Cineplex Inc. has been hit with a record $38.9 million fine for deceptive marketing practices, highlighting the financial consequences businesses may face for failing to manage sustainability issues in today's business context.
Author
Douglas A. Stuart
Assistant Teaching Professor of Accounting, Gustavson School of Business, University of Victoria
Sustainability issues involve managing multiple forms of capital, such as natural resources, human and intellectual resources, financial and built resources, and relationship capital.
In other words, sustainability issues require businesses to think of their performance in a more integrated, holistic way, rather than just focusing on short-term economic profitability.
Examples of key issues driving sustainability performance include how a business interacts with its customers and community members, how it manages the environmental effects of its operations, how it competes with its industry peers and the extent to which it complies with regulation.
The Competition Tribunal said Cineplex was engaging in 'drip pricing,' a practice that occurs when companies hide charges from customers, causing purchasers to think they are paying less than they are. According to the Competition Bureau, the case relates to a mandatory $1.50 online booking fee that Cineplex charged many of its customers from June 2022 to December 2023.
Cineplex denied the accusations and said it plans to appeal the ruling. Cineplex is still charging customers an online fee, albeit in a more visible way.
Sustainability issues
The Cineplex fine follows other significant financial penalties this year. In January, Cummins Inc. faced a US$1.675 billion fine for environmental violations. Cummins installed devices on its vehicles allowing them to produce thousands of tons of excess emissions in violation of the United States' Clean Air Act. Apple Inc. was fined nearly US$2 billion by the European Union in March for anti-competitive practices.
Cummins earned net sales of US$34 billion last year, and Apple earned net sales of US$383 billion. Cineplex Inc. is smaller, with revenues last year of $1.4 billion.
These events tell a consistent narrative. By failing to manage sustainability issues such as those affecting social capital, environmental capital, and leadership and governance, companies may face direct financial impacts. Ultimately, company value is on the line.
Some people argue that the pursuit of sustainability goals are not in the best interests of investors. They may see it as drawing management's attention away from financial results. But in practice, there is a clear link between a company's sustainability performance and its economic worth.
Sustainability (mis)management
The Cineplex fine is a significant financial hit. While it's unlikely to undermine the company, it will certainly be felt by shareholders looking for a return on their investment.
But fines aren't the only financial consequence firms face when it comes to mismanagement of sustainability issues. Companies with inefficient energy use are likely to face higher operating costs than their competitors.
Similarly, businesses that produce high levels of greenhouse gas emissions may face increased compliance costs due to government regulation. Businesses that produce more waste may have less efficient operations and face higher disposal costs.
Furthermore, firms that source water from high-stress areas, like Chile, Mexico and Thailand, for example, may face increased risk due to climate change.
Labour practices - a key driver of sustainability in the human capital dimension - can also lead to strikes. Recently, a four-day strike by Vancouver's grain terminal workers resulted in an estimated $35 million in lost exports per day. Dockworkers at the Port of Montréal started a three-day strike on Sept. 30.
By treating customers or suppliers unfairly, or failing to adapt to changing consumer preferences for sustainable products - like healthier packaged goods or energy efficient household appliances - companies risk losing market share.
Importantly, certain sustainability issues may show up as opportunities rather than risks. For example, by increasing the use of renewable energy sources as a percentage of total energy use, a firm may get ahead of forthcoming regulations and become more resilient.
Best practices
Management of sustainability issues starts at the top. Board members need to be aware of their company's sustainability impacts and have the expertise to guide results. Sustainability targets need to be set, and progress towards these targets must be monitored - just like with financial goals.
Metrics can be chosen based on established standards like those from the International Sustainability Standards Board or the Global Reporting Initiative.
In addition, a company's board must care about how their business performs across people, planet and profit dimensions. If the board sees its role in sustainability management as just being for show, financial impacts may progressively or acutely materialize.
Businesses can't afford to ignore sustainability issues. Doing so may lead to opportunities being left on the table and real financial losses over time. Over half of investors surveyed by the Morgan Stanley Institute for Sustainable Investing said they plan on investing more in sustainable products. Many CEOs, however, still struggle to see how sustainability performance drives financial results.
If a firm wants to get ahead, it needs to manage its sustainability performance. If a business considers environmental, social and governance factors to be outside its purview, it ignores them at its peril.
Cineplex maintains it did nothing wrong and considers its pricing tactics to be transparent and above board. However, the Competition Tribunal's ruling demonstrates how serious sustainability issues are, and how significant their financial effects can be.
Douglas A. Stuart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
