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ESG Insights: Ten steps to embed ESG into long-term business strategy

Abby Davidson VIce President, Corporate Citizenship
Abby Davidson

This article was writen by Abby Davidson, of recent SLR acqusition Corporate Citizenship. Corporate Citizenship provides ESG strategy, reporting, social and environmental impact and other sustainability consulting services to multi-national companies. Visit the Corporate Citizenship website to learn more. 

We are entering a defining decade for the future of business, for a livable planet, and for a more just society.

Companies that look long term – to 2030 and beyond – and master the integration of environmental, social and governance (ESG) risks and opportunities with commercial strategy will build the resilience to thrive over the next decade. Getting this integration right matters for C-suites and boards – and it matters because we urgently need to accelerate progress to live within planetary boundaries and towards social justice and equity.

The principle here is simple: sustainability strategy is smart long-term business strategy. Increasingly, it’s also smart near-term strategy.

Why? Because effective management of ESG opportunities and risks contributes to commercial value creation. Sustainable offerings can increase topline revenue and build trust with customers. Operational eco-efficiency can reduce costs over the long term. Values alignment and ESG performance are increasingly important to attract and retain top talent, which in turn drives productivity and innovation. Community investment bolsters social licence to operate and can help secure sources of supply – while driving positive societal impact. And strong ESG performance increasingly unlocks capital, either as a signal of sound management to investors, or through sustainability-linked loans or bonds.

From now to 2030, businesses across industries are rapidly transforming due to digitisation, AI, big data, the future of work, consumer power, and reshaping of global supply chains, among other macro-trends. Compounding these shifts are rising expectations for companies to deliver ESG performance and value to stakeholders, including – but no longer limited to – shareholders. And around the globe, governments and businesses are facing calls to “build back better” and deliver an inclusive, green, economic recovery.

To optimise near-term value through ESG, while building a long-term strategy for sustainable and responsible business, companies need to make smart decisions about what to prioritise and resource. We are seeing companies develop sustainable and responsible business strategies through two approaches: 1) bold and rigorous long-term planning that sets direction and identifies early wins; and 2) “fail fast” innovation sprints that build early momentum and lay the foundation for long-term goals and targets.

Diversified healthcare leader: Bold and rigorous long-term planning drives innovation for affordable and accessible healthcare

At a Fortune 200 diversified healthcare leader, the executive team was fearless in asking and acting on the tough questions: what will our business and operating context be in 2030? How will the innovation, development and delivery of healthcare change? What do we need to anticipate today to continue developing solutions that deliver on our purpose, to 2030 and beyond? What capabilities do we need for this new future? What current and emerging ESG risks and opportunities will have material impacts on value creation for the business and our stakeholders, today and to 2030? On which of these topics can we differentiate and lead? How will we resource the plan, and fully embed it in business planning process and performance management? Through a rigorous strategy process, the company pursued the answers to these questions, resulting in its new sustainability plan, which focuses on innovating for affordable and accessible healthcare solutions.

Specialty retailer: “Fail fast” innovation sprints build early momentum and lay foundation for long-term

A specialty retailer, transforming to a multichannel product, service and experiences company, approached ESG through a “fail-fast” innovation model. The company identified, prioritised and accelerated key initiatives across the enterprise, developed a dashboard to track progress, and set near-term targets and roadmaps. They focused on initiatives that drive ESG impact and commercial value, including sustainable products and services, and operational eco-efficiency to save energy, reduce emissions and reduce costs in facilities. This approach led to near-term wins and built momentum across the business. In parallel, they conducted materiality to prioritise long-term ESG risks and opportunities, laying the foundation for a focused, commercially aligned, long-term strategy.

The approach a company takes depends on company culture, incentives and business processes, and ESG maturity level – and is often reflective of the pace of change of the broader industry.

For either approach, to look to 2030, here are key questions to ask:

  1. Ask the tough questions about the future, and relentlessly horizon scan through a broad lens that integrates commercial and ESG risks and opportunities.What will our business and operating context look like in 2030? What are the critical macro-trends shaping that context? What are the plausible scenarios? How confident are we in those scenarios? Based on what evidence? What will it take for our business to stay relevant? Do we have the right mechanisms in place to constantly horizon scan? Have we effectively embedded ESG into the right internal processes, such as enterprise risk management, and short- and long-term scenario planning?
     
  2. Ground long-term strategy in your purpose as a business.Why do we exist, beyond profit? What is the core contribution we make to the world through our capabilities and assets? In 2030, will this still be the reason we exist, given the changes we know are coming?
     
  3. Understand current and potential differentiators for the business. ESG priorities should align with and enhance core capabilities and differentiatorsWhat differentiates the business today, and where do we need to differentiate to win in 2030?
     
  4. Define and prioritise material ESG risks and opportunities and assess current position. Which ESG risks and opportunities are critically important to long-term value creation for the business and our stakeholders? Do these change if we look ten plus years out, vs one to three years? How are we performing on these material issues relative to ESG standards, frameworks, ratings and rankings, and peers?
     
  5. Set your vision and ambition to deliver on your purpose to 2030. Given the context to 2030, our commercial growth strategy and differentiators, and our material ESG issues, what is the impact we aim to achieve as a sustainable and responsible business? What is our ambition to 2030? How will we bring the sum of our capabilities to accelerate toward a more just and livable planet, while delivering value for our stakeholders? Given the stakes of the next decade, are we pushing hard enough?
     
  6. Define targets and commitments, aligned to level of ambition. What will we achieve, by when, measured by what KPIs? Given material ESG issues, where do we have the ambition to lead, and where – if anywhere – do we simply want to stay competitive, or manage “table stakes” issues?
     
  7. Develop roadmaps that align the right human and financial resources. How will we resource our plan, looking across CapEx, OpEx, people, and time? Where are our early wins?
     
  8. Embed the sustainability plan in governance, management, performance incentives, and business planning cycles. Where can we leverage existing processes, and where do we need to create new ones?
     
  9. Face “the brutal facts” about culture. What, if any, key shifts do we need to make in our culture to deliver value responsibly and sustainably long term?
     
  10. Prepare to navigate change. Do we have a plan to deliver on our ESG targets even if we have significant business changes (eg leadership changes, acquisitions, divestitures, ownership changes)? Do we know when to re-baseline, and how to realign internal resources?

The companies that get this right will thrive in the decades to come, and they will be leaders in accelerating progress towards a livable planet and a more just and equitable society. The imperative for doing so has never been more urgent.

 

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