Due to pressure on resources, time, and budget, some businesses can find it difficult to convince stakeholders that budget allocation to sustainability is a must-have and not a nice-to-have. C-suite leaders who allocate even limited resources towards sustainability through understanding how to effectively structure a sustainability budget will be able to realise the vast potential of sustainable transformation.
As such, this resource should be closely considered by Chief Financial Officers (CFOs), Chief Sustainability Officers (CSOs), and also wider business stakeholders. In doing so, those who take lead on sustainability investment will realise why and how efforts towards green budgeting must be prioritised as businesses around the world undergo a sustainable transformation.
What is a sustainability budget and why is it so important?
Whilst becoming sustainable requires an organisation-wide approach led by sustainability-oriented leaders, taking a proactive approach through the development and integration of a sustainability budget is a crucial step within the decarbonisation journey. Budgeting for sustainability involves allocating business resources towards activities that improve a company’s capacity to maintain or endure the interplay of environmental, social, and economic factors. Investing in making your business more sustainable simultaneously improves the ESG performance of businesses, which is an increasingly important set of criteria used to assess a company’s environmental, social, and governance impact.
Accordingly, focussing upon sustainability within budgeting through strategically allocating resources allows for businesses to develop a more resilient supply chain, ensure that they are compliant with relevant regulations, and meet the increasingly ‘green’ demands of stakeholders - with Oxford University finding that more than 80% of mainstream investors now consider ‘ESG’ and sustainability in their decision-making processes. Meanwhile, research shows that 57% of businesses plan on allocating more budget, time and people towards sustainability; businesses which undertake decarbonisation have been found to see 20% increases in revenue. In effect, CFOs and CEOs who work in conjunction with sustainability leaders - such as CSOs - to allocate a budget towards sustainability can not only defend business revenue, but also boost profits as businesses gain a competitive advantage.
How to convince leadership to allocate budget to sustainability
To convince business leadership to allocate resources towards a sustainability program, one can follow a number of steps to build the case for sustainability within an organisation.
- Show the business benefits: Sustainability initiatives can bring a variety of benefits to a business, with studies highlighting cost savings, increased efficiency, improved brand image, and access to new markets. Researching and presenting facts and case studies that demonstrate the positive impact of sustainability initiatives on other businesses in a given industry can help illustrate how peer companies are addressing the topic. For instance, a McKinsey report found that companies who incorporate sustainability within their budget could see a 60% improvement in operating profits through reducing resource costs.
- Demonstrate the risks of inaction: Explaining the risks and potential costs associated with not implementing a sustainability program, such as regulatory fines, reputation damage, and lost market share, help leadership understand that investing in sustainability is increasingly common practice in today's business landscape. For example, not acting on sustainability will lead to an increase in external costs - such as carbon taxes, with the carbon price increasing from €10.53 per metric ton in 2018 to more than €100 in March 2023.
- Start small: Pitch a pilot programme or a small-scale initiative to show proof of concept and demonstrate the potential benefits. This can help build momentum and gain support for more significant sustainability initiatives in the future.
- Engage stakeholders: Involving stakeholders from different departments, including finance, marketing, and operations, is an important step to gain buy-in and support. It is essential to have a cross-functional team to ensure that the sustainability program aligns with the business's strategic goals and objectives.
- Set measurable goals: Establishing clear and measurable goals for the sustainability program, such as reducing waste, decreasing carbon emissions, or increasing the use of renewable energy is essential to build evidence on the program’s impact, tracking progress and sharing results to build momentum and support for the program.
- Be prepared to make a business case: Making a clear and compelling business case for the sustainability program should include a detailed budget, expected return on investment, and a timeline for implementation. Showing that the sustainability program can be profitable and provide long-term benefits to the business will increase the chances of gaining support from business leadership.
If there is a limited budget, where should resources be allocated?
Prioritising a limited budget to develop a sustainability team or strategy requires a strategic and systematic approach. Some steps that a company can follow to prioritise the right actions against a limited budget:
Identify your sustainability goals.
This requires determining what sustainability objectives a company wants to achieve and how a sustainability team or strategy can help achieve those goals, which in turn helps define the scope and priorities of a sustainability program.
Evaluate the cost-benefit of a sustainability team or strategy.
Consider the potential impact of a sustainability team or strategy on business operations, customer satisfaction, and overall sustainability goals, and ask to determine what resources should be allocated to deliver on a respective outcome.
Start small with a pilot program to gradually build momentum.
Identify what works and what doesn't, and how to most effectively spend resources, as well as secure buy-in from stakeholders. Further, setting metrics to measure the success of a sustainability programme and evaluate progress regularly helps to make adjustments to ensure goals are achieved efficiently that aligns with a company's business goals and objectives.
Licence sustainability software.
Software can support and educate the sustainability team along the journey of measuring, reducing and reporting the organisation's impacts. Software can help in laying out the journey ahead and educate on which data are needed, how to obtain it, and how to improve on this process. Meanwhile, having all impact data in a single place across departments helps with the continuous tracking, monitoring, and reporting, for example, the organisation’s GHG emissions. Furthermore, early access to examples of decarbonisation and expert support can help the team to determine which exact resources are needed in the path ahead. Ultimately, as found within a total cost of ownership (TCO) analysis by Hurwitz, avoiding costly manual data collection, input and analysis through the utilisation of SaaS will eliminate vast capital cost, decrease risk and bolster the overall reliability of a business' sustainability budget.
As the world works to meet the Paris Agreement, sustainability budgeting will only increase in importance. This aforementioned guide can serve as a great blueprint to embarking on your sustainability journey and allocating a budget towards sustainability. Businesses that are proactive and invest from the get-go in comprehensive decarbonisation technologies, such as Plan A’s sustainability platform, will ultimately realise immense improvements in their return-on-income (ROI) via saving on time and carbon.
Learn how to efficiently implement sustainability within your business and book a demo with Plan A.