Sustainability has become an important factor in business strategies. How a company performs socially and environmentally is becoming just as important as how it performs financially. The growing demand by consumers and investors for sustainable products and services, coupled with increased scrutiny and reporting on corporate responsibility, are driving companies to pay greater attention to their environmental, social and governance (ESG) performance.
However, sustainability is not just about ticking a box. Business has an important role to play in addressing some of the wider global environmental and social issues. The long-term impact of climate change will require new adaptation strategies and many businesses are assessing their internal and supply chain emissions, to examine their mitigation measures and risk exposure throughout their operations and value chains.
Businesses are increasingly taking a long-term view of managing environmental and social risks, through the means of a sustainability strategy. It is not necessary to develop a full-blown sustainability strategy before starting to act, however. Many businesses find that small, discrete actions can yield benefits. Companies are likely to find that risks can be minimised and opportunities maximised by seeing sustainability as a journey, with each step building on the previous ones. Ultimately, integrating sustainability in core business strategies will provide longer-term benefits, maximising the alignment of business, social and environmental objectives.
The business case for sustainability
Sustainable businesses are redefining the corporate ecosystem by designing models that create value for all stakeholders, including employees, shareholders, supply chains, civil society and the planet. Michel Porter and Mark Kramer pioneered the idea of ‘creating shared value’, arguing that businesses can generate economic value by identifying and addressing social problems that intersect with their business.
Sustainability strategies can be financially beneficial. Significant cost reductions can result from improving operational efficiency through the better management of natural resources, for example water, waste and energy. Additionally, investors are paying attention. A survey produced by EY’s Climate Change and Sustainability Services, examining views on the use of nonfinancial information in investments, found that meaningful ESG analysis is increasingly important and is having an impact on investment decisions. Institutional investors are now highly focused on long-term value, with 97 percent of respondents saying they conduct either an informal evaluation or a structured, methodical evaluation of a target company’s nonfinancial disclosures when deciding future investments, up from 78 percent in 2017. Ninety-six percent of investors surveyed said that such information has played a pivotal role in decision making, and 89 percent believe that ESG will become more valuable in the event of a market downturn or correction.
What is becoming increasingly evident is that a sound sustainability strategy protects a company’s reputation. The more a company proves to stakeholders that its business is driven by strong sustainability policies, the lower the risks associated with that company. In contrast, weak ESG performance can negatively impact a firm’s reputation, which, in many cases, can be costly.
Building sustainability into business strategies also allows for improved risk management. In a study on climate change data and corporations, 8000 companies reported on their level of climate risk. Of the respondents, 72 percent said that climate change presents risks that could significantly impact their operations, revenue or expenditures. Unlike traditional forms of business risk, social and environmental risks manifest themselves over a longer term, affecting the business on multiple dimensions, often outside the organisation’s control. Managing risks therefore requires companies to make decisions today for longer-term capacity building and developing adaptive strategies, in order to appropriately mitigate the risks.
Corporate sustainability initiatives aimed at improving ESG performance and proving value to society can increase employee loyalty, efficiency and productivity and improve employer statistics related to recruitment, retention and morale. Research has found that employees are focusing more on mission, purpose and work-life balance. Companies that invest in sustainability initiatives tend to attract talent and increase engagement as a result of the strategy focusing more on purpose and providing value to society. Studies show that firms with greater ESG performance can reduce average turnover by 25-50 percent over time.
A successful sustainability strategy also satisfies today’s consumers, who expect more transparency, honesty and a tangible global impact from companies and can choose from sustainable, competitively priced, high-quality products, putting unsustainable companies at risk. Nearly two-thirds of consumers across six international markets believe they “have a responsibility to purchase products that are good for the environment and society”.
What makes a good sustainability strategy?
Business sustainability must be rooted in practicality and flexibility. The business case is as dynamic as the business world. A good sustainability strategy should lay out concrete, measurable and realistic targets relating to environmental and social impact, looking at the short, medium and long-term perspectives, drawing on the insights and experience of many people from within and outside the business.
Internal communication is vital to the success of a sustainability strategy. Not just from a perspective of understanding any successes or failures, and from a knowledge sharing perspective, but also to allow the wider business to understand the ‘why’ and to promote an inclusive approach to sustainability. It is important to understand that sustainability does not allow for a one-size-fits-all approach. Every business is different, and everyone’s strategy should be different.
It is essential to ensure that the strategy has full ‘buy-in’ from senior leaders, particularly if new sustainability measures will impact the entire business and carry a cost. Chief executive and senior management buy-in has been one of the key strengths of any new sustainability strategy and will be incredibly powerful when creating an action plan to achieve its targets. Having a link with global sustainability efforts is also valuable. A single business will not be able to solve all the world’s environmental or social issues. A successful strategy will aim to contribute to already established global goals, such as the UN’s Sustainable Development Goals, and will actively promote this contribution to demonstrate the impact to both internal and external stakeholders.
Scope and approach
An effective sustainability strategy generally follows four key steps. First, analyse the business. What are the key business drivers? Are there untapped opportunities for action on ESG issues? Second, develop the strategy. The analysis in step one produces a better understanding of the sustainability issues facing the business, as well as the company’s ability to deal with them. The strategy developed should cover the operational and strategic level, beyond compliance and regulatory requirements, to provide the opportunity to make a greater impact. Third, plan and implement the company’s strategy. Planning and implementing sustainability strategies requires the same disciplines as any business process – the development of a road map, clear objectives, training and communication are all vital to ensuring success. Fourth, monitoring and review. Sustainability is a rapidly evolving agenda, so it is incredibly important to review the strategy periodically and to monitor progress against the targets and objectives. It is equally important to learn from any successes or failures and feed the lessons learnt back into the process.
It is vital that equal attention is paid to the different elements of the process, not just to the strategy development itself. A strategy is only successful if it is integrated into the business, catering for the business opportunities, and is monitored and reviewed regularly. One challenge associated with the implementation of sustainability relates to the scope of its application. Particularly for businesses working across borders with multiple contractors and sub-contractors, the implementation of such a strategy can be time-consuming, complicated and difficult, but effective communication is key to ensuring a smooth and effective transition.
Sustainability is going mainstream and businesses can no longer afford to approach sustainability as a ‘nice to have’ or as separate from the ‘real’ business. Those companies that proactively make sustainability core to business strategy will drive innovation and engender enthusiasm and loyalty from employees, customers, suppliers, communities and investors.
Marissa Corda is executive vice president and global head of legal & compliance and Beth England is environment, social, governance assistant at Sonnedix UK Services Ltd. Ms Corda can be contacted on +44 (0)7557 412256 or by email: email@example.com. Ms England can be contacted on +44 (0)7548 125999 or by email: firstname.lastname@example.org.
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