The Sustainable Advantage: Insights on Creating Competitive Advantage Through Sustainability

" "

It will be impossible to achieve the UN’s Sustainable Development Goals without bringing the full power of the private sector to bear. Companies across industries and regions have been pushing to make their businesses more sustainable—essentially focusing on the “E” and the “S” in environmental, social, and governance (ESG) topics. And government policy—including new reporting requirements in Europe and the Inflation Reduction Act in the US—are creating even greater momentum.

Yet when it comes to private-sector actions that advance the SDGs, we are not moving nearly fast or far enough today. Companies must supercharge their efforts. This does not mean simply taking on more charitable endeavors. Rather, they need to target areas that enhance their competitive strengths, where they can make a meaningful difference.

The Win-Win

Research, including by BCG, demonstrates that companies achieving meaningful progress on ESG factors earn higher valuation multiples and revenues and have a lower cost of capital. These findings reflect that sustainable businesses are often better positioned to seize new opportunities and mitigate risks than their rivals.

We see evidence of this across sectors and regions:

  • Expanding Markets. There is an often-cited “say-do” gap between consumers’ professed interest in sustainable products and their willingness to pay a premium for green products. According to BCG research, however, smart design, marketing, and customer engagement approaches that address the issues (such as convenience or misconceptions about effectiveness) that block consumers from choosing sustainable offerings can allow companies to significantly expand their markets.
  • Bolstering the Bottom Line. For many companies, reducing emissions is actually an opportunity to improve financial performance, especially in light of recent incentive efforts in the US and the EU. BCG analysis shows that US automakers that take full advantage of the Inflation Reduction Act could lower their cost of abatement to zero, while pharmaceutical companies could reduce theirs by an average of 77%.
  • Building the Brand and Talent. Companies that lead on sustainability, including using their core business to address critical societal challenges and fostering an inclusive culture, are better able to attract and retain the right talent. Analysis shows that 40% of job seekers say they consider a company’s sustainability when evaluating job offers.
  • Minimizing the Risk of Scarcities. As company sustainability commitments grow, there is a risk that certain resources required to deliver on those promises—everything from minerals required for battery manufacturing to people with the skills to operate climate-smart farms—will be in short supply. Consider that 40% of Fortune 2000 companies have set net zero targets, but only 2.5% of their suppliers have. The result is likely to be scarcities for critical inputs. Advantage will accrue to those players that move quickly to line up supplies of these resources and, on the flip side, to those that figure out a way to fill the gap.
  • Getting Ahead of Government Intervention. Businesses face a rising tide of ESG-related policies and regulations. Countries representing 90% of global GDP are now aligned to net zero by midcentury, and the number of climate laws has risen twentyfold in the past 25 years. The pace is picking up as governments look to both decarbonize their economies and win a share of the global green economy—exemplified by the Inflation Reduction Act and the EU’s Green Deal Industrial Plan. Far-sighted first movers can get ahead of regulation and position themselves to benefit from the subsidies and investment opportunities available.

The Next Level of Company Action

Companies have a major opportunity to be catalysts for the renewal of energy and effort around the SDGs. Many have already done the hard work of understanding where they can have impact—where they have the core strengths and capabilities to make a difference and where progress could create a material positive impact on their business performance. 

Progress on the SDGs will depend on unprecedented levels of collaboration.

For a food manufacturer, this may involve supporting smallholder farmers to earn a living wage, an action that can not only reduce poverty but also diversify the supply chain and make it more resilient. For an industrial company, meanwhile, efforts to reduce greenhouse gas emissionsincluding adopting renewable energy, driving energy efficiency, and embracing circularity to reduce raw material consumptioncan cut costs significantly.

While companies may understand these opportunities, they must now accelerate their timelines for action. In many cases they cannot do this alone. Progress will depend on unprecedented levels of collaboration—with partners in their supply and value chains, with NGOs, and with governments.

Now is the time for companies to double down on action—both to strengthen competitive advantage and performance and to build a more sustainable and inclusive world.

The Sustainable Advantage: Insights on Creating Competitive Advantage Through Sustainability