A comprehensive sustainability program assesses and manages the environmental, social, and governance (ESG) impacts of an organization, considering these areas over the short and long term in the context of strategic business planning to enhance the value, profitability, and resilience of the company. It is more than “going green”—sustainability is a change management strategy that all companies need to thrive for the long-term.
Many companies today are under pressure from one or a few sources to adopt sustainability practices. Changes in the market, customer demands, employee preferences, competitor growth, and investor inquiries can all prompt a business to take a closer look at the risks associated with operating without a sustainability program.
So how can companies satisfy the demands of outside influencers and directly benefit at the same time? Here are some of the top reasons to adopt a sustainability mindset:
- Satisfy regulatory requirements ahead of time
- Address supply chain risks and opportunities
- Learn from stakeholder perspectives
- Better manage resource use and waste
- Build the brand and its reputation
- Increase employee engagement, wellness, and productivity
- Identify new opportunities for innovation
- Overcome market barriers and enablers
Sustainability management for businesses is the practice of considering ESG impacts in decision-making and business planning to enhance the value, profitability, and resilience of an organization. It has become a business focus due to the growing realization among stakeholders that sustainability management is key to addressing risks such as resource scarcity, waste, climate change, conflict minerals, and poor supply chain management. Because these factors can have negative short- and long-term effects on a company, businesses are being pressured to adopt sustainability practices by one or more of the following stakeholder groups:
- Governments and regulators
- Senior management or boards of directors
- Employees and job seekers
As market pressure builds, more and more companies are embracing sustainability as the key to managing in an inter-connected, rapidly changing, and highly competitive business arena.
Aspects to Consider
Addressing a company’s sustainability risks and opportunities first requires identifying and assessing relevant issues. At Sustrana, we break sustainability issues into five categories:
Environmental sustainability rests on the principle that everything needed for human survival and well-being depends on the natural environment. Businesses can take an active role in creating conditions that ensure humans have continued access to and benefit from the resources found in nature. Activities include working to reduce pollution, waste generation, and natural resource use (e.g., energy, water, materials). Sustainable environmental management involves identifying negative environmental impacts and working to eliminate or avoid them. At its best, environmental sustainability creates positive or regenerative impacts, such as creating more renewable energy than is used.
Making social sustainability core to your business strategy means recognizing the value of relationships with internal and external stakeholders. It is about assessing the potential harms, needs, and desires of the individuals, companies, and communities you work with in the context of how those things influence your ability to do business. A focus on your company’s network of social relationships is about making positive, proactive contributions toward human development and well-being so that those relationships and your business thrive.
Governance covers all of the decisions that determine the culture, values, norms, and direction of an organization. A company’s business and behavioral goals are reflected in the way it is structured, the policies it adopts, and the plans it puts in place. A strong commitment to sustainability provides the context for a broader perspective of governance that balances the ESG impacts of a business. Decisions about the distribution of revenue and how to make that balanced vision a reality will follow. Good governance ensures accountability, fairness, and transparency and provides the moral compass for a business.
Because sustainability encompasses many topics, sustainability work often gives insight into new ways of changing the fundamentals of a business model to become more sustainable. In contrast to the traditional take-make-waste model of consumption, for example, companies with a sustainable business model work to reduce dependencies on natural resources and shift to a borrow-use-return approach of industrial production and consumption. Being sustainability-driven is essential to remaining competitive in an increasingly globalized marketplace. Strategic sustainability goes beyond regulatory compliance and eco-efficiency to fully integrate sustainability principles with a company’s vision and goals. A sustainable business model aims to future-proof a company by innovating to address risks and leverage opportunities in the design of core products and services. In a sustainable business model, the capacity to focus on long-term planning, visionary leadership, and process improvement is cultivated throughout the organization.
Managing sustainability work is a process of building internal capacity. Throughout the process, sustainability work is done by different people within the organization. Over time, sustainability is integrated with key business planning processes for an organization. Having a structured process for improving sustainability performance is key to increasing buy-in from management and employees, accountability, and continuous improvement. As organizations iterate the process, they mature from being reactive, to tactical, to strategic in their approach to using sustainability best practices as a strategic business management tool.
Sustainability programs will directly benefit the organizational bottom line if they are developed using a strategic and intentional process. By helping companies manage risks and leverage opportunities resulting from four distinct megatrends (see Why Now below), sustainability programs work to reduce expenses and increase revenue over time. These efforts build resilience and create business value for the company.
More specifically, a well-designed sustainability program will boost organizational value through better understanding and management of:
- Resource use and waste
- Future regulatory requirements
- Supply chain risks and opportunities
- Stakeholder perspectives
- Brand and reputation management
- Employee engagement, wellness, and productivity
- Opportunities for innovation
- New market barriers and enablers
Several emerging megatrends are driving consumers, investors, regulators, and businesses to pay greater attention to sustainability. They include :
- Growing awareness and concern about climate change and its current and future impacts on society
- Growing awareness of spiking growth in population and the global middle class that is driving up consumption in a world where most everything is produced with finite resources
- Increasing organizational interdependence and network complexity, leading to greater risk all along the value chain, especially with respect to compliance with legal requirements and ethical mandates
- Increased demands for accountability and transparency, fueled by social media and widespread internet access by consumers and public interest organizations
Sustainability vs. “Going Green”
Research shows that companies with more strategic programs reap greater bottom line benefits from sustainability. Most businesses start off their sustainability journey being compliant. They comply with ESG regulations, but have few, if any, voluntary sustainability activities. As they move along their journey, they become more tactical and focus on risk mitigation, short-term planning, and low- or no-cost projects, typically in just the environmental area of sustainability.
Companies that start out with “greening the office” or “going green” fall into the tactical category. These activities are opportunistic in nature and aim at reaching industry best practices for operational and product related sustainability. A tactical focus is positive, but it does not yet connect the sustainability program to the overall business strategy. Moving from tactical to strategic is where the real benefits of sustainability management are derived.
Companies that evolve to the strategic level align their business goals with their sustainability goals. They establish a process to identify sustainability risks and opportunities, set goals and targets, and actively invest resources in the sustainability program. They have a longer time horizon for planning and are intent on improving long-term institutional value. They assess value along a triple bottom line (social, environmental, economic) and are more transparent and forthcoming about their sustainability program to the public.
Institution of Sustainability
Articles & Reports
- “Redefining Sustainable Business: Management for a Rapidly Changing World,” BSR (January 2018)
- “Sustainability’s Deepening Imprint,” McKinsey & Company (December 2017)
- “The Comprehensive Business Case for Sustainability,” by Tensie Whelan and Carly Fink, Harvard Business Review (October 21, 2016)
- “Sustainability’s Next Frontier,” MIT Sloan Management Review, The Boston Consulting Group (December 2013)
- “The Sustainability Imperative,” Lubin, David A., and Esty, Daniel C., Harvard Business Review (May 2010)
- William Blackburn, The Sustainability Handbook: The Complete Management Guide to Achieving Social, Economic, and Environmental Responsibility (Environmental Law Institute, 2015)
- Andrew S. Winston, The Big Pivot: Radically Practical Strategies for a Hotter, Scarcer, and More Open World (Harvard Business Review Press, 2014)
- Chris Lazlo and Judy Brown, Flourishing Enterprise: The New Spirit of Business (Stanford Business Books, 2014)
- Bob Willard, The Sustainability Advantage: Seven Business Case Benefits of a Triple Bottom Line (Gabriola Island, BC: New Society Publishers, 2012)
- Andrew Savitz, The Triple Bottom Line (Jossey Bass; John Wiley & Sons, 2006)
- William McDonough and Michael Braungart, Cradle to Cradle: Remaking the Way We Make Things (NY North Point Press, 2002)
- Ray Anderson, Mid-Course Correction: Toward a Sustainable Enterprise (Chelsea Green Publishers, 1999)