Sustainability professionals have in many ways entered the mainstream. Their work is starting to enter established practice and most significant organisations have adopted some kind of sustainability approach. However, there is still great variability in practice and sustainability managers are often hampered by both cultural and structural challenges.
Part 1 of this series explored what a sustainable company is, and what is meant by sustainable strategy. Part 2 identifies and explores common obstacles that sustainability practitioners can encounter in building a meaningful strategic approach in their organisations, and how can they start to overcome them.
What are the challenges to building sustainable business strategy?
As the general acceptance and uptake of ESG and corporate sustainability has grown, we have seen a broad progression in adoption and maturity. However, most practice appears stuck somewhere between compliance and partial adoption. There are still very few instances of companies taking a leading position in sustainability even though there are many examples of excellence in specific areas.
Sustainability professionals face a number of challenges:
- Focus: implementation activity (i.e., what companies are actually doing) tends to focus upon the control of sustainability impacts and risk at an operational rather than strategic level. The result being that efforts can be of a small scale and also that benefits achieved through these activities are not explicitly expressed, reinforcing the notion of sustainability as a side issue.
- Ownership and organisation: whilst most company sustainability reports feature statements from the CEO or Chair, and some will also have statements such as “sustainability is in our DNA” most business decisions actually pay scant regard to sustainability or only do so if all other things are equal. In addition, unless those with a sustainability responsibility are clearly equipped with the authority to shape and effect plans then sustainability will always be an add-on to the normal business of business.
- Strategy and planning: the idea that sustainability practitioners should be adept at the use of mainstream business strategy and planning tools has been around for a while. However, it is still possible to find business school professors highlighting the possible use of Porters 5 Forces (and similar) as sustainability tools as though they were the sole discoverers of a wonderful new pre-sliced dough-based baked comestible product. Nevertheless, there is an important point here, very few of those with dedicated responsibility for sustainability within companies are actually also involved in mainstream business planning and strategy development. Still fewer are practiced in the use of mainstream business management tools and processes for analysis. Therefore, although companies may be investing significantly in these initiatives, sustainability remains a secondary, or parallel, issue within company strategic direction.
- Timescales, risks and costs: in many cases sustainability initiatives can be related clearly to issues of business risk — especially regulatory and reputational risks. However, standard payback periods within many companies are often too short to pick up clear sustainability price impacts which may occur over longer time horizons. This means that, while the implications of environmental and social trends can clearly be identified over the medium term, the company itself struggles to translate these into risk and costs in the short term.
Overcoming barriers — nine steps to sustainable strategy
A number of steps can be taken by sustainability and CSR practitioners to ensure that sustainability is understood as a truly strategic issue:
Step 1: Identify and agree on the material (priority) issues which present strategic threats and opportunities for the company.
Step 2: Ensure engagement with key external stakeholders to achieve a broader consensus about what is material to whom and why.
Step 3: Identify corporate ambition, where does the company want to be on the journey of corporate transition?
Step 4: Understand how strategy is already developed within the own company and assess whether sustainability issues are currently considered as part of strategic planning and product development.
Step 5: Establish what processes are used within the company to manage strategic change. What works; what does not; and why?
Step 6: Ensure that the strategic opportunities and threats posed by sustainability issues are included alongside other strategic business issues that influence strategy.
Step 7: Develop responses to all material strategic issues which align with and support the company’s competitive positioning.
Step 8: Develop a clear overall strategic vision integrating social, environmental and economic dimensions.
Step 9: Start to make the investment case to leadership and investors. Sustainability has clear financial and risk benefits, likely to lie somewhere in the following areas:
- Direct impacts upon the performance of capital — where sustainability increases efficiency and reduces costs.
- Impacts upon equity risk profile– where effective risk improves the likelihood of share price stability and growth.
- Influence upon the assessment of drivers of shareholder value — analysis undertaken by investors of the management of risks likely to affect the company’s ability to create shareholder value.
- Intangible value — representing a significant proportion of overall company value, these refer to ‘soft’ issues which do not feature upon company balance sheets such as leadership, transparency, intellectual capital, human capital, workplace organization and culture. Sustainability has a significant role in intangible value in terms of reputation, brand value, trust and stakeholder relations.
Sustainability — a strategic business issue
Over the long term, sustainability issues present clear systemic challenges to the continuation of business as usual. Sustainable strategies present a way of changing the overall risk profile of an organisation through mitigating, minimising and designing-out potential flaws likely to act as obstacles to business success over the long term.
The tools and techniques for assessing and interpreting the strategic implications of sustainability for organisational success are either well developed or can be derived by adapting commonly used business management techniques.
The critical challenges for companies lie in understanding sustainability as a transformational driver rather than an operational issue and in communicating the financial, impact and performance implications of sustainable behaviour to their stakeholders.
Terrafiniti is a sustainability consultancy helping companies transform purpose & performance. We provide support on strategy, training, reporting & innovation to ambitious companies and NGOs worldwide who want to make today better or remake the future.