Why sustainability is crucial to business strategy
- 90% of leaders think sustainability is important, but only 60% of organizations have sustainability strategies.
- Integrating sustainability into strategy is essential to respond to changing investor pressure, consumer demand and regulatory requirements.
- Sustainability has also been proven to attract top talent, reduce costs and increase profits.
Sustainability has become increasingly essential for organizations to remain relevant and competitive in today’s world. Like digital transformation, sustainability requires organizations to transform every division of their business. Today, sustainability should be an integral part of business strategy development. Sustainability for organizations comes in three areas, in the now well-known acronym of Environment, Social and Governance (ESG).
Sustainable business strategies are the future
90% of executives think sustainability is important. The problem is a lack of implementation with only 60% of organizations having sustainability strategies. A sustainability strategy and a sustainability director reporting directly to the board are, in fact, imperative.
With a sustainability strategy, organizations can make long-term investments, according to McKinsey & Co. But sustainability in an organization presents challenges, including low board commitment, weak accountability, teams of sustainable development without authority to implement initiatives and talent shortages.
Our planet is straining under the weight of a world population of almost 8 billion people.
The World Economic Forum’s Center for Nature and Climate accelerates action on climate change and environmental sustainability, food systems, circular economy and value chains, and the future of international development.
- Through the Global Plastic Action Partnership, we bring together government, business and civil society to shape a more sustainable world through the eradication of plastic pollution.
- The center champions nature-based solutions. Global companies are working together through the 1t.org initiative to support 1 trillion trees by 2030. As of September 2021, more than 30 companies have pledged to conserve, restore and grow more than 3.6 billion trees in more than 60 countries.
- Through a partnership with US Presidential Special Envoy for Climate John Kerry and more than 30 global companies, the Forum encourages companies to join the Early Mover Coalition and invest in innovative green technologies so they are available for a massive scale-up by 2030 to enable net-zero emissions by 2050 at the latest.
- The center also brings together leaders to engage in a circular economy approach. Globally, the Scale360° initiative will reduce the environmental impact of value chains in the fashion, food, plastics and electronics industries – an important step in making the opportunity for 4.5 trillion dollar circular economy a reality. The African Circular Economy Alliance funds circular economy entrepreneurs and activities in countries like Rwanda, Nigeria and South Africa. In China, the Forum’s Circular Electronics in China project is helping companies reduce and recycle 50% of e-waste by 2025.
- The Forum also offers crowdsourcing solutions to the climate crisis through its open innovation platform, UpLink. Since 2020, this digital space has hosted more than 40,000 users working on more than 30 challenges, including reducing ocean plastic pollution, stepping up efforts to conserve, restore and grow 1 trillion trees, and innovating in the production and processing of aquatic foods.
Contact us for more information on how to get involved.
Factors promoting sustainability within the strategy
Investor demand – One of the most powerful factors shaping the transition to sustainability is investor pressure. Gartner research reveals that 85% of investors considered ESG factors in their investments in 2020, while 91% of banks monitor the ESG performance of investments. The recent letter from the CEO of the world’s largest asset manager, BlackRock, clearly indicates that the investment community is focused on sustainability. Larry Fink writes that being sustainable is not just about doing the right thing, but leads to sustainable long-term benefits.
Consumer demand – With an increasing number of Millennials and Gen Z consumers, the demand for sustainable products is increasing. 73% of Gen Z consumers say they are willing to spend more on sustainable products. Research from Deloitte shows that around 60% of consumers in the UK have reduced their use of single-use plastic to adapt to a more sustainable lifestyle. Brands with strong sustainable credentials were sought by 1/3 of UK consumers. With the level of demand for sustainability only increasing globally, integrating sustainability into business strategy is essential for any business to remain relevant in the years to come.
Regulatory requirements – The Paris climate agreement made it clear that governments need to be stricter. Countries like Sweden and Germany have legally binding net zero targets for 2045, while the UK, Canada, Japan and others have net zero commitments for 2050. The taxonomy of EU, which regulates companies based on their environmental sustainability, not only affects EU companies, but also global companies doing business in the EU. With many governments moving towards sustainability, organizations should start transforming their operations to become more sustainable. Being proactive about sustainability will lead to having better relationships with regulators.
Attract talent – Being a sustainable company is important to attract talent. In a Deloitte survey, 49% of Gen-Z and 44% of Millennials said they made career choices based on their personal ethics. A recent survey shows that 51% of American business students would accept a lower salary if the company was environmentally friendly. With a growing need for talent, failing to focus on sustainability can lead to a business losing out to competitors that are.
Increased productivity – Being sustainable will lead employees to be more motivated to perform better. Sustainability reduces costs and can affect operating profits by up to 60%, according to McKinsey & Company. Being sustainable also increases productivity, as a Deloitte study shows that companies with an inclusive culture have 27% higher profitability and 22% higher productivity.
Focus on sustainability in corporate strategy
Sustainability will play a key role in the years to come and integrating it into the heart of corporate strategy will be essential. Already, there is an increase in the number of Fortune 500 companies appointing their first Chief Sustainability Officers (CSOs). Emphasizing sustainability is essential to meet investor pressure, consumer demand, regulatory requirements, talent acquisition and ensure increased productivity.