Cineplex Inc. was fined a record $38.9 million for deceptive marketing practices, highlighting the financial consequences that companies can face if they fail to address sustainability in today’s business context.

Sustainability issues involve the management of many forms of capital, such as natural resources, human and intellectual resources, financial and built resources, and relationship capital.

In other words, sustainability issues require companies to think about their performance in a more integrated, holistic way, rather than just focusing on short-term economic viability.

Examples of key issues affecting sustainability include how a company interacts with customers and community members, how it manages the environmental impact of its operations, how it competes with industry competitors, and the extent to which it complies with regulations.

The Competition Tribunal found that Cineplex was using “drip pricing” – a practice that occurs when companies hide fees from customers, causing buyers to think they are paying less than they actually are. The case relates to a mandatory $1.50 online booking fee that Cineplex charged many of its customers from June 2022 to December 2023, according to the Competition Bureau.

Cineplex denied the accusations and said it planned to appeal the verdict. Cineplex continues to charge customers an online fee, albeit in a more visible manner.

Sustainability issues

Cineplex’s fine follows other significant financial penalties this year. In January, Cummins Inc. faced a fine of $1.675 billion for environmental violations. Cummins installed devices in its vehicles that allowed them to produce thousands of tons of excess emissions in violation of the U.S. Clean Air Act. In March, the European Union fined Apple Inc. fined nearly $2 billion for anti-competitive practices.

Cummins had net sales of $34 billion last year, and Apple had net sales of $383 billion. Cineplex Inc. is smaller, with revenue last year of $1.4 billion.

These events form a coherent narrative. By failing to manage sustainability issues such as those affecting social capital, environmental capital, and leadership and management, companies may suffer direct financial consequences. Ultimately, the value of the company is at stake.

Some argue that pursuing the Sustainable Development Goals is not in the best interests of investors. They may see this as a distraction from management’s attention to the bottom line. However, in practice, there is a clear link between a company’s sustainability performance and its economic value.

(Poor) sustainability management

Cineplex’s penalty is a significant financial blow. While this is unlikely to weaken the company, it will certainly be felt by shareholders looking for a return on their investment.

However, fines are not the only financial consequences that companies face when they mismanage sustainability issues. Companies that use energy inefficiently will likely face higher operating costs than their competitors.

Similarly, companies that produce high levels of greenhouse gas emissions may face increased compliance costs due to government regulations. Businesses that produce more waste may operate less efficiently and incur higher disposal costs.

Moreover, companies sourcing water from high-stress areas such as Chile, Mexico and Thailand, for example, may face increased risks due to climate change.

Employment practices – a key factor in sustainable development in terms of human capital – can also lead to strikes. Recently, a four-day strike by grain terminal workers in Vancouver resulted in an estimated loss of $35 million in exports per day. On September 30, longshoremen at the Port of Montreal went on a three-day strike.

By treating customers or suppliers unfairly or by failing to adapt to changing consumer preferences for sustainable products – such as healthier packaged goods or energy-efficient home appliances – companies risk losing market share.

Importantly, some sustainability issues may emerge as opportunities rather than risks. For example, by increasing the use of renewable energy sources as a percentage of total energy consumption, a company can stay ahead of upcoming regulations and become more resilient.

Best practices

Managing sustainability issues starts at the top. Board members must be aware of their company’s sustainability impact and have the expertise necessary to influence performance. Sustainable development goals need to be set and progress towards achieving them needs to be monitored, as is the case with financial goals.

Indicators can be selected based on established standards, such as those developed by the International Sustainable Development Standards Board or the Global Reporting Initiative.

In addition, company management must care about the performance of its business in terms of people, planet and profits. If management views its role in sustainability management as just for show, the financial consequences may materialize gradually or abruptly.

Companies cannot afford to ignore sustainability issues. This can lead to opportunities being left on the table and, over time, actual financial losses. More than half of investors surveyed by the Morgan Stanley Institute for Sustainable Investing said they plan to invest more in sustainable products. However, many CEOs still struggle to understand how sustainability performance impacts the bottom line.

If a company wants to make progress, it must manage its sustainability performance. If a company considers environmental, social and governance factors to be outside its remit, it ignores them at its own risk.

Cineplex maintains it did nothing wrong and believes its pricing tactics are transparent and public. However, the Competition Tribunal’s ruling shows how serious sustainability issues are and how significant their financial impact can be.

This article is republished from The Conversation, an independent, nonprofit organization providing facts and trusted analysis to help you understand our complex world. Written by: Douglas A. Stuart, University of Victoria

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Douglas A. Stuart does not work for, consult for, own stock in or receive funding from any company or organization that could benefit from this article, and has disclosed no relevant affiliations beyond his academic position.