Profitable sustainability strategy
A sustainable business doesn’t happen by accident. Becoming sustainable requires a strategy and for that strategy to succeed it requires a connection to the financial health of a company. We’ve identified 10 elements that go towards connecting sustainability and profitability.
People often say sustainable business practices have a positive impact on financial outcomes and sustainability strategies can be presented as corporate growth engines (people point to the likes of Ikea, Nike and Tesla as good examples of this).
So why is it that only a third of CEOs say that their sustainability strategy enhances the profitability of their business? The answer to this apparent contradiction lies both in a firm’s business model and the quality of the sustainability strategy.
For years technology companies were held up as the future of sustainable business because their environmental footprints were small in comparison to traditional companies with similar revenues. This is simply a function of their business model not of a deep sensitivity to environmental imperatives. As the questions of employment practices, toxic cultures and data misuse have emerged, it’s clear that several technology companies have a lot to do to be truly responsible businesses. A properly sustainable business is one willing to adapt their business model to benefit a range of environmental and social ends, not just rest on their inherent strengths.
It is easy for sustainability strategies to influence a business’s costs. On the one hand, higher welfare meat increases costs, sourcing segregated sustainable palm oil increases costs and paying workers more increases costs. On the other, saving energy reduces costs, eliminating waste reduces costs and a safer work environment reduces insurance costs.
A great sustainability strategy is one that does not end with a consideration of costs but thinks about the totality of the business within its place in the economy and its place in the world.
Between BRODIE’s founders, we’ve collectively spent five decades working with Chief Sustainability Officers on what makes a great sustainability strategy. Through that direct experience and by reviewing the best available evidence, we’ve identified 10 key actions whose absence will undermine the long term success of sustainability strategy in a business:
1. Connect to cash – It’s amazing how many sustainability professionals don’t stop to reflect on how their business actually makes money. Connecting their strategy to cash requires an awareness of how the business makes cash, the cost of sustainability activities and opportunities to reduce costs and grow revenues.
2. Make and keep making the business case – Sustainability professionals usually know they need to make a business case. But too often it’s seen as a singular act. Once the Board or Executive signs off the plan that’s the business case made, right? Wrong. A sustainability strategy needs a business case that is repeated over and over again.
3. Engage customers and suppliers – Sustainability people gravitate towards people they agree with, which often means NGOs, regulators, campaigners or academics. But sustainability leaders need to gravitate more towards the people who make a business possible: customers and suppliers.
4. Engage at the top and at the bottom – Getting senior leaders on board is an important element, but BCG show it’s the last of the big four elements that contribute to profitable sustainability strategy. The 99% of colleagues who don’t sit round the board table are too often overlooked. Get enough of this group on side and strategic thinking can be translated into delivery more effectively.
5. Do keep it simple – Most sustainability professionals love novelty. We also tend to love systems thinking. This combination can lead to complex and frequently changing strategies. This can leave colleagues bewildered and create a big gap between sustainability professionals and everyone else in the business.
6. Do be in the room – In the hit musical, the politician Alexander Hamilton makes the point that you have to be “in the room where it happens” to have influence and power. If sustainability is seen as an island function in the business then the big opportunities for positive change will be lost. You need to be in the big planning sessions and getting there requires skill.
7. Be optimistic – Fear of the impact of climate change can be a powerful motivator but it requires an immediacy lacking in many corporate sustainability risks. You run the risk of moving people to despair rather than action and people quickly stop listening. Great sustainability strategy offers a positive vision of action rooted in the energy of an optimistic common endeavour.
8. Be innovative – At its heart sustainability strategy is a call to positive change. If a business is not used to change then a sustainability strategy is likely to struggle as much because it represents change as it does for the content of that change. Being innovative means constantly being creative in advocating positive change that brings business benefits as well as social and environmental impacts.
9. Know your audience – Sustainability professionals tend to think about ‘reporting’ as their primary mode of communication but this is far too limited. Imagine if a teacher didn’t give any feedback on their pupils’ work because the end of term report would explain everything. We need to stop being boxed in by a reporting mindset and instead think about communicating rather than reporting. ESG? Website? CR Report? Social media? Brand activation? Annual Report? We need to be multi-lingual when it comes to communication channels.
10. Show impact – Capturing and sharing impact has been the next big thing in sustainability for many years and there is some innovation happening. The challenge with this innovation is that it tends to be externally focussed, its purpose is effective reporting. Where impact reporting should be most powerful is in the Board room. A focus on impact internally, as well as externally, will equip businesses to make better decisions.
Do get in touch if you think we’ve missed something crucial or you’d like to discuss how we can help you be a company whose sustainability strategy enhances your business success.
Sources and inspiration for this article:
People often say sustainable business practices have a positive impact on financial outcomes — The largest literature review to date of studies correlating sustainability and financial performance shows 90% of the literature points towards a neutral or positive correlation between sustainability and financial outcomes. See ESG and Financial Performance: Aggregated Evidence from More than 2000 Empirical Studies.
Sustainability strategies can be presented as corporate growth engines — Freya Williams argues this way in her book Green Giants.
Why is it that only a third of CEOs say that their sustainability strategy enhances the profitability of their business? — For the best available data on CEO perceptions of sustainability strategy and its connection to profitability see The innovation bottom line.
We’ve identified 10 key actions whose absence will undermine the long term success of sustainability strategy in a business — Our reading list is too long to cite here but here are a couple of HBR articles that have stood the test of time: The key driver of innovation and Leadership in the age of transparency.
Sustainability people gravitate towards people they agree with, which often means NGOs, regulators, campaigners or academics — For a good, fuller exploration of the characteristics that make a sustainability leader see Courtice and Visser (2011).
Getting senior leaders on board is an important element, but BCG show it’s the last of the big four elements that contribute to profitable sustainability strategy — See Corporate sustainability at a crossroads.