Leading Through Sustainability: How Proactive Efforts Power Profitable Business

Text: Sara Wimmercranz

As an investor, I meet thousands of entrepreneurs each year, most of them with relatively new companies, but some with more established ones. Many of them still ask the wrong question: “Do we have to transition?” Instead, they should be asking, “When will our company stop contributing to upholding the fossil economy and risk being overtaken by companies that have already adapted their business models to meet sustainability legislation and customer demands?” “Upcoming EU sustainability legislation means extra work and admin for business owners, and it’s going to be costly.” Sound familiar? For those late to adapt, this will likely be the case. But for those who see these regulatory changes, which will affect all business owners to varying degrees, as a competitive advantage and a way to strengthen their brand, the situation looks quite different. As recently as October 18, Sveriges Radio (public service radio in Sweden) reported that many industries' initiatives are delayed and some pioneering projects are being postponed. Does this mean we should sit back and wait until the pressure mounts? Hardly. In June 2021, the EU adopted a climate law aiming for climate neutrality by 2050, with an interim goal to reduce net emissions by 55% by 2030 compared to 1990. This means that a significant amount of sustainability legislation is expected to gradually come into effect from 2025 to 2030. What may feel voluntary today will eventually become a necessity for companies to compete and survive in an increasingly regulated and climate-conscious market. This will undeniably require companies to (i) understand their current status and footprint, (ii) adapt their operations, while also creating (iii) opportunities to improve their business.

Traceability and Adaptation Lead to Better Business

Traceability and understanding a company's footprint throughout the production and sales chain are steps that cannot be skipped. If you don’t know where you are, you don’t know where you’re going or how best to get there. The answer to the “traceability puzzle” is technology. Several platforms can help you understand your footprint and emissions, like TrusTrace, which focuses on the fashion and textile industry and already counts Nike and Adidas among its clients, or GoClimate, whose software for automated climate calculations provides a solid and cost-effective foundation for sustainability efforts. Adaptation is about proactivity and more efficient resource use, which inherently leads to cost reductions over time. It’s likely that resources like water and air will soon be priced (e.g., through emissions allowances and/or taxes), and companies that account for this in their business models now will not only significantly reduce economic risks but also gain an advantage over competitors who lack the same robust, long-term perspective. Implementing energy-efficient technology and optimizing energy consumption can yield significant cost savings over time, as can incorporating renewable energy sources. This not only reduces a company’s carbon footprint but also shields its finances from the volatility in energy prices that frequently occur. Among tech companies offering solutions for corporate energy efficiency and optimization is the Icelandic company Snerpa Power - a company developing technology that optimizes companies' energy consumption in real time and integrates renewable energy, reducing both costs and climate impact. Sustainability reporting is a legal requirement for companies with more than 250 employees or a balance sheet of over SEK 280 million. But it’s likely worthwhile for smaller companies to adapt as well. Many have ambitious growth goals, which means they will naturally fall under these requirements eventually, and legislation is expected to increase over time since we still haven’t resolved our planetary problems and resource scarcity. Smart sustainability work is therefore not about quickly meeting new requirements, but about strategically preparing for the future. Staying a step ahead gives a company the opportunity to gradually integrate sustainability into its business model, while also avoiding stress and costly emergency solutions when the stakes get high. There are many examples showing that integrated and proactive sustainability work leads to better business.

Figures Supporting That Sustainable Companies Gain Market Share

Understanding upcoming legislation is not only a way to strengthen the current business model but also to identify new business areas. One of our portfolio companies, Cemvision, has developed the world’s first CO2-free cement, with products ready for the market, while their potential customers face major changes within the EU. A new emissions trading system for buildings and road transport will be introduced in 2027, and the free allocation of emissions allowances for sectors such as iron and steel, aluminum, cement, fertilizers, and hydrogen will be phased out by 2034. It’s reasonable to assume that the company will benefit from the adjustments the industry will need to make—not only because it’s the right thing to do but also for profitability reasons. According to McKinsey, products with ESG-related features have increased by an average of 28% over the past five years, compared to 20% growth for products without such features. Being at the forefront of a strategic sustainability initiative can also lead to other positive effects, such as a stronger brand among both customers and employees. Sixty-six percent of consumers are willing to pay more for products from sustainable companies, and 76% of millennials say a company’s environmental commitment is important when they’re job hunting. According to an IEA report, half of the companies needed to achieve net-zero emissions by 2050 have not yet been invented. That’s good news if the capital is available—and it is! As investors, we not only have a responsibility to support companies looking to solve the biggest problems; we’re also convinced that this is where the future return potential lies.

Sara Wimmercranz has written this article on behalf of GoClimate.