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Sustainability strategy

Sustainability

What should your sustainability strategy look like?

Published 12 April 2021 in Sustainability

Whenever we speak to executives about sustainability, they often express a sense of frustration around the lack of clarity. Many ask for more tangible markers as with those around health and safety, for example.  

Their confusion stems from the dual definitions of sustainability; because the topic does have two faces. First, sustainability is about business longevity. Secondly, sustainability is about how companies create combined business strategies that serve people, profit and planet.  

When we took a close look at business longevity, our research offered up some interesting lessons on how to ensure long-term success. We investigated 50 global companies that had managed to remain among the 50 most valuable traded companies over a period of 50 yearssome had even enjoyed a 100-year horizon.   

We found they all managed to achieve a balance between exploration and exploitation. Exploration refers to their ability to look into future trends that they innovated around to maintain their market relevance. Exploitation refers to their precision in maintaining an internal focus on productivity, clarity of direction and discipline.  

The most durable companies seemed to be able to be outsidedriven even when they were successfulThey didn’t become introverted; instead they learned, they developed new capabilities and they quickly sought the next frontier.  

Sustainability is also about the ability of firms to find positive trade-offs between economic, environmental and social issues, to balance profit, people and planetOften, companies do this by taking a long-term perspective on their businesses, for example, by moving on megatrends that are fully predictable. Umicore, for example, reoriented itself from an extraction to recycling business. DSM moved from mining and chemistry to sustainable life sciences.  

Seeing that sustainability is the way to go in business success terms, the real question now is no longer why?, but how?

So, what does credible sustainability involve 

In a complex world, sustainability needs to be made easy, otherwise it will not gain traction. Here are our six simple recommendations for your business to become more focused on its sustainability agenda by setting clear, measurable targets and then ensuring they are delivered on.  

  1. Make sure your strategy is aligned with the megatrend

It is not enough to reduce your carbon footprint or manage risks. In today’s world, you must make sure the strategic direction you are moving in is aligned with the ESG and sustainability megatrend. This is a paradigm shift, so it is not going to go away. One example of an aligned sustainability strategy is Danish multinational power company Ørsted, which pivoted from fossil fuels to renewables as a business shaping strategy. In 2016, the company completed its IPO, transforming itself from fossil fuels to a renewable pure player under its new name. In doing so, it guaranteed its potential for longevity.  

  1. Make sure you walk the talk 

Promises are not enough. Discussions with financial institutions and investors confirm that they are more interested in what you do rather than what you say you do. So, make sure your sincerity is reflected in credible, measurable actions. A good example of this sort of commitment is the Belgian multinational material technology company Umicore, which not only went from the mining to the recycling of metals and rare earth materials (often called ‘urban mining’) but also cleaned up its former mining sites, as a mark of how serious it was about sustainability.  

  1. Make the business case for sustainability

Just as with everything else you do; the business case is required here, too. Without it, you cannot scale on promising sustainability opportunities. Boston Consulting Group (BCGfound that only 25% of executives reported that their firms had made clear business case for their sustainability strategies which signifies lost chancesBe inspired by the success of others in the field. For example, IKEA provides a great lesson in how the business case for sustainability has helped drive its success 

  1. Focus on the material issues

Sustainability can easily be made to mean all things to all people, but this should not be the caseAs with all other important strategic functions (business development, HR, R&D, marketing, product development), you need to define what is most critical. We have seen how the materiality assessment can unlock improvement – and commitment – in large organizations. Schneider Electric, for example, used one to make huge leaps in terms of its sustainability performance. This led to Schneider becoming the topranked company in 2021’s Corporate Knights sustainability ranking. Aided by a systematic assessment of its impacts on external and internal stakeholders, Schneider Electric realized and acted on the assessment’s conclusion that climate action via the decarbonization of its value chain was essential. 

  1. Include sustainability in all key functions

Sustainability is today the domain of all key business functions. The chief financial officer (CFO) needs to determine how to best report on ESG and how to respond to investor pressures. The chief marketing officer (CMO) needs to recognize and address new customer demands. The head of operations needs to reduce waste, create circular solutions and be lean in terms of carbon footprint. The chief human resources officer (CHRO) needs to address the how to offer support to employees and local societies where the company operates. Every function today should have a stake in sustainability.  

  1. Align sustainability with purpose 

The essence of purpose is to succeed through acting for something greater than selfinterest. For Swiss multinational food and drink processing conglomerate Nestlé, the concept of shared value was the way to connect sustainability to purpose. For Danish global pump manufacturer Grundfos, it is the UN’s Sustainable Development Goals (SDG)By aligning sustainability with your purpose, you not only reveal the positive societal contributions that you are making, but you also realize how easily you could do more.  

In the final part of this series, we will take a closer look at how to embed sustainability into your organization. 

Authors

Knut Hanaaes - IMD Professor

Knut Haanaes

Lundin Chair Professor of Sustainability at IMD

He was until recently the Dean of the Global Leadership Institute at the World Economic Forum. At IMD he teaches in many of the key programs, including the MBA, EMBA and other executive programs. He is Program Co-Director of the Leading Sustainable Business Transformation program. His research interests are related to strategy, digital transformation and sustainability.

James Henderson

James Henderson

Professor of Strategic Management at IMD

James E. Henderson is Professor of Strategic Management at IMD. Prior to joining IMD, he was an Associate Professor of Strategic Management at Babson College and Babson School of Executive Education, based in Boston, MA.

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