From sustainability strategies to sustainable strategy

How do you navigate the complexities of incorporating sustainability into your core strategy? In this article, we aim to equip you with the insights needed for your organisation to ensure that compliance with new regulations becomes a pathway to success rather than a hurdle.

Strategy is all about priorities. Priorities drive changes. Changes must be implemented.

When viewed through the lens of sustainability, corporate strategy stands at a critical juncture. For many companies, the rapid introduction of new laws and regulations from the European Green Deal and Fit for 55 is demanding. Today, it is no longer sufficient to inform stakeholders about past accomplishments through glossy reports. Instead, companies must now demonstrate how they achieve their sustainability targets through high-quality data and documentation, rendering historical reporting alone inadequate.

From FY2024, more than 50,000 companies in Europe are required to comply with the Corporate Sustainability Reporting Directive (CSRD); the first standard mandating companies not only to report on historical data on sustainability but also to outline their strategy for reaching set targets.

And so, the move from sustainability strategies to sustainable corporate strategy is happening now!

Prioritisation

Environmental, social and governance (ESG) targets must be integrated into the core business strategy. But how should companies prioritise and foster engagement?

The CSRD requires companies to conduct a Double Materiality Analysis (DMA), which assesses what is most significant from both an inside-out and outside-in perspective. You must clearly define risks, impact and opportunities (IRO). However, the challenge lies in the fact that the list of material topics tends to become very extensive.

Therefore, it is crucial that you prioritise what are critical topics for the corporate business strategy and what should “only” be included in an action plan.

But what should you consider when identifying the most material topics out of the material list that should be lifted into corporate strategy? Here are three pieces of advice:

1. Identify which of the material topics your company has decision-making authority over and, at the same time, also pose the highest financial risk or opportunity.
2. Determine which of the material topics can serve as differentiators in comparison to your peers.
3. Identify which of the material topics will influence your value chain but are beyond the organisation’s control while still being critical for the core business and its future development.

Implementation

Once you have set your priorities, the changes must be implemented. From both trends and research, we see that the sustainability agenda is changing from traditionally being owned by a separate function to now being implemented cross-functionally – a result of moving from separate sustainability strategies into sustainable strategy.

The responsibility for delivering on sustainability KPIs, developing and innovating does not lie within an isolated ESG or sustainability department. Rather, it is distributed across existing functions such as finance, innovation, R&D, digital, strategy/business development and communication.

To know how “fit” the organisation is to implement a sustainable corporate strategy, we recommend conducting an internal assessment of its own capabilities and competence and adjusting the existing operating model where needed.

While you may need additional resources or new competences to implement sustainability into your corporate strategy, make sure that these roles are not siloed but fully integrated into your organisation.

Change management

When existing functions are changed, people have their job descriptions altered, or new tasks are added, knowledge and relevance become critical. Knowledge about the prioritised sustainability topics relevant for an employee to make the right decisions in their daily work. Choices that are core to deliver on a corporate sustainable strategy.

From our experience, the key to successful sustainability integration lies in answering the following questions:

• Why are we doing this?
• How relevant is it to our core business goals?
• Does it have an impact beyond our own organisation?
• Can I, as an employee, make a difference?

If an organisation can effectively address these questions, then the push through the European Green Deal, Fit for 55, CSRD, EU Taxonomy and other new laws and regulations become enablers for success and speed up the change from separate sustainability strategies to sustainable corporate strategy rather than burdensome tasks to be managed for stakeholders’ interests and for companies to meet compliance.

It is important to remember that the European Green Deal’s main goal is to transform its economy and society to become climate-neutral by 2050. By achieving these goals, the EU aims to lead the global fight against climate change while ensuring economic prosperity and social fairness.