Sustainability is an important topic for all of us. And, many companies are interested in helping protect the planet and its people.
Today, businesses are influenced by stakeholders that include customers, investors, regulators, employees, and the communities where they operate.
One thing that connects them all is an interest in seeing companies make good on their environmental, social, and governance (ESG) commitments.
The question, then, for business leaders is how to make real progress and share the results with stakeholders.
In a recent article, Deloitte found that business stakeholders are leery of ‘greenwashing’ and their research points to a trust gap between companies and their stakeholders.
It’s extremely important for companies to close the gap. Deloitte found that institutional investors cited performance on climate change as the most important ESG factor in their decision to invest in a company or not.
To gain trust, and close the gap, businesses must develop a track record for corporate social responsibility and doing business sustainably.
So, what should companies do? Here are 7 ways business leaders can focus their efforts and reach their targets for sustainability and social responsibility.
Adopt a purpose-driven mindset
The profit-motive has driven the wheels of enterprise for a long-time. However, there is a growing sense, especially among Gen Z consumers, that the approach only benefits a few stakeholders- mainly the shareholders.
Now, there is a call for companies to change to a purpose-driven strategy that seeks to create value for all stakeholders. Employees improve and sustain themselves, shareholders grow their wealth, and the communities where the business gets resources also benefit. In such a strategy, decisions are made with the long-term interests of all stakeholders in mind.
Transparency around sustainability and social responsibility
Another shift that business leaders need to make is towards transparency about environmental risk, especially related to climate transition, and social responsibility issues.
Stakeholders expect information about these issues and how they may impact the business and, importantly, the strategic responses the business will take to reduce its risk.
Companies need to report more openly about their climate risk assessments and the commitments they have made- including financially. There is a need to embrace transparency and own up to mistakes and see them as opportunities for improvement.
If adopting new technology will enable more accurate reporting, then it should be adopted. Company leaders in every sector ought to be receptive to questions about climate change, even in industries, like oil and gas, and energy production, that have been reluctant to address it.
Take an opportunity focused approach
Traditionally, companies may have viewed climate change as a disruptor. And, the risks of which would negatively affect the bottom-line. There is a new school of thought, however, that embraces climate change as an opportunity to grow the bottom-line through innovation.
Volkswagen, for instance, plans to sell 70 electric-vehicle models by 2028. Going as far as, by 2030, EVs will make up 40% of the company’s offerings. This is a major transformation for a company that has been making vehicles for over 70 years. By championing the sustainability course instead of opposing it, the company is creating a new green market for itself.
Xcel Energy, an $11B+ US energy utility, offers another example of business transformation to gain advantages in a low carbon economy. Xcel established baseline emissions reporting, and then introduced strategies to increase energy conservation and reduce emissions, and deploy renewable sources of production. The results were significant operating efficiencies and returns that outperformed its peer group over a five year period.
Build an ecosystem
The traditional relationships between a business with suppliers, customers, and the community have been transactional. Moreover, competing companies are viewed as enemies.
Once again, a new way of thinking is opening up new opportunities. Companies operating in the same sector (which includes competitors and their suppliers) make up an industry ecosystem. And, an ecosystem mindset stems from understanding that the businesses and their stakeholders are interdependent, where their fates are intertwined.
By holding forums to discuss the future of industries, it’s possible to find priorities and milestones that alter the course of the industry without cannibalizing one another. An example is textile producers developing processes for new, more sustainably-produced fabrics. Where, by working together, the players in the value chain all gain from the new market.
Collaborate with stakeholders
Collaboration with stakeholders needs to be more than raising awareness or sharing reports.
To help ESG programs to have maximum impact, businesses must help their stakeholders, which include suppliers, vendors, customers and affiliated communities operate more sustainably.
Deloitte provides an example of Mars Incorporated that takes collaboration to the next level, when in 2013 it launched ‘Economics of Mutuality’, a program based on a fair and purposeful form of capitalism that performs better than the purely financial version.
Regeneration vs preservation
Instead of just preserving natural resources and the status quo, sustainability should be more about regeneration.
Companies should aim to ‘do more good than harm’ in their business activities. For instance, companies in the agriculture sector should be involved in efforts to ensure that natural water sources are maintained.
If planting more trees in important water towers will help the regeneration process, then they should be involved in the effort. Besides planting trees, companies can also focus efforts on educating communities they share water resources with on sustainable ways to use the water to minimize pollution and wastage.
Aim for a circular economy
For any business, the goal should be to eliminate waste in order to maximize efficiency. The same is true for industries. Which can happen when all waste in a particular value chain is used as an input elsewhere.
What’s needed though is investment in research and exploration of new business models to find new uses for what is currently considered waste.
IKEA, for instance, is testing a rental business model. Where, for example, a college student who only needs a desk for a semester, can have the option to pay a monthly fee and then pass it on to someone else.
Don’t forget – Set the right foundation
The steps above are for leadership working to attain the right shift in strategy and approach to align long-term strategic and ESG goals.
In addition to these steps, business leaders need appropriate support and governance at the board level to embrace new opportunities and ensure success.
Company directors must be educated about climate change risks so that they can steer and approve the needed responses.
The business needs a C-suite level champion to drive the agenda and communicate it to shareholders and put in place the metrics to measure progress.