Sustainability strategy: connecting goals and delivery

Two developments make sustainability a subject of strategy: legal requirements, for example on climate neutrality, and the growing sensitivity of customers and other stakeholders to sustainable business. This gives rise to opportunities and risks that an organisation has to assess. Strategy work therefore deliberately includes the external effects of the company's own activities. They feed into the vision of the future, corporate values and brand. The evaluation of market segments also changes. Alongside volume, growth and profitability, it matters whether a segment fits the company's own values.

The model draws on a further development of the Balanced Scorecard by Robert Kaplan and David McMillan. It organises strategy into six levels: values, finance, stakeholders, environment, processes and enablers. The values perspective asks what the company stands for with regard to ecological and social requirements. The financial perspective names growth and productivity objectives.

The stakeholder perspective contains the value proposition for target customers and other stakeholder groups. The environmental perspective shows where the company influences its ecological and socio-economic environment and which internal rules follow from this. Below these are the processes and the prerequisites for implementation.

In this model, purpose describes why the company is active, how it wants to act and what it stands for. Planet and people direct attention to ecological and socio-economic responsibility. Profit keeps economic viability in view. These perspectives must be translated into concrete decisions. A collection of general values does not yet explain the positioning.

In addition to target markets and customer groups, other relevant stakeholder groups are considered. What expectations exist, and what responsibility does the company derive from them for itself? Conflicting objectives are made visible and worked on. The analysis also covers developments in the social, technological, political and ecological environment.

Procurement, service delivery, distribution, customer management and innovation are examined for how they are to support the desired positioning. Internal rules and framework conditions are part of the work. This creates a connection between the values represented externally and the decisions taken in operations.

The map considers people, organisation, technologies and assets, and culture as enablers. Which capabilities, responsibilities or systems are missing? Initiatives, a master plan and a suitable learning architecture are developed from the answer. Relationships in the map are initially working assumptions that must be reviewed in the course of implementation.

A family-owned retail group faced growing demands from customers, society and legislators. There were many individual initiatives within the company, but no target picture supported by the entire management board. Some departments saw the topic as an overarching task and did not drive it forward in their own area. It therefore began with a stocktake, with interviews in all departments and an evaluation of supplier and customer requirements.

This resulted in a target picture with six areas of action, each with a level of ambition: services for members and suppliers, networks and partners, social responsibility, regulatory requirements, ecologically sustainable processes and responsibility for employees. It was also clarified which topics are mandatory and which the company pursues voluntarily. Responsibility remained in the line organisation. A core team with the CEO took directional decisions, and a monthly platform connected those responsible in the specialist departments.

Several hurdles emerged in this project. Sales lacked a coordinating function for sustainability topics. The specialist departments gave the topic different weight. Some regulatory requirements had not yet been finally defined and changed while the process was under way. And it was unclear which services the market expected: some customers were pioneers, while many could not yet precisely determine their own needs. What helped was an analysis of developments in the relevant markets, a framework for service development and a dedicated function for ongoing market observation.

The template described serves strategy and organisational work. It is not proof of compliance with individual reporting or legal obligations. For specific regulatory requirements, the applicable rules and the necessary expertise are clarified separately. The strategic work remains focused on connecting a comprehensible positioning with decisions and implementation.

Sustainability belongs in strategic work. An organisation must clarify which ecological and social requirements are material for markets, customers and its own value creation. Objectives and initiatives can arise from this, but they need responsibilities and suitable observation. A strategy map can make connections with customers, processes, capabilities and economic viability visible. The choice of measures is a leadership decision and should be reviewed with the departments affected.

How an individual company has worked on such questions can provide ideas. Its key figures and results must not be transferred to others. For your own strategy, current data, relevant standards and the actual corporate context are what count.

Corporate sustainability is usually framed in three dimensions: environmental, social and governance. Doing business more sustainably means gradually taking on more responsibility for people and the environment. Holistic sustainability management aligns activities within the company and along the value chain with these three dimensions.

In terms of content, this ranges from dealing with the effects of climate change, through processes and products geared to the circular economy, to working conditions, equal opportunities and the involvement of employees in the company itself and in the supply chain. Corporate culture, compliance and the exclusion of corruption are added to this. Only when these practices are part of the business strategy can sustainability be used as a lever for differentiation, innovation and risk reduction.

The financial market plays an important role because banks steer flows of capital and money. Financial supervisors require them to assess companies according to sustainability risks as well. A distinction is made between physical risks and transition risks. Physical risks are extreme weather events such as heat, drought, flooding or storms and their indirect consequences, such as collapsing supply chains. Transition risks are the costs of switching to a low-carbon economy and the danger of failing to make the switch to future-proof technologies.

Both types of risk are connected and affect profitability through rising energy and raw material prices, lost assets or operational disruption. Further ecological and social developments such as the loss of biodiversity are also considered. This concerns risks to the net assets, financial position and results of operations and to reputation. For companies, this affects their own financing. Convincing sustainable business models are increasingly regarded as a sign of good management.

The path to a sustainable company can be described in three steps: establishing the initial situation, developing a transformation concept and implementing it. How each step is designed depends on the objective. It makes a difference whether a sustainability strategy, sustainability reporting or a carbon footprint is the first priority.

Three instruments are available for the initial situation. An ESG check determines the current situation and initial areas of action in the three dimensions. The materiality analysis, involving the most important stakeholders, assesses two directions: how the business activity affects sustainability aspects and how these affect the company. Its result is the topics that are material for the organisation. The environment analysis uses qualitative and quantitative methods to identify market requirements, relevant trends and stakeholders' expectations of the service portfolio.

The transformation concept can start at different points. If the focus is strategy, options for the business model are developed first. If reporting is the priority, a sustainability target picture and areas of action are created, from which a system of key figures and measures are derived. If the focus is on carbon accounting, the work begins with the system boundaries and emission sources.

Implementation produces a roadmap as well as suitable structures and processes. Areas of action and focus projects are derived from the strategy. For reporting, key figures are defined and data collected. For the carbon footprint, estimation, data collection and calculation of Scope 1, 2 and 3 emissions follow, then climate targets and a gradually extended action plan. The pace depends on the organisation's capabilities. In the end, it should be able to recognise and work on sustainability developments and requirements early by itself.

Many criteria by which organisations have made successful decisions for decades no longer hold. When economic, ecological, social, political and technical framework conditions change, this has consequences for everyone operating within them. This is described as a transition: the comprehensive change from one socio-technical system to another, brought about by changes that build on one another and influence each other.

The multi-level perspective according to Geels and Schot organises this change on several levels of society. Socio-technical regimes are often highly institutionalised. As a result, they often cannot respond early and appropriately to changes in the socio-technical landscape. Niches are weakly structured and therefore considerably more agile. Radical innovations often arise there, outside the existing regime. They gain in importance and can change the regime.

Companies are called upon to recognise such developments with foresight and to include them in their strategy work. In this way, opportunities and risks for their own business model can be seized or reduced early. To do this, a company needs smart routines for observation and evaluation and suitable criteria.

Three things matter for anchoring this in the company. Sustainability must be taken into account in day-to-day business in all relevant line functions. A positioning is needed that is known in the organisation and credible both internally and externally. The key people are networked and ongoing initiatives coordinated with one another. The management board shows awareness and commitment and gives work on the material topics the space it needs. A shared target picture makes it possible to decide even contradictory requirements at the top level in close alignment.