energy and Operational Efficiency

Reduced energy, water and waste hauling costs are the obvious, foremost incentives behind adopting more sustainable practices, says Sterling. Prices for these services will only continue to escalate.

“Water is at a premium right now,” says Sterling. “It’s the number one focus for restaurants in California, even over energy consumption.” With this year’s severe draught, West Coast restaurants could see their water rates escalate even higher.

“Food waste also comes at a premium,” he adds. Not only are hauling rates going up, but many municipalities now have regulations against what can be dumped into landfills. Vermont, Massachusetts, Connecticut, and the cities of Seattle, San Francisco, and Austin all have zero organic waste in landfill. Recycling, composting and cutting food waste overall, therefore, helps companies stay in line with local, state and – possibly one day –­ federal regulations. New York, California and Rhode Island are inching closer to similar bans.

Still, the foodservice industry has a ways to go before it fully embraces sustainability, according to a recent study by Technomic. While 85 percent of consumers expressed concern about environmental issues, only 24 percent of foodservice industry companies admit they are addressing those concerns.

That’s why it’s important to look at the long-term picture, Sterling says. What might cost more up-front now will save dollars down the line when energy, water and waste costs increase. Getting into the energy conservation game also puts chains and other foodservice operations one step closer to LEED certification, should they seek that competitive opportunity.

Sustainability now also hedges exposure to volatile prices and supply chain disruptions over time. “This year’s draught in California had a huge impact on commodities and pricing,” says Sterling. “It’s interesting to see how companies are managing these increasing costs and being proactive about it. If you have your head in the sand about climate change, you’re running a higher risk on how some of these environmental changes might impact your business.”

B-Corp Branding

Once an unheard-of phenomenon, B-Corporations are gaining ground as a viable framework and certification for companies wanting to officially demonstrate their commitment to sustainability. In order to earn certification by the nonprofit B Lab, they must meet rigorous standards of social and environmental performance, accountability and transparency.  B-Corps, therefore, solidify a company’s sustainability claims as the best method of branding in that sense.

“There is definitely more interest in B-Corporations,” says Sterling. “Smaller companies seem to embrace the B Corp idea more because it’s easier for them to pick up and run with it,” Sterling says. Larger companies may have more obstacles and perimeters. “It’s easier for companies that start with sustainability at their core.” Elevation Burger is a great example, he notes.

The growth of smaller sustainable businesses and B-corps “is a great indicator as to some of the new growth coming into the industry,” says Sterling. “I think you’re seeing a shift in how people perceive sustainability.” Tree hugger, aka, hippie? It’s not about that anymore. “Many companies now understand that sustainably has real business value and many newer companies are understanding that from the get go.”

Stakeholder Incentives 

Aside from the obvious – cost savings from managing energy, water and waste – companies who adopt sustainable practices “have higher stock value and research shows they outperform their competitors by delivering higher value to stakeholders,” says Sterling. He points out a study by Goldman Sachs that found sustainable companies have 25 percent higher stock value than their less sustainable competitors.

There is a ripe opportunity for companies to step up into a leadership role. “We’re just starting to see movement in that space and maturity in existing sustainability programs, building from more of a strategic vision than from a corporate philanthropy one,” says Sterling.

Publicly-traded companies, which report sustainability to the SEC as part of their 10Ks, have a unique opportunity to edge apart their competition with enhanced investor confidence and consumer trust.

“There is also some risk mitigation because investors can see that you’re ahead of issues before others,” Sterling says, pointing out Chipotle Mexican Grill, which is studying how climate change might impact ingredient and supply chain prices down the line. “These are companies that realize these issues are present and real and are trying to put practices in place to minimize their impact.”

Companies dedicated to sustainability also “increase market capitalization and stock growth, improve investor relations, lower insurance premiums, decrease borrowing costs, and improve access to capital,” according to Natural Capitalism Solutions.

Competitive Edge

Sustainability from the consumer’s perspective incorporates both social and environmental responsibility and includes a number of different elements, from humane treatment of animals to land conservation and support of workers and communities.

Being “sustainable” isn’t just a “nice” thing to do, says Hanson. It has real business incentives because it builds consumer trust.

According to Technomic’s research, 63 percent of consumers say they are more likely to visit a foodservice operation they view as socially conscious. Moreover, over half of foodservice operators (53 percent) say that having an actionable social responsibility strategy will be necessary to remain competitive in the next two years.

According to the 2014 Cone Communications Food Issues Trend Tracker, 43 percent of Americans “want to do their part to protect the environment and preserve natural resources.” But they want companies to take those steps even further.  A whopping 81 percent of Americans want more food options that protect the environment, according to the survey, which polled 1,000 adults (500 men, 500 women). In addition, 74 percent “wish companies would explain how their food purchase decisions impact the environment.”

While “locally” may cut down on the carbon footprint associated with shipping and support smaller farmers and economies, sustainably produced food simply tastes better in the eyes of most Americans surveyed, Cone Communications found. Says Sterling: “When you source locally, the shipping time from the farm to the restaurant goes down so you have much higher quality products.”

Sixty-four percent of those surveyed by Cone Communications believe purchasing locally sourced foods is important because they want to support their local businesses and communities, and 66 percent would even be willing to pay more for food that is locally produced. Only 54 percent of those surveyed trust the information that companies disclose about the health and sustainability attributes of their products. Therefore, if companies establish that transparency now, they will earn those consumers’ trust – and dollars – sooner, and before others.

Retaining Top Talent

Becoming more sustainable also helps recruit and retain top talent. “This is huge in an industry with such high turnover,” says Sterling.

Younger workers also want to work for companies that care about sustainability. “The average restaurant industry worker is under 30 years old, and 98 percent want to work for a company that is focused on doing environmental and social good,” Sterling says. “There are even studies that show some employees would be willing to take a pay cut if they perceive the company to be more sustainability-minded”

With worker’s rights topping the list of concerns among consumers, companies dedicated to social welfare can retain staff even more, while building business. “To consumers, the idea is if you take care of employees that suggests you’re going to take care of us as well,” according to Technomic’s Hanson. 

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