Most businesses are working hard to lay out their corporate sustainability strategies. Growing stakeholder pressure and rising costs related to climate inaction have made concentrated sustainability efforts vital to long term success. Transparent target setting and planning robust roadmaps – Step 2 of the South Pole Climate Journey – is no easy feat, which is why we have dedicated this article to just that. Consider this your how-to guide for creating a realistic sustainability strategy.
When setting off to new places, you usually consult a map to avoid getting lost, and so do businesses. Companies step into unknown territory — the future — on a daily basis. Their map is their corporate strategy, and an increasingly important component of this overarching plan is their sustainability strategy.
A sustainability strategy is a company's way to safeguard competitiveness and generate value as it transitions to a low-carbon economy. It articulates its vision for the future, helps define priorities, and aligns internal human resources and financial investments. But a good sustainability strategy is not just a plan — it's a tool that creates buy-in and builds rapport with key stakeholders, such as employees, investors, customers, regulators and the general public. It shows them you care about our shared future and supporting a just transition.
Some businesses are yet to make or announce big sustainability commitments, and although it might seem pragmatic to wait for sectoral guidance or further market signals, kicking the can down the road is not a sound business strategy. Every year of delayed action on emissions, water and waste impacts is one that will need to be made up by more stringent cuts in the future.
To provide more perspective on the scale of action and required emission cuts globally: despite the drastic shutdown of industry, commerce and transport due to COVID19, it is likely to reduce global carbon dioxide emissions by only about 5.5% this year. A UN report shows that we actually need to cut emissions by 7.6% each and every year from here to 2030 to stand a reasonable chance of aligning with a 1.5ºC trajectory.
Building a sustainability strategy
A robust sustainability strategy requires a strong foundation and a clear understanding of internal and external operating environments. This means basing strategic decisions on the building blocks (previously explored here); that is, a materiality assessment, a carbon footprint, and risk measurement. These three ingredients cover a range of issues, from stakeholder pressures, physical hazards and the policy environment, to competitor benchmarks, market opportunities and reputation.
To complement these insights and enrich their understanding of the operating landscape, competition and best practices, companies also use other more traditional techniques, such as SWOT (Strength, Weakness, Opportunities and Threats) and PESTLE (Political, Economic, Social, Technological, Legal and Environmental) analyses.
In very practical terms, corporate decision makers and strategists often employ a range of management approaches to craft their sustainability strategy, including workshops, consultations and options appraisals. External advisors can help develop, implement, communicate and evaluate your strategy.
Aligning purpose and ambition with science
The anchors of any strategy are purpose and level of ambition. In terms of purpose, will the company make sustainability leadership one of its guiding values? Will sustainability become a primary competitive differentiator and drive brand positioning? A sustainability strategy should be tailored according to this purpose, and ambition levels should align with materiality assessments – both the current but also future materiality of issues.
We've all heard the maxim that goals should be ambitious yet achievable When it comes to sustainability strategy – however, goals need to be flexible enough to meet fast growing expectations while also ensuring continuity in a disruptive market environment. Usually, the decision on the balance to strike rests with the company C-Suite and reflects their experience, perspectives, risk appetite and boldness.
A growing trend is to align sustainability goals with science, and net zero ambitions. Since the publication of the special report by the Intergovernmental Panel on Climate Change (IPCC), "Net Zero" has also become synonymous with real, ambitious action on climate change – the ultimate goal for a greener and more resilient future.
To date, more than 70 countries, close to 400 cities and nearly 200 businesses say they have adopted a position on Net Zero. Over 900 businesses have officially committed to reducing emissions in line with science and the goals of the Paris Agreement1. Many big corporations, including Microsoft and Sky, are achieving competitive advantage through Net Zero ambitions by committing to reduce existing emissions and balance unavoidable emissions – often by 2030. They recognise sustainability as not just a smart investment, but a strategic differentiator leading to superior financial performance.
As with any journey, the first step to a sustainable transition is often the most daunting. No business wants to be left standing as its competitors seize the opportunities of a low carbon economy. That is why clear roadmaps sit at the heart of any realistic sustainability strategy.
Roadmaps translate ambitious, science-based targets into more detailed implementation plans, through measures such as energy efficiency and renewable energy. Often, a range of scenarios are explored along with their financial implications, and they may also appraise levers such as carbon pricing. This may be used to inform the target setting process, finding the balance between ambition versus achievability.
Still, transforming the fundamentals of a business model on the basis of an uncertain future can be speculative. That is why our next article, covering Step 3 of South Pole's Climate Leadership Journey, will explore how action can maximise the upsides and keep uncertainties to a minimum.
1 This means supporting greenhouse gas (GHG) reduction trajectories that help keep global warming 'well below' 2º or, most stringent of all, to 1.5º. Current commitments differ by company type, but translate approximately to GHG reductions of between 3% and 8% per year.