The four primary strategies can be further divided into 16 sustainability approaches.
Holistic data governance
A major challenge in making sustainability happen is the availability and quality of data. While we have made significant advancements in the past years, getting the right data in the right quality and right granularity is still a huge challenge for companies. And bringing that data together in a format that allows all relevant stakeholders to understand and use it is an even bigger challenge. The holistic data governance approach focuses on levers that help you reach a level where you can use your data to maximum effect. You don’t need a significant sustainability ambition to do this: in fact, many companies will work on holistic data governance without a specific focus on sustainability, and this is a very strong organizational enabler that will allow you to bring to life sophisticated, high-impact sustainability initiatives.
After setting up data governance rules and collecting data in an optimally cross-functional database, you can go ahead and use this data in your decision-making process. Once this initial setup process is complete, many companies struggle to make the data actionable and get it into the hands – and on the minds – of the right stakeholders and decision makers. This is where the internal information sharing lever comes into its own. Subsequently, the strong data foundation can combined with the already cultivated risk-awareness thinking to build a solid sustainability risk management framework.
Once you have the right quality data in the right format and the right places, it is time to put it to good use. As you further drive sustainability ambition and build on your collaboration capabilities, you can start to leverage your holistic data base and integrate the sustainability data in your decision-making process. This allows firms to further expand their understanding of their sustainability footprint to derive even more actionable insights. By implementing sustainability data and applying it to your processes, you ensure better judgment and decision-making that will result in an overall better sustainability performance. Having the data granularity and inputs at your fingertips will also enable you to undergo more advanced certifications which can help you by adding additional stringency and checks to your performance and can also be used to position your brand.
Furthermore, sustainability data integration will help you to push your sustainability screening of partners to the highest level through dedicated sustainability due diligences. If you decide to set your ambitions higher and bring your sustainability efforts to the next level and become a pioneer, the next step up from sustainability data integration is building a sustainability ecosystem with your partners: however, this will only be possible if you are sure that all the enablers in this approach are in place.
Firms that achieve both integration of sustainability data in processes and decision-making and establishing cross-functional ownership of sustainability can then proceed to approach sustainability from a holistic perspective. This includes the ability to pull sustainability data out of the entire organization together, make it accessible to all functions, evaluate it through in-depth analyses, and pull together insights in sophisticated KPIs to fuel leadership decisions. This requires both a high degree of organizational enablement and a strong commitment to sustainability, but offers tangible benefits to firms that master this approach.
First, understanding how products undergo different stages of sustainability in their life cycle and how sustainability risk permeates through the value chain enables firms to make better long-term decisions. Second, having access to all raw sustainability data throughout the company drives innovation and understanding of sustainability efforts due to the ability to conduct big data analytics and unveil unknown correlations and links. Lastly, the ability to further build on sustainability business case methodology to pull it all together in a few clear KPIs enables leadership to see the big picture and make the correct decisions.
Sustainability innovation drivers are frontrunners of sustainability performance. Not only do they utilize their state-of-the-art systems to push their performance, culture, and products; they also actively engage with their partners and customers to help them drive sustainability innovation, making the entire value chain more sustainable as a result.
This approach refers to companies that lead their industry peers in terms of their sustainability agenda and activities. All systems and the corporate culture itself are set up to shape the industry. As a truly sustainable leader, companies are well known for their sustainability actions.
Companies can use their position as sustainability leaders to act as role models, drive innovation, and transform their own and other industries. Employees push collectively for new sustainability solutions and due to the prominent sustainability positioning in its ecosystem, companies can drive and push for full value-chain circularity. On top of that, the generated big data sets can be used for optimization. As result of these combined sustainability actions, companies are well placed to achieve net-zero impact and beyond.
Firms that follow this approach may have no inherent interest in being sustainability champions, but they still see value in including sustainability metrics in their business decisions – not necessarily to boost their sustainability performance, but to ensure continued compliance at process level and to identify potential business risk factors.
These companies are characterized by a moderate to high organizational enablement and a limited sustainability ambition. For these players, sustainability is an increasingly important building block for long-term corporate performance. They have largely put the necessary systems and process in place to measure sustainability and they have included in the risk assessment ahead of key decisions. They have identified the right tools and have implemented them to enable good awareness and reporting standards, and they conduct routine reviews to ensure compliance and highlight risks. However, leadership does not communicate sustainability as a valuable target in itself, and the benefits of investing in sustainability are not realized – either because they are not salient or poorly understood. However, the enhanced ability capacity to analyze sustainability data is an important stepping stone toward transparency in the market, the ability to lead a more productive dialogue with key stakeholders both inside and outside the organization, and the power to deploy more analytics-driven sustainability levers.
This approach takes both internal and external collaboration to the next level, building on the organizational enablement that comes with a clearly defined sustainability baseline and reporting brings and combining it with the concreteness of data-defined sustainability targets. In the data-driven collaboration approach, you can leverage the enablement that you have already set up through tools and reporting to reach the goals you have set for yourself. Internally, you can do this by starting with a sustainability cost impact calculation that will enable you to better gauge the actual costs of sustainability and related trade-offs. As you build your understanding, this can result in a total cost of ownership calculation from an ESG perspective for the most important parts of your portfolio. Externally, you can start to connect your database with your suppliers to align targets and incentives.
Overall, applying this fact-based approach to the sustainability discussion will nurture a collaboration mindset both internally and externally. This will enable you to move into more complex approaches where you can integrate sustainability data stronger into your decision making, or move into a more holistic understanding with cross-functional sustainability ownership.
Cross-functional sustainability ownership clearly defines sustainability goals per unit and functional responsibility within a company. This allows for a more differentiated tracking of progress and can highlight improvement areas, while fostering cross-functional collaboration and information exchange.
We believe the CSO role will be crucial securing cross-functional sustainability coordination as this step is decisive to achieve long-term sustainability goals. One major achievement is to reach full value chain transparency. This task is complex at it requires an analysis of the whole value chain of a product. As a starting point, the product developers need to define new components based on sustainable criteria (eco-design). In the next step, procurement needs to identify suppliers that can match criteria such as energy efficiency beyond price and availability criteria alone. Transparency through cross-functional collaboration needs to be created to make this cooperation work, so this step should include clear role descriptions and understanding of synergy potentials.
By gaining more transparency, sustainability aspects can be integrated with their actual costs, leading to a positive impact on the pricing model. Part of the CSO’s role is to address interface issues and interdependencies with the cross-functional leaders involved. A successful internal exchange facilitates improved sustainability achievements, builds stronger networks, and improves operational performance.
Firms with an ingrained sustainability culture and the right tools and process in place can leverage their deep understanding of sustainability and strong systems to align the development of products/services with key sustainability targets and thus become more circular.
By definition, circularity requires an established cross-departmental exchange of data and ideas. Without cooperation of engineering, supply chain, sales and marketing, a firm will neither be able to understand the complexities and requirements of implementing circular operations or circular business models. Furthermore, the inclusion of sustainability concepts at the core of product and portfolio design will create a multitude of trade-offs and conflicting targets between the specific subdimensions of sustainability. Firms that strive to achieve circularity need sufficient system readiness to navigate these trade-offs and balance the actual impact on the three dimensions of sustainability. However, with appropriate enablement and dedication, circularity can help firms to break into completely new market segments and cater to new groups of customers, while also improving internal efficiency and significantly reducing waste. More and more companies stress the importance and plan for circular operations and business models. The three R’s – “reduce”, “reuse” and “recycle” – are increasingly the guiding stars for organizations to significantly increase their own profitability in operations, while the new business models think about the R’s of “refill” or “repair. Through a sustainable product portfolio, firms can strengthen their brand and leverage synergies for their remaining non-sustainable portfolio. Design for sustainability helps firms not only to adapt their products or services to the sustainability expectations of their customers; it also enables them to reduce waste, costs, and dependency on rare or expensive components, further increasing operational resiliency.
Companies that follow the data transparency approach focus on having the right data available, which is required to make educated sustainability decisions in line with common regulatory frameworks. The first aim of this approach is to know which data are needed in the first place and which can realistically be calculated. This approach will be calibrated over time as the organization improves its understanding of how to utilize the data that is generated.
The decision-making process for this group of companies derives from the explicit knowledge of the minimum requirements, which triggers the assessment of the data needed to achieve compliance. This approach contains a target conflict: either you think about what data you need beforehand and realize that you don’t have the necessary skills, or you first look at what data you have, even if this may not be enough for full compliance.
Ideally, you start with an assessment of available data (leading criteria) and develop the datasets over time and measure progress (lagging criteria). Once this data exists, you can start to use it to derive appropriate targets – rough at first, then more refined as you get to grips with how to work and influence the datasets).
Data-driven sustainability goals combine data transparency with unit-specific and quantifiable targets to drive an informed sustainability strategy beyond the regulatory framework alone.
Moving on from a basic metric database and general target setting, this approach aims to further develop a sustainability methodology on different levels and shape it into a clear and actionable sustainability roadmap. It is also designed to improve trust by continuously improving data quality and strengthening the connection to company targets through sustainability KPIs and science-based targets.
We recommend establishing specific departments that are dedicated to further developing the existing database by defining, collecting, and processing input data with the goal of setting sustainability goals and providing transparency during the process. The goals will be finetuned over time as system and process maturity improves. Transparent communication is important both externally and internally when it comes to reporting on progress. Once transparency is achieved internally and targets are clear and backed by data, you can move on to more advanced approaches like data-driven collaboration or sustainability entrepreneurship.
A strong commitment to sustainability needs motivated champions that drive change. Enabling these champions through the approach of sustainability entrepreneurship can unlock further potential within your organization. Sustainability entrepreneurship is all about setting the right frameworks so that sustainability “arrives” as a key metric in business discussions, and taps into external and internal sustainability innovation capabilities.
After establishing clear trade-off rules for sustainability and including it as a dimension in your business case logic, you can start to reap the rewards through internal and external entrepreneurship. Externally, you can leverage this new approach to sustainability to engage in powerful partnerships strengthening each other’s transformation and fostering a more holistic perspective on sustainability, learn from each other while strengthening the mutual sustainability impact. Internally, setting up a sustainability fund can help to boost the motivation and creativity of your employees. This can engage them to become champions of the sustainability cause, thus making your organization a more attractive place to work and driving sustainability innovation.
Firms that are fully committed to sustainability can start utilizing their data to further align internal incentives with their sustainability agenda. For example, sustainability can be incorporated into the incentive structure for management to ensure the right alignment in their decision making. Furthermore, the organization itself can start to reap rewards by positioning itself as a sustainable brand, as it has ticked all required levers to avoid greenwashing. Proactive sustainability communication is an important part of this process, and an external sustainability board can give additional perspective and guidance to steer clear of potential pitfalls.
After the groundwork has been laid, the organization can also start to build on its sustainability base and high sustainability ambition to launch sustainable initiatives that address social or environmental issues outside of the scope of the firm. While this feeds directly into brand positioning and generates other benefits for your firm, it also incentivizes external organizations to further collaborate with you in their sustainability actions, as you have positioned yourself as a champion that drives sustainability beyond the immediate scope of your own organization.
All companies need to be legally compliant, but corporations following primarily sustainability compliance perceive the topic as a “checkbox” item that needs to be ticked. The organizations do not use sustainability as a source for creating additional value. They see minimum legal requirements as “basic hygiene” factors and do not act proactively.
Companies that do not go beyond the approach of legal compliance may be afraid of and uncertain of the investment needs for sustainability. Furthermore, even companies that have always been sustainable (for example, sourcing of regional raw materials) could only aim for legal compliance. These companies have always taken on board the commitment and followed it through. They might be unaware of the good sustainability position and now see increased regulatory requirements. Partly as result of a misunderstanding, legal compliance and reporting are perceived as additional bureaucracy:
The activities can be security- or reporting-driven: companies that don’t like the spotlight but are making sure that nobody believe they have something to hide. If you are reporting driven, you will see these reports as additional bureaucracy.
Corporations only participate in standard activities (regulatory audits, legal standards, compliance training, code of conduct).
Firms base their future activities on understanding the minimum regulatory requirements.
Additionally, they may be uncertain about the substantial gains that can be made. Important aspects that are missed out with this approach are:
How to ensure that you are compliant to national and international regulations if you are passive?
How to ensure that different units are all compliant?
Should the highest legal standard be the standard for the entire group, or should you have different standards between different units?
The levers in this approach will help you to formulate both your vision and make them tangible with general and specific goals. To enable sustainability in your organization beyond basic legal compliance and risk management strategies and unlock the benefits of a strong sustainability culture, you will need to start with a clearly communicated commitment. This commitment must come from the top down – preferably from your C-suite or leadership team – and should include a very distinct sustainability vision. Why is sustainability important? Where does your firm want to be in 10, 20, or 30 years? How should your sustainability efforts be perceived?
As soon as you have decided on the strategic vision and direction and communicated the buy-in from the C-suite, you can start to formulate corporate company-wide goals and translate them to unit-specific targets. This makes your efforts tangible on a group level, and actionable on a unit or function level, while also establishing ownership and accountability. Next, you can continue your sustainability journey by either anchoring these goals in KPIs and measurable impacts by boosting your organizational enablement, or you can build on your sustainability ambition by setting up a dedicated sustainability team to start working toward your vision.
After setting up your vision, you will need a team to implement it and work toward your goals. The dedicated sustainability team approach shows how you can set up a team within your organization, who it will report to, and how it will interact with internal and external stakeholders.
A strong and dedicated sustainability team will form the backbone of your sustainability efforts, and virtually every lever on the Chessboard will benefit from it. While positioned at the bottom of the Chessboard, this approach will grow and develop as you continue your journey and stretch your boundaries. The team will grow in experience and size, and the exchange with regulators and other stakeholders will become more structured and productive. The setup you need at the beginning of your journey may even look different from the team you need as you mature, requiring your organization to change along the way. Regardless, a dedicated Chief Sustainability Officer can lead this team and voice their perspectives within the C-suite, while championing sustainability causes both internally and externally.
While this might sound daunting to firms without dedicated teams that are just about to set out on their journey, remember that Rome was not built in a day. As your skills and ambitions as a firm grow, so your will team develop organically over time.
As sustainability is not an area with fixed contours, regular exchange is essential to broaden the competence base, share knowledge about future developments, and to find partnerships where obligations and tasks can be distributed on several shoulders. This approach covers conversations beyond the ad hoc need for exchange and structures how a long-term knowledge can be organized both internally and externally. By focusing on the levers in this approach, sustainability can be integrated even more deeply into your organization, and the culture around it will become one of sharing, coaching, and mentoring.
Regular cooperation with NGOs beyond the standard stakeholder dialogue can help to understand their positions, to challenge taken measures, build trust, and generate knowledge and insights for both parties. By bringing this exchange into a structured format and extending it beyond NGOs to all stakeholders, a sustainability committee can be set up that takes knowledge exchange and stakeholder dialogue to the next level.
Internally, knowledge exchange can be fostered by setting up dedicated training curriculums that help to spread the required skills and knowledge. Additionally, employees are intrinsically more motivated to engage with the sustainability discourse and share their views and experiences, further enabling innovation. Furthermore, having sustainability and the knowledge about it at the heart of your culture, you can include it at the core of the design of new standards and processes, ensuring that your organization will become more sustainability over time – simply by following standard procedure.