Many companies have decided to “go green” in recent years. But the motivation for adopting more environmentally friendly business practices goes beyond the financial benefits. Many businesses also have a sincere interest in being more responsible corporate citizens.
More than half of consumers (57%) would change their buying habits “to help reduce negative environmental impact,” according to a recent study by the IBM Institute for Business Value. That includes paying more for green substitute products and switching to more eco-friendly brands.
Reporting Green Business Practices
Investors and lenders may learn about your company’s commitment to eco-friendly business practices — or lack thereof — by reviewing its financial statements or business plan. In a financial reporting context, green business initiatives fall under the umbrella of environmental, social, and governance (ESG) issues. These issues may be disclosed in the following financial statement sections:
- Description of business. This section describes the business, including information about its form of organization, principal products, and services, major customers, competitive conditions, and costs of complying with environmental laws.
- Legal proceedings. Here, any material pending legal proceedings involving the company is briefly explained. This section includes disclosure of environmental litigation arising under any federal, state, or local regulations regarding the discharge of materials into the environment or protection of the environment.
- Risk factors. In this section, a company discloses the most significant factors that make an investment in it speculative or risky.
- Management’s discussion and analysis. This section allows stakeholders to see the company through the eyes of management. Specifically, it helps identify known trends, events, demands, commitments, and uncertainties that are reasonably likely to have a material effect on financial condition or operating performance.
In addition to these disclosures, some companies voluntarily issue separate “sustainability” reports that cover a broad range of non-financial issues. Unfortunately, without uniform ESG reporting standards, these reports can be very inconsistent.
The Financial Accounting Standards Board is currently evaluating whether to create more detailed guidance on ESG reporting. In the meantime, ask us which financial reporting options would be most effective for your business to communicate its green business initiatives.
But beware: Going green may sometimes increase business expenses and/or require capital investment without an immediate financial reward. In addition, building a greener business model is a multifaceted process that can’t be accomplished overnight — it requires a sustained commitment.
Reaping the Rewards
The long-term payoffs of a green business model may be plentiful, including earning higher profits and building goodwill with stakeholders. Adopting greener business practices may also make your business more competitive with others that have already jumped on the bandwagon — and give you a leg up on competitors that aren’t as environmentally conscious.
Plus, a commitment to green business practices may help you attract and retain workers who have similar values. This may be a major upside in today’s tight labor market.
Generating Buzz for Your Green Efforts
A successful green business should not only reduce its environmental footprint; it should also communicate its efforts to existing and prospective customers. Otherwise, your business could be like a tree that falls in the forest with nobody to hear it.
When you go green, you need to make some noise about it. But don’t shout from the rooftops until you’ve made solid progress — and you plan to continue in that direction. A failed or abandoned green project may cause more damage than taking no action at all.
Social media campaigns can be an effective way to tell customers — especially younger, tech-savvy ones — about green business initiatives. Your business also might consider installing signage at its facilities to get the word out among employees and customers who visit your facilities.
Likewise, some proactive companies are voluntarily disclosing sustainability efforts in their financial statements or publishing standalone sustainability reports.
Leveraging Green Practices
The steps your business needs to take to go green (or go greener) will depend on the nature of its operations. But modest changes your business takes can be magnified to the extent that they inspire employees and customers to adopt the same practices personally.
Examples of green business practices include:
- Minimizing single-use items, such as disposable coffee cups, paper bathroom hand towels, plastic water bottles sold in vending machines and single-serve coffee pods,
- Choosing paper products over plastic alternatives,
- Encouraging recycling by providing recycling bins and discounts to customers who bring in reusable bags,
- Using electronic methods for communication and data storage,
- Maintaining work-from-home options for employees to cut commutes,
- Providing financial incentives to employees who commute using public transit,
- Donating unneeded office equipment and furniture, instead of sending it to a landfill,
- Installing water-saving faucets and toilets,
- Collaborating with local environmental organizations, and
- Selecting suppliers that share your commitment to sustainable business practices.
In addition, many utility companies often will perform free “energy audits” to identify ways you can cut your consumption of electricity, gas, and water. In the process, you may learn simple, but not necessarily obvious, steps to save resources. For example, did you know that allowing electronic equipment to rest overnight in “standby” mode can add 10% to its energy consumption? You can lower consumption and your energy bill simply by shutting down electronic equipment completely at the end of the workday.
Reducing Your Carbon Footprint
Global warming is a hot topic today. Unless you have a rare operation, your business probably can’t eliminate its carbon footprint. But you may be able to buy carbon offsets or credits. These are payments either directly or through a carbon credit exchange to organizations whose work enables the use of renewable energy sources.
Specialized consulting companies can help you measure your carbon footprint. They also can help find sources of carbon credits to neutralize it.
We Can Help
Embarking on the path toward becoming a greener business doesn’t have to be a do-it-yourself project. We can evaluate the return on green investment projects, discuss federal tax breaks for going green and help you choose practices that best suit the needs of your company and its stakeholders.