Integrating sustainability into a company’s core business model enables the business to create more value, manage risk and address today’s global environmental, social and financial challenges.
Measurements beyond financial values
At many companies sustainability is a silo’d department that is separate from the core business strategy. It’s often not included in everyday business decisions. There are a number of reasons for this lack of integration, the first being a systems level challenge. On the whole, global markets operate based on one form of value: financial value. Environmental and social value are typically not considered when measuring the success of an economy. It is therefore difficult for companies operating within this framework to include environmental and social issues in their core strategies, when the overarching system does not value them.
In addition, markets often focus on short-term value more than long-term value. Most sustainability issues have more long-term timeframes and therefore there is a misalignment.
Companies also struggle to embed sustainability into decision-making due to a lack of senior level support. Our research indicated that leadership is fundamental to making real progress on sustainability issues. Without buy-in from senior leaders, embedding sustainability into the core of the business is very difficult.
Embedding sustainability into core business
Embedding sustainability into the core of business enables the company to create more value across various capitals including environmental, social and financial capital. Our research suggests that integrating sustainability can also lead to greater employee engagement, better decision-making and a more holistic and comprehensive understanding of risks and opportunities. In addition to corporate benefits, bringing sustainability issues into the business model enables a company to contribute to solving today’s challenges such as water scarcity, climate change, inequality and under and over nutrition.
Through our research we identified five pathways that practitioners can use simultaneously to embed sustainability into the business:
Employing business model thinking
Understanding how a business creates value helps identify areas where sustainability can be further embedded in the company. The process of mapping the business model establishes deeper knowledge of the business’ value proposition and purpose and also engages internal stakeholders. A visual illustration of the business model is often helpful to share both internally and externally.
Examples explored in the report: Fibria, AstraZeneca, Novelis
Putting materiality to use
A materiality assessment positions a company to align financial and sustainability materiality and embed sustainability issues into the core business strategy. By focusing on one or a select few issues, companies can identify how the issues impact the business, dedicate resources to establishing goals and metrics, and fully embed the issue into the business. Once the company has integrated one issue, it can then focus on embedding more issues into the core strategy.
Examples explored in the report: Nedbank, Starbucks, Nestlé
Applying a sustainability lens to products and services
Developing sustainable products and services can foster the integration of sustainability more deeply into business by engaging numerous departments. By applying a sustainability lens through scorecards, lifecycle analysis and indices, companies can embed sustainability issues into the company’s operations and also engage customers.
Examples explored in the report: BASF, Johnson & Johnson, Walmart
Tapping into culture
Corporate culture plays an important role in the integration of sustainability and is closely tied to a company’s leadership. While cultures that embrace innovation and collaboration fosters the integration of sustainability, cultures that are risk-averse and change-resistant can also be dramatically shifted or strategically leveraged to further embed sustainability into the core business.
Examples explored in the report: Barclays, Campbell Soup Company
Integrated reporting is one aspect of transparency that both drives and reflects a company’s integrated approach to sustainability. The process of creating an integrated report can bring together cross-functional teams, foster greater understanding about how the company creates value and spotlight areas ripe for further integration. Integrated reporting helps companies communicate the integrated nature of their business model.
Examples explored in the report: Sasol, AkzoNobel
Sustainability research that benefits all companies
SustainAblity took a global approach to our research but zeroed in on two regions, South Africa and key Asian markets, to extract lessons that could benefit all companies trying to integrate sustainability. The Johannesburg Stock Exchange in South Africa issued a mandate that requires listed companies to produce annual integrated reports starting in 2011, which has produced some interesting results. We found that while many companies are producing integrated reports, few of them have effectively integrated sustainability into their core businesses, meaning that simply producing an integrated report does not mean a company is integrated. While South Africa’s regulations for integrated reporting have driven some leadership in both integrated reporting and deep integration—as seen with Sasol, Discovery and Nedbank—many of integrated reporters in South Africa have not yet truly embedded sustainability into the business.
We also took a close look at key markets in Asia such as Hong Kong, Singapore, and the Philippines. We discovered that practitioners there are eager to accelerate the process of integrating sustainability. However, there is still work to be done toward integration in this part of the world. We see regulation and global customer demand putting pressure on companies to embed sustainability but, as with many markets, there is still a ways to go. There are promising pockets of activity though, such as with Philippines-based real estate company Ayala Land Inc. It is aligning itself with national development goals and pioneering a holistic approach to urban development and renewal as well as infrastructure creation.
An integrated future to me is one where corporations prioritize sustainability issues along with financial returns in their overall business strategy and reporting. Every decision will take into consideration environmental, social and financial value in meaningful ways. In this way we can work toward a sustainable future.
To help companies learn more about embedding sustainability into their core business, we’ve recently published the report, “Sustainability Incorporated – Integrating Sustainability into Business.” It’s available on our website http://www.sustainability.com/library/sustainability-incorporated#.VqJlklIsj8g for download. SustainAbility hosted a public webinar on February 2 to discuss key findings from the report. Guest speakers Gary Kendall of Nedbank and André Veneman of AkzoNobel, featured in the report as case studies, shared how they have embedded sustainability into their companies. You can watch a video recording of the webinar here: http://www.sustainability.com/news/watch-a-video-recording-of-our-webinar-on-integrating-sustainability-into-business