Employing sustainable business practices has transitioned from an idea that companies should be doing less harm to the environment to a responsibility of business to actively make a positive impact in the world, said Chris Laszlo, professor at the Case Western Reserve University's Weatherhead School of Management.
According to a 2021 study of 1,000 S&P 500 firms, 92 percent reported that there was no negative corporate financial performance in relation to the company's ESG strategies, Laszlo told more than 400 attendees at the Greater Cleveland Partnership's inaugural Sustainability Summit on Jan. 24.
"That is not to say it is a magic bullet that if you focus on ESG, you're going to miraculously do multiple times better than your competitors who don't," he said to the group of attendees at the Huntington Convention Center who came to hear industry, academic, financial and government experts discuss the state of sustainability.
"But when companies argue that sustainability policies are too expensive, recent studies show that they don't have a cost. In fact, companies are learning to focus on these issues in ways that actually help them do even better," Laszlo said.
The half-day sustainability summit in Cleveland, which included opening and closing panel discussions and two breakout, double-track information sessions — one for small and middle-sized enterprises and another for larger businesses — focused on changes in sustainability reporting requirements, innovations and best practices.
During an opening panel discussion, Andrew Watterson, president of consulting firm Blue CSR Strategies, stressed ESG policies are important not only to consumers who would rather buy ethical brands, but also to employees who want to work for those ethical companies. Good sustainable practices, he said, are important to how businesses operate.
"There is not really a choice in that anymore," Watterson said.
Adding that sustainable practices are now de rigueur for business-to-business companies as well as consumer-facing companies, Elizabeth Grove, Lubrizol's chief sustainability officer, said even relatively small suppliers are now beholden to the net zero goals set by large global companies looking to the supply chain to help reach those lofty goals.
Grove also cautions that net zero goals for some industries are ambitious, whereas Lubrizol, which deals mostly with the mixing of raw materials, has been more conservative about its carbon-neutral predictions and ESG policy goals. "We have the path and we have the math. We know that we can hit those goals," she said.
Innovative sustainability efforts also give a business gain a competitive advantage by helping set new industry standards, Laszlo said.
"Sustainability standards are rising, and increasingly companies are going to be held to these standards, but if you can raise the standards to a level that some of your competitors may not be able to, and then lobby the government to make those standards law, that gives you a competitive advantage," he said.
Whether or not a company looks at sustainability policies as optional, environmental risk mitigation reporting requirement are becoming a standard for larger businesses. Public companies in the U.S. are facing mandatory fiscal sustainability reporting and third-party auditing — and for smaller companies, there are environmental information-sharing requirements.
As climate-related risks lead to financial risks for companies, investors are demanding more transparency and seeing compliance with the Securities and Exchange Commission's proposed Mandatory Climate risk disclosure.
The ESG reporting standards for companies working within the U.S. mirror recent global reporting requirements in Europe as part of the Corporate Sustainability Reporting Directive and from the International Sustainability Standards Board, an international board created in 2021 to provide comprehensive global sustainability-related disclosure standards.
The SEC proposed rule changes require climate-related disclosures on risks likely to have a material impact; certain climate-related financial statement metrics in audited financial statements; and disclosure of greenhouse gas emissions.
If stringent new reporting standards are the bad news, the good news is that banks have expanded the financial tools to help companies move toward more sustainable practices. And with 2022's Inflation Reduction Act (IRA), the federal government is putting up more than $370 billion in funding for sustainable projects.
Kristi Eberhardt, PNC managing director and head of sustainable finance, said she helps clients embed climate transition and social justice initiatives into debt capitalization. The field is growing, with an estimated 20 percent of both the loan and bond markets in the coming year expected to have sustainability themes, Eberhardt said.
"I help the finance team understand that there are different levers that they can pull" that can be support "what the corporate social corporate sustainability projects might be," Eberhardt said.
Traditionally, federal funding initiatives have supported growth in green and renewable energy programs and have previously offered limited, competitive tax credits. The IRA has expanded on that by adding transferable tax credits allowing companies, for the first time, to split up the credits for a project, allowing any business with a corporate tax liability to purchase those credits, Eberhardt said.
Calling the IRA a game changer, Courtney Kishbaugh, director of innovation for GCP's Cleveland Innovation Project, said the 10-year project provides a sense of market certainty for companies investing in sustainability.
"There are incentives that work for every single organization," Kishbaugh said. "For example, if your organization is tax-exempt — that's OK — nonprofits and state and local governments can get a direct pay instead of tax rebates, and those dollars are unencumbered."
Kishbaugh explains that companies regardless of size are eligible to receive a 30% tax credit for the cost of installed solar, and companies located in the city of Cleveland, which is a low- to moderate-income Census tract, can tack on another 10% to that.
Companies that improve building energy efficiency by at least 35 percent can get a $5-per-square-foot tax credit. There is a $100,000 credit for the installation of an electric vehicle charger and a $7,500 tax rebate per electric vehicle in a commercial fleet.
The Department of Energy's loan program office has also authorized $350 billion in loans with the purpose of bridging what Kishbaugh refers to as the valley of death with regard to startup business financing. "The valley of death refers to the period in between when there is a lot of money at early-stage R&D, followed by a lot of money at the venture capital stage, when something is proven concept but there is not a lot of bridge financing in between," she said.
There are more programs laid out in the 700-page document associated with the IRA — and to help companies and civic partners navigate some of the competitive grant programs, GCP is building a federal funding hub to help go after funding for hydrogen hubs and grid modernization, Kishbaugh said.
"This is transformative," she added. "This is an incredibly catalytic program."