Profitability with Sustainability Practices
Going green in the modern era benefits not only the environment but also the companies. Being environmental-friendly must not necessarily carry cost implications as it is an avenue for new market opportunities, a catalyst for innovation, and a potential revenue stream. A good section of businesses in the hospitality sector have been motivated to pursue sustainability out of idealism and pragmatism (Haanaes, Michael, Jurgens, & Rangan, 2013). However, some of them have consistently recorded growth and generated profit margins from sustainable undertakings. These gains are clear demonstrations that the trade-offs between sustainability and profitability are not necessary. Rather, entities in the hospitality sectors can pursue sustainability for its benefits while still exploiting the powerful path it offers to reinvent key business aspects, such as scalability.
Hospitality industry needs to assess how it views sustainability in its entirety. To demonstrate a worthy and practical commitment to sustainability, industry players may need to embrace the materiality and economic benefits of sustainability. After all, sustainability is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (International Institute for Sustainable Development [IISD], n. d). The current sustainable tourism debate is marred with false arguments and assumptions, the main one being that voluntary and charitable motives are the main drives of the sustainability agenda. Far from the truth, sustainability ought to be an opening for innovation, market opportunities, and revenue growth. In this light, sustainability in hospitality industry can only be successful when businesses focus on their core mandate of maximizing shareholder value through the use of sustainability as a corporate strategy, leveraging its commercial benefits, and overcoming the current implementation barriers.
Stakeholder and Shareholder Theory
Businesses are torn between the competing stakeholder and shareholder interests. In the debate, advocates of stakeholder theory suggest that a business should provide for certain societal needs while proponents of shareholder theory argue that a business should focus on its lawful obligation of maximizing shareholder wealth. However, most business leaders want to have both. They are always finding ways to maximize both stakeholder and shareholder value. The objective is to continue introducing sustainable offerings in the hospitality industry without affecting shareholder’s value. Nonetheless, these prospects have not stopped the majority from supporting the argument that the primary purpose of business is business. In fact, a business “acting beyond its economic concerns is at best misguided and is misallocating and/or misappropriating societal resources” (Mekwe, 2015, p. 15). While both stakeholder and shareholder theories are social constructions, the direction of the debate offers promise in the alignment of profitability with sustainability practices.
When sustainability element is introduced in this debate, interests of stakeholders are reportedly superior. As a result, the cost of implementing sustainable practices results in a negative impact on profitability. For instance, in a bid to decrease carbon emissions and reduce its negative impact on climate change, luxury urban hotels are adopting eco-friendly renewable energy alternatives; even though, the associated costs are much higher than expenses for traditional forms. This sustainability strategy results in reduced profitability, hence destabilising businesses as investors move to less “green” countries (The Economist, 2014). In this regard, businesses should concentrate on maximizing shareholder wealth, and sustainability initiatives should only be pursued if they help to accomplish this function.
Corporate Sustainability Strategy (CSR)
A business can perform well while engaging in social responsibility projects. However, the idea that the company has a responsibility to act in the public interest is simply flawed. Sustainability should be a corporate strategy, not a responsibility. Multinational firms now regularly report that they are not in the market just to accumulate profits but also to serve bigger social objectives. For instance, they publish sustainable reports on production of healthier foods, adoption of eco-friendly energy, and rolling out of ‘green stores’ (Rogers, 2018). The motivation to pursue these strategies is that they make the world a better place. Unsurprisingly, the idea has gained prominence with many companies, with some hoping that they will make a profit while doing so. Unfortunately, this is an illusion; this vision is not founded on profitability grounds, and hence, it may not make clear economic sense (Karnani, 2010). Put simply, when profitability and sustainability agenda (public interests) are aligned, the idea of CSR is rendered irrelevant. A business that can do everything to increase their profits betters the welfare of the society.
In most cases, serving society is at the expense of profitability. If this is not the case, companies seeking to maximize their profits through CSR could have alleviated the most prevalent and persistent societal problems long ago. A good example is the food waste problem created by hoteliers and retail outlets. Managing the waste is a costly process that eats into profits. It is clear that sustainable practices such as managing waste and societal ills are not aligned with profitability in the hospitality industry, but they are trade-offs.
However, when the decision on whether to apply CSR strategy is hard and rejected by many, it is irrelevant to introduce corporate responsibility projects. Businesses that are unwilling to voluntarily act in the social interest and contrary to shareholder interests are likely to collapse if still apply it. Since hospitality industry and other industries understand that CSR is a financial calculation, many realize that company’s profits would reduce at first (Madorran & Garcia, 2014). . . Conversely, big and established organizations successfully adopt real and effective measures while embracing CSR. To bridge this gap, companies should commercialize social responsibility projects to operate sustainably without negatively affecting the bottom line.
Going green and embracing sustainability are not easy. However, with piling evidence of escalated carbon footprint, hotter summers, and rising sea levels, being green is forthrightly a necessity. The hospitality and other industries should focus on sustainability by implementing enduring sustainable practices that support the efforts to salvage the planet from further damage. According to Semerad (2017), many businesses are yet to take sustainability seriously because they are not aware of the benefits that may come forth. Normally, from a business perspective, sustainability is about rallying with other like-minded entities to make a large-scale change. Further, the modern day consumer prefers associating with sustainable businesses or products. It is for these reasons that sustainability in business should be taken to a new level where profitability is the major motivation (Semerad, 2017). Businesses have many ways to explore sustainability without necessarily negatively affecting their profitability.
The ability to balance profitability and sustainability is one achievement that will give some businesses an edge in the market. For instance, offering a wide variety of ‘green’ products in the budget hotel sector will do less if they have a negative effect on the profitability of the hotels. In a case scenario, Florida Ice and Farm, a beverage-bottling company, embarked on a mission to significantly reduce the total amount of water needed for manufacturing of one product. In the end, the company managed to reduce the usage from 12 to 4.9 litres. Pepsi, a multinational beverage-bottling company, reduced the amount further to 2.2 litres per litre of beverage (Matthews, 2016). This pioneering innovation went ahead to change the bottling industry in a good way. Sustainability initiative significantly lowered production and increased profitability. Striking a balance between sustainability and profitability is dependent on each business.
Sustainability Practices That Influence Profitability
In the hospitality industry, sustainability practices ought to be an important component of doing business. Regrettably, sustainability practices are perceived as cost-intensive activities that affect business profitability. They affect profitability through the various phases of production lifecycles (Small, 2017). However, a range of barriers constrains implementation of sustainability long-term decisions. In most companies, sustainability is not viewed as an independent department rather than a vital constituent of commercial and other business decisions. Fortunately, progressive companies are showing that these barriers can be removed.
One of the barriers stems from the eco-social relations between humanity and the environment. In this regard, people are increasingly creating situations and making decisions that point toward harming the environment. Lack of enough tools and knowledge has barred the successful implementation of sustainable practices in working environments. It is important to understand the connection between humanity and environment because they are the main factors contributing to successful implementation of sustainability practices (Small, 2017). This observation advocates the need for collective systems that support the implementation of sustainability practices.
The notion that profitability is a central issue in sustainable projects is another problem. Shareholders still not readily accept the possibility that sustainability practices can change from business expenses to revenue streams. In an ideal business environment, sustainability should be well-aligned with profitability. Proceeds from sustainable practices may represent a small portion of the total profit over a period of time. However, a challenge is to understand the complex relationships between economic (financial), social, and environmental performance (Small, 2017). Sustainability blocks provide links to humanity, as they are social constructs.
When the three elements of triple bottom line (people, planet, and profits) are not in harmony, achieving sustainability is a problem. The initiative has inherent opportunities for customer acquisition, efficiency improvement, and cost savings. The resulting competitive edge allows a business to generate profits. This aim cannot be achieved without having loyal workers who have wide-ranging skills. In other words, the three elements of the triple bottom line should co-exist to allow sustainability to be implemented.
The bottom line in the above discussion is that shareholders should be the major focus for businesses. Firms in the hospitality industry should prioritize maximizing shareholder value. Sustainability is majorly stakeholder’s concern, and it should only be pursued for its commercial benefit. The argument that sustainable practices are cost-intensive serves to justify why it is difficult to go green. The discussion shows that there are inherent financial benefits in most sustainable practices, and businesses should seek to have the right definition of sustainability to achieve a different perspective.
Sustainable projects or integrated practices should not affect performance negatively. Businesses have been tasked with the role of acting in the public interest, which is a flawed idea. Sustainability should be a responsibility but an indispensable corporate strategy. The executives should use sustainability strategies to achieve business goals, among them being profitability. For-profit firms are reporting that they are in the market with the ambition to achieve a social objective that supersedes their profitability goals are misguided.
Overall, it is not an easy task to embrace sustainability and go green in the hospitality industry. Nonetheless, the world is facing many challenges, including escalated carbon footprint, hotter summers, and rising sea levels, that necessitate collective effort to salvage the future. These reactive strategies are what constitutes sustainability, and hospitality industry should join the course to secure the world for the future generations. To succeed, the market players need to exploit the benefits of sustainable practices to be motivated to pursue it. In the end, consumers have increasingly associated themselves with sustainable brands and products, hence providing an opportunity to attain a competitive edge.
Some of the major challenges that constrain implementation of sustainability can be solved at the organizational level. The eco-social relations between humanity and the environment should be resolved by incorporating the future of the environment in the decision-making process. Further, businesses should actively work to align their sustainability agenda with profitability. Going into the future, it will be interesting to observe the impact of consumer behaviour change toward sustainable brands and offerings.
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