Balancing Sustainability with Profitability

In response to increased media coverage, eco-friendly compliance requirements, investor trends, and evolving consumer tastes, businesses are starting to rethink their impact on the environment, society, and their approach to governance. The challenge is finding ways to execute sustainability or ESG initiatives without sacrificing profits.

What is ESG?

ESG stands for environmental, social, and governance. These are called pillars in ESG frameworks and represent the 3 main topic areas that companies are expected to report on. ESG initiatives have a profound impact on a company’s operational structure, encompassing various factors. Among the most prominent aspects of ESG are environmental considerations such as promoting renewable energy, conserving water, adopting regenerative farming practices, and utilizing compostable packaging. Social responsibility is another key component, encompassing areas like employee development, labor practices, ensuring the safety and quality of products, and addressing controversial sourcing within the supply chain. Lastly, corporate governance plays a vital role, emphasizing strong ethical practices, adhering to executive compensation guidelines, and fostering diversity within the board of directors. These elements collectively shape the ESG landscape and drive companies towards a more sustainable and responsible approach.

The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company’s day-to-day activities. The struggle that most companies face is ensuring that these activities have a positive impact on their balance sheets.

There is increased investor interest in the ESG space. Businesses that align themselves with ESG principles prioritize the promotion of a healthy environment, equity within their workforce, and ethical business practices. A substantial number of investors, managing assets worth $100 trillion, have committed to the United Nations Principles for Responsible Investment, which advocates for integrating ESG considerations into investment decisions. However, despite the increasing attention given to ESG, companies still encounter challenges in delivering consistent results while maintaining profitability. In many instances, companies that claim to be ESG-focused but lack well-executed sustainability strategies tend to underperform both financially and in terms of sustainability when compared to their non-ESG counterparts. Striking a balance between ESG goals and financial success remains an ongoing challenge for businesses.¹

Shifting towards sustainability in order to keep up with consumer trends often requires additional costs and large upfront investments, which tends to trigger feelings of apprehension from stakeholders. The results from McKinsey’s packaging survey found that “60-70% of consumers are willing to pay more for sustainable packaging across several categories”.² However, there are limits to how much cost consumers are willing to absorb.

Another common concern is that allocating resources to tackle sustainability initiatives has the potential to distract from the company’s core mission without a meaningful payback. However, research conducted by Smurfit Kappa and The Financial Times reports that 83% of businesses interviewed in the study view sustainability as a business opportunity that can be leveraged.³ When it comes to balancing sustainability with profitability, the scales can tip either way—it all depends on execution.

So, the question remains: How do businesses strike a balance between improving sustainability and advancing social responsibility while remaining profitable and growing as a company? To find the answer, we approached the problem through the extensive use of primary and secondary resources to analyze existing information and gain new insights through interviews.

The interview process involved speaking with senior leadership at companies in three different segments of the food/agriculture value chain, including:

- Jackie Zielke, the vice president of operations at Gold Leaf Farming a 12,000-acre almond, pistachio, and date grower in the Central Valley of California committed to leaving the world better than they found it.
- Mauro Trevisani, the chief executive officer of Treehouse California Almonds, an almond processor in the Central Valley of California with tangible sustainability metrics; and
- Lisa Smoot, the president of San Francisco Bay Coffee, a family-owned consumer-packaged goods business dedicated to producing sustainable products and making an impact on the farming communities that support their supply chain.

Make Smart Decisions

Moving into a sustainability plan without proper planning, or setting overly ambitious goals, can lead to wasted time, resources, and capital. One pitfall that Lisa Smoot, president of San Francisco Bay Coffee Co. warned about was committing to sustainability efforts that harm the value of your product.

“There are some cases where it doesn’t make sense,” Smoot said in reference to compostable coffee packaging that drastically limits shelf life. “We won’t compromise quality just to say that it’s a home compostable product.”

Making informed decisions and striving to promote a positive public image, such as Walmart’s commitment to sustainable beef and their recent $257 million investment in building a cleaner and more transparent supply chain.⁴ While most businesses won’t be able to match the retail giant’s lofty investment, there are more attainable ways to foster sustainability.

Renewable solar energy helps Mauro Trevisani, chief executive officer at Treehouse Almonds, cut utility costs while reducing CO2 emissions.

“We produce almost 1 million watts of solar energy,” Trevisani said while referring to the solar panels used by Treehouse Almonds. “In 25 years, that will be 120 million pounds of reduction in CO2, and it also helps us in terms of utility.”

How to Implement Sustainability Initiatives without Sacrificing Profitability

“What’s the easiest thing that you can do to start on a sustainability quest?”

Lisa Smoot, President, SF Bay Coffee

1. Start Small and Do Things You Can Control

Beginning a sustainability initiative can be overwhelming, which makes this first piece of advice so poignant. Taking small steps on this gargantuan journey builds momentum and incorporating little changes can add up to big results when trying to improve your carbon footprint. Looking for easy-to-adopt practices is what Lisa Smoot recommends for companies that are just beginning the process without a huge monetary investment.

“You can’t become sustainable if you’re not going to turn a profit,” she said. “What’s the low-hanging fruit? What’s the easiest thing that you can do to start on a sustainability quest?”

Keeping things simple helps businesses and their employees ease into sustainability by targeting controllable action items. Implementing programs aimed at separating office trash into compost, recyclable items, and landfill waste doesn’t depend on outside factors and helps to promote a culture of sustainability. Other office tactics that support sustainability while serving to cut costs include using motion sensors on lights to conserve energy in rooms while not in use and configuring your heating and cooling systems to enter sleep mode during weekends and outside of normal office hours.

2. Set Realistic goals

away and take on more than you can handle. The dangers of setting your sights too high and attempting to adopt a large number of new practices can mean that your execution doesn’t live up to expectations. Rushing into a decision too quickly without performing your due diligence could mean that your increased investment in sustainability does not yield the anticipated ROI.

“It’s a delicate balance of knowing what you’re doing, researching it, and figuring out what the best move is for you,” advised Smoot.

Setting realistic goals also relies on recognizing the capabilities of your business and not spreading your efforts too thin. If your company isn’t equipped to implement sweeping changes, your goal of becoming sustainable while maintaining profitability could backfire.

Jackie Zielke, vice president of operations at Gold Leaf Farming discussed how their targeted approach to sustainability is suited to the size and mission of the company.

“As a small, fast-growing company, our approach to sustainability and social responsibility has been to be selective about what we can reasonably take on and to focus on the biggest impact areas first,” she explained. “We recognize that to be successful, we need to keep our focus narrow rather than doing too much in name only and ultimately doing a poor job of living out our vision.”

The narrow focus has also allowed Zielke and Gold Leaf Farming to focus on the initiatives that matter most without having to divide their resources in times when economic growth is hindered by poor market conditions.

“Almond prices have been very low the past couple of years,” she said, “but we’ve continued to make the investment in transitioning our farms to organic. We continue to be thoughtful about spending where it makes sense.”

3. Focus on Employees

Employees are the backbone of any business, and their buy-in will either make or break a company’s bid for sustainability. One way of doing this is to be open and direct about sustainability expectations. At Treehouse Almonds, it’s all about communication.

“Getting employee buy-in is so important. To me it’s communicating, and particularly, inviting them to participate,” said Trevisani. “A single recycle bin project can start [the process of] getting them involved.”

At Gold Leaf Farming, they are investing in their employees by paying a living wage to their farm operators, granting equity ownership in the company to employees at all levels, and providing other attractive benefits. Zielke explained that investing in their people has paid off, especially when it comes to organic management and water conservation.

“It takes organization, strong communication, and active ownership of our farms and processes to prevent accidental mishaps that will undo the hard work and financial investment we’ve put into maintaining our organic farms,” she said.

Hiring strategically and embedding sustainability into company culture is crucial for success. While persuasion has its limits, hiring individuals who share the same vision is paramount. Ultimately, achieving true success hinges on assembling a team that is aligned with and committed to sustainability goals.

4. Use Resources Wisely

Efficient resource use serves double duty as a sustainable act that saves money. At Treehouse Almonds, Trevisani embraces wise utilization of resources by using a scorecard for growers that includes regenerative soil practices, bee-friendly farming, and water conservation techniques. The scorecard ensures that soil is treated as a living resource rather than an innate growth medium. Crop rotation and introducing animals that decompose detritus help maintain a healthy ecosystem while improving the quality of the soil. The farming ecosystem is further supported by incorporating bee-friendly farming tactics that protect these important pollinators, such as pesticide control and mindful crop rotation. Finally, water is conserved where possible by using the technology of micro-sprinklers to water more efficiently.

In addition to advancing sustainability initiatives, technology also provides Gold Leaf Farming with cost-saving methods of water usage and conservation.

“We utilize the latest in cutting-edge technology to control and monitor our water utilization,” said Zielke while commenting on the misconception that almond farming overuses water. “We make conscious efforts to only give the trees what they need to remain healthy and fruitful by making farm-specific irrigation plans that reflect the crop type, age of the trees, and soil type.”

“Almond farming has an inaccurate reputation of overusing water.” Zielke continued. “While water is a critical component in the overall health of our trees and the production of our crops, it is also a highly scarce, and often very expensive necessity that we have a lot of reverence for. Overusing water doesn’t just negatively impact our balance sheet – it negatively impacts our environment, communities, and ultimately our team who lives in the communities where our farms are.”

Focusing on Sustainability as a Long-Term Investment Strategy

Sustainability is going to evolve, and companies must strive to make constant improvements. If you’re not thinking about sustainability now, you’ll likely get left behind. A recent Gartner Sustainability Study found that 86% of business leaders view sustainability as protection against industry disruption.⁵

Moving toward a sustainable future also involves staying true to your company mission and investing in efforts that support your objectives. At Gold Leaf Farming, their sustainability plan is built right into company goals, and maintaining an organic certification is an ongoing labor of commitment to both quality and the planet.

“We are currently in the process of converting roughly a third of our acreage to organic, which involves oversight from a certifying body, the use of organic-friendly products, and some alternative farming practices to provide our trees the proper nutrients, pest management, and overall care,” said Zielke.

Hiring with Sustainability in Mind

As mentioned earlier, most sustainability initiatives will fail without the support of your employees. Gaining the buy-in of leadership and new hires will help ensure that the ideas take root within your company culture. During the hiring process, your hiring team should make it a point to talk about sustainability. In a recent interview with a candidate sourced by 3P Partners for the Vice President of Finance role at Treehouse Almonds, Trevisani noted the importance sustainability played in making his hiring decision.

“He did his research about us, but [he also showed that] sustainability was important,” said Trevisani. “We need those types of people.”

Beyond finding employees who fit in with a sustainable culture, companies that wish to take their efforts a step further should consider hiring a dedicated staff member to spearhead sustainability efforts. A 2021 study by PwC covering 1,640 companies found that businesses with a Chief Sustainability Office grew from 9% in 2016 to 28% in 2021.⁶

The trend for bringing on senior staff to support sustainability is continuing in 2023 with Gold Leaf Farming.

“We are also investing resources into hiring an exceptional, action-oriented leader to really bolster our sustainability efforts, drive the development of our sustainability roadmap, and help us track the outcomes of our efforts as we strive to live out our vision,” said Zielke.

How to Balance Sustainability with Profitability

Achieving a balance between sustainability and profitability presents challenges. ESG and sustainability initiatives require additional investment and resources. However, it is important to recognize that sustainability and profitability can coexist and even reinforce each other with the appropriate approach. The key is taking time to do the research and find what makes sense for your business.

To recap, leaders who are making strides toward sustainability suggest the following tactics:

- Start Small: Little changes like motion sensor lights and timed hibernation of HVAC systems on weekends and holidays can add up to big results.

- Set Realistic Goals: Dividing your attention across broad, sweeping changes can lead to disappointment when the outcome doesn’t match expectations.

- Focus on Employees: Establishing a culture of sustainability can be facilitated by effectively communicating sustainability goals and providing fair compensation, which attracts high-quality employees and promotes employee retention, thereby reducing obstacles in the adoption of sustainable practices.

- Use Resources Wisely: Utilizing new technologies to ensure efficient resource utilization, such as monitoring water use, harnessing renewable energy sources, and practicing regenerative farming techniques can yield a healthy ROI if executed properly.

Sustainability is a long-term investment. There will be upfront costs and initial investments in equipment, materials, and resources; however, changes that are made today can benefit companies as the broad economic landscape shifts towards more sustainable practices. Failing to adapt now could lead to poor public perception and profit loss in the future.

Sources

Includes direct communication with Jackie Zielke, Mauro Trevisani, and Lisa Smoot.

Jackie Zielke | Gold Leaf Farming

Jackie Zielke has 15 years of experience in the packaged food sector in food safety and operational leadership roles. Jackie joined Gold Leaf Farming in July 2022 as VP-Operations to lead Gold Leaf’s efforts in building the operational structure and enable the firm to scale with their growth. Gold Leaf Farming is a fast-growing agricultural investment manager and farming company who owns and operates ~12,000 acres of almonds, pistachios, and dates in California and Arizona, making them a top ~25 grower of these crops globally. Gold Leaf is guided by their North Star of “leaving the world better than we found it” and works to achieve that vision by differentiating themselves from others in the agricultural segment through their investment in their team which translates to differentiated, sustainable farming and financial results.

Mauro Trevisani | Treehouse California Almonds

Mauro Trevisani has more than two decades of experience in the food and ingredients industry. He joined Treehouse Almonds in November of 2022 as the new CEO of the business. Treehouse sources or grows premium almonds, processes them to meet food producers’ exacting standards, and delivers them to clients worldwide. They stand out in the industry for our tightly integrated ecosystem – from the fields, to their facility, to the client – which enhances efficiency and crop traceability. Their team’s obsession with quality has led them well beyond government standards to create what are arguably the finest, most refined almond ingredients and almond products on the planet.

Lisa Smoot | SF Bay Coffee

Established in 1979, SF Bay Coffee operates as a family-owned coffee company in its third generation focused on innovation and sustainability. Lisa Rogers Smoot took the role as President in 2017. SF Bay Coffee has an international network of over 32,000 farmers and treats all its suppliers as extended members of the family. SF Bay Coffee is committed to sustainable and eco-friendly farming and production. The owners of the company have maintained a tradition of quality and exceptional service since their inception. They have cemented their reputation as experts in the coffee world by spearheading innovation to create a high-quality and affordable coffee product.