How to unlock transformation through sustainable business models
Sustainable business models are key to long-term viability, and leading companies are spearheading the shift by weaving material social and environmental issues into corporate strategy. Whether it’s regulatory risk, reputational risk, or the more existential risk of raw material shortages, businesses need to integrate their sustainability and corporate strategy functions to stay ahead of the tide.
Each of these functions has something the other needs. While strategy teams shine in identifying opportunities for competitive advantage, they’re often overly focused on short-term profit optimization. For instance, they probably aren’t thinking about the long-term availability of cacao in a changing climate. Climate and sustainability teams, on the other hand, have deep technical expertise but often struggle to craft a narrative that drives leadership buy-in, connects to company-wide goals, and unlocks working capital.
Only by bringing the best of both worlds can your business unleash the potential of lower-carbon, regenerative business models. Here are 4 steps to build an integrated sustainability-strategy function equipped to thrive in a decarbonized future.
4 ways to integrate sustainability into corporate strategy
1) Work together to identify value-driving business opportunities
Climate and sustainability teams need to build a compelling narrative around their work, and strategy teams need to drive growth and maintain business viability. Integrating strategy teams into sustainability-focused business units and upskilling sustainability teams with core strategy capabilities can help each group prosper in support of your business goals.
A few ways to do this include hosting quarterly workshops or establishing working groups with your climate, corporate strategy, and finance teams. Tackle questions like:
What climate and sustainability trends will impact our business today and in the future?
How are preferences shifting among younger customers?
Where can we generate new sources of revenue from business models with less harmful impact on the world?
Looking to better understand the value of sustainability-related business risks and opportunities?
Quantitative scenario planning is one of the most effective ways to integrate climate and sustainability topics into corporate strategy and finance. It helps you tell the narrative of where the world might be in 5, 10, 15, and 20 years and beyond and how your business might be impacted. But it's not just about risks - climate scenario analysis also helps you surface opportunities and ideas for new sustainable business models.
If you’re a CPG company, you might look into opportunities in packaging innovation. If you’re an agriculture company, you could consider working with suppliers on water conservation initiatives. Both have sustainability and bottom-line benefits and help mitigate future threats within your value chain and brand.
Also brainstorm how to achieve your short- and long-term climate and sustainability targets using a strategy lens. In other words, determine what levers you can pull that reduce your impact while supporting company-wide goals (revenue, customer acquisition, operational efficiency, etc.).
What business opportunities lie at the intersection of shareholder value, customer experience, employee value, community impact, environmental impact, and supplier empowerment? Using this framework, you might determine that green building retrofits address 3 criteria, whereas supplier clean energy programs address all 6.
2) Expand your horizons beyond the traditional “box” of strategy
Strategy teams operate with an overarching goal of maximizing short-term profits for shareholders – they have very clearly defined parameters for timeframe, stakeholders, and metrics of success. Embracing sustainability means getting comfortable thinking outside the traditional strategy box. Encourage strategy teams to broaden their horizons about the following:
Time horizon: Strategy teams often consider business viability over a 3-5-year timeframe. Whilemany sustainability risks extend well beyond those parameters, that doesn’t minimize the consequences. Risks like prolonged water stress and a decline in pollinator species could jeopardize the viability of your business model over a 20-year time horizon.
Conducting a quantitativeclimate scenario analysis(mentioned earlier) in partnership with your strategy team can help them think beyond 3-5 years.
Stakeholders: Challenge strategy teams to consider more than justshareholders in their scope of key stakeholders.This will help them more holistically understand corporate impact and price externalities into your products. Remember, if you’reable toextract raw materialsat extremely low prices, there's usually someone experiencing the flipside of that benefit (local communities, the planet, suppliers, etc.).
The diagram above is a useful model to root your thinking – what needs to change to position your brand in service of all 6 stakeholder groups, including people and the planet?
Financial metrics: Partner with your strategy and finance teams to broaden the tools used to evaluate success and identify innovative ways to finance your climate transition. In addition to ensuring transition initiatives are included in your annual budgeting cycle and strategic planning workstreams, integrate sustainability outcomes into your financial performance metrics. This could mean formalizing return on carbon (dollars per metric ton of CO2e) as a metric for success alongside return on investment or putting an internal price on carbon or water to incentivize internal behavior change.
3) Change hearts and minds with a compelling narrative
Cross-pollinating with finance, strategy, and other corporate functions is critical, but it’s not enough. To move the needle and gain top-down support, build the business case and intuition for your climate strategy through a targeted leadership campaign. Executives often make decisions based on intuition, not just numbers, then build a business case to justify it. The challenge for sustainability practitioners is convincing executives that environmental and social issues need to be part of their strategic intuition.
This is where you’ll need to leverage strategy skills and build rigor and storytelling around your work to gain leadership buy-in.
Deploy creative campaigns that show executives first-hand what’s at stake and what opportunities they’re missing by not capitalizing on the climate transition. Maybe that’s a video of smallholder farmers in Ghana discussing the rapid decline in cacao production they’re seeing due to climate change, pests, and poor soil health. Maybe it’s a day-in-the-life tour with community groups. Or maybe it’s an in-person demonstration of the positive results you’ve seen from water restoration pilots in at-risk water basins.
Whatever you do, get creative about ways to connect leadership with the local community and support your narrative with clear, concise, and compelling visualizations. Numbers are important, but don’t let your narrative get bogged down with data – executives resonate with captivating visual stories, not excel sheets.
4) Formalize a governance model to bridge the strategy-execution gap
While the steps above can help you build your strategy and gain buy-in, they don’t tell you how to operationalize your strategy. To translate your strategy into programs, projects, and initiatives that deliver their intended impact, you’ll need a robust, well-functioning governance structure.
In principle, governance seems simple. Fundamentally, it’s about determining who does what and where. However, you’d be surprised how many C-Suite executives rubber stamp 2030 targets without the systems, strategies, or accountability structures to get there. A robust governance model does just that – it lays the foundation to execute your climate transition strategy through various levels of oversight, clear decision rights, and supporting routines and policies. Your model should answer questions like:
How do cross-functional groups come together?
How are issues brought up to leaders?
Who’s responsible versus accountable for each material issue?
What is each layer of oversight (Board, executive committee, working groups, business units) in charge of?
Want to take a deeper dive into sustainability governance models?
Download our guide to learn how to use governance to build a bridge between transition strategy and implementation.
In the not-too-distant future, the standalone sustainability function may become obsolete as it merges with corporate strategy. The recent evolution of the CSO role is a strong indication of what’s to come. If you’re a strategist, start thinking about how climate and sustainability can help you grow and differentiate. And if you’re a sustainability practitioner, start developing hard-nosed value creation narratives to get other departments, investors, and leadership bought in.
Long-term business model viability depends on integrating climate and sustainability into corporate strategy, and the success of your sustainability program depends on integrating foundational strategy tools.
Struggling to drive meaningful progress toward your climate and sustainability targets? Our team links technical climate transition expertise with corporate strategy, helping you secure leadership buy-in and unlock the tools you need.
