Introduction
When business owners explore a sale of business or an acquisition opportunity, the primary focus is often on valuation, cultural fit or the complementary product / service offerings. With the growing emphasis on being environmentally sustainable it has led to investors and private equity firms prioritizing a business’ environmental sustainability during the transaction evaluation process. Ensuring your company has environmental practices and policies in place could increase the valuation of your business.
Do Environmental Initiatives Make Your Company More Valuable to Buyers?
Many strategic and financial buyers take a company’s environmental performance and strategy into consideration before closing a transaction. Bain & Company found that nearly 80 per cent of global investors focus more on sustainability now than they did five years before. Bain & Company also reviewed more than 2,000 studies and found that there is a strong correlation between the performance of environmental, social and governance funds and positive investment returns.
Yadav, Han and Rho from the Business Strategy and the Environment journal discovered that companies with more environmentally sustainable initiatives tend to attract higher values than companies that are not environmentally sustainable. It was also found that the long-term environmental damage of a business is one of the main concerns for investors, which can lead to strategic and financial buyers not wanting to invest in a company. Similarly, Bain & Company concluded that some of the world’s largest private equity funds are selling assets that do not meet environmental or social investing guidelines.
Firms Investment Criteria
Firm A: We will only consider businesses that we believe are designed to have an important environmental or social impact.
Firm B: We invest in a global portfolio of innovative companies to address the most pressing economic and environmental challenges of the oil and gas industry.
Firm C: We invest in innovative companies that are doing things differently; companies that help bring energy to the world in the most efficient, cost effective and environmentally responsible manner.
Firm D: We invest in start-up companies that use advanced materials to make our world a better place.
Canadian Businesses: The Early Adopters
A majority of companies in Canada have stepped up their sustainable efforts, prior to the Federal government proposing the ban of single-use plastics. These companies are recognizing and understanding the benefits of environmental initiatives over the long term from a people, profit and planet perspective.
Toronto’s Yorkdale Mall announced a ban on plastic straws commencing in October 2019.
IKEA Canada announced it is phasing out all single-use plastics nationwide by January 2020 and has said it will only use renewable or recycled materials in its manufacturing by 2030.
Recipe Unlimited, the company that owns Harvey’s, Swiss Chalet, Milestones Grill and Bar, Montana’s BBQ & Bar, East Side Mario’s, New York Fries, Original Joe’s, State & Main and The Keg announced the phasing out of plastic straws in 2019.
Tim Hortons introduced reusable drinkware and other sustainable packaging initiatives, as well as it launched a 10-year campaign to change consumer perceptions in favour of using reusable cups for its beverages.
Sobeys Inc. announced it will be removing all plastic bags from its grocery stores by February 2020 and replacing them with paper bags. Sobeys Inc also has plans to introduce reusable mesh bag alternatives in the produce aisle.
As of 2019, A&W Canada has redesigned its coffee cup sleeves, burger bags and straws to be biodegradable, with an objective of reducing around 500,000 kg of plastic waste annually.
A&W Canada’s sculpture in front of Toronto’s Union Station, which was made with its remaining plastic straws to announce its switch to biodegradable paper straws
Recommendations
Below are some recommendations to assist your business in reducing its environmental footprint. We also suggest being compliant towards any potential environmental legislation and increasing your brand awareness through these initiatives with your customers, employees and community.
1. Reduce and remove packaging
Erich Lawson from Fishbowl, a manufacturing and warehouse management software blog, suggests reducing and removing product packaging, which cannot only be cost saving but can also help your company be environmentally sustainable. Lawson adds that communicating the changes implemented and the reasons why the changes were made to customers will ensure they understand the logic and benefits behind the changes.
2. Seek recycled or reusable raw materials
Kieselbach and D’Souza from Thinkstep, a sustainability software, data and consulting company, suggest seeking vendors that can provide raw materials that are more environmentally sustainable, without compromising the quality of the end products. Instead of relying on plastic raw materials, source alternative materials including wood, cardboard or man-made fibers that have similar characteristics as plastic.
3. Innovation
The government of Canada suggests companies should take a proactive approach in developing methods to reduce its overall environmental impact. This may include venturing into packaging methods that have yet to be widely implemented within your industry. For instance, in March 2019, a supermarket in Thailand introduced the packaging of fresh produce in banana leaves instead of the traditional plastic wrap. In addition, Danish beer producer Carlsberg introduced its innovation called Snap Packs, which sticks beer cans together with glue instead of using the traditional six-pack rings.
Fresh produce packaged in banana leaves as seen in a supermarket in Chiang Mai, Thailand.
Carlsberg’s snap pack beer that replaces the six-pack plastic rings traditionally used.
Conclusion:
If you are considering an upcoming sale of your business, implementing sustainable initiatives that are industry leading may better position your business in an impending transaction. Both strategic and financial buyers are placing a stronger weight on a company’s sustainable efforts; ensuring your company has environmental practices and policies in place may increase the attractiveness of your business. Lastly, tracking the progress and results of your company’s sustainable initiatives on a regular basis is important to evaluate how successful your strategic implementation is and to demonstrate a competitive advantage within your industry.
