The power of two

Brand Finance Consultant Dhanushika Shanmuganathan presents the case for evaluating sustainability as an integral part of Sri Lanka’s 100 Most Valuable Brands

The annual review of Sri Lanka’s 100 Most Valuable Brands measures a variety of factors that impact brand value, which, in turn, effects the value of a business. In recognition of the role that sustainability plays across any business, Brand Finance, in collaboration with InterBalance, introduced this as a measure in the latest index published in LMD’s Brands Annual 2021. 

Brand and sustainability have similar outlooks 

A successful brand is one that is relevant to customers, uniquely differentiated and credibly supports its claims through its inherent capabilities. The equity of a brand is measured by its ability to attract more customers and influence purchasing decisions that lead to repeat purchases. Therefore, in a business, the brand plays the function of creating demand, whilst mitigating risks and securing future earnings for the company. 

A business with strong sustainability principles also contributes to an organisation’s overall long-term success, but in a slightly different way. The benefits of investing in effective sustainability practices include (i) more rigorous legislation, lowering risk for both operations and brand, (ii) cost savings from the optimisation of production lines and supply chains, (iii) lower energy consumption and (iv) fulfilling the demand of consumers that seek ethical products. 

Sustainability does not encourage short-term mindset such as cost-cutting, laying off employees or polluting the environment, but forces the business to consider and make long-term investments with all stakeholders in mind. These are expected to establish closer relationships with stakeholders, thereby positioning the business for the long term, at the expense of short-term profits. 

Similarly, brand building will take years to provide returns, as businesses build trust and endear themselves to consumers at the expense of short-term discounting to grow volume. Both sustainability and branding therefore have a strong future focus with long-term returns.

Recognising this, Brand Finance, in partnership with InterBalance, developed a comprehensive and customised framework to measure the sustainability performance of a company. The framework was built in line with the Global Reporting Initiatives (GRI) standards, which create a common language for organisations to report on their sustainability impacts across various material topics: economic, environmental and social.  The GRI standards enable benchmarking with global comparability of sustainability initiatives and encourage a company to be transparent and accountable in reporting. Similarly, for a brand, performance is benchmarked against other brands within the sector in which it operates (through market research) as well as enabling comparison with other sectors. 

Sustainability and brand value defined

A company’s sustainability initiatives must consider the environmental, social and financial impacts, i.e., the triple bottom line. Companies must make investment decisions that will benefit the environment and society and guarantee the sustainability of the company itself. 

In this sense, sustainability is not about investing in charitable causes but is about ensuring that responsible business operations are extended to the overall value chain by enabling the production of ethical products and services that change consumer behaviour and help them to live a more ‘sustainable life’. 

Brand value is the present value of the earnings a brand will potentially generate in the future. Brand risk is a function of company’s risk, adjusted by the strength of brands. Therefore, sustainability is strongly related to creating brand value; the more a brand proves to the financial markets and other audiences that it is a sustainable business, the lower the risk associated with that brand (and lower the rate used to discount future earnings).

The power to change the world

Sustainability management and investment in sustainable programs is gaining momentum within the Sri Lankan market. 

Emphasis on sustainability is not merely a whim but is the new way of doing business. Companies need to assess the relevance of sustainable initiatives to their business as well as understand current perceptions about their operations (including brand) in evaluating the potential upsides of investing in sustainability programs. Tracking brand value that incorporates sustainability performance is a good indicator of the effectiveness of a company’s overall performance. 

Many companies implement sustainability selectively by picking only the areas they want to address. However, the challenge is to embed genuine sustainable behaviour in everything a company does – not only to attract new customers but to help define future behaviour and shape the market as well. 

Brands can be the catalyst towards a more sustainable world. They should be ahead of the market and create products and services that will be relevant to consumers, while, at the same time, helping them to live in a more sustainable manner. This will create a positive influence on the environment and communities as well as generate dividends for shareholders on the back of growing demand. 

The power of both brands and sustainability should certainly not be underestimated, as they have a synergistic impact on building brand and business value.