Executives are under increasing pressure to meet evolving sustainability and environmental, social and governance (ESG) mandates and stakeholder demands. At the same time, they must balance countless other factors disrupting the market, which are nearly impossible to control and predict.
Many leaders seek to understand the real business value of sustainability and how it affects their organization. However, they struggle with the "opportunity-challenge" paradox—in other words, how to create long-term stakeholder value and realize a quick return on investment (ROI).
In this blog, I share why sustainability must evolve into "business as usual" for companies in a way that enables profit and purposeful sustainability to co-exist.
While sustainability is increasingly complex, sanctions and loss of market share will cost much more.
Since 2020, we've experienced numerous global disruptions, from a worldwide pandemic and ensuing supply chain disruptions, the war in Ukraine ushering more geopolitical conflicts, numerous environmental disasters, social media-influenced citizen dissent, and a global energy crisis, to name a few. We've seen the EU Green Deal, EU Taxonomy, Corporate Sustainability Reporting Directive (CSRD), and the U.S. Inflation Reduction Act come into force. We've also seen unregulated ESG investments and corporate greenwashing rise.
Combined, these events have punctured globalization and, along with it, the notion that companies can self-regulate and solve environmental and social challenges on their own. As reinforced by UN Secretary-General António Guterres’ 2022 message following the launch of the Intergovernmental Panel on Climate Change (IPCC) report, legislation and penalties will only continue to grow in the foreseeable future.
Becoming sustainable — and proving it — can be perceived as a financial burden. However, failing to do so could cost much more.
Like health and fitness, sustainability depends on lasting changes.
Today, the sustainability and ESG industry looks very similar to the diet industry in its heyday, filled with hype and tall promises. Just as a carbohydrate-free diet is not the cure-all for optimal health, carbon-tunnel vision is not the cure-all for climate challenges.
From my own professional experience in sustainability for more than a decade, from extra-financial assessment to ESG asset management to setting up CSR strategies in order to integrate sustainability and measure its impact, I expressly had in mind: "Are the policies and ways we are handling sustainability challenges actually making sense and improving things?"
This can be related to the example of hiring an expensive personal trainer who gives a broad and daunting list of vague exercises and nutritional advice, not accounting for the personality, lifestyle, interests or goals of the person they are coaching. The person may end up doing things the wrong way, in the wrong order—maybe even putting their health at greater risk and finally losing motivation because they haven’t reached their goal or are not noticeably healthier or fitter.
Human health and business sustainability are similar in that they are both complex and depend on many variables. What is needed is to build lasting lifestyle changes, not a get-fit-quick scheme. It takes time and experience, trials and expertise to advance one’s health goals while balancing life and work. The same could be said for businesses advancing and balancing sustainability and financial growth; it's a long journey ahead but rewarding when done well.
Sustainability demands a new mindset and model, and a wider lens.
While most business leaders recognize that becoming sustainable is the rational thing to do, and takes considerable effort, many are unclear about how or where to start and what it means to truly embed sustainability into their organization's DNA.
Simply put, advancing sustainability and financial growth requires a new mindset and model that considers the larger ecosystem in which an organization operates and generates revenue, not just in the short term, but the long term and beyond. Businesses must evolve from the build-deplete model to a build-sustain model while finding ways to grow economically with the new model. It also demands a wider lens that considers all the interconnected drivers in the ecosystem. Survival in this new era requires much broader visibility, and good data is key.
Profit and purposeful sustainability can co-exist.
Sustainability and financial growth are not mutually exclusive. Here are key considerations as you determine how to balance the two and shape your strategy:
- Begin by assessing where you stand today in terms of the overall ESG health of your business and your position in the value chain to best assess your environmental footprint. Then through technology enablers, capture environmental analytics to support the automation, validation, enrichment, visibility, etc. to collect accurate and actionable data that enhances your ESG decision-making.
- Take a step back to look at the bigger picture to identify meaningful patterns and trends in the global market (mega, macro and meso) to understand the underlying complexity of sustainability. Use a systems-thinking approach to tackle it. In doing so, you can focus on actions that matter most to your business and avoid being influenced by activist advice or hyper-focusing on issues that blur the long-term picture.
- Be transparent and realistic. Companies must better understand what is within their reach to solve, and what they have no rational reason to act on as it's too far and indirect to their business and could affect long-term growth. Then, clearly communicate this with evidence to support the claim. Credibility and authenticity will go a long way in a world where information is at one's fingertips. For example, your company could have low emissions, but your renewable energy usage is inefficient, and copious waste created in your supply chain is a missed revenue opportunity in addition to being a hindrance to your business ecosystem.
- Collaborate with partners in your business ecosystem to collectively address sustainability challenges and generate new revenue streams. Lower investment risks and costs by joining forces with others.
- Be wary of any company promising to be a one-stop shop for all your sustainable transformation needs. Sustainability is the ultimate team sport, so partner with companies that are willing to collaborate with others in an interconnected system. The right advisors can equip you with relevant data, provide different viewpoints, and support your leadership to make the best, insights-led decisions.
Herein lies the real value of sustainability. All the effort, sharing, and collaboration it takes to achieve holistic visibility of your business value chain will enable you to not only see your next move on the chessboard, but also see the whole board, the table it sits on, the players, and the room.
In the end, cost and effectiveness will depend on whether sustainability is "built-in" or "bolted on" to the business (similar to the journey companies undertook several years ago with cybersecurity ) and whether the strategy is a quick-fix or long-term approach. When done well, you'll have the quality data you need to make sound decisions, see new revenue possibilities and pivot rapidly to whatever lies ahead.
CGI collaborates with clients across industries with our Sustainability & ESG Advisory services. To learn how we can help you, please contact me.Back to top