More and more sustainability issues — such as climate change, water scarcity, natural resource depletion, and human rights — are gaining prominence. Your company may start to think about how to respond to issues like these, and in turn, develop a sustainability strategy or update its current corporate strategy. You may find that developing a sustainability strategy is integral to ensuring long-term success: it could differentiate your company against its peers, reduce risk and maximise long-term opportunities.
What is a sustainability strategy?
Many companies have a strategy, but most companies report on an account of their activities. The difference between activities and a strategy is fundamental:
- Activities are a series of initiatives, often illustrated in reporting by case studies.
- Strategy is the agreed priorities that form part of a longer term plan, demonstrated in reporting by performance data.
This article will focus on ‘strategy’, in particular, the development of a sustainability strategy, the different types of strategies and the key benefits of implementing one.
The development of a sustainability strategy
There are three aspects to consider when developing a strategy:
- Materiality - In order to develop a meaningful sustainability strategy, your company will need to conduct a materiality assessment. Materiality means identifying and understanding what issues are significant to the business, and its stakeholders, and prioritising them for action.
- Having a focus - Strategy needs to provide focus as no business can address all of the issues that all stakeholders are interested in. Materiality provides the rationale for why some topics are tackled, and other issues left to other organisations that may be better placed to deal with them. A strong strategy framework involves deciding which issues to really focus on and combining the elements into a framework for setting targets.
- Alignment to your purpose - Another point for developing a sustainability strategy should be the reason why the company is in business. Being clear on the purpose of a company is crucial to shaping an effective strategy. The vision, mission and values should prompt some thinking about the direction that the organisation is heading towards and the type of world that it wants to create. A genuine link to the company’s overall objectives provides a foundation on which to build aspirations, reflect on the culture and focus on the right priorities.
Types of sustainability strategy
For many companies, the most challenging aspect of the sustainable development agenda is incorporating sustainability into their short, medium and long-term strategic plans. Companies who have done so have focused on managing sustainability-risk rather than considering their response to sustainability-related opportunities that may generate more value for their stakeholders.
Key leaders are seeking to ensure that the strategy of their business is aligned with the actions needed to deliver on the sustainable development agenda, both to reduce risk and maximise long-term opportunities.
We suggest three main approaches you can take when considering the structure of your sustainability strategy. The level of integration relates to how deeply sustainability elements are integrated into a company’s overall strategy.
- Integrated approach - In the integrated approach, boundaries between sustainability (considering environmental, social and governance (ESG) factors) and traditional (focus on financial value) business do not exist. Overall, the integrated approach involves completely integrating sustainability elements into the Group’s corporate strategy, ensuring there is a holistic way of how the company creates value financially and non-financially.
- Sustainability-infused approach - In the sustainability-infused approach, natural synergies are highlighted to tie sustainability-elements together with a corporate strategy. This involves considering which material issues could support the corporate strategy as it stands. These could be environmental, social or governance-related. Overall, the corporate strategy’s main focus is to generate financial value with the addition of objectives that address relevant material issues. A separate sustainability can exist outside of the corporate strategy.
- Separate approach - In the separate approach, sustainability elements are not integrated into the company’s corporate strategy. Instead, any sustainability-related ambitions or targets sit outside of the company’s traditional methods of increasing financial value. In corporate reporting, companies who take this approach have a separate sustainability strategy which exists outside of their corporate strategy.
What approach is the best?
We can advise on the best approach your company could take. The type of sustainability strategy and the level of integration your company could adopt will depend on a number of factors:
- The majority of your company’s material issues align with the company’s vision and the direction that it is heading towards
- Whether prominent sustainability-related issues are impacting your company’s core business activities and strategy, such as: natural resource scarcity, climate change, population growth, or changes in supplier relationships.
- Increased legislation surrounding carbon emissions, waste and water consumption, such as the Task Force on Climate-related Financial Disclosures (TCFD) framework, which asks companies to review its strategy and business model against climate-related risks and opportunities; and
- The regions where your company operates and the extent to which customers, investors, suppliers, employees, regulators and competitors are putting pressure on your company to respond.
Why do you need a sustainability strategy?
- Your company’s sustainability strategy will enable the business to respond effectively to core sustainability issues, with the aim to build long-term success.
- Your company will create meaningful non-financial value for its stakeholders across the short, medium and long-term.
- Forming a sustainability strategy is the first step towards developing your sustainability proposition and differentiating your company from its peers within the industry.
- Developing a sustainability strategy provides an opportunity to review progress to date and take a fresh look at the sustainability-related risks and opportunities facing the business. It provides a focus for sustainability-related activities into an authentic form that is unique to your company which makes reporting more robust.
How we can help
Whether you are developing your first strategy, or refreshing an existing one, the task can seem daunting. The very concept of sustainability continues to evolve with companies being asked to address more and more issues. We are here to help you to develop a sustainability strategy with overarching objectives to articulate what your company wants to achieve and the key sustainability issues it will focus on.
To find out more about how we can help you with your sustainability journey, get in touch.