Why firms should adopt sustainability practices

Saudi Arabia is home to some 245 publicly listed companies, all focused on maximizing value and delivering profits. So why should sustainability also be a priority?

Indeed, are corporate sustainability practices merely fleeting trends, regulatory obligations, government-driven initiatives, superficial reports or hollow efforts at reputation management?

Quite frankly, sustainability is not just an ethical imperative but a business one. It can significantly impact a company’s profitability, longevity and resilience — either positively or negatively. By embracing sustainability, companies can reshape their business models to drive revenue growth, improve margins, optimize capital allocation and mitigate risk.

Efficient resource utilization, waste reduction and energy conservation can yield substantial cost savings, enhancing a company’s bottom line. Similarly, sustainable and fair labor practices can resonate with consumers, fostering increased brand loyalty and customer preference.

Moreover, investing in sustainable technologies and practices can spur innovation, leading to the development of groundbreaking products and services. This can provide companies with a competitive edge, attract new customers and expand market share.

A strong commitment to sustainability can also reduce the cost of capital by improving creditworthiness. More than 500 academic studies have demonstrated a bidirectional positive correlation between corporate sustainability and financial returns.

Nonetheless, companies must approach sustainability with precision and meticulousness. Poorly executed sustainability initiatives can inadvertently erode value, while well-planned and properly implemented practices can significantly enhance a company’s performance.

The first step toward sustainable success should be a comprehensive assessment of a company’s current sustainability practices. This review should identify areas of strength and weakness, as well as opportunities for improvement.

Poorly executed sustainability initiatives can inadvertently erode value, while well-planned and properly implemented practices can significantly enhance a company’s performance.

Rodrigo Tavares

Organizations such as Clarity AI, MSCI ESG Ratings, Sustainalytics and the Upright Project can assess a company’s sustainability performance. By understanding the company’s sustainability baseline, businesses can develop a tailored roadmap to enhance their value proposition.

The second critical step is to identify and shortlist sustainability practices that can significantly impact a company’s financial performance and risk profile from a vast array of options. Tailoring these practices to each company’s unique circumstances remains one of the most complex challenges in corporate sustainability.

It is therefore important to avoid overextending sustainability efforts. While a strong commitment to sustainability is commendable, excessive or poorly executed initiatives can divert valuable resources and distract from core business objectives. A balanced approach, focused on material issues and measurable outcomes, is essential.

Over the past few weeks, Saudi Arabia has hosted several events to discuss the merits of corporate sustainability. These include the Future Investment Initiative, the Saudi Green Initiative Forum, the One Planet Sovereign Wealth Funds CEO Summit and the UN Convention to Combat Desertification’s COP16 conference.

In April, the Ministry of Economy and Planning launched the Sustainability Champions program, through which selected Saudi companies commit to transforming the sustainability practices of at least three other companies within the Kingdom, aiming to create a ripple effect that multiplies the impact across the economy.

Saudi Arabia is steadily building the foundational infrastructure to unlock the financial benefits of corporate sustainability. Now is the time for companies to embrace this challenge and seize the opportunities it offers.

• Rodrigo Tavares is an invited full professor of sustainable finance at Nova School of Business and Economics, founder and CEO of the Granito Group, and former head of the Office of Foreign Affairs of the Sao Paulo state government.