The structured business case of sustainability

Farias, Lauro Emilio Gonzalez
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Global Warming and Social Inequalities demand a paradigm shift in traditional business conduct. Still, resistance within segments of the business community hampers a quick enough transition. Further, existing literature lacks a comprehensive, structured presentation of the sustainability business case. To address this gap, this paper proposes a comprehensive sustainable value framework. Drawing on legitimacy-, shareholder welfare-, stakeholder theory, and the Sustainability Balanced Scorecard, the proposed framework elucidates how sustainability initiatives contribute to value creation for regulators, employees, internal processes, customers, and eventually shareholders. Crucially, it also explains the interplay between these elements and how the cumulative value creation translates into profitability growth and heightened company valuation. In essence, the framework posits that a well-crafted sustainability strategy has the potential to enhance employee satisfaction and regulatory relationships, fostering improved internal processes, such as risk management, innovation, and efficiency productivity. Ultimately, these positive outcomes translate into premium pricing, new business opportunities, increased sales, and cost reductions through enhanced operational efficiency, favourable financing terms, diminished employee and customer turnover, and potential governmental subsidies. Ultimately, the result is improved profitability and reduced company risk, which, by definition, should culminate in an augmented company valuation. Finally, inspired by a closer examination of a practical case, a Brazilian ESG consultancy, the paper proposes a simplified version of the created framework that better suits the quick and clear presentation of the topic to top executives.

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