Adapt everywhere. Differentiate on sustainability only where it pays

How to secure the downside—and when to turn sustainability into a loyalty advantage.

By Yrjö Koskinen, ICD.D

Every company now competes in a hotter, wetter, drier, and more volatile world. That reality belongs on the board agenda — not in the “nice to have” pile. The first job is universal: manage physical climate risk and adapt operations and supply chains. Only after securing the downside should executives ask a harder question: can our brand win by leaning into sustainability as a differentiator? For some firms, the answer is yes. For others, it’s a costly distraction. The difference is your customers.

Secure the downside — everywhere.

Physical climate risks are no longer abstract. Drought has choked major shipping routes; winter storms have knocked out power across industrial hubs; floods have shuttered factories and stranded travelers. Any one of these shocks can erase a tenth of earnings for the year. The antidote is classic risk management: map exposure across facilities and suppliers; diversify single‑region dependencies; harden critical sites with flood defenses, backup power, and heat‑stress controls; and stress‑test capital plans under plausible climate scenarios. These are sensible investments regardless of your brand positioning.

Not every brand should differentiate on sustainability.

Pursuing loyalty through sustainability only works when your customers truly value it — and will reward you for it. Consider a cautionary contrast of two firms under the same CEO, Jochen Zeitz. In the first case, Puma made a push toward environmental transparency and product responsibility that resonated with customers who cared; it supported brand value and pricing. Following his success at Puma, Zeitz took a similar approach as CEO of Harley‑Davidson. However, that brand’s core audience, by contrast, remains anchored in heritage and performance. Its electric offshoot has struggled to break out because the customer base wasn’t ready to buy on sustainability alone. The lesson is simple: start with real customer insight, not industry FOMO. If your buyer values performance, reliability, and cost, then your sustainability investments must deliver exactly those benefits — lower lifetime operating costs, better durability, easier repair — not just a greener label.

Headwinds are real. Choose your battlegrounds.

In parts of the United States, the politics around sustainability have made positioning harder for some firms and investors. That doesn’t change physics, but it does change market math. Before you plant a flag, ask: will our customers — here — pay for it? If you plan to grow in Europe or across much of Asia, you have more room to differentiate. Consumers there are, on average, more receptive to sustainable offerings, and regulation is moving quickly to standardize transparency. In those markets, leading credibly on sustainability can earn loyalty and price premiums. In more skeptical markets, emphasize the resilience, reliability, and efficiency benefits your investments create.

When sustainability does create loyalty.
Look for a tight fit between product truth and customer values:

• Patagonia: Customers buy performance and a principled stance. The company’s long‑run environmental commitments reinforce trust and recommendation. It’s a take on the Hermes luxury strategy, but with a sustainability twist.
• Interface: A commodity category (flooring) turned into a values‑led offer — designing lower‑carbon and even carbon‑negative products that help specifiers meet their own goals.
• Octopus Energy: Pairs renewable tariffs with genuinely better service and technology, turning a category most people tolerate into one they recommend.
• Tentree: Commits to planting 10 trees for every item of clothing you buy. It has surpassed its goal of planting 100 million trees globally and has spun off its internal monitoring tool, Veritree.

A simple decision rule for boards

• Adapt first. Approve a climate‑risk and adaptation program that spans operations and the supply base.
• Validate customer fit. Don’t assume your customer wants a “green” proposition. Test willingness to pay by segment and geography.
• Pick your markets. Use sustainability to differentiate where customers and regulators reward it; emphasize resilience and efficiency where they don’t.
• Fund product truth, not performative reporting. Invest in features customers notice —durability, repairability, energy efficiency — and in experiences that reduce hassle.
• Hold management accountable for outcomes that matter. Track retention, referral, share of wallet, and price realization for offerings positioned on sustainability.

The bottom line

Adaptation is table stakes for every company. Differentiation is optional — and only powerful when it matches your customers, categories, and geographies. Get that fit right, and sustainability becomes more than compliance or communications. It becomes a loyalty engine that insulates cash flows, supports pricing, and earns the right to invest for the long term.

Yrjö Koskinen, ICD.D, is Director of Research at the Institute for Sustainable Finance at Smith School of Business, Queen’s University, and BMO Professor of Sustainable and Transition Finance at the Haskayne School of Business.