The Importance of Sustainability (AQA A Level Business): Revision Note

The nature of sustainability

• Sustainability in business means meeting the needs of the present without compromising the ability of future generations to meet their own needs, balancing economic, social and environmental considerations

Dimensions of sustainability

Benefits of sustainability

• Sustainability is likely to lead to long-term profitability

  • Businesses that ignore social or environmental risks may face rising costs, legal challenges or resource shortages in the future

• It helps a business meet increasing expectations

  • Customers, investors and regulators increasingly reward or punish businesses based on their sustainability record

• It reduces the risk of reputational damage, fines or lost customers that can result from unsustainable practices being exposed

• It improves access to finance

  • Many investors and banks now favour, or require, evidence of sustainable practices before investing or lending

Example

Apple has raised $4.7 billion through 'green bonds' since 2016, using the money specifically to fund clean energy and carbon-reduction projects, giving it access to finance tied directly to its sustainability commitments

• It can improve staff recruitment, retention and motivation

  • Employees often want to work for businesses whose values align with their own

Example

A Deloitte survey of over 23,000 Gen Z and Millennial employees found that 70% considered a company's environmental record important when choosing an employer, and that around 40% had left a job or turned one down due to a mismatch with their personal values

Source: Deloitte - GenZ, Millennial Survey (opens in a new tab)

• It supports long-term resource security

  • It protects the materials, energy and other resources a business will continue to need in future

• It can create competitive advantage

  • It differentiates a business from rivals seen as less sustainable

Example

Tesla built an early competitive advantage in the car industry by focusing on electric vehicles well before most competitors, positioning it as a leader in sustainable transport while traditional manufacturers were still investing mainly in petrol and diesel models

Challenges of implementing sustainability

Cost

• Sustainable materials, technology and processes are often more expensive in the short term than conventional alternatives

• This can be a particular challenge for smaller businesses that may not enjoy cost benefits of economies of scale

Balancing short-term profit with long-term sustainability

• Shareholders and managers are often under pressure to deliver short-term financial results

• This can conflict with the longer payback period of many sustainability initiatives

Example

In 2023, BP scaled back its climate targets, cutting its planned oil and gas production reduction from 40% to 25% by 2030, following pressure from shareholders who wanted higher short-term financial returns instead

Measuring and reporting sustainability accurately

• Unlike financial performance, sustainability impacts, such as carbon emissions or social impact, can be difficult to measure consistently

• This makes it hard to prove genuine progress

The complexity of supply chains

• Businesses often rely on suppliers based around the world

• This makes it difficult to monitor and guarantee sustainable practices throughout the whole supply chain

Example

Apple, Google, Tesla and Microsoft were sued in 2019 over claims that cobalt used in their products, mined in the Democratic Republic of Congo, involved child labour.

The case was dismissed by a US court, which said simply buying a material through a global supply chain did not make the companies legally responsible, illustrating how difficult it can be to guarantee ethical practice deep within a complex supply chain

Greenwashing accusations

• Greenwashing is when a business exaggerates or falsely claims that its products, services, or practices are environmentally friendly in order to appear more sustainable than it really is

• Businesses that do so can face accusations of exaggerating or misrepresenting their genuine impact

• This damages trust if it is exposed

Example

In 2020, the UK's Advertising Standards Authority banned Ryanair adverts that claimed it was 'Europe's lowest emissions airline,' ruling the claims misleading. While Ryanair had used a genuine measure (CO₂ per passenger-kilometre) the ASA found the evidence did not clearly support the claim as presented.

Even a technically correct environmental claim can still be judged as greenwashing if it isn't made clear and fully justified to customers.

Balancing the needs of different stakeholders

• Shareholders, employees, customers and environmental groups may have competing priorities

• It is difficult to satisfy every group at once

Keeping pace with changing expectations and regulations

• Sustainability expectations and legal requirements are evolving

• Businesses must continually adapt rather than treating sustainability as a one-off project