The importance of a sustainable business strategy

Many organisations make claims about sustainability, ESG, or CSR, but without a realistic and successful sustainable business strategy, they are unlikely to achieve the benefits that more sustainable performance can provide.

So, how do you get the benefits?

What is a sustainable business?
A sustainable company bases its actions, behaviour, goods, and services on a thorough awareness of the environmental and social contexts in which it operates. As a result, it operates within well-defined environmental and social constraints while reflecting societal demands and expectations. It also assures that its impact on the environment and society is neutral or beneficial.

What constitutes a sustainable business strategy?
Sustainable business plan serves as a vehicle for transforming an unsustainable organisation into a sustainable one. Such a strategy should lay the groundwork for the company's long-term viability and growth.

Delivering a strategy involves the following basic components:

Recognising the strategic context entails knowing the global and local sustainability concerns that may affect the company. Focussing on the most important (material) issues for management.

A clear sustainability vision depicts the company's long-term goals in light of significant environmental, social, and economic trends and challenges.
strategies for Action - an implementation strategy that includes activities and strategies for achieving that goal

Timescales - a timescale that corresponds to the identified trends for material environmental and social challenges.
Communication and reporting involve sending clear, meaningful, and consistent messages to internal and external stakeholders that demonstrate authenticity, transparency, and progress.

Why should we focus on strategy?
All businesses, whether publicly traded or privately held, require an investing strategy. Strategy is the translation of a company's capabilities and market positioning into a sequence of activities to be taken over time to achieve specified business goals.

Essentially, investors and funders examine a company's plan and assess its ability to execute that strategy. They then make a determination on how well that company represents a good candidate for investment (e.g., if it will provide the requisite "return on investment") during the time frame specified by the investor.

Company strategy is thus a key area of focus for anyone seeking to impact change towards more sustainable company behaviour. Strategy is the distilled essence of a company; if this strategy does not include or reflect a company's commitment to delivering more sustainable business practices, investment drivers will solely focus on narrow financial performance, failing to reflect and reward sustainability actions or respond to societal needs and intentions.

The Challenge of Truly Strategic Sustainability
While most prominent corporations recognise the value of sustainability, many nevertheless struggle to balance environmental and social concerns with economic ones.

This topic is fundamentally about the ability of corporate sustainability practitioners to make the case for sustainability as a driver of business practice and strategy. While many organisations have formed CSR, environmental management, and sustainability programs, they typically run concurrently with the development of mainstream corporate strategy. As a result, they have little influence over the company's direction and decisions.

What are the areas that practitioners struggle with?
Sustainability experts confront several challenges:

Focus: Implementation activity (i.e. what businesses actually do) tends to be operational rather than strategic in terms of managing sustainability impacts and risks. As a result, efforts can be minimal in scope, and the advantages gained from these actions are not explicitly stated, perpetuating the idea of sustainability as a side problem.

Ownership and organisation:

While most company sustainability reports include statements from the CEO or Chair, as well as statements like "sustainability is in our DNA" (take a look), most business decisions ignore sustainability or only consider it if all other factors are equal. Furthermore, until personnel with a sustainability responsibility are clearly empowered to create and implement plans, sustainability will always be an add-on to conventional corporate operations.

Sustainability practitioners have long been expected to be proficient in the use of mainstream business strategy and planning tools. However, business school lecturers continue to stress the potential application of Porter's 5 Forces (and related) as sustainability tools, as if they were the sole discoverers of a beautiful new pre-sliced dough-based baked comestible product. Nonetheless, there is a significant point to make here: relatively few of individuals in charge of corporate sustainability are also active in mainstream company planning and strategy formulation. Even fewer people are skilled at using conventional company management tools and methods for analysis. As a result, while firms may be investing heavily in these programs, sustainability remains a secondary, or parallel, issue in company strategic planning.

Timelines, risks, and costs: In many circumstances, sustainability measures are directly tied to company risk, particularly regulatory and reputational risks. However, normal payback times in many companies are frequently insufficient to detect clear sustainability price impacts that may arise over longer time horizons. This means that, while the implications of environmental and social developments are evident in the medium term, the corporation struggles to convert them into risk and costs in the short term.

Overcoming barriers and building a sustainable plan
There are several initiatives that sustainability and CSR practitioners can take to ensure that sustainability is recognised as a truly strategic issue:

Step 1: Identify and agree on material (priority) concerns that pose strategic challenges and opportunities to the firm.

Step 2: Determine corporate ambition; where does the company's plan fit on the scale of corporate evolution?

Step 3: Learn about how strategy is currently generated inside your own organisation and analyse whether sustainability problems are being considered as part of strategic planning and product development.

Step 4: Determine which methods are used inside your firm to handle strategic change. What works; what doesn't, and why?

Step 5: Make sure that the strategic possibilities and challenges offered by sustainability concerns are considered alongside other strategic business issues that impact strategy.

Step 6: Engage with key external stakeholders to reach a broad consensus on what is important to whom and why.

Step 7: Create replies to any material strategic concerns that are consistent with and support your company's competitive strategy.

Step 8: Create a clear overarching strategy vision that includes social, environmental, and economic components.

Step 9: Begin to present the investment case to leaders and investors. Sustainability provides clear financial and risk benefits, which are likely to be in the following areas:

Sustainability has a direct impact on capital performance by increasing efficiency and lowering costs.

Impacts on equity risk profile: Effective risk increases the possibility of share price stability and growth.
Influence on the assessment of shareholder value drivers - investor examination of risk management that is expected to affect the company's ability to create shareholder value.

Intangible value refers to 'soft' elements that do not appear on corporate balance sheets, such as leadership, transparency, intellectual capital, human capital, workplace organisation, and culture. They account for a major amount of overall firm value. Sustainability has an important role in intangible value like as reputation, brand value, trust, and stakeholder interactions.

Sustainability is a strategic business concern.
Over time, sustainability issues pose significant systemic obstacles to the continuation of business as usual. Sustainable strategies give a method of improving an organisation's total risk profile by minimising, minimising, and designing out any defects that are likely to impede long-term commercial success.

The tools and procedures for analysing and understanding the strategic implications of sustainability for organisational success are either well-developed or can be generated by modifying widely used business management methodologies. Companies have key problems in recognising sustainability as a transformational driver rather than an operational issue, as well as explaining the financial implications of sustainable behaviour to investors and markets.