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Sustainability, in a business context, is a long-term goal promoting ethical and responsible investment practices that meet current needs without jeopardizing future generations’ ability to meet theirs. Sustainability recognizes the significance of natural, economic, and social resources now and in the future.
ESG vs sustainability: what’s the difference?
ESG reporting is the disclosure of information (risks, opportunities, performance indicators, initiatives, etc) related to any of the areas of environmental, social and governance. ESG disclosures can be used for a broad set of purposes: investors looking to minimise risk exposure, companies trying to source from a resilient supply chain or investors looking to have a positive impact on local communities.
On the other hand, sustainability is grounded in the principle of building a socioeconomic system that can last over time. It implies that companies must respect environmental ceilings such as the carbon budget to avoid crossing tipping points and taking the planet to a state incompatible with our current way of life. Corporate sustainability is about aligning a business strategy to those limits and ensuring an equitable social foundation.
How ESG performance guides your corporate sustainability strategy
ESG reporting is an important factor in a company’s sustainability strategy and offers information for evaluating business performance criteria that determine a firm’s sustainability practice. High ESG performance scores reflect stronger sustainability practices.
Misconceptions surrounding sustainability and ESG
Misconceptions about sustainability and ESG often act as roadblocks when it comes to creating a sustainability strategy within a business. Some of the primary misconceptions are:
ESG and sustainability are anti-business models. Critics discourage the move to create a sustainability strategy, arguing that the investment to incorporate sustainability into your business, including investing in ESG reporting, sacrifices financial returns. However, ESG performance reflects the commitment to sustainability of the company, increasing its competitive advantage. For example, high ESG performance reflects long-term socioeconomic sustainability. This allows for increased trust by investors, consumers, and employees, hence higher attraction and retention rates.
ESG and sustainability are sometimes seen as only being relevant to specific industries: There is a misconception that ESG and sustainability initiatives apply to industries linked to environmental and social issues alone. For example, ESG and sustainability are often perceived to be only for industries that have prominent environmental impact. However, the truth is that all sectors are responsible for social and environmental impact, thus the need for ESG reporting and implementing sustainability.
Creating a long-term sustainability strategy for your business
When implemented effectively, a robust sustainability strategy can help create better environmental practices, unlock investment opportunities, build stakeholder buy-in and promote regulatory compliance.
The below steps should serve as a general guidance for you to get started on creating a sustainability strategy for your business:
1. Data collection and measurement
The first step in creating a sustainability strategy is collecting and analyzing data. This step is crucial so you and the stakeholders in your business understand your current baseline. By understanding this baseline, it will help you set objectives, plan for realistic targets, and prioritize on action points in your strategy.
If the data collection is also required for the purposes of ESG disclosure (voluntary or mandatory), then you might need materiality assessment to determine topics that are deemed material by your stakeholders. You may consider single materiality or double materiality assessment for this.
For example, if climate action is determined as a material topic for stakeholders in your business, you will likely need to collect data on Scope 1, 2, and 3 emissions.
i) Scope 1 are emissions directly emitted from operations owned or controlled by your company. For example, this can include greenhouse gases (GHG) emitted from burning fuel for manufacturing operations.
ii) Scope 2 are emissions your company causes indirectly from purchased energy sources for operations, primarily electricity.
iii) Scope 3 are indirect emissions emitted within your value chain. The emissions are not owned or controlled by your organization. For example, Scope 3 emissions can include emissions produced by the use, delivery, or disposal of your product.
The data you need to collect will depend on what your sustainability objectives are, which topics are considered material for your business, and which ESG disclosure framework or standard you use (if your company is mandated to disclose using a specific framework, this might be the highest priority for you).
All of this means that you will likely have a very wide set of data points to collect and track at any given point in time. If your business has multiple operations in different locations, the simple act of data collection can feel very complex and time-consuming.
This is where technology can help you save countless hours. An ESG data management solution like Zuno Carbon helps businesses to seamlessly measure their ESG baseline, disclose based on globally renowned standards, and act on the derived insights. The platform acts as a single source of truth for data driven emission insights and allows companies to analyze their current actions and set targets for improved performance.
If this is your first time collecting ESG or sustainability data, Zuno Carbon’s sustainability experts can also guide you take stock of your assets, initiatives, and operations to help you get started.
2. Making sense of your data and identifying areas for improvement
Once you have set up your data collection processes and have been tracking the metrics over a period, you can start to derive insights. These insights can be used to help you determine hotspots, priority areas, cost-saving measures, and improvement plans.
For example, installing smart climate control systems for all your warehouses might cost more upfront, but you may determine that they provide positive returns of investment and emit less carbon in the long run due to the electricity savings.
Upon identifying the areas, you can start to map out realistic goals that relevant departments and teams can work towards to improve the business’ sustainability practices.
3. Setting sustainability goals
While this is the third step in this guideline, for some businesses setting goals may come as a first step. As an example, a company that is mandated to reduce their carbon footprint for compliance purposes may have the goal of reducing their carbon footprint as a first step.
In such a case, this step is meant to help fine tune the goals using the actual data that has been collected. Your sustainability goals should align with your business strategy and, if helpful, can follow the SMART goals framework. SMART goals tend to be Specific, Measurable, Achievable, Relevant, and Time-Bound. The SMART goals should be understandable to investors and prove the possibility of delivering valuable and concrete changes.
Like how you approached data collection, goal setting should take stakeholders’ interests or material topics into account. If you had set out to collect climate, water treatment, waste management, and employee welfare data, it makes sense to set goals according to these four areas as well.
Once you set these goals, evaluate the challenges you might experience in implementing the sustainability strategy. You can then develop possible mitigation strategies for each alongside the action plan for implementing sustainability.
4. Assigning action items and responsibilities
Based on the goals that have been set by the business the next step to take is to assign actions and responsibilities to relevant teams and individuals. For each goal, list three or four actions that you will need to take in order to achieve it and rank the actions based on which are the priorities. From these actions you can then start to assign tasks and responsibilities to the correct people within the business.
It is essential that the task owners understand the reasoning behind these actions, how they fit into the overall sustainability strategy and the steps they need to take to achieve them. It is also helpful to have regular check-ins with the relevant individuals to monitor their progress against achieving their goals. Ensure there is an open dialogue between those setting the goals and deciding on the actions and those who will be carrying out the responsibilities. It is important that there is a clear understanding of timelines and roadblocks so that any potential delays can be avoided, goal adjustments can be made if required and expectations can be managed.
5. Tackling sustainability in the supply chain
After identifying areas of improvement within the company, it is time to evaluate the negative effects of the supply chain on sustainability efforts. Implementing sustainability demands a holistic approach. As such, you will need to assess the sustainability models your supply chain observes as failure to address sustainability loopholes in the supply chain can damage your reputation and brand image.
You must evaluate whether the components sourced from different suppliers adhere to your company’s corporate sustainability strategy. For example, you may ask questions like:
- Does the supplier adhere to local wage regulations, including restrictions on child labor?
- Were the raw materials used in the manufacturing processes produced ethically?
Your company should discontinue engagement with suppliers whose sustainability models fail to adhere to your company’s corporate sustainability strategy.
It may be helpful to define a supply chain management plan to improve the sustainability strategy for your company during the engagement period. The plan should define:
i) Standards and a conduct code suppliers must meet.
ii) The investigation process for supplier non-compliance suspicions.
iii) Open communication within the industry including disclosure of code of conduct violation to influence supply chain responsibility.
iv) Actions taken after non-compliance dishonoring the conduct code including discontinuing business.
Your company should ensure transparency and utilize the same code of conduct for all suppliers.
6. Driving sustainability culture among employees and customers
Once you have identified the areas for improvement and set sustainability related goals, you will need to incorporate these into your business for sustainability to become part of the company’s culture.
To promote company-wide adoption, appoint a leader to oversee the strategies for sustainability and manage the implementation process. The leader will oversee the engagement of employees and their involvement in decision making to encourage buy-in. At one point in your business’ sustainability journey, you might want to consider building a dedicated sustainability team to help drive culture adoption.
Employee engagement promotes acceptance of sustainability strategies, while sustainability strategies inspire higher employee engagement levels, increased productivity, and lower turnover rates. In modern business environments, over 79% of employees consider sustainability commitment before working for a company.
Consumers are also key stakeholders in implementing sustainability strategies. 80% consider a company’s sustainability strategy in purchase decisions and 78% when making products and service recommendations. Consumer engagement can be achieved by seeking their reviews regarding the business sustainability models. For example, you can share the sustainability strategies on the company website and social media platforms and ask customers to share their views and perspectives. Customer engagement can be useful as a source of insight into areas of improvement.
The bottom line: balancing sustainability efforts and profit
It is important for business to strike a balance between sustainability and profitability.There is a greater understanding around the world for the importance of incorporating sustainability into the running of a business to mitigate the challenges we face regarding climate change and resource depletion. However, companies still need to ensure profitability and meet KPIs.
Some steps you can take to balance these two issues include:
Ensure proper planning: Make sure that the decisions you are making around sustainability best practices make sense and don’t compromise the quality of your product or offering.
Identify your goals: As discussed earlier, ensure you have set realistic and achievable goals. Even small actions such as encouraging employees to bring in reusable water bottles instead of disposable ones can make a difference.
Understand the long-term benefits: while investing in sustainable technologies, whether for product development or reporting, may be an expensive initial financial investment, it is important to recognize the long term gain you will get from this. Undertake analysis to understand how these financial investments will benefit you in the long run, whether it’s through improved efficiency in your supply chain or increased customer and investor support.
How to improve an existing sustainability strategy
i) Review sustainability goals: Undertake a materiality assessment and redesign sustainability goals. Undertake surveys to determine the challenges and ideas for improving sustainability and communicate the sustainability vision across the organization.
ii) Support sustainability-related innovations: Encourage employees to focus on sustainable innovations that promote positive social change, reduce negative environmental impacts, and promote business profitability.
To conclude, ESG measurement, reporting, and compliance, although critical to the adoption of sustainability within a company, can be challenging. Companies across different industries struggle with reporting ESG data and at the same time, the ESG landscape is constantly evolving, and companies must balance their sustainability goals with stakeholder expectations.
Creating a sustainability strategy allows your company to overcome these challenges, through data measurement, goal setting and supply chain analysis. If you are looking to create or optimize your sustainability strategy Zuno Carbon can provide you with an end-to-end ESG solution. We offer data driven insights into your carbon emissions, provide support in selecting the correct ESG framework for reporting and help with target and goal setting within your business. Find out how you can utilize Zuno Carbon’s Veridis platform for your ESG measurement, reporting, and compliance by booking a free demo here.
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Frequently Asked Questions (FAQs)
How do you create a sustainability culture?
It is one thing to create a sustainability strategy and another to embed sustainability into the culture of a business. You can create a sustainability culture by openly communicating the sustainability strategy and its goals. Regularly address concerns regarding sustainability strategies and set achievable sustainability targets. Sustainability targets should be set for all employees, including supervisors and entry-level workers to ensure that everyone across the organization is committed to achieving the same goals.
It is also important to regularly report challenges and successes. This can be done by encouraging open dialogue, suggestions for improvement and fostering an environment where challenges are seen as learning opportunities.
How to identify a good sustainability strategy?
The sustainability landscape is complex, broad, and fast-evolving and you may question whether your sustainability strategy is fit for the future. To determine a good sustainability strategy, it is important to assess how the company is collecting and measuring data, whether clear goals have been set and areas for improvement have been identified. Ensure that you have outlined action points that different teams and individuals in the company need to undertake, and that these actions align with the overall sustainability goals. It is also useful to understand how the company is working to integrate sustainability into the business culture. A good sustainability strategy should also demonstrate transparency and accountability.
