Inflation, unemployment, bank collapses, economic fluctuations, and the threat of a recession are creating a world of uncertainty. Companies have responded to this uncertainty with layoffs and cost-cutting measures. But how does the state of the economy impact a company’s sustainability efforts?
Sustainability is challenging and seems even more so during economic recessions. However, history shows that putting sustainability commitments on the back burner is wrong and bad for business. This article will explore the connection between recessions and sustainability and strategies to maintain sustainable initiatives during an economic downturn.
The Current Picture
We are going through one of the most economically intense and uncertain times in the last few decades. We face three extremely challenging situations: the COVID-19 pandemic, the Russia-Ukraine war, and inflation. This has led to a turbulent stock market, higher interest rates, fewer startups, and a looming crypto winter.
The Historical Impact of Recessions on Sustainability Initiatives
The current economic picture might seem demotivating, but there is a bright side. Tough times often lead to a new generation of companies that thrive. Throughout history, the impact of economic recessions on sustainability initiatives has been mixed. While some companies deprioritize sustainability during an economic downturn, there have also been companies that have become more sustainable.
Sustainability does not mean that a company must deprioritize everything else. Instead, sustainability can help companies survive and recover from recessions. A paper on the impact of corporate sustainability explored this concept. Half of the 180 companies studied identified sustainability as core to their corporate strategy from about 1993. The other half adopted no sustainable practices. The results showed that $1 in an equally weighted portfolio of the first 90 companies in 1992 would have grown to $22.60 by the end of 2010, while the investment rose to only $15.40 for the other 90 companies.
During the 2008 financial crisis, some companies adopted sustainable practices that helped them reduce costs and improve operational efficiency. For example, many companies implemented energy-efficient solutions that reduced their carbon footprint and saved money on utility bills.
The COVID-19 pandemic also helped companies realize the importance of sustainability. It revealed the frailty of our global economy and society and reminded us that our identities are deeply entangled with that of our ecosystem. People learned that adopting sustainable practices like natural and non-toxic products will reduce exposure to harmful chemicals and pollutants, leading to better health outcomes. Supply chain disruptions and economic uncertainty also encourage people to rethink spending habits and prioritize more sustainable and environment-friendly purchases.
The extent to which economic recessions affect a company’s sustainability pursuits depends on various factors, including the duration and severity of the downturn, the prevailing condition of the industry and market, and the leadership and priorities of individual companies.
Strategies to Maintain Sustainability Initiatives During Economic Recessions
In a survey conducted by the World Economic Forum, nearly one-third (34%) of the respondents believed that the environment should be prioritized even at the cost of the economy. However, it can be difficult for companies to prioritize sustainability in a recession. Here are a few strategies to help companies maintain sustainability initiatives during economic recessions.
Focus on the Bigger Picture
During an economic recession, cost reduction is generally the highest priority. This is why your sustainability initiatives must align with your cost reduction goals. Sustainability initiatives often require some upfront investment but are cost-efficient in the long run. A few great ways to promote sustainability and reduce costs are by implementing resource-efficient processes and optimizing energy usage.
“Numerous studies show that companies with strong CSR goals and focus outperform their counterparts during economic downturns, including the 2008 recession. And they recover more quickly.” — Trisa Thompson, CRO at Dell Technologies
Engage Your Stakeholders and Board
Engaging stakeholders and the board is essential to make the most of your sustainability efforts. Stakeholders like customers, employees, and suppliers can help maintain sustainability during economic turbulence.
“Board oversight and putting board-related governance structures in place are not only more common, they are required under SASB and other initiatives.” — Ellen Weinreb, co-founder of Sustainability Veterans
Communicate the Benefits of Sustainability
It’s crucial to communicate the benefits of sustainability to stakeholders. It will make collaboration easier, and you can share ideas and find opportunities as a team.
Explore New Opportunities
“Recessions may put options on the table that would not be considered in normal times. Seize opportunities for more substantive redesign.” — Bart Alexander
An economic recession is a challenging time for individuals and organizations and an excellent time to explore new opportunities. There are many ways companies can use a recession to explore sustainability initiatives.
- Focusing on energy efficiency can help organizations reduce their carbon footprint and save costs simultaneously. For example, installing energy-efficient lighting, appliances, and new HVAC systems, and implementing policies to reduce energy consumption.
- Invest in renewable energy projects like solar panels and wind turbines to reduce your reliance on fossil fuels and save money. The upfront costs associated with renewable energy systems may be higher than traditional energy sources, but the long-term savings and benefits can be significant.
- Implement a circular economy ethos by designing products and systems that minimize waste and maximize resource use. This could involve the use of recycled materials, implementing closed-loop systems, smart waste management, or designing products that can be repaired and reused. Circular economy practices can help businesses reduce costs and create a more sustainable business model.
- Support local and sustainable supply chains by sourcing materials regionally, supporting fair trade practices, and considering the entire lifecycle of your materials. Supply chains often get disrupted during a recession, and by supporting local suppliers, businesses can build supply chains that are resilient and better equipped to weather economic downturns.
Economic recessions present a variety of challenges to sustainability. Organizations will typically prioritize financial stability over sustainable operations. However, it’s essential to recognize that sustainability and economic growth are not mutually exclusive, and pursuing sustainable practices can lead to economic benefits in the long run. Moreover, investing in sustainability initiatives during a recession can create jobs and stimulate economic activity, providing a pathway for recovery.
Policymakers and businesses must work together to incentivize and develop strategies to support sustainability. Ultimately, a healthy economy depends heavily on a healthy planet.