The Costs to Businesses of ‘Going Green’ May be Offset by Financial Benefits

When he was Minister for Natural Resources, Carl Sargeant asked the PPIW to explore the economic benefits of ‘going green’ for businesses. Our rapid review of the evidence available showed that there is growing awareness of the importance of reconciling the desire for economic growth with the need to safeguard the natural environment and make best use of scarce resources. Governments around the world are looking for ways to encourage sustainable growth and in Wales the Well-being of Future Generations Act has heightened awareness of the issue.

We found that there is a widespread perception that ‘going green’ imposes additional costs on business and runs the risk of making an economy less competitive. However, this orthodoxy has been challenged over the last two decades by a range of experts who have argued that there are ways of adopting more sustainable practices that can improve a business’ economic performance. Potential benefits include increased revenue through:

  • accessing new markets;
  • differentiating products from competitors; and
  • developing new environmentally friendly products and services.

digital-marketing-strategyIn theory at least, there is also the potential to reduce costs through improved risk management and relations with external stakeholders, and smarter use of resources thus reducing the cost of capital, supplies and labour.

However, we found that there is only limited evidence against which to test these claims. The relationship between green business initiatives and financial performance is affected by a myriad of contextual factors including firm size, industry, economic conditions and regulatory environment.

Most of the existing evidence in support of the link between environmental and economic performance comes from large companies that have made substantial investment in new business processes and/or technologies. This suggests that initiatives that benefit the environment do not always result in economic benefits but that cost savings and/or improvements in productivity can partially offset the costs of reducing the risk to the environment.

We concluded that there is a need for more evidence to establish the circumstances in which large businesses benefit from ‘going green’ and whether small and medium sized enterprises can realise similar financial gains.


About the author: Lauren Carter-Davies is a Research Officer at PPIW.  Her work includes scoping assignments, assessing available evidence and helping to identify and recruit experts. Lauren studied at the University of Cambridge and holds a BA in Politics, Psychology & Sociology and an MPhil in Social & Developmental Psychology.

 

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