Explore the Chessboard
The 16 approaches include 64 actionable levers to set up sustainability in an organization.
4 strategies | 16 approaches | 64 levers
One challenge of internal databases is that data can either be located in multiple places that might not necessarily be updated or in sync, or that data might be hard to access in the first place. To be able to assess the status and to define required actions, you will need to set up a holistic company-wide database for all key sustainability metrics. Having a universal database in place is a precondition for assessing more advanced levers in the Chessboard. As part of the development process, you will need to consider some important questions:
- Where is data generated?
- How is data stored?
- Who controls the data?
- Who has access to the data?
- How is the cost center structured?
Furthermore, it requires a high degree of capability and understanding to “clean” the data and harmonize different levels of analysis and different views/perspectives. In comparison to the lever “sustainability data lake”, a holistic database does not gather raw data, but contains already processed KPIs and structured data.
Because this type of database is an essential support during the decision-making process, both key decision makers and the relevant working group should have access to it. The data gathering can also expand beyond the boundaries of your organization – for example, when it is supported by external service providers that collect emissions along the value chain.
CASE STUDY: Merck
Merck, the U.S. pharmaceutical company, assesses the sustainability of its products, technologies, and business activities. The company’s Sustainable Business Value Tool it to calculate and evaluate both positive and negative impacts on society. It assesses impacts such as monetary terms, examining multiple dimensions over the entire value chain (ESG, economic value, ethics, consumer wellbeing, digitization). The methodology behind the tool received the German Award for Sustainability Projects 2021 in the category “Assessment concepts/tool”.
Sustainability risk management framework
Digitally mature organization may prepare for various potentially disruptive scenarios through the establishment of a sustainability risk management framework. This lever proactively supports addressing sustainability risks within the value chain. Done in the right way, a risk management framework will give you vital information including how much you need to invest in risk mitigation, which capabilities you need to build, how much redundancy is built into your processes, and how much safety stock is available.
The volatile global macro business environment has increased the number of possible disruptive events, so we need more resilience and more risk management to stay ahead of the curve. In order to mitigate complexity issues, your sustainability risk management framework should be supported by the right tools (for example, by Resilinc, “Trust your supplier”, Interos).
Data scarcity and the integration of internal data are challenging issues, but external suppliers like EcoVadis can contribute with supplier data. However, this level of internal data governance requires a high digital maturity and robust analytical skills to allow the use of predictive analytics and scenario modelling.
It is also important to allocate responsibilities and define decision paths within your organization, addressing important questions such as:
- Who can access the platform?
- Who owns the platform?
- Who provides the data?
In addition, you should ensure that the output of the developed risk framework is included in the decision-making process. A risk management framework should be able to address identified risks in a solution-oriented way. It should also provide you with a recommendation of whether to mitigate, insure, evade, or accept specific risks.
CASE STUDY: NIBC
NIBC, the Netherlands-based commercial bank, has developed a sustainability risk management framework to assess and manage sustainability risks as part of its comprehensive approach to risk management. Through this framework, the bank intends to mitigate risks and to identify potential opportunities to improve environmental and human rights practices related to financings and investments. The framework describes governance, implementation, and the roles and responsibilities within the bank organization to identify and mitigate sustainability risks.
The company’s Sustainability Officer is responsible for setting policies, advising, monitoring, reporting on execution, management, control and reporting of risks. The potential risks include environmental, climate, social, human rights and governance. The framework is applied across all financial services provided by NIBC and all of the bank’s business units.
Sustainability data application
As your organization matures in the data collection and interpretation of sustainability metrics, you should utilize the benefits of an enlarged data footprint by further incorporating sustainability data into scenario planning exercises, as well as in-depth analyses. Sustainability data application can take many forms, but it will most frequently be used to guide decision making by supporting scenario modeling.
This lever builds on the input of a holistic database and encourages all units and departments to actively use the data collected in their decision making, rather than just having a few selected sustainability team members or key decision makers that include sustainability in their thinking. The inclusion of sustainability data broadens the strategic horizon during the decision-making process and is a natural step toward incorporating sustainability aspects in more and more organizational activities. It also means that sustainability aspects can be used to support certain targets (for example, reviewing secondary and tertiary goals) or used as a constraint (for example, taking a specific decision that will have a less favorable sustainability impact). While being positioned relatively far apart from each other on the Chessboard, sustainability data application benefits hugely from implementing a sustainability business case logic (and vice versa). Applying the data and elevating the output to a key metric within the broader business decision-making process can ensure that you make the right decisions from a sustainability perspective.
CASE STUDY: Voith GmbH & Co. KGaA
The global technology firm, Voith GmbH, has implemented sustainability software from Quentic which allows the central evaluation of its social, ecological, and economic activities. It acts as the foundation for reporting and helps reducing the amount of work needed to track, verify, and evaluate the relevant data as many steps are automated using the software. By doing so, the software also facilitates both communication within the company and with external stakeholders and clients by connecting them via a central platform solution.
Sustainability due diligence
The due diligence instrument is originally utilized in merger-and-acquisition processes during the preparation of a transaction. From a sustainability perspective, we propose to use it to check the sustainability compliance of potential partners. When deploying this strategy, a potential business partner (supplier, investor, franchisee, etc.) must pass a sustainability due diligence audit before they can enter into a business relationship with you. This lever both protects your own efforts and raises the bar throughout your value chain, which can generate an overall competitive advantage. It builds on the lever’s regulatory audits and routine sustainability reviews by further expanding both the scope (including all types of potential partners) and depth of the audit – and shows higher sustainability ambition as the sustainability due diligence can act as a roadblock to engaging in transactions with new partners.
The due diligence charter should include a standardized section that is applicable to all types of business partners, and to specific sections, depending on the type of industry. This segmentation may also enable the formulation of certain targets by deriving them from sustainability benchmarks in the industry.
One major challenge is to develop a process without creating too much bureaucracy, which could slow down business and incur substantial financial cost. The screening process should cover both new and existing partners business partners to streamline overall sustainability behavior and performance. Even in that context, some business partners are more important than others – and this means the scrutiny of the sustainability due diligence including the target levels can be set dynamically.
CASE STUDY: Volvo Cars
The Swedish car maker requires a compliance due diligence from suppliers before entering into an ongoing contractual arrangement with them. This exercise is intended to identify and mitigate legal risks, such as corruption, trade sanctions, money laundering, and violation of human rights.
Additionally, the due diligence process can factor in other requirements, including having a certified management system for quality and environment (ISO 9001, IATF16949 and ISO14001), meeting recycled content targets, reporting material content to IMDS (international material data system), and disclosing conflict minerals in Volvo’s products (CMRT = Conflict minerals reporting template).
Volvo views its due diligence as an ongoing, proactive, and reactive process, with progressive enhancement leading to constructive engagement with suppliers. All approved suppliers are required to implement a systematic management of all areas and need to ensure that the framework is respected by suppliers and sub-suppliers in the decision process and also participates in various shareholder indices.
Value chain sustainability risk management
Further building on risk awareness and sustainability risk management framework, value chain sustainability risk management proactively identifies and addresses sustainability risk up- and downstream the value chain. Identifying and addressing sustainability risks with your suppliers’ suppliers or your customers’ customers require a very high degree of organizational enablement and transparency. However, value chain sustainability risk management can significantly boost the resilience of your value chain to both short-term disruptions and long-term effects.
Value chain sustainability risk management consequently requires good data, adequate tools, and a high cooperation with suppliers. Furthermore, it should build on more traditional risk management frameworks and expand them throughout the value chain. However, this will lead to trade-offs and discussions along the value chain partners, as in many cases, incentives will not be aligned. Asking your Tier-4 supplier – for example, a cobalt mine – to significantly improve the wellbeing of its workers will cut into their margins, and they will try to recuperate those losses through price increases that will permeate through the supply chain until they reach you. Similarly, asking an oil producer to significantly invest in safety systems and redundancy to prevent spillage may make sense for you as a firm, but the oil producer will have already made the risk vs. cost analysis on their own and decided against investing in these systems. Consequently, value chain sustainability risk management also needs a high degree of political tact and strategic negotiation, and it will take time for all your partners to follow the lead you take – let alone to catch up with their investment in sustainability risk management and become equal partners.
Sustainability data lake
Collecting and assessing reliable data is precondition for any successful sustainability efforts. A data lake is a huge repository of raw data, where multiple departments upload all their data points. This data lake can then be accessed and used for big data analysis and/or machine learning algorithms to test hypotheses and identify correlations and causations. Setting up a sustainability data lake requires the necessary IT infrastructure, and using it requires the corresponding big data capabilities.
Additionally, one should aim at implementing a sharing culture so that functions proactively follow their duty to upload data to the lake. When an organization manages to set up a sustainability data lake, it can leverage it for thorough analyses of multiple aspects of its sustainability performance. The results can be used to look for patterns and correlations between functions – with data input that would otherwise never be combined. Bringing together different datasets drives not just improvements or breakthroughs in sustainability, but it is also an excellent driver for stimulating innovation. The caveat is that you need dedicated resources to cleanse, maintain, and analyze data on a continuous basis.
Sustainability-enabling products build on the aforementioned lever sustainable product portfolio but add an important twist. Rather than asking the question “How can my products be sustainable?”, firms with sustainability-enabling products go beyond and ask: “How can my products help my customers to be more sustainable?”. Simply put, it is the difference between a responsibly sourced and manufactured car and an electric vehicle – while the first is as sustainable as this type of product can be, the second one continues to improve the sustainability journey of the user as it is used. While this is comparatively easy to achieve for some products (for example, electronic cars, LED light bulbs), firms going beyond the obvious candidates for sustainability enabling products will quickly realize the challenge that this completely different thinking in product design will bring.
It is important to note that this lever should not be confined to firms catering to end consumers only. Particularly in the area of B2B, firms that are able to come up with sustainability-enabling solutions will have a significant advantage against their competition, as their customer base is also moving towards an (self-imposed or governmentally mandated) increase in sustainability performance. Being the only provider of a solution that – in addition to the actual purpose of this product or service – also helps customers struggling to meet their sustainability goals and quotas can be a very significant boost to your revenues.
CASE STUDY: Leading white goods manufacturer
A leading global white goods manufacturer asked us to help it develop a new line of products. The client had observed a recent disruption of its market due to the emergence of cheap smart home appliances. These are more energy efficient than regular devices and therefore have a lower cost of usage and better sustainability performance. The client was already working on expanding its product portfolio, but was not yet fully ready to move the new product line into series production. Furthermore, the majority of the customer base still had nonconnected devices that would be made obsolete by new smart appliances. The joint goal was to develop a retrofit device for nonconnected appliances that could bridge the gap and make them competitive vs. the newer versions in terms of sustainability performance.
We jointly developed and validated the requirements of the retrofit device through surveys and workshops and supported the identification of software and hardware development partners. By fast-tracking this device in the joint project, the first hardware and software prototypes were developed in under three months, while series production started within eight months. Less than a year after its conception, the first retrofit devices were sold, significantly boosting the sustainability performance of older models of home appliances. This has led to a profound boost of sustainability impact – particularly in emerging markets, where the market penetration of smart appliances is lower compared to developed countries.
Value chain circularity
Companies that are engaging in value chain circularity are active advocates for extending the ability to their entire value chain – and are in the endgame phase of their sustainability journey. This requires maximum organizational commitment, as these firms must actively engage in discussions with all value chain partners. It is not enough simply to manage trade-offs between them alone; you must also manage their respective stakeholders.
A strong and consistent data support combined with a thorough understanding of roles, responsibilities, and processes throughout the value chain and – most importantly – the impact of specific sustainability actions is the key to progress. Value chain circularity can bring a significant contribution to all value chain participants. Apart from the obvious sustainability impact, true circularity reduces waste and can also reduce a dependency on scarce resources (for example, rare earths). Ideally, a circular value chain can lead to the situation that one organization can use waste products of the other participants as input material for their operations, and vice versa. However, for many firms, true value chain circularity will be an aspiration goal for decades to come – a dream that can only be achieved through close and tight collaboration throughout your entire value chain.
Sustainability data governance
The more advanced you are as organization in generating data and making it available, the more difficult it can become to allocate data governance and data ownership. This goes for traditional operational and financial data, as well as new sustainability metrics. This lever pinpoints the need for clearly defining sustainability data governance and ownership. Your organization should have a clear understanding and agreement on the responsibilities for collecting, cleaning, storing, and analyzing sustainability data. This responsibility can be delegated within each department of your business, or you can form a dedicated unit that is connected to all other units and departments.
Either way, people in charge of sustainability data governance need to understand where, where, and how frequently that data is generated to help them develop clear guidelines on how to collect and process the data.
This lever plays a major role in supporting data quality and data comparability; it also strengthens the role of a holistic database as it ensures that the data is used for decision making in a correct and complete manner.
CASE STUDY: PepsiCo
The U.S. soft drink giant uses performance data across its global operations to understand progress against its sustainability agenda. It reports sustainability data externally to inform stakeholders, and shares it with sustainability ranking groups, investors, NGOs, customers, and consumers. Internally, the assessment is used to inform and update the sustainability strategy, as well as to prioritize investments. The data governance includes documenting the processes and methodologies they use to aggregate data consistently. A dedicated team within PepsiCo’s Sustainability Office manages the data governance structure underpinning each of our sustainability goals, ensuring the accuracy, consistency, and precision of the data, while driving accountability among the teams.
Internal information sharing
One challenge for successful sustainability transformation programs is to overcome internal silo-thinking. This lever aims to incentivize the sharing and usage of sustainability data internally, as this will help to establish a common and holistic direction – overcoming “not invented here” approaches and mentality.
Different functions and units will generate different data points – sharing this data internally can help to improve overall impact and understand the intricacies of sustainability. Furthermore, this lever encourages a cultural change: on the one hand, it stresses the importance to use the data; on the other hand, it incentivizes internal sharing of best practices to further boost innovation and sustainability impact.
When it comes to setting up internal communities, there are different options: either by holding regular sharing sessions between functions or units and geographical scopes (for example, procurement departments of different business units), by producing periodically written updates, or by using an exchange platform, where the relevant individuals can find all necessary data.
Advanced sustainability certification
Based on the basic sustainability certifications in the compliance quadrant of the Chessboard, firms that have their house in order and also have a very strong organizational enablement can strive to achieve more advanced sustainability certification. These certifications are usually significantly more complex and harder to achieve than standard certifications such as ISO. Examples could be the B Corporation certification, or some industry-specific sustainability certifications. Additionally, certifications like B Corporation or Cradle to Cradle provide the certified companies the opportunity to improve their score within the assessment or advance within the certification process along different achievement levels (for example, basic, bronze, silver, gold, and platinum).
Advanced sustainability certifications pose a significant workload to your organization, and the certification process should be equipped with the proper resources and conducted by an experienced (and optimally cross-functional) team. Consequently, the decision to go for advanced sustainability certifications should not be taken too lightly. However, achieving advanced certification has multiple tangible benefits for your company. First, it can help you to review your efforts so far and highlight any gaps you have in your systems, reporting or data. Second, it can help to challenge your current operations setup and its impact on sustainability and highlight additional actions to further boost your sustainability performance. Third, it can help you to build your brand and set yourself apart from the competition – boosting your attractiveness to customers that are looking for sustainable business partners. Having achieved one – or multiple – advanced sustainability certifications can be a strong market signal and also proactively address greenwashing concerns – particularly if you are one of the only players to achieve these certifications in your industry.
E2E sustainability footprint
The more digitally mature an organization, the easier it is to establish a big data-based end-to-end (E2E) sustainability footprint tracking. This lever is very challenging as it requires correct and complete data end to end; in other words, from raw materials right through to end-consumer impact. Understanding your E2E sustainability footprint is key not only to prioritizing the correct initiative, but to avoiding being sidetracked by trends and ad hoc opportunities – instead following them through to ensure optimal long-term impact. When you understand where the biggest footprint lies, you also know where to spend resources to minimize that footprint.
The further away from your direct operations this assessment sits, the more difficult it will get. Even if your company uses accurate data, suppliers that are further upstream in the supply chain are much harder to assess. The same goes for consumers that do not exhibit consistent behavior and operate much further downstream along the value chain. Support may come from external service providers that offer this data for upstream suppliers. However, the data can currently not be verified, it is based on trust as the data derives from local authorities and governmental body audits, with little opportunity to confirm the facts.
The E2E assessment goes beyond Scope 1 and 2 in the SBT methodology to include Scope 3 emissions too. However, the analysis is not limited to environmental impacts alone; it also covers social impact. By applying this lever, companies can improve their sustainability strategies and identify changes over time as the cost/impact of input factors or end-consumer behavior changes.
CASE STUDY: Alliander
Dutch energy company Alliander uses SAP’s big data management system HANA to maintain peak efficiency for the grid, which in turn increases profits and reduces environmental impact. Previously, it took 10 weeks for the company to optimize the grid; now, it takes just three days to accomplish the same task. In addition, the updates that Alliander used to do once a year can now be carried out once every month.
Product life-cycle sustainability tracking
Product life cycle sustainability tracking enables an end-to-end understanding of how all raw materials are generated, sourced, transported, and integrated into the final product. Additionally, it analyzes the conditions under which production has taken place. Furthermore, it describes how the product is distributed to the customer. Finally, the tracking system assesses how the end consumer uses and discards the product, as well as how it is collected, dissembled, and recycled.
The step up from a sole value chain transparency means that a corporation needs to embrace these impact factors not only at one point in time, but throughout the entire life cycle of a product for example, identifying the impact on the manufacturing process once a product is in decline and volumes/economies of scale go down. It should be assessed how the experience with this product can be incorporated into the development process for the upcoming product generation aiming at a more sustainable footprint.
Having this data allows a holistic decision on how to design products/services, as well as how to optimize the full sustainability impact. We have seen that point solutions might have adverse impacts at different stages of the products life cycle which should be avoided. This could also include the decision to discontinue a product early, even if it still has a positive contribution margin, due to the worsening of the sustainability impact. Analyzing the data needs to be a dynamic process: whenever new information becomes available – such as a long-term study showing health issues with a substance previously believed to be safe – findings and actions need to aligned with this new reality.
As we know, a major challenge in the field of sustainability is the measurement of impacts and what these impacts mean for the overall corporate strategy. While we have already made our case that sustainability aspects need to be part of the decision-making process, either through clear trade-off guidelines and/or through a sustainable business case methodology, the lever Social ROI goes beyond that to deliver a quantifiable and clear KPI to gauge the impact of social initiatives. This will help the C-suite to assess whether their initiatives are on track and whether resources are allocated efficiently. It can also help to compare initiatives and prioritize those with a higher social ROI to ensure resources are invested where it matters.
As we know, a major challenge in the field of sustainability is the measurement of impacts and what these impacts mean for the overall corporate strategy. While we have already made our case that sustainability aspects need to be part of the decision-making process, either through clear trade-off guidelines and/or through a sustainable business case methodology, the lever Social ROI goes beyond that to deliver a quantifiable and clear KPI to gauge the impact of social initiatives. This will help the C-suite to assess whether their initiatives are on track and whether resources are allocated efficiently. It can also help to compare initiatives and prioritize those with a higher social ROI to ensure resources are invested where it matters.
CASE STUDY: NGO
We were approached by one of the largest donor foundations in Mexico, whose mission is the provision of grants to frontline charities that develop projects in three main areas: health, addictions, and water. After learning about our Social Impact Model, the client sought our support to implement the model into its organization with a view to streamlining the allocation of resources and selecting projects that maximize its social impact.
We carried out the engagement in four main phases. First, we analyzed the client’s portfolio and selected a sample of 20 projects to evaluate. Second, we gathered information from those 20 projects through their documentation, interviews, and reports. Third, we evaluated the social return on investment (SROI) of each project by dividing the monetary impact by the cost needed for its generation. Finally, we used this analysis to propose possible future strategies for project selection to maximize impact. Additionally, throughout the engagement we transferred our knowledge and trained the client’s personnel in the use of the model. With our assistance, the client was able to gain an unprecedented visibility over its historic project portfolio, which triggered a substantial debate regarding their strategy going forward.
For firms at the forefront of the sustainability discourse, the discussion does not stop internally, or even with their closest partner. On the contrary, these organizations go beyond partnership support and stakeholder dialogue to become sustainability educators for the wider public. This can include strong advocacy within special-interest groups or with regulators, but can also extend to customers or end consumers – for example, by educating them on how to properly dispose of a product, how to recycle or reuse it properly, or how to minimize its power consumption during usage. As well as having a strong impact on their brand recognition simply by being in the public eye, educators can use their voice to highlight glaring issues within their industries or with specific regulations, and play a significant role in supporting their industry to move toward a more sustainable future.
However, it is vital that sustainability education comes right at the end of your sustainability journey – first, you have to make sure that your own house is in order. Only after you have ensured that all or most applicable levers on the Chessboard have been implemented and that you are on track in your journey should you start to become the mouthpiece of your sustainable cause; if you act too soon, you run at a significant risk of falling prey to greenwashing and of causing long-term damage both to your sustainability efforts and your brand.
CASE STUDY: NGO
As part of our pro-bono consulting engagements, we worked with a French NGO that recovers unsold nonfood products from industry manufacturers and gives them to local charities. Legislation had just been passed in France that bans the destruction of such products: this was a game-changing move for the NGO, as it could multiply the volumes that it was handling at the time. As a result, the NGO wanted to redefine its position and formalize a new strategic plan for how to approach and educate potential donors in the context of this new legislation.
We conducted a large-scale survey of more than 100 local charity partners and more than 40 qualitative interviews with industry players in order to derive key learnings and recommendations. We helped the NGO to target its lobbying effort to further enhance in-kind giving as an alternative to destruction and to assess the impact of the legislation on its activity. The key was to educate potential donors about the alternative to destruction, and for the NGO to retarget its donor acquisition process towards critical donors to position itself as the go-to option for unsold items. Through this project, the NGO is now able to better understand its social impact, and publish this to potential donors, factually backing its claim of helping the most deprived communities and generating additional support. The NGO is currently in dialogue with other charities to further expand its reach as a sustainability educator.
Holistic sustainability culture
In a holistic sustainability culture, sustainability has permeated the DNA of the organizational culture and is embedded into every aspect of the company, from everyday tasks to strategic decisions. A successful sustainability culture is characterized by clear ownership and accountability at every organizational level. This culture is fostered through continuous sustainability training, embracing proactively new sustainability possibilities, and by clearly implementing incentives for reaching sustainability targets.
Another precondition for success is the commitment of the C-suite and functional heads, as well as reliable holistic data systems that provide input for fact-based analysis and decisions. The sustainability challenge needs to be addressed one step at a time. Successful organizations instill trade-off thinking in all their team members, enabling them to identify win-win situations for sustainability in everyday situations. The internal buy-in drives the cultural change with external partners. Every employee can be seen as a sustainability ambassador that promotes the cause in external exchanges. Lastly, the combination of a strong dedication for sustainability and the incorporation of sustainability as strategic goal will further drive innovation capabilities, also beyond the field of sustainability.
A high degree of organizational enablement depends on having the right tools in place. These tools will generally differ based on your industry, geographic scope, and firm size. However, they will fulfill important roles, such as automated ways to capture data or understanding supplier ESG maturity (for example, tools like EcoVadis, sustain, or worldfavour). There is a multitude of tools and service providers that cater specifically to sustainability (data) needs of firms that will enable you to take your understanding of the issues at hand to the next level. Other service providers like Interos, Resilinc, or Sustainabill can support your Tier 2+ supplier visibility and risk assessment needs. There is also a wide selection of high-end analytics solutions that allow for sophisticated scenario modelling, for example, to enable you to model the impact of your emissions, or how climate change might affect your key business areas. Some of these solutions, like Coupa or SAP Ariba, can act as digital process enablers, integrating data from different sources to help you map out your digital ecosystem.
However, your sustainability toolbox should not only consist of software and service providers; it includes all the tools that help you anchor sustainability in your organization, measure impact, and coordinate sustainability initiatives. Methodologies or frameworks that will enable your business to take the next step in their sustainability journey should also be considered as tools – so you are currently holding one of these potential tools in your hands.
Routine sustainability reviews
Following up on agreed activities provides the perfect opportunity to reiterate targets, means, and common interests. These regular reviews should be part of the corporate calendar and document the sustainability impact per unit, plant, or department.
It helps if the reviews can be based on a standardized audit procedure and be conducted by a dedicated department (self-assessments should be avoided). The standardization and centralization allow transparency between units and between audits by clarifying how performance has changed over the last review period. Depending on your overall selection of targets, you can either focus on environmental aspects (for example, GHG emission reduction), social aspects (for example, employee turnover), or financial feedback (for example, higher sustainability ratings).
This lever becomes even more effective if it can be extended to business partners (for example, service providers onsite, suppliers of direct materials, logistics providers) – beyond the mandatory inclusion as part of measuring Scope 3 emissions. The difference from the more basic audit lever on the board is that rather than being audited by an external party, you act as your own auditor – ensuring compliance and driving sustainability efforts of your partners through a prealigned review calendar with progress tracking and defined follow-up actions. Advanced organizational readiness supports the creation of an easy review process as tools such as Vizbl or aklimate for supplier engagement, and sphere or optera for GHG accounting can support the procedure.
CASE STUDY: Mondelēz International
Since 2012, the U.S. confectionery and food company has worked with internal and external experts to review the impact of major societal issues on the business. The cooperation is designed to shape strategic responses, with the team including representatives from the internal Global Growth Council and the Well-being Steering Committee, as well as from regional business units and global functions. The assessment is guided by enterprise risk management to identify, measure, monitor and manage risks. External experts include World Wildlife Fund, Quantis, and various investment groups. In addition, the company includes perspectives gained through its ongoing engagement with stakeholders.
Sustainability performance and improvements need to be considered together with sustainability conditions upstream of the own part of the value chain. No firm is an island, so no firm can be truly sustainability by itself: once you have got your own house in order and clearly defined measures, goals, and ambitions, it is time to engage with your strategic suppliers and work together to think about how you can make this journey together.
Transparency on the sustainability performance of Tier-1 suppliers is particularly important as can start the process to collect relevant data and understand the suppliers’ sustainability strategy and impact. The transparency builds on your code of conduct that establishes the minimum level of compliance. You need to better understand the full picture of their commitment and actions to clearly see who is lagging and who is performing above and beyond the minimum requirements. While the procurement function will usually be in the lead for this, they are often not trained in sustainability matters and often employ siloed approaches with a risk of greenwashing. Consequently, they will need help by a sustainability function.
Collecting this data for all suppliers is challenging as the supplier base is often large and many (smaller) suppliers do not have the digital maturity to share relevant data with you. Regular sharing routines increase the alignment and lower the risk exposure as you have better control on potential hiccups. We recommend starting with a Pareto approach, focusing on the suppliers that have the highest sustainability impact on your operations.
CASE STUDY: Global food & beverage company
One of our clients in the F&B sector had been making significant efforts to achieve higher supply chain transparency as it had encountered a public backlash (and calls for product boycotts) due to the environmental impact of its suppliers. However, initial approaches to working with suppliers and improving transparency had not been successful, so we were asked to support on supplier activation.
The client needed to implement a systematic approach to sustainability collaboration and sustainable sourcing practices to improve its sustainability performance and perception by external stakeholders. We conducted an extensive scanning of management views on sourcing sustainability (objectives, issues and root causes, opportunities, best practices) and highlighted the benefits of sustainable sourcing both on risk mitigation and competitive advantage.
We also reviewed current risk exposure on all spend categories and the client’s perception by customers, consumers, and NGOs. After understanding the client’s situation and pain points, we built a way forward to embed sustainability into business strategy and sourcing processes to ensure proper supplier activation. The key was enabling more structured and clear communication with strategic suppliers to align incentives and goals, as well as enabling the sustainability ambition with the correct tools and systems. This embedded sustainability aspects in procurement to manage risk and boosted collaboration with suppliers and led to a long-term improvement of overall sustainability performance.
Driving a sustainability transformation cannot be achieved by operating in silos. While sharing information is an important first step, this lever describes the importance of promoting a collaboration mindset where you solve sustainability challenges across units and functions. A collaborative culture is a precondition for successful cooperation on sustainability issues. It also empowers all units to focus on the bigger picture – doing what is best for the business as a whole and not just for a specific function, which can be counterproductive.
Teams need to be comfortable with sharing information and should be encouraged by management to do so. While sharing knowledge can be done in an informal way, a collaboration framework manifests mutual commitment and is an important cultural lever to accelerate change. Practicing a large degree of openness, however, means that business critical information must not end up with external stakeholders that might have an interest in using it against you at a later stage. Furthermore, it requires a high level of system readiness to ensure that the shared data is available and reliable to build trust both at the source and in the sharing process.
CASE STUDY: AkzoNobel
The Dutch paint company has decided that it cannot drive the sustainability agenda by itself. It recognizes collaboration as an important strategy to improve its sustainability footprint, using proactive dialogue with stakeholders to accelerate change and identify opportunities to create shared value. AkzoNobel actively engages with multiple organizations including the United Nations Global Compact, Together for Sustainability, RE100, Dutch Sustainable Growth Coalition, and the Global Alliance to Eliminate Lead Paint. The company communicates progress on sustainability on an annual basis.
The execution of sustainability strategies depends on a successful cross-functional collaboration between departments, with clearly defined ownership of sustainability targets while sharing KPIs, metrics, and goals. We have seen cases where data is available and in good shape, however, the usability is hampered by different reporting logics and perspectives that make a common interpretation very difficult. Thus, the result of involving more people and functions is a more inclusive approach towards sustainability as different staff functions know, understand, and potentially commit to each other’s targets and KPIs.
Collaboration supports alignment of departmental sustainability with overall corporate strategies, thus avoiding potential conflicts and identifying gaps. Furthermore, a cross-functional exchange helps sharing best practices and success stories, supporting a company’s sustainability culture and ensuring a long-term positive impact.
Meetings should be set up as regular events involving different process owners and be integrated into the annual corporate calendar. Ideally, additional room will be built in to allow for spontaneous exchanges to catch ideas “on the fly”.
CASE STUDY: European F&B company
One of our clients, a European F&B company, was struggling with high costs and high waste in its packaging spend. The client faced a particular challenge in the form of limited communication between procurement, marketing, operations, and packaging engineers. For example, marketing would not proactively communicate design changes to packaging, leading to the old packaging stocks having to be destroyed (for example, in case of regulatory changes in labeling). This led to the client only ordering minimum quantities, which resulted in higher costs, inefficient transportation, and inefficient batch sizes.
Through a series of joint collaborative workshops, we helped the client to improve communication processes between departments through structured project charters and tracking, as well as standardized communication channels. This has led to the successful implementation of multiple sustainability initiatives that had been sitting “on the shelf” due to lack of support from all required parties. After aligning initiatives between corporate functions, the individual plant managers were approached jointly for implementation.
The client managed to leverage improved collaboration between procurement and engineering to further reduce packaging material usage and to reduce printing costs. Furthermore, the purchasing process was optimized through better information flow from marketing that we implemented in the client’s ERP. This resulted in optimal batch sizes being ordered and minimized the need to discard packaging. Furthermore, our initiative to improve cross-functional collaboration also significantly reduced silo thinking and boosted employee morale.
Partnership knowledge exchange
Once you have set up sustainability partnerships for mutual support in your sustainability efforts, you will want to take these partnerships to the next level by deepening your commitment and starting to share knowledge. As your partnership matures, you can start to extend your support to data exchange, knowledge and technologies transfer, expert support or even shared funding of sustainability activities. Engaging in partnership knowledge sharing with a strong partner can help to get your sustainability efforts to the next level. On the one hand, you will get access to new perspectives, data and capabilities that can help you to elevate your understanding of the issues at hand. On the other hand, partnerships can be a powerful approach to amplify and replicate ongoing initiatives – significantly boosting their impact. Partnership knowledge sharing can be made actionable through joint advocacy with national or international regulatory bodies might be included which can help increasing overall recognition for sustainability across an industry or value chain, as they build awareness, knowledge, and mutual trust.
However, there is also a risk associated with partnership knowledge sharing. As you give out information to your partner, you will put yourself at risk that this data and knowledge could end up in the wrong hands; for example, if one of your partners enters into a similar partnership with one of your main competitors. Consequently, you have to be very careful about who you set up partnership knowledge sharing, and about the data and knowledge that you share.
Circular operations can help to generate value by cutting costs and to improve operational resilience. While traditional linear value chains usually create waste at every step, circular processes aim to reduce waste through the 3 R’s – “reduce”, “reuse”, and “recycle”. This can range from reusable packaging in retail, to refurbishment of battery components, precious metal recovery and the use of biologically degradable materials. Introducing circular operations is a challenging task, as it requires a complete shift in the mindset for most operation managers. This does not only require a firm’s dedication to make it happen, but also mature systems to guide decision-making and tracking the impact on the triple bottom line.
While the barriers to entry seem high, circular operations will become more important to access increasingly scarce resources and to generate additional revenue.
We foresee new partnerships emerging between existing value chains, as the waste of one manufacturing process may be used as a resource for another process in a completely different industry. For example, coffee bean pod waste from coffee production processes can be reused as animal feed, or scrap metal generated in a milling process can have the exact composition that is required for smelting specific alloys.
CASE STUDY: Packaging industry
Due to the high impact of packaging on the environment, we see that packaging firms are striving towards becoming more circular in operations. Currently, only 14 percent of plastics packaging is recyclable, and only two percent is part of a closed cycle that is not lost or “downcycled”. Bio-based and biodegradable packaging would significantly reduce the impact but has not been able to fully replace plastics. Amidst regulatory pushes to reduce plastic waste (for example, single-use plastics bans in various countries), packaging firms are starting to heavily invest into circular solutions. Amcor has committed to make all its packaging recyclable or reusable by 2025 and has invested another US$ 50 million in its sustainability agenda. Mondi has created an all-PE recyclable packaging and pledged to achieve efficient usage of natural resources in packaging by 2030, with reduction of specific waste to landfill by 7.5 percent and water consumption in their pulp and paper business by five percent. Tetra Pak has made all carton packages recyclable and committed to work with industry partners to ensure recycling solutions for all components of beverage cartons in Europe by 2030. All of these firms have joined the New Plastic Economy Global Commitment initiative, as well as other initiatives focusing on circularity and resource preservation.
Circular business models
While circular operations focus on the circularity of internal processes like manufacturing, firms will also start to look into how they can make their general business model more circular. This requires strong understanding of your own processes, but also a high commitment to sustainability – as it will significantly impact how your customers experience and use your product. Examples for circular business models are a stronger push for manufacturer-offered repair services, or actively engaging in take back or secondhand initiatives. Similarly, some firms within the F&B and cosmetics industries have embraced the “refill” concept, significantly cutting back on disposable packaging by making the product itself circular.
Before experimenting with circular business models, you must be very clear about what you are setting out to do and how you want to implement it. Circular business models will have a significant impact on your revenue, as a strong push for reusable products or secondhand options could negatively impact your turnover. On the flip side, offering repair and maintenance services can help to further expand your business model and build additional recurring revenue streams, while also boosting your overall customer satisfaction and product quality.
CASE STUDY: Leading global consumer goods company
One of our clients, a leading global consumer goods company, started to explore new business models to stay competitive in a changing market space and engage stronger with sustainable and digital business models. Together, we identified a more circular business model as a key for success; the subscription model was aimed at providing end-consumers with home appliances plus additional services for a monthly fee. The main idea behind this model was to transform the traditional home appliances sales model from a one-ff sale to a long-term service with recurring revenues and reduced waste due to higher rate of repaired appliances.
After developing the business strategy, we helped the client to set up the required processes and capabilities to move to the service-based model and validated the new business model with existing customers. The new model showed superior revenue and profit potential with additional cross-selling potential, as well as being well-received by consumers who appreciated the option to repair their appliances, rather than having to throw them away when they break.
Sustainability risk awareness
Sustainability risk awareness aims to create a stronger organizational awareness of sustainability risk, as identified in your materiality assessment. This lever works on the basis that all key decision makers should include sustainability checks and balances in their decision-making process to ensure alignment with key sustainability issues perceived by all relevant stakeholders.
General sustainability risk awareness should ideally be cultivated in operations (for example, routine review of a pipe showing a small crack that could cause spillage in the future). In this way, risks can be identified bottom-up and reported to a risk management function, which can then reflect this incident in its framework and build up to the more advanced lever of a sustainability risk management framework. Consequently, this lever links the organizational enablement of understanding key issues to a culture of sustainability risk thinking.
Furthermore, sustainability risk awareness should not only focus on short-term disruptive events that could cause immediate harm to your financial or sustainability performance. It should also help cultivate a general understanding of how sustainability issues can pose a risk to your operations in the long term. How will global warming of 1, 1.5, or even 3 degrees affect your value chain? What can you do now to prepare for these scenarios? Holistic risk awareness can help you ingrain this thinking in your organization – and having a fully stocked sustainability toolbox can ensure that you have the right tools to properly model and analyze these scenarios.
As the same sustainability risk may be present for several parties in the value chain, the situation should be shared with upstream and downstream business partners to ensure they have a similar perspective on risk. This will also encourage them to share in turn their own concerns and perceived risks.
CASE STUDY: Major automotive player
A client in the automotive industry asked us to help improve the transparency and risk awareness of its entire supply chain. The client was a major international company with a highly complex multi-tier supply chain (12,000 locations in 70 countries). The company wanted to mitigate sustainability risks in its supply chain and to identify sustainability impact to improve its overall sustainability performance and make better decisions from a sustainability perspective.
After analyzing the client’s supplier base and locations, we developed processes for ongoing measurement and monitoring and supplier risk-mitigation process, which provided formal sustainability guidelines for suppliers. Together, we developed a standard process for evaluating and identifying sustainability issues and improvement opportunities in the upstream supply chain. The standardization of this process has reduced the cost of evaluating the client’s 12,000 current locations, as well as any future locations. We also generated a database of sustainability risks by country to support decisions for new plant locations. These measures have made sustainability risks more quantifiable and salient, raising the awareness of sustainability risk in the company’s overall decision-making.
Companies initially started to issue separate environmental reports on top of their existing financial reports. The acceptance of sustainability as general term for describing the impact on profit, people and planet has led to an enlarged scope and multiple reporting formats. Driven by regulatory demands (as listed company and/or depending on size), both the EU and national legislators have broadened the range of companies that need to submit a sustainability report on an annual basis. Many companies rely on the GRI reporting standard as the backbone for their planning of the reporting process. This formalistic process provides assurance that they will comply to most legal requirements. The reporting has been extended in recent years and organizations now go beyond classical reporting and commit proactively to selected SDG goals and to science-based targets to reduce GHG emissions and become carbon neutral.
A structured and centralized reporting process is key to ensure that sustainability reporting can be brought together in the same way as general financial exposure. Similar to a sustainability certification, the annual sustainability report also forces organizations to implement reporting routines and understand key assessment criteria, while providing them with a tool (the final report) that can be used in different ways to support a successful sustainability transformation.
Beyond corporate sustainability reports, firms have other options when it comes to reporting on their sustainability performance. The Carbon Disclosure Project (CDP) is a nonprofit organization that has collected emission data of firms and communities for more than 20 years, building one of the biggest and most comprehensive databases for emissions data so far. The CDP brings a standardized reporting logic that boosts transparency and helps firms to measure and compare their impact.
CASE STUDY: A. P. Moeller Maersk
Most major companies issue sustainability reports these days. However, only 10 to 15 years ago, that was not the case – and B2B firms like transportation companies in particular have been late to the party. A. P. Moeller Maersk, one of the first big global container shipping lines, started to issue sustainability reports: these have since grown in detail and scope, with the recent 2021 sustainability report providing a comprehensive view of KPIs, targets, and initiatives in Maersk’s sustainability journey. The report is publicly available for everyone interested in Maersk’s sustainability performance. Most other major containers shipping lines have since followed suit – albeit several years after Maersk – by issuing their own sustainability reports.
Sustainability cost-impact calculation
This lever helps you understand the total cost of ownership of sustainability initiatives measuring costs and benefits. Transparency is a key criterion if you want to understand the full impact of your activities in relation to overall business scope. For example, the analysis can highlight the financial impact of noncompliance (for example, the risk of fines, penalties, or other negative impact) vs. the cost of compliance.
A cost impact calculation allows trade-off scenarios between the three dimensions of sustainability, balancing the different impacts on a quantifiable level. The lever should also include a sensitivity analysis to understand the cost of change – including an estimate of the investment cost of getting to the next level of sustainability.
The challenges of the cost impact calculation lie in coordinating different data sources, and in quantifying negative externalities in order to anticipate how the market and its regulation will change.
Companies should work with cost assumptions whenever no clear data is available, and then update these assumptions as additional data is collected and they develop a better understanding of the intricacies of sustainability costing.
CASE STUDY: Microsoft Sustainability calculator
The Microsoft Sustainability allows the company to analyze carbon emissions deriving from an organization’s IT infrastructure. The analysis is based on Power Business Intelligence for enterprise customers, showing carbon emissions connected to the Microsoft services. The report provides insights into carbon impact of cloud services and allows this to be quantified by region.
The analysis delivers a granular view of estimated emissions from running workloads on Azure accounting for Microsoft IT operational efficiency, IT equipment efficiency, and datacenter infrastructure efficiency. It also includes emission savings attributable to customers of Microsoft purchase of renewable energy.
ESG TCO calculation
Expanding the analysis of your sustainability cost impact calculation, this lever includes the costing for all the different steps to arrive at the total cost of ownership (TCO) for a service or product offer. This is an advanced assessment, as quantifying negative externalities requires a high degree of transparency and strong systems integration. For some externalities, it has become significantly easier to conduct a costing exercise (for example, emissions): however, for some other aspects of sustainability (habitat loss, noise pollution, child labor, etc.), it is hard to calculate the actual societal cost. Nevertheless, achieving an ESG TCO calculation will help you ensure that you can reach your (science-based) targets from the bottom up.
It is also a learning process, where organizations need to establish assumptions and update these as they learn more about the nature of the TCO calculation. Consequently, a TCO calculation for ESG purposes does not represent a single version of the truth; instead, it simply supports the decision-making process for strategic sustainability actions.
Value chain transparency
One important aspect of successful sustainability management is to increase the visibility of sustainability effects throughout entire value chain. The assessment should not only cover your own operations, but also those of Tier 1 suppliers through to Tier 2 + Tier 3 and beyond to understand the full impact. You need to understand where goods or materials are generated, how the transportation footprint looks, and how your suppliers are adhering to necessary sustainability requirements. In cases where the sustainability position of sub-suppliers may have been neglected, increased transparency efforts will prevent this shortfall and reinforce the importance of compliance beyond your own operations.
It’s increasingly important to understand the downstream impact, including how end consumers use the product, the type of emissions they produce, where the is product discarded, and whether there is any risk of pollution or impact on local communities – including health risks for end consumers. Awareness among consumers is steadily improving, from waste management systems at home to incentive systems provided by national legislators, for example, deposit systems for beverage packaging.
Strengthened visibility needs to be supported by intelligent tools such as Ecovadis, which can help with upstream visibility. However, downstream visibility remains a challenge as it needs internal alignment, as well as the involvement of customer groups and regulators. This is a complicated process as some information is derived from official reporting, which might not be as dependable as needed, while overall data transparency is limited by integrity standards such as GDPR.
Supply chain visibility is most important for product companies, but global supply chains for tech and service companies are coming increasing scrutiny. Important questions to answer are:
- How is the service delivered? For example, do the hosting centers use green energy?
- What do you need to offer the service? For example, what is the transportation setup?
- How does the service affect consumers?
CASE STUDY: Mercedes Benz
The German automotive manufacturer Mercedes Benz has set a goal of providing only carbon-neutral passenger cars to its customers in under 20 years. To achieve this goal, the company needs to achieve complete transparency on the climate impact of all related processes in the value chain. Mercedes Benz partnered with the startup Circulor for this purpose, beginning by striving to gain transparency on CO2 within the cobalt supply chain. The company used Blockchain-based systems to track the materials during production, associated CO2 emissions, and the amount of recycled materials in the entire supply chain in order to create closed material cycles and a circular economy over the longer term. As a result, the company can not only provide greater transparency, good working conditions and human rights, environmental protection, and safety; it can also ensure compliance with business ethics and safety standards from all involved parties.
Sustainable companies need to include the true cost of sustainability as part of their pricing strategy. Data-driven analyses can support assessing the true impact. Two important success factors for the analysis are a high transparency of cost structures as well as an initiative-taking sales management to achieve customer buy-in for potentially increased cost.
Successful sustainability pricing is always cross-functional as several departments must collaborate to determine the full impact in terms of areas like energy, packaging, transportation, and manufacturing. Having full transparency gives a firm visible evidence for a pricing premium as all input costs can be traced backward. Additionally, data transparency addresses customers’ worries for potential greenwashing.
When rebuilding the product and service portfolio, sustainability pricing levers can facilitate customer segmentation as they clearly identify sustainable and non-sustainable products and/or services. Future-oriented strategic portfolio decisions can be based upon this analysis. According to our experience, acceptance of increased costs is also higher if you can prove the actual expense. This conclusion is relevant both for B2C and B2B enterprises, when your customers focus on their own sustainability performance (for example, selling intermodal transport to a FMCG company).
CASE STUDY: Agricultural company
Our client, a major agricultural company, was struggling to guarantee sufficient supply for its operations in Brazil. Grower margins in South Brazil were under pressure from multiple factors, including inadequate pricing, high production costs, competing crop and enterprise margins, and other income streams, which hurt both the availability and price of agricultural produce. Consequently, our client aimed to develop a sustainable crop pricing and grower return model prototype that incentivized farmers to grow more and sell to it. The client wanted to achieve sustainable grower returns to secure supplies, while also remaining competitive.
Through our project, we jointly developed a data-driven tool featuring a multi-crop sustainable returns model, an annual crop pricing model, a user guide, and a training workshop for future operators and maintainers. Our tool mitigated threats from competing crops and alternative employment, prepared for grower demographic changes, and reimbursed cost of production in any single crop cycle. The new crop pricing prototype was a success, and it attracted and retained quality growers in a competitive and evolving operating environment. This secured competitively priced crop supplies to meet current and future demand, while also balancing sustainability and financial viability. Following the success of the prototype, the client deployed the tool to its company planning cycles in other regions immediately after this joint project.
Sustainable product portfolio
By introducing a sustainable product portfolio, a corporation can add sustainability to their products and services generating additional value for the customer base. Sustainable product portfolios take many shapes and forms and can be witnessed in a multitude of industries. Products can either be sustainable in themselves, like the sneaker made of recycled materials with 100 percent renewable energy. And then there are products that allow the consumer to live a more sustainable life, like LED lights and water-reducing faucets.
Many FMCG or apparel firms have also started to add sustainable offers to their range of products, like the sneaker mentioned above. Even B2B sectors like transportation industries have actively started to advertise the sustainability benefits of intermodal transportation or alternatives to fossil fuels.
These portfolios harbor a risk to be perceived to be “greenwashing“, if products or services are only sustainable in name and not in nature, or if the sustainable portfolio stands in contrast to the remaining non-sustainable (for example, polluting or exploiting) portfolio of the company in question. Before launching a sustainable product line, you should have checked the risk exposure of the total product portfolio.
The introduction of a sustainable product portfolio is a delicate process that should be planned and executed carefully to ensure strategic alignment. The redirected sustainable product portfolio is likely to have a positive impact on sales, customer retention, talent acquisition and retention, as well as shareholder value.
CASE STUDY: BASF
The EU Green Deal is a driving force for the German chemical company to improve a range of sustainable products and production methods. The aim is to reach net-zero CO2 by 2050, driven by energy-efficient and biobased materials for a fossil free future. The company is developing materials for sustainable mobility (PU solutions for batteries, panorama roofs), as well as biobased materials for insulation, while fossil resources will be completely replaced by renewable raw materials.
Design for sustainability
Design for sustainability is a particularly powerful lever to ingrain sustainability in the very essence of a product or service, when the design space is still wide open compared to the redesign of an existing offering. Sustainability factors are meant to be regarded and included in every step and aspect of the design process and harmonized with the functionality and the life cycle of the product or service. However, thinking about these factors during the conceptual phase will dramatically increase the complexity of the design process and will usually result in multiple difficult-to-resolve trade-offs.
Apart from the obvious considerations of costs vs. environmental and social impact, designers face the challenge of a fast-moving and ever-changing business environment. Solutions that are sustainable today might be obsolete in a matter of years – either because they are overtaken by new innovations, or because the market environment might have changed. For example, designing a product with a reusable battery solution could create a long-term issue for pricing and component availability, as global demand for lithium and other rare-earth metals surges amid the ongoing electrification of the automotive industry. Similarly, considering the holistic sustainability implications of all input factors of a given product or service is a daunting endeavor that necessitates deep technical, ecological, geopolitical, and economic understanding. Consequently, design for sustainability is a long-term process that requires close alignment of cross-functional teams and a high degree of systems enablement.
CASE STUDY: Philips
The health technology company Philips has replaced traditional design processes with the EcoDesign approach, which embeds sustainability from the beginning of any innovation process. The goal is to think about the total environmental impact of a product right from the ideation and design process. The company aims to conceptualize all its new products in this way by 2025, incorporating energy efficiency improvements, reducing the use of resources, increasing its use of recycled materials, and avoiding dangerous substances. It also aims to consider circularity and to use packaging which is easy to recycle and reuse. The backbone of these processes is life cycle analysis, which enables environmental impact to be assessed at each stage of the product life cycle from sourcing materials, manufacturing, use, and maintenance, right through to disposal or recycling.
CASE STUDY: Global pharmaceutical company
A global pharma company wanted to assess designs for sustainability opportunities across bottles, closures, blisters, and films. We worked with the client to analyze 20 packaging stock-keeping units (SKUs) in our design lab, deconstructing them and benchmarking them with competitor products. Furthermore, we collected and consolidated customer reviews of the packaging. In cross-functional workshops with marketing, packaging, engineering, and the operations team, we collaboratively discussed and designed changes to the packaging that helped to significantly reduce material usage with same packaging functionality, resulting in 5 – 15 percent savings in packaging cost per SKU and significant reductions in resin usage.
Once you have established your sustainability baseline, a critical next step is conducting a materiality assessment. A materiality assessment can be defined as an analysis that will help you to identify the social and environmental topics that matter most to your organization and your immediate stakeholders. This evaluation will enable you to identify the key issues that you need to focus on in your further sustainability initiatives. It will also give you a better understanding of stakeholder views and their engagement in sustainability.
To conduct the materiality assessment, you first need to identify relevant stakeholders. These can be both internal and external and include (but are not limited to) local communities, suppliers, customers, regulators, employees, and industry partners. After identifying the issues that you want to measure and building an appropriate tool to analyze them – for example, a survey or a semi-structured interview guide – you can start engaging with your stakeholders to collect their perspective and insights. To finish the materiality assessment, you need to aggregate and map out the varying views and opinions on the issues selected. This will help you to prioritize and implement sustainability where it counts and will have an important role to play in guiding future sustainability efforts.
Finally, it’s vital to conduct a double materiality assessment: your business has an impact on society and climate – as well as vice versa – and both perspectives are equally important.
CASE STUDY: A.P. Moller Maersk
The container shipping line Maersk conducts materiality assessments on an annual basis. As part of this process, the company holds yearly workshops with key stakeholders to discuss the main areas and impacts of Maersk’s business on these stakeholders. Maersk then combines these inputs with those of its own internal materiality assessment to create a materiality matrix. This maps out all the issues discussed, giving the company a better understanding of where they should focus their sustainability efforts. Furthermore, the matrix is compared to the output of prior years to identify trends over time and is also included in Maersk’s annual sustainability report for the public to see.
Sustainability metrics are mostly at a nascent stage and have limited ability to compare your data with industry standards or best-in-class examples. A shortcut is retrieving comparative input from other companies through a planned and regular benchmarking exercise. When it comes to benchmarking, you don’t necessarily need to use one company alone: various companies may offer different relevant inputs. This approach can give you valuable feedback on your overall performance; for example, what are risk areas and where are you investing too much – or not enough? Over time, an organization will build a solid understanding of different benchmark partners that can deliver valuable input on specific questions.
If conducted regularly, benchmarking exercises provide an uncomplicated trend barometer of the industry and/or a specific question. The feedback can provide insights into the direction of your industry and may give you a useful indication of how well you are positioned.
The external benchmarks can be performed by third-party service providers, or they sometimes are publicly available in your business intelligence setup, for example, scanning certifications, GRI standards, and sustainability reports. Successful sustainability benchmarking requires a high level of data governance and data availability – both internally and externally.
CASE STUDY: Leading European retailer
One of our clients, a leading European retailer, was concerned about sustainability issues because most of its customers were interested in purchasing high-quality, organic food and produce. Selling house brands and organic products, the retailer had already successfully implemented its first-generation of sustainable strategies, but it wanted to know how it compared to its competition. We were engaged to evaluate the client’s current sustainability performance and to recommend a future direction. We conducted a benchmarking exercise against other leading European retailers, covering eight dimensions, 18 topics, and 73 KPIs.
The benchmark included the client’s sustainability performance in areas where it had already implemented initiatives, and in potential areas of sustainability in new or related products and services. The results were used as an opportunity to redefine sustainability within the entire spectrum of health issues and update the product portfolio. Internally, the retailer changed its organizational structure, accountabilities, metrics, and governance approach to embed sustainability issues more deeply throughout the organization.
After doing your due diligence and putting all foundational elements – a baseline, a materiality assessment, a metrics database, and a code of conduct – in place, you can start to formally plot and detail your sustainability journey. This is where your sustainability roadmap comes in.
The sustainability roadmap can take many forms, but it is always a strategic document that will guide the development of your sustainability strategy and its underlying initiatives over the long term. The roadmap specifies which concrete actions you want to take, how you will fund them, and when and where you will take them. It also gives a clear indication of ownership and responsibilities. While we have positioned the sustainability roadmap near the bottom-left-hand corner of the Chessboard, this lever will grow and expand as you continue to implement additional levers both to the right and above. As you set specific goals and implement increasingly complex sustainability tools and processes, the roadmap will be updated to reflect your evolving journey. But setting off on this journey without an initial, simple map would mean you run the risk of getting lost along the way.
CASE STUDY: Global F&B company
A global F&B company approached us after identifying significant uncertainty on the sustainability front. Its existing initiatives were disjointed and siloed, and it was not tracking or measuring the impact in a consistent way. As a result, the client had already been accused of greenwashing by NGOs. Consequently, it was looking for a structured and systematic approach to sustainability that would guide its journey for the next few years and ensure that it does not overstate its achievements.
We have supported the client in reviewing the status of their ongoing initiatives, including resources and responsibilities, and discussed additional potential sustainability initiatives in workshops. Subsequently, we helped the company to structure the initiatives defined in a sustainability roadmap, which detailed ownership, timelines, resourcing and funding for all initiatives. It also documented expected impacts and responsibilities at a stakeholder level. The jointly designed roadmap has helped our client understand its sustainability journey and how to put its good ideas into practice, while significantly improving the accountability and plannability of its scheduled initiatives, thus reducing the risk of greenwashing.
The years after the Paris Agreement in 2015 have seen a rapid development of “science-based targets” (SBT) to accompany and structure individual decarbonization transformations. Listed companies, in particular, are using this format on top of reporting and SDG-commitments to contribute measurably along the value chain. Divided into three scopes (1, 2, 3), science-based targets are set to mirror your direct, indirect and the value chain impact, respectively (see chapter two for a more in-depth explanation of SBT and Scope 1, 2, and 3 emissions). They define general company and unit-specific sustainability goals, and allow them to be regularly monitored.
To define science-based targets, you first need to identify company data for each of the categories. The second step focuses on prioritizing the input based on relevance and visibility. Finally, you need to define and work towards different sets of targets along a timeline (for example, achieve target A by 2025 and target B by 2030). This ideally results in an action plan with concrete milestones that can be followed to reach the intended targets.
CASE STUDY: Carrefour
Carrefour first adopted SBTs on Scope 1, 2, and 3 emissions in 2015. In 2020, the group set new targets for Scope 1 and 2, and refocused their efforts on Scope 3 emissions – given that 98 percent of the group’s emissions are part of Scope 3 (mostly through products & packaging sold in stores and the use of these products). The aim is to significantly reduce the sustainability performance of Carrefour products, stores and operations compared to the 2019 baseline. For example, the company plans to reduce store emissions by 30 percent vs. 2019 levels by 2030 and by 55 percent by 2040. Similarly, Carrefour aims to reduce supplier emissions by 30 percent vs. 2019 levels by 2030 and consumer emissions by 27.5 percent by 2030. Finally, it plans to reduce transport emissions by 20 percent by 2030, increasing to 55 percent by 2040. These clearly defined and measurable targets enable Carrefour to monitor whether it is on track to deliver its long-term sustainability transformation. Furthermore, its ambition highlights how science-based targets can be differentiated among different units and functions to ensure a realistic and guided approach.
Sustainability business case
It will not be possible to reach 2030 targets – or even maintain 2022 conditions – using a 2010 business case evaluation model. Consequently, a company that wants to be successful will need to adjust some parameters in their business case evaluation. Often, when sustainability initiatives reach the desk of the CFO, they do not come out on the top of the pile as they may appear to cost more than other initiatives or have a lower return on investment (ROI). To avoid consistently making short-term and, frankly, wrong decisions, organizations need to adapt their business case assessment logic to account for the long-term impact of sustainability.
Companies that want to be successful need to assign a value to sustainability and to the cost of inaction. If not, they might pass up on an initiative because there was no ROI within a specified amount of time, but they end up heavily penalized due to losing significant market shares over the medium term. Accounting for this dynamic and understanding how sustainability will affect revenues and costs in the medium to long term is key to anchoring sustainability in the organization’s decision-making process.
CASE STUDY: Leading telecommunications provider
As part of a broader project engagement on sustainability, we helped one of the world’s major telecoms providers to embed sustainability criteria into its business-case logic. The client has been one of the telecoms companies to report and take action on sustainability with respect to climate, circular economy, people, social, and commercial engagements – with the leading sustainable player in its industry. Despite this commitment and the efforts already made, sustainability had only been partially embedded into the organization and the DNA of the firm, leaving a great deal of work still to be done to make it a leading sustainable player.
Together, we defined a new methodology and communication strategy to anchor sustainability into the company’s decision-making. This included a list of changes to the operating model – in particular, planning and forecasting, reporting, procurement, and investment (including carbon pricing) – to ensure a long-term perspective on all business cases. We also outlined a communication concept – including a narrative, branding concept, stakeholder messages, and changes to formats – to ensure that all stakeholders understood why this change was necessary. Only time will tell whether these recent changes will have the desired long-term improvement of sustainability impact, but we are positive that they will make a huge contribution to putting the client on the right path.
A company can build a network of collaboration partners, sharing the same vision and/or game plan with the purpose of promoting leadership in sustainability and learning from each other. Working together requires patience and skill as it is important to go beyond verbal commitments and assess the impact of agreed partnership actions. It also requires a common understanding of how sustainability needs to be approached, measured, and ingrained in decision processes. The lever describes the need to implement an approach to identifying and planning concrete measures of sustainability within the partnership to support prioritization of actions and the intended decision-making process. This way, the benefits of the partnership can be aligned and have crystal-clear objectives. The process can lead to the assignment of specific roles and responsibilities between the partners. Additionally, it allows the identification of project outcomes and further improvement potentials. This fosters higher effectiveness of sustainability partnerships. A successful collaboration opens for the opportunity of defining sustainability industry standards and can boost innovation.
Partnerships can either be informal or formalized through a contract. In some partnerships, both parties will be equal partners, whereas others will have a clear power dynamic – for example, with one party funding the initiative and the other executing on the ground, or with one party bringing in functional expertise and technology, while the other brings the sustainability understanding. It is important the partnership support should not take the form of a “quid pro quo”, as this will quickly eradicate trust and bring a more negotiation-driven character to the partnership. Partnerships can be broken if both parties agree that the collaboration does not reap benefits for them anymore, but this can often have negative repercussions – particularly if the sustainability partnership was strongly communicated due to brand reasons. Thus, we advise to handle this with care and screen your potential partners closely before engaging in the partnership.
External sustainability board
By installing an external sustainability board, you manage to receive outside views and direction to improve your sustainability management. This lever supports an independent view of your activities in all three relevant fields: economically, socially, and environmentally.
The outside-in view will generate relevant questions about how all sustainability targets are aligned with overall strategic objectives and are serving vital stakeholder interests. The role as sounding board will support your calibration of activities and the network of board members opens even for a broader exchange across companies and industries. The recruitment of suitable members depends on your individual goals and your network: if you are seeking specific expertise, you will find a suitable candidate among opinion leaders in special interest groups. And if you want an expert with specific transformation experience, you might find them in sectors with similar industry logic.
An external sustainability board can also be used to review the annual sustainability report before it will be published, thus giving you informal confirmation that you are on the right track on top of the formal signoff from the company auditor.
CASE STUDY: SEB
The leading Swedish financial services group has established an external sustainability advisory board staffed with leading sustainability experts. The insights of non-financial experts generated in the SEB External Sustainability Advisory Board will better prepare the bank to meet the sustainability challenges of today and tomorrow, enabling SEB to benefit through increased knowledge and awareness.
The board will discuss theses, theories, and ideas on different subjects within sustainability, with experts representing diverse experience and professions.
CASE STUDY: Global medical device manufacturer
A multibillion-dollar medical device company approached us as they wanted to lower operating costs and increase profits by focusing on sustainable activities and the reduction of the company’s environmental footprint. We were tasked with developing a global sustainability strategy with guidelines and incentives for environmental stewardship, a business case for action, and a governance model to balance corporate direction with business-unit flexibility. We assessed the company’s environmental impact and sustainability practices, prioritizing the key environmental issues, identifying gaps, and crafting a sustainability vision. Among other initiatives, we designed a governance structure that includes an external advisory board and a sustainability council to help integrate environmental stewardship into the company’s strategy and daily processes. The external advisory board supported the C-suite in sustainability decisions. With its guidance, the client’s environmental footprint showed significant improvement, saving the company up to over 10 million kg in resin and 630 million kilowatt hours of electricity per year.
There is no doubt that being perceived as a sustainable brand will have a significant positive impact on your firm. Apart from securing the goodwill of the general public, you will also attract investors focusing on ESG and the highest-caliber talent in your industry. Furthermore, customers that are looking for sustainable solutions and partners will favor you over your less sustainable competition and might even be willing to pay a premium. The key to your sustainability brand positioning is to conduct a stringent due diligence to ensure that your sustainability basics are in order before you get your name out there as a sustainability brand – otherwise, you will face a serious backlash. Your stakeholders might forgive you one or two missteps given the length of time for which you have already been perceived as a sustainability champion, but situations like these also need to be managed proactively as they will hurt your reputation and goodwill over the long term.
Another advantage of positioning yourself as a sustainable brand is the effect that normative expectations and peer pressure will have on your organization. Sustainable brands will be perceived as sustainability leaders, which will create expectations about your overall sustainability performance and innovation. These expectations with apply normative pressure on your firm and boost all functions to meet these pressures by proactively looking for “the next big thing” in sustainability. Consequently, a strong brand positioning is key to catapult your organization into the top right quadrant of sustainability leaders – if you manage to put an enabling organization in place
CASE STUDY: European lubricant additive manufacturer
We helped a leading European lubricant additive manufacturer to identify opportunities to leverage sustainability in its brand positioning. The company was already quite active in circular initiatives and already marketed part of its products as “green” or sustainable. The client asked Kearney to optimize its positioning in Circular Economy and understand how sustainability could drive business opportunities. We conducted an in-depth analysis of five products in five countries, starting by utilizing our proprietary trends database to isolate the recent business impacts of circular developments. Next, we identified and evaluated public opinions and main NGO topics through social media sentiment analysis. And finally, we created a detailed regulatory map for all current and planned circular & sustainability regulations. Based on these deliverables, we identified 21 specific opportunities for our client to generate additional revenue through improved positioning.
Establishing a sustainability baseline is a key exercise in enabling more advanced levers. Indeed, many organizations fail to conduct this crucial step before embarking on their journey – either because it is not as “flashy” as some of the hot topics of sustainability, or because they lack the data availability and ownership to conduct the baselining process.
Nevertheless, establishing this baseline is a critical first step on the journey toward sustainability. Let’s imagine that an organization has undertaken a lighthouse sustainability project on a whim and then realized too late that the impact is neither measurable nor comparable to historic data – simply because they neglected this important early step of baselining. The sustainability baseline should be holistic and include all relevant environmental and social factors. The baseline is the starting point of your journey and will help you understand where your current position and your current sustainability impact. It will also quickly highlight any issues with your organizational enablement – for instance, if you have challenges pulling together the necessary data. This in itself is already valuable, as it can help you understand areas for development as you move forward in your sustainability journey.
CASE STUDY: North American beverage company
A North American beverage company asked us to assess its current sustainability position to enable them to identify sustainability opportunities to get ahead of its competition. We developed a baseline based on the data available and benchmarked the client’s products against those of its competitors to understand material usage and highlight categories with high impact potential. Subsequently, we gathered information on the client’s current pipeline of sustainability initiatives – many of which were regional and siloed – and structured them together with their corporate sustainability function. To challenge our baseline and generate further sustainability initiative ideas, we hosted cross-functional “moonshot” ideation workshop with external experts – including material science experts, industry leaders, and representatives from manufacturing and sustainability organizations. Following our baselining and ideation exercise, the client had a much better understanding of his starting point and strategic options, which enabled us to jointly set up a sustainability roadmap including a timeline and implementation plan for the identified initiatives.
Basic sustainability certification
In addition to regulatory audits, you can choose to strive to obtain different kinds of certifications to improve and promote your sustainability efforts. These vary highly in terms of requirements, involvement, and complexity. This lever covers the more common and basic certifications, while our Advanced sustainability certification lever will map out the “next level” certifications that we currently see in the market.
Traditionally, you can either go down the road of process professionalization and seek for quality-oriented certifications considering environmental management (such as ISO 14001, Forest Stewardship Council, Rainforest Alliance) or focus on recognized sustainability formats such Cradle to Cradle, with different achievement levels depending on a product’s sustainability performance. Additionally, you can find industry-specific certifications, such as MSC (Marine Stewardship Council) or EU Organic Farming for organic and sustainable food, LEED (Leadership in Energy and Environmental Design), or BREEAM (Building Research Establishment Environmental Assessment Methodology) certification for green buildings, or labels such as Fairtrade International for fair trade and social aspects.
To achieve certification, you need to invite an external organization to validate your targets, data, and capabilities. To avoid enormous extra work for your organization, you should ensure that the generated metrics cover the requirements of the desired certification right from the start. This is why the lever Sustainability baseline takes clear precedence over this. If you identify gaps, close them before you invite external parties to audit you. Another advantage is that basic certification can help you to validate your baseline, at least in part.
Even though certifications do create extra work for the organization, they come with several benefits. Your organization will learn how well targets, KPIs, and the system setup supports a successful sustainability transformation process. Additionally, certification can provide a valuable morale boost for the teams involved, and can be successfully used for to promote the company’s sustainability efforts, demonstrate transparency, and increase credibility. Certifications can also give you a good understanding of development areas and where to further focus sustainability efforts.
Once you have started to develop targets and an initial baseline, you need to create a database that tracks progress, aligns analytical conclusions, provides a holistic view, and offers direction for improvements. As digital system readiness may differ, you should run through certain steps to define both organizational setup and system support.
We have seen successful cases among our client base where an organization started by defining the chain of command. It is essential to define who collects the data, who is responsible for analysis, and who drives continuous improvement and system support – for example, when data deviates from the anticipated route. Depending on the subject, these responsibilities can be either allocated to a specialist (for example, sales and/or purchasing) or to a group function (for example, accounting) that is already responsible for collecting data. In other cases, specialist functions (for example, a dedicated sustainability department) can be created to steer the process of gathering and calibrating data.
Whatever route you choose, make sure your metrics are incorporated into existing tools (for example, ERP and/or CRM) and can easily be made transparent throughout the organization. We have seen organizations using extensive Excel documents as steering tools, which hinders organizational buy-in due to the lack of transparency involved. Improved organizational proficiency plays a decisive role in overcoming this hurdle and ensuring long-term success.
The quality of data generally improves over time as the organization matures and learns how to work with crucial KPIs. Regulatory audits and reports are becoming more accurate and comparable, which boosts organizational confidence and enhances the ability to accelerate transformation.
When establishing basic KPIs, start by assessing the available datasets for financial, environmental, and social impact. Once this assessment is in place, compare the results with the requirements for achieving legal compliance. This analysis will generate key indicators that you need to track on a continuous basis.
KPIs can be implemented on a group, unit, and function specific level as they should capture different kind of progress that has to be made. One challenge is to harmonize data and perspectives, and to establish accountability and ownership: for example, if you define a KPI that measures the percentage of green energy, it should also be clear whether purchasing or operations is accountable for the delivery of the target. When embarking on the journey to define basic KPIs, you need to define your analytical tools, clarify ownership of process, data and the tool as well as define reporting mechanism and receivership.
Depending on your sustainability strategy, KPIs can also comprise partners up- or downstream in the value chain – for example, if you need to stress compliance among suppliers to the principles of your code of conduct, the relevant KPI could measure ratification rates or the degree of compliance. KPIs need to be comparable over time: in other words, they should always be gathered in the same way, using the same methodology. Ideally, the basic KPIs will also support the overall strategic direction of a company, as both management commitment and the effect will be greater.
Starting a sustainability transformation will also include a fair number of trade-offs that will have to be made. Activities in the financial and/or operational arena may not support sustainability targets and management needs to define a prioritization agenda.
We propose to install trade-off guidelines on covering social, environmental, and economic aspects. Depending on the industry you are in, you want and need to stress certain characteristics more than others: for example, if switching to more sustainable raw materials will be more costly, you will need to adapt both your pricing strategy and your marketing and communication to customers and shareholders alike.
This lever facilitates decision-making processes and if conflicting interests exist, you should be able to define decision priorities by key area for your operations. Multiple requirements (for example, profitability, lead time, public opinion, consumer acceptance) need to be weighed against each other. Within procurement, you could issue supplier guidelines stating that a minimum of x percent of the supplier base are advanced in sustainability (for example, 80 percent of suppliers have a supplier code of conduct in place and comply with it). Another guideline could be to choose a more sustainable material if it negatively affects profit by less than x percent. Guidelines can also include diversity policies by for instance setting a minimum percent of recruiting goals (for example, a minimum of x percent disabled persons will be hired by a particular year).
Internal sustainability funding
This lever pays attention to the fact that engaged employees are critical to building a true sustainability culture. We propose investing in internal sustainability funding to boost innovation from inside the organization and to encourage employees to volunteer for different sustainability improvements.
Depending on the structure in your organization, the funding can either be organized on a functional (department) or geographical level (plant, office). You have the choice of developing a funding program that can be both issue-related and can support sustainability more broadly.
Employees can apply for funding with a simple application highlighting their idea, their funding need, and the expected impact. You can use events (for example, hackathons) or ongoing initiatives (regular community outreach). Depending on the level of the funding setup, local managers or global sustainability managers decide which proposals receive the funding. Funding initiatives have a very positive impact on employee retention, recruiting, and innovation perception. Employees can fulfil their need for self-realization by sharing ideas.
CASE STUDY: BASF
The German chemical company aims to engage and educate employees through training activities, the development and adjustment of business processes, and sound incentive schemes. It is establishing channels to engage with employees and other stakeholders to listen to ideas and to be able to address concerns and protecting “whistleblowers”.
It has founded the BASF Stiftung, an independent nonprofit organization, to provide donations to its projects with various U.N. and nongovernmental organizations. In addition to financial targets, the company pursues also non-financial targets on climate protection, a sustainable product portfolio, responsible procurement and engaged employees to steer the business into a sustainable future.
Now it’s time to look beyond the scope of your firm and immediate partners and launch sustainable initiatives. The difference with internal sustainability funding is that this is not a fund that can be utilized if internal processes identify a feasible innovation, but rather a very directed and deliberate external sponsoring of initiatives tackling key issues.
Sustainable initiatives refer to all sorts of initiatives that drive sustainability within the broader scope of society. This can refer to social impact initiatives where you reach out to local communities to support them with a specific issue and engage in a meaningful discussion, which garners goodwill and helps your employees find additional purpose. However, it can also include environmental initiatives to support emissions reduction targets, save natural habitats, or help endangered species. It is crucial that these initiatives have sufficient funding and resources to be conducted properly, as overpromising and underdelivering will have significant negative repercussions for the public perception of your firm. Having a dedicated project manager or owner out of your sustainability team will help to ensure success of these initiatives.
CASE STUDY: Kearney
We have set up our Social Impact Externship Program, which pairs consultants passionate about creating a positive impact with social entrepreneurs, NGOs, and other innovative impact organizations. Externs can spend up to three months working directly with these organizations, giving them the opportunity to contribute professionally to a meaningful cause, build new skills in a dynamic entrepreneurial environment, and gain firsthand experience in the social impact sector. For example, the program has assisted non-profit organization Forever Sabah in studying the viability of renewable energy in Sabah, Malaysia. Forever Sabah is a civil society entity established to support Sabah’s transition to a diversified, equitable, and circular economy. It is a collaborative social movement committed to utilizing Sabahan knowledge and experience in working with others and across sectors.
This project was designed to achieve 100 percent rural electrification and to increased renewable energy generation. We employed a two-pronged approach: first, we simulated annualized costs of implementing renewable systems using HOMER (Hybrid Optimization of Multiple Energy Resources); second, we conducted interviews with major government and non-profit players to gain an understanding of the landscape and key challenges. Our study has supported Forever Sabah in pursuing its goals and has had significant social and environmental impact, while also giving our consultants the opportunity to use their skills for the betterment of society.
Management teams today are often guided by a tight incentive scheme that should support overall business targets. But with sustainability becoming more and more important to realizing company strategies, compensation models now need to reflect that change. Remuneration swill adapt to new realities and utilize the guidance deriving from improved quantifiable data to steer incentives into a new, more balanced direction.
This lever advocates for anchoring compensation schemes closer to the delivery of sustainability targets. Change starts at the top, so it is important that adequate compensation schemes for senior and mid-level management are set regarding sustainability targets. The structure should balance different areas such as safety, environmental topics, and governance. Ideally, sustainability metrics are integrated into the overall measurement framework for the company. The compensation should not only be linked to short-term improvements. Instead, it should reflect the responsibility to support long-term sustainable corporate performance. This is particularly important for middle management, which is often the biggest obstacle to sustainability efforts. While leadership usually carries the vision and commitment into the organization, and the “grass root” employees are usually appreciative of sustainability efforts, middle management is usually very clearly measured by efficiency and cost targets and will often oppose sustainability innovation as a result. Consequently, making sustainability a priority for these managers by linking specific goals and progress to their compensation can ensure better alignment and buy-in from these team leads.
CASE STUDY: Alcoa
Alcoa, the U.S. aluminum company, links executive pay to sustainability performance. A percentage of Alcoa’s annual incentive compensation is linked to both balancing gender equality and diversity in leadership and increasing the hiring of global women in all levels of the organization. This is a way for the company to drive accountability, accelerate actions, and measure progress. In 2020, 30 percent of Alcoa’s annual incentive compensation plan was linked to non-financial metrics that were focused on gender diversity and environment, and health and safety targets.
Regulatory audits are often triggered by external demands and are seldomly a proactive sustainability instrument, except when it comes to supplier audits. If listed on the stock exchange, companies of a specific size must comply with their listing contract and audits are approved by the company auditor. In these cases, the ESG umbrella is the guiding star providing investment advice to financial institutions. Regulatory audits are a housekeeping factor and may also include certifications (such as ISO) that are used as quality stamps. Certain customer groups require audits as entry ticket for tender processes: for example, potential IKEA suppliers need to commit to the Group’s own regulatory set up, the IWAY (see case study below).
External regulatory audits need basic internal reporting routines for tasks such as analyzing employee satisfaction, safety, health, and diversity. They are used to “tick a box” for a specific demand, but are not used to strategically develop the organization.
CASE STUDY: IKEA To start a business relationship with IKEA, suppliers need to commit to the IWAY, the group’s own regulatory set up and a type of code of conduct. The IWAY aims to promote positive impacts on the environment, to secure meaningful employment for workers, to respect children’s’ right and to respect animals within the IKEA value chain. These four principles are supported by 10 top-level requirements that need to be fulfilled, including respecting labor rights, health and safety regulations, and resource preservation. IKEA also conducts regular audits to ensure suppliers that have committed to these principles also implement them in practice. For this, IKEA also provides an audit checklist that helps suppliers to review and ensure all requirements.
Code of conduct
The code of conduct is one of the most important documents mirroring a company’s sustainability ambition. Ideally, the code of conduct is the mental backbone for the company culture as it describes the modus operandi in several aspects. It is a core requirement for being a listed company and is used to describe operational principles and standards towards key stakeholders of the operations (from employees to suppliers). It is often very formalistic as the intention is to “tick” important boxes (for example, statements on the importance of the environment), but you will find a lot of policy thinking expressed between the lines. The code of conducts sets the tone for further explicit strategies, as well as for concrete targets and KPIs. When you state in the code of conduct that you will act as a “follower” in the field of sustainability, the strategies, targets, and KPIs you choose should reflect the overall direction stated in the code.
A code of conduct can be used in multiple ways: towards external stakeholders such as authorities, banks, customers, and the stock exchange, with the intention to show that the company follows sound business practices. Externally, it can be used to attract high-caliber talent and to strengthen your brand perception. However, the most important part is how the code of conduct is used when it comes to partners in the supply chain. In many cases, the document acts as an entry ticket for participation in tender processes and the requirements are predefined by the customer. In other cases, it can be used as a reassurance that upstream value chain participants are working along the same ethical code as your own company.
However you use it, the code of conduct is not a static document, and it should be reviewed regularly to continuously integrate new requirements.
CASE STUDY: Procter & Gamble
P&G’s Worldwide Business Conduct Manual sets out the global standards that employees must follow to uphold the company’s purpose, values, and principles daily. The manual provides clear guidance on specific situations an employee might face and explains how to act and where to turn if they have further questions or concerns.
P&G believes that the continued success depends on each employee upholding purpose, values and principles daily. The ambition is to demonstrate to customers, consumers, fellow employees, and business partners that words and actions are aligned.
A sustainability vision describes how your company would like to be perceived in relation to its sustainability ambitions. It is an aspiration that is put in writing, and it often contains broad wording to provide room for multiple targets and KPIs. A sustainability vision should answer two main questions:
- What level of ambition level are you targeting (for example, do you want to be perceived as a leader?)?
- How do you want your sustainability work to be perceived by your key stakeholders?
Setting a timeframe of five years to deliver your sustainability vision is common: it is not too far away to be intangible, but is close enough to imagine how your sustainability position look at that point in time. Phrasing a powerful sustainability vision is difficult: as ambitious words need to be supported with day-to-day actions and delivery to convince key stakeholders that the statement is more than nice words on a piece of paper.
Harmonizing your overall company vision and strategy with your sustainability statement is a decisive first step toward achieving the necessary internal buy-in for sustainability. Commitment from top leadership is a second important step, and using your vision proactively across all company-owned communication channels is a third.
We have seen in successful client cases that the sustainability vision of an organization succeeds in ingraining a sustainability culture within its operations: as soon as sustainability becomes a corporate goal, all functions have to start considering their own sustainability impact and how to achieve their respective goals.
Unit-specific sustainability goals
If you have defined your overriding targets and KPIs, you need to find a way to translate them to a subset of adapted goals that are close to the reality of different organizational levels. Improved organizational readiness will support your organization in visualizing the connection of overarching targets with unit-specific ambitions. For example, if your overall target is to be carbon neutral by 2030, you should be able to break this goal down into measurable smaller targets at a function and unit level when it comes to travel and other organizational activities.
The importance of this lever lies in defining clear roles and responsibilities and holding management accountable. Our advice is to define targets on as many relevant organizational levels as possible. If your overall targets appear too far removed from daily operational needs, you will struggle to secure the commitment that you need from the organization to drive the transformation forward.
Consequently, you will need to define responsible employees or teams in each unit for these goals, make sure they collect the data, and prioritize them. The targets should trigger actions along a defined timeline to ensure that they can be achieved. Ideally, there will be an efficient coordination between all unit targets toward the overall sustainability goals of the company, which consequently ensures compliance with your company’s sustainability vision.
Legal conditions around sustainability are constantly evolving, so this lever focuses on promoting a regular exchange with regulatory bodies geographically and within your industry or service sector. This advocacy can help to drive your industry as a whole toward a more sustainable future; it can also help ensure that any new regulation is effective and generates impact with as little disruption to your overall business practices as possible. Smaller enterprises will probably need to utilize the clout of an industry association to connect, while larger companies often invest in their own or hired resources for this exchange.
We believe that a proactive approach underpins your leadership ambition, provides you with early insight into regulatory changes, and builds trust with regulatory bodies that you can fall back on in tougher times. This lever can be perceived as close to traditional lobbying, which has historically often been used to negatively influence sustainability regulation, driving an industry away from sustainability. Hence, companies should be very careful how these exchanges are designed and how they are communicated to the public to avoid misunderstandings.
Chief sustainability officer
An important lever to ensure that the sustainability transformation gets sufficient attention and resources is the appointment of a Chief Sustainability Officer (CSO). This signals to key stakeholders that sustainability has a high-profile position at the company’s most important decision forum. Still today, the head of sustainability often reports to a communication or marketing VP, insinuating that the efforts are just that.
However, the change is more challenging than it sounds, as it does not stop with the appointment of your CSO. To be successful, you need to define goals and internal reporting lines upfront. You should also clarify the freedom box of the new function, as well as allocating personal resources and funding. As you will have a new decision maker at your C-suite management table, you should also address upfront potential areas of interface conflicts with Operations, Purchasing, HR, and Finance alike.
You should ensure that the position of CSO is more than a PR driven statement (“We are sustainable because we have a CSO”). The CSO should have executive power and be at the core of all decisions that affect sustainability. Consequently, if you have done everything according to the book as described above, the appointment can bolster your decision-making capability for sustainability and strengthen your reputation as leader and improve sustainability performance substantially.
CASE STUDY: Apple & UBS
iPhone maker Apple and the Swiss bank UBS used the announcement of a CSO and Head of sustainability to raise attention for this topic towards key stakeholders. The CSO oversees company’s effort to minimize the impact on the environment by addressing climate change through renewable energy. The CSOs have a strong background and experience in sustainability topics and oversee all sustainability-related activities, topics, and projects in the company. They act as a focal point for driving implementation of the sustainability strategy, using their strong position to exert a significant influence on their firms’ sustainability strategies.
The cross-divisional relevance of sustainability creates the perfect platform for our lever to install an internal sustainability committee. This team can mirror ongoing activities inside the company and can act as a sounding board for executive management on next steps. We recommend a broad mix of members spanning different levels of seniority, functions, and geographies. A successful sustainability committee depends on a clear roadmap that is aligned with the overall company strategy. There is no general rule for how to set up a such a team as this is company specific: for example, in some geographies it might be necessary to include union representatives in the sustainability committee – something that could have an impact on the overall direction of the group. A sustainability committee is normally chaired by a C-suite representative and is a mixture of working group and decision body. The team’s decisions reinforce company strategy and the outcome generates new ideas for additional strategic sustainability initiatives.
Sitting on a sustainability committee is an add-on to existing responsibilities in the organization. You should think carefully about how to incentivize the team to avoid frustration and ebbing commitment after the initial enthusiasm has worn off.
CASE STUDY: Samsung
In 2021, the Korean electronics giant established a sustainability committee to improve sustainability management supporting ESG and shareholder value. The group needs to consist of at least three independent directors and meets twice a year. The agenda comprises the company’s sustainability management, key strategies, and policies in sustainability management. It is also involved in planning an annual sustainability report and picking up matters delegated by the board of directors. The committee is driving awareness in sustainability toward C-suite representatives and shareholders alike.
Dedicated training curriculum
A successful sustainability transformation requires organizational commitment over an extended period of time. Your organization can support the change by developing a dedicated sustainability training curriculum. This lever can be used to show to internal audiences that the company invests into people to achieve its vision, by providing training on general sustainability skills and on action-oriented steps.
We suggest that this kind of training curriculum should go beyond traditional goals of increasing knowledge, skills, values, and attitudes. Additionally, you should put on the training plan how to foster economic sustainability and how sustainability can contribute to overarching strategic targets. If your curriculum can combine strategic awareness with concrete craftsman skills training, you will have a solid platform from which to promote overall company sustainability progress.
As we advocate for a combination of system and strategic skills, we believe cross-cutting competencies to encourage system thinking, anticipatory, normative, strategic, collaboration, critical thinking, self-awareness, and integrated problem-solving competencies.
The training could be developed by the corporate sustainability team and should be mandatory for relevant employees. As a result of the curriculum, team individuals are continuously involved in sustainability initiatives and have preconditions to contribute to further improvements.
Compliance with legal standards is considered the bare minimum for a sustainability approach. Depending on where a company is operating, there are differences how these standards are defined. Multinational firms must balance these different requirements, which will leave little room for a standardized approach, as some countries’ specific requirements may barely reach the legal minimum of others. The UNGC Ten Principles are a good baseline for auditing an organization’s existing practices against a globally recognized framework that supports harmonized corporate governance. Based on such audits, gaps can be identified, and action plans can be developed to mitigate gaps and to ensure that a company is always compliant.
Another rule of thumb is to do more than just complying with the bare-minimum legal requirements when doing business in developing markets. The thresholds in these markets may often be lower than in your home market, but consumers and other stakeholders in your home market may require equal compliance in both geographies. As an example, certain brands in the textile industry had to exceed local legal standards in production units far away to avoid significant reputational and earnings damage in their domestic markets.
CASE STUDY: European regulation on human rights and environment in global value chains
At the start of 2022, the European Union presented a proposal for a directive on a corporate sustainability due diligence required by firms operating in the European Union. The directive aims to improve sustainable corporate behaviors in the value chain by addressing issues of exploitation, child labor, environmental pollution, or loss of biodiversity. Aside from social impact, the directive is designed to enforce business strategy in line with the Paris Agreement climate target of limiting global warming to 1.5°C. The directive will apply to all firms with net turnover of EUR 150 million and more than 500 employees and will be extended to firms with EUR 40 million and 250 employees two years later. This directive goes significantly further than currently existing national frameworks.
The challenge of this new directive is that it “applies to the company’s own operations, their subsidiaries and their value chains (direct and indirect established business relationships).” This means that EU companies (and firms operating within the European Union) will be held liable for their actions of their value chain partners. This proves a significant challenge for these firms, as they will need to significantly improve their value chain transparency and establish reporting and monitoring tools to ensure compliance (and prevent fines). Many firms that were content with legal compliance will struggle to implement and realize these levers that we place at a significantly higher complexity level on the Chessboard – and they have very little time to do so. This shows that a passive approach and mere compliance with sustainability can catch firms off guard as regulators make the next big step towards a more sustainable future.
It is important to continue working actively with compliance once all legal policies are properly in place and stored on the company’s intranet. We have seen misinterpretations in daily use and lack of knowledge that have caused severe crises for companies. Therefore, we advocate for a compliance training program that permeates larger parts of the organization. A group function should oversee company’s legal practices to ensure they are in line with all relevant regulations, that new legislation is incorporated in a timely manner, and that upcoming demands are anticipated. Smaller companies might outsource this service, while larger corporations normally have their own legal resources.
More important are company-wide compliance training programs to ensure awareness, knowledge, and commitment. These programs need to include new hires (to align them with the company standards), as well as existing staff to refresh their training regularly, and can be either be held physically on site, via a digital meeting tool, or as an online course. They should contain a broad scope combined with a specific approach (for example, for purchasers) that makes the training both relevant and interesting. Well-executed compliance creates a connection to the overall company direction, underlining the importance of this element in bringing strategic plans alive.
CASE STUDY: Australian FMCG company
As part of a broader procurement project, we reviewed the terms and conditions as well as the suppliers’ code of conduct of an Australian FMCG company. During the process, we noticed that some significant sustainability aspects, in particular related to fair labor practices, were missing. This put our client at risk of facing significant fines if exploitation were to be detected with their direct suppliers.
We supported the client’s procurement team by conducting a compliance training and ensuring that they were up to date with all relevant national regulations. Furthermore, we included a clause on prevention of modern slavery in the client’s standard RFP documents and supplier code of conduct to ensure compliance going forward.
Change management starts at the top – and sustainability transformations are no exception. As a successful sustainable company, you need to lead by example: your C-suite-level members should be standing behind the transformation and actively participating in selected activities.
This commitment must go beyond lip service alone to have a real impact (for example, if a CEO publicly states that sustainability is at the core of his organization right after a scandal or environmental disaster). It will take time before internal and external stakeholders realize that the commitment is real, authentic, and a key part of the strategy going forward.
However, if done properly, this commitment from the C-suite will solidify a sustainability culture throughout the levels of the organization, ensure stronger alignment with sustainability targets, and support the change management process. C-suite commitment and alignment can be reinforced by connecting it to other levers of the Chessboard (for example, sustainability funding, partnerships) that have strong public impact. It can further be enhanced by adapting internal policies (company car policy, digital vs. analog meeting routines, travel policy, etc.), and personal commitment (engaging in community outreach, sponsorships, donations, etc.).
CASE STUDY: Kaiser Permanente
This U.S.-based managed care consortium sees climate change as a public health issue. Kaiser pushes to reduce emissions by installing solar panels at dozens of sites, hundreds of electric car-charging stations, and California’s first renewable-energy-powered hospital microgrid. Kaiser also moved early to phase out toxic flame retardants at its facilities. The company’s next big sustainability milestone is to be carbon positively by 2025.
Company-wide sustainability targets
Strategy and targets are very closely connected: once you have defined the sustainability direction in your strategy and have secured leadership commitment, you need to identify targets that support your sustainability journey.
These targets should be traceable, measurable, tangible, and actionable. They are likely to be defined based on the needs of the core stakeholders that follow your sustainability transformation. If you have conducted a materiality assessment, its output will greatly help you understand your stakeholders sustainability needs and support to shape your targets. Targets can respond to different needs, such as regulatory/legal standards, minimum requirements for business partners’ expectations, or branding/marketing purposes. They can also vary in terms of the underlying issues that they address: while emissions targets can be commonly found in all industries, fewer firms have specific targets for social impact.
Targets should be aligned with the broader company agenda and be part of the C-suite internal communication agenda. Commitment from some parts of the organization – and not others – is not sufficient in this context. The communication strategies of the targets need to include the reasoning behind the decision and the purpose for fulfilling them. Once again, “what gets measured, gets done” is a good principle to follow here. For an effective stepwise approach, we recommend setting an action timeline with short-/medium-/long-term milestones and installing a tracking mechanism in line with overall company reporting procedures to stress the importance of the agreed targets.
CASE STUDY: Hexpol
This Swedish polymer company introduced group-wide sustainability objectives to create safe and secure workplaces and to establish itself as a good corporate citizen. It implemented a systematic approach with targets linked to the UN’s Agenda 2030 and Global Sustainable Development Goals. The goals cover energy efficiency; climate change; certified environmental management systems; identification, control, and replacement of hazardous chemicals; health and safety; and value chain considerations. The whole company is driving the sustainability awareness and realization of objectives.
CASE STUDY: Mondelez
The international F&B player Mondelez has defined clear company-wide sustainability goals targets for itself. For instance, it plans to achieve 100 percent sustainable sourcing of cocoa by 2025 (vs. 63 percent in 2019), 100 percent of packaging designed to be recyclable and five percent of recycled content across all plastics packaging by 2025, and absolute emissions reduction (Scope 1, 2, 3) by ten percent by 2025. Apart from representing good target-setting practice – making the targets clear, measurable, quantifiable, and actionable – this also highlights the importance of a thorough baseline process to establish a “jumping off” point that you plan to measure against.
Group sustainability team
After ensuring legal compliance and setting up the bare bones of a thriving sustainability culture – such as clearly defined targets and a robust C-suite commitment, you will also need a team to drive these goals and this culture “on the ground”. Having a dedicated team ensures you have sufficient resources to engage in more challenging or complex initiatives; it also enables greater accountability and clearer ownership in your company.
There is no definitive recipe for setting up a sustainability team, as you will need to tailor this to your own organization and needs. One thing is clear: the skillset of your sustainability team should be as diverse as possible to cover as much ground as possible. The team and its underlying competences should reflect these organizational priorities and will likely have a specific background in functions like procurement, transport, or circularity. You also need to define whether you will build a company-wide sustainability organization of specialists, or whether you will integrate the local and unit responsibilities as part timers. Due to the frequent need for additional specific knowledge (there is, for example, a huge difference between being an expert in social impact initiatives and sustainable transport), your sustainability team should also include talented project managers that coordinate the cooperation with different internal and external specialists and functions.
The group sustainability team should have a clear report that manages the team and its budget – ideally, a Chief Sustainability Officer, or another senior executive function.
Establishing an engaging dialogue with all direct stakeholders is an important lever in fostering the sustainability discourse. In contrast with the dialogue on the right-hand quadrant of the Chessboard, which has a normative focus, this dialogue is more data- and metrics-driven to align joint impacts.
Stakeholder dialogue is intended to be inspirational – creating a broader understanding of the situation, identifying future main drivers, and using the data deriving from the dialogue to accomplish tasks like preparing sustainability scenarios. Finding the right partnership will be an important factor in your success. Many areas need huge infrastructure initiatives (like electrification of transport, recycling of plastics, etc.), which will require many stakeholders to come together. The dialogue can be organized in various ways: as regular meetings of stakeholder representatives, as a survey among participating parties, or just as an informal update call with individuals or companies that you reach out to on a regular basis.
A developed stakeholder dialogue includes advocacy (in other words, an exchange with regulators about what needs to be done to drive sustainability) and education of your consumers (what they should be doing for you to be more sustainable). In any case, this kind of dialogue needs determination and patience. As an example, the beverage can recycling system in Sweden has been in place for 40 years and demonstrates very high recycling rates, as consumers are used to this system and have accepted it. However, the recycling rate of Nespresso pads is significantly lower, even though the aluminum would be highly recyclable and there are many collection points to return them: end consumers are simply not aware of the issue, and stronger stakeholder engagement could help to educate them about it.
CASE STUDY: Mercedes Benz
The German car maker Mercedes Benz engages in a strong stakeholder dialogue to develop its understanding of sustainability. It engages both with primary stakeholders (employees, customers, creditors, suppliers, and shareholders) and with secondary stakeholders (NGOs, professional associations, media, residents, communities, politicians, scientists, trade unions, etc.).
To ensure effective relationships, Mercedes Benz has defined clear communication channels at group level, underpinned by the “Daimler Sustainability Dialogue”, which is an annual forum where stakeholder representatives come together with members of the company’s decision-making board. Through this forum, Daimler gets feedback on its sustainability impact and incorporates it into sustainability targets for the coming year. Initially held at the head office, the forum is now conducted globally. In addition, Mercedes has set up the Advisory Board for Integrity and Corporate Responsibility, which brings independent external experts on board to offer support.
Furthermore, the company has installed regional events to get local feedback close to their sites, such as the Daimler Forum Immendingen, where the company can share information with residents about its projects and get their suggestions, ideas, and criticism.
Sustainability transformations also need to engage with to partners such as non-governmental organizations (NGOs). By seeking closer contact and launching a cooperation with a relevant 76 77 NGO, you can achieve several benefits. You get closer to communities and learn how an important stakeholder understands your sustainability priorities. You build mutual trust and receive input (often for free) to improve your own performance. Additionally, this level of cooperation demonstrates your position as a sustainability leader as you include even potentially diverging opinions into your transformation process.
To make this work, you should reach a common understanding about how the partnership will improve sustainability performance for your business. If you can agree upon an integrated mission between the NGO and yourself, it would be another step into the right direction. Additionally, you need to install regular reviews to assess progress and adjust goals. Such a collaboration will be successful if you share objectives, viability and visibility, vital information, resources, and legitimacy with each other. The collaboration should be a two-way street and should include benefits for both parties.
CASE STUDY: Air France-KLM
The global airline alliance Air France-KLM has a partnership with the NGO Acting for Life, which promotes economic development and sustainable tourism. KLM works with long term partners including its strategic partners UNICEF and WWF-NL, as well as Doctor2Doctor, Wings of Support, Get it Done, and Close the Gap. Air France and KLM engage passengers on the social and humanitarian programs they support. In their inflight magazines, they also dedicate a monthly article to a partner NGO’s project.
Firms that have reached the highest level of sustainability ambition will ensure that sustainability is ingrained in their culture and a facet of all processes and standards. Apart from ensuring that sustainability has been reflected in all existing processes, standards, and norms, corporations pursuing this lever need to ensure that any type of new standard or process has sustainability at its core. Consequently, sustainability-driven standards refer to the practice of incorporating sustainability in any newly designed process or norms that are developed. This refers to all standards and processes in all functions, from the travel and car policy to hiring policies, purchasing processes, and compensation decisions.
Over time, embracing this procedure will enable firms to approach a higher sustainability level by themselves as all standards and processes are aligned with their corporate sustainability target. Standard procedures and processes further boost the overall sustainability culture of an organization, as employees can see that sustainability is indeed at the core of the decision-making process. If you decide to implement sustainability-driven standards, you should begin by reviewing your current guidelines and standards to ensure they are all already aligned with your sustainability goals. Only then can you design a new process to formulate guidelines and standards that have sustainability at their core; otherwise, obsolete non-sustainable standards will clash with your new sustainability focus and cause cognitive dissonance with stakeholders, potentially exposing you to accusations of greenwashing in the process.