How should B2B industrials companies start planning for sustainability? We interviewed industrial sector and sustainability experts, Jeb Wilson and Ryan Lojo, to find out why industrial businesses should care about green growth. Hint: it’s more about prosperity than you think.
Businesses worldwide are becoming increasingly aware of the growing importance of reducing their environmental footprint. However, the trend has been slow to catch on among B2B companies, particularly in the industrials sector. According to the Environmental Protection Agency (EPA) the industrials sector accounts for 23% of total global carbon emissions - which is a staggering figure. However, the industry cannot simply halt production since the businesses that comprise it still need to meet their production goals.
So, the primary question is this: Where do businesses find balance between meeting their production and revenue goals while also doing the right thing for the environment?
There are several different ways industrials companies can rethink their business sustainability strategies when it comes to being both ethically and economically viable.
Before we dive in, I want to make sure I understand who we are talking about here and how they are impacted and their approach?
Jeb: Today, we’ll be discussing B2B companies in general, though we will distinguish between pure “business-to-business (B2B)” and “business-to-business-to-consumer (B2B2C)” companies, as both the impact of sustainability and the best strategies to respond vary. While both sectors need to develop a strong strategy, B2B2C has more exposure to consumer-driven demands, while B2B may not face that level of public pressure.
Let’s get down to what business leaders really want to know - Why should industrials companies begin making the move towards environmentally sustainable business practices, when the profits sit with the status quo?
Jeb: First and foremost, government policies are changing. With new frameworks for environmental protection, governments are setting mandatory targets to ensure that businesses observe green regulations. These regulations will only become stricter as time goes on. So, businesses really have no choice but to adapt or face regulatory penalties.
Ryan: There is also the topic of consumer demand – environmental sustainability is becoming increasingly important for consumers. According to our latest Sustainability Study, 94% of consumers are actively incorporating sustainable practices into their lifestyle and purchasing decisions.
The argument can be made that B2B companies are not in the public eye – so do they really need to change their methods of operation?
Jeb: You are right – B2B companies are not under the same degree of urgency to go green. However, in the eyes of government policymakers, that does not mean they are exempt from operating responsibly.
Let’s look at a construction equipment manufacturer as an example… Its customers (contractors, etc.) will not stress about the environmental sustainability of the products. However, as government regulations tighten and compliance with green building certifications become standard, businesses will soon have to start focusing on sustainable materials.
Companies like Caterpillar are already responding to this need with new green offerings. Caterpillar’s latest models are backed by alternative power solutions, including the option of reusing and recycling components.
Ryan: True B2B isn’t directly exposed because the eyes of the consumer are not pointed directly at them. However, there is more urgency in the B2B2C industrial space as they are slightly more consumer-facing and have more exposure to consumers that view sustainability as an expectation. B2B2C must acclimate faster to accommodate their consumers’ needs and expectations while adapting to governmental exposure.
And there are B2B2C companies that are doing green really well - Trane Technologies, an HVAC manufacturer company, has branded themselves as a sustainable innovator with a 2025 target of net-zero emissions to be validated by SBTI – becoming one of the first approved companies.
Ok – you’ve convinced us that sustainability is important, even for B2B companies. So, what are the key factors that B2B business leaders must look out for when preparing a sustainability strategy?
Jeb: With B2B companies there are two primary topics: government regulation and consumer exposure.
1. Be aware of current government regulations
It’s critical for businesses to start actively focusing on a long-standing commitment to sustainability, where there’s an active interest in embedding sustainability in business growth strategies. Assess local and national environmental regulations when developing business strategies. Take, for example, the AIM Act’s capped allowance system that offers more flexibility. Companies can decrease carbon emissions or purchase allowances from other low-carbon-emitting businesses to offset their pollution.
2. Anticipate future government regulations.
There is an AIM Act proposal for 2024 to modify the emission baselines to more precise standards that could alter the allowance caps.
Even though B2B companies have a lower degree of exposure to the consumer, there is still a great deal of opportunity to generate green products and interweave environmental sustainability within the business strategy. The level, however, is dependent on the final product and the area of operations.
So, while the need to push for sustainability and green products is still relatively low, it is growing. B2B companies still have time to plan for a sustainable business model that doesn’t compromise on people, planet, or profits. However, it’s best to start immediately to avoid being surpassed by quick-thinking competitors or risk being caught off guard by changing market conditions.
How does that change for B2B2C companies?
Ryan: Consumers expect environmental sustainability to be a key part of the products and businesses they support. Therefore, companies must adjust to these evolving customer needs and expectations while also preparing to adapt to government policies.
a) Risk of government intervention
For these companies, the risk of government intervention is rising as the B2B2C business model puts consumers directly in touch with the product. Their consumers may have reasons to pressure the government to do more.
b) Customer exposure
Exposure to customers is higher in B2B2C which makes it easier for businesses to understand consumer buying behavior. However, this differs according to sector and other demographic factors. Understanding these behavioral changes helps businesses identify target segments, provide for different consumer needs, and optimize sales and marketing strategies to drive growth potential.
Jeb: Our survey found that, in the construction space, approximately 50 percent of Millennials consider sustainability as one of their top five purchasing drivers. Compared to this, only 30 percent of Boomers rate sustainability among their top five driving factors. The exposure will be higher for construction companies that are now servicing a more Millennial-driven market.
So, for B2B2C companies, there is greater urgency to integrate sustainability within their growth strategies. The sustainability plan should already be in action. If not, it’s important to start planning today.
Every US industry is moving toward increased sustainability – even in the industrials sector. Despite historically delaying going green, it is in the industrial sector’s best interest to begin the conversion sooner rather than later. Not only will industrials organizations position themselves in a more positive light with consumers, but they could also avoid potential fines by aligning with government regulations. But the best news of all? Members of the industrials sector will be able to turn new green offerings into profits.
Keep a lookout for our next installment, where Simon-Kucher experts will discuss how to monetize these adaptions for sustainable growth.
If you are ready to implement a profitable sustainability strategy in your organization, reach out to a Simon-Kucher specialist today.
