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IMA Energy & Environment Blog

How an integrated sustainability strategy can help you stand out

EY is an IMA B2B Partner

Today, more than ever, integrating sustainability into your strategy is important to futureproof business. However, organizations around the world are realizing that to do so, they should plan for and address potential impacts of global megatrends — drivers that can fundamentally change the way they may operate over the coming decades. It is important for businesses to look beyond their own challenges — direct or indirect — and consider the broader influences that are changing the way the world works. These influences include: the increasing number of requirements to demonstrate ethical behavior and to describe an organization’s purpose; and a growing consumer base more in touch with the connection between the products and services they buy and their impacts on people and the environment.

Investors are increasingly taking note of this — as evidenced by EY’s annual investor survey.[1] The survey shows that 80% of all respondents agreed or strongly agreed that environmental and social factors (not just governance) offer both risks and opportunities, but that companies have not considered these in their business.

Aside transparency, there has been a recent shift in investor sentiment to focus also on whether organizations have integrated sustainability into their business strategies to enhance performance and build resilience.

What does integrating sustainability into business mean?

To respond to investor demand for greater integration, it is necessary to explore what “integration” actually means. There is no widely acknowledged definition or even a universal view of how to accomplish it. A number of studies around the concept of integration have offered definitions, including:

  • A push toward operational excellence: utilizing processes to reach expected results by enriching and updating them through the lens of sustainability (for example, this includes the introduction of clauses on environmental and social sustainability in the process of selection or management of suppliers, or the integration of sustainability risks into risk management processes)
  • Integrated thought: a holistic way to think of an organization and how it creates value, is considering the interaction between tangible and intangible assets as it operates
  • Innovation engine: a way to innovate new products, including environmental and social aspects, from their conception to enhanced product innovation
  • Answer to a changing world: the capability of an organization to activate and interpret social, environmental and economic changes to anticipate needs that may lead to transformation of the business’s purpose in addition to its operational practices
  • New social impact models: situations in which boundaries between sustainability (considering environmental, social and governance (ESG) factors) and traditional (focus on financial value) business become blurred, in conjunction with the emergence of new, social impact-driven business models.

However, as you can see, these concepts differ significantly. And, while being exercised successfully by some, they do not necessarily resonate with the decision-makers involved in the development of corporate strategies. Given that sustainability integration is of increasing importance to many organizations, they should better understand “integrated sustainability” and how it can enhance business performance.

A new definition of integrating sustainability in business

With continued focus on sustainability by some of the world’s leading organizations, a forward-looking view on the definition of sustainability is emerging. Consistently, this new definition incorporates a redesigning and redefining of strategy and operational processes that meet the changes, needs and expectations of the market and society alike to support long-term value.

In this definition, the word “sustainability” becomes a synonym for the capability of the organization to adapt to the potential impacts of global megatrends, and endure over time. Here, integration can be interpreted as an opportunity to improve day-to-day operations and also to look at business transformation for the future, be it new products, a new purpose or a new business model.

How do you go about integrating sustainability?

Over the past few years, there has been a proliferation of new management theories related to sustainability strategy that seeks to provide method or guidance on integration. Some significant examples include:

  • The Gond model identifies eight levels of maturity for integrating sustainability in business, from sustainability and business strategy managed in parallel, to integrated strategy — where sustainability is directly managed through managerial practices and systems.
  • The Lozano approach is more focused on the types of sustainability initiatives[2] that are assessed according to the potential contribution to the dimensions of sustainability. They are the economic, environmental, social and time dimensions, on a scale including the complete, partial or variable coverage of dimensions, depending on the use of the tool.

Development has also been undertaken by global organizations and think tanks to design frameworks to provide organizations with practical approaches on how to integrate sustainability models into their operations. Examples include:

  • The Roadmap for Integrated Sustainability by United Nations Global Compact provides a practical guide to integrate sustainability in corporate strategy, operations and culture. In particular, the road map identifies, for each key corporate function, a series of recommendations for the integration of sustainability into those corporate functions, as well as some emerging practices.
  • The guide, Sustainability Incorporated, from the English think tank SustainAbility, defines five essential elements for integration, such as the understanding of the business model, the focus on materiality subjects, the inclusion of sustainability in the design of products and services, the development of mindset and integrated reporting, and the analysis of those aspects in corporate culture that may be useful drivers for sustainability.
  • The Executive Guide: Business Models for Shared Value, drafted by the Network for Business Sustainability, explores three possible operational practices that might help corporations integrate sustainability into their business according to a shared value standpoint:
  1. The Hourglass model that can help companies look at and appraise the value creation model in an integrated and holistic way
  2. The Sustainability Strategy Roadmap that identifies the steps to orient the corporate strategy toward shared value
  3. The Business Model Thinking Framework that supports organizations in defining a new business model inspired by shared value

Each of these models differs in scope and approach, and knowing which of these models (or others) to choose and how to start the journey can be daunting. After all, many organizations are only at the point of considering sustainability, let alone embedding it into the very core of their long-term decision-making processes. Furthermore, sustainability managers who are asked to navigate change often do not have direct influence on the setting of the business strategy.

 

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