The evolution of strategy for sustainability in business
I have helped companies develop effective strategies for sustainability and sustainable business for the last 20 years. Let me tell you, the strategies we developed 10 or 15 or 20 years ago wouldn’t be of much use today. The landscape is completely changed in every aspect, both in terms of regulatory pressure, corporate maturity, consumer interest and competitive and ecosystem aspects. These differences translate to changed methods to develop an appropriate strategy.
The shifts in methodology and focus can be described in many ways and there are also huge differences from company to company. I hope the described evolution in five phases below can interest and shed some light without being absolute truths in any way.
1. Negative, Inside-out and fragmented
In the first phase, the companies who developed sustainability strategies were typically large companies with a significant internal complexity. The need to become transparent regarding impact on sustainability got a push when the state-owned companies in Sweden faced compulsory reporting requirements based on GRI from 2008 onwards. GRI initially had a very significant inside-out perspective, which means that companies should report how their internal business had a negative impact on environment, climate and social factors. Initially the scope was internal, so not much focus on supply chain or what happens downstream. These requirements reflected how strategies were developed.
Strategy was typically based on the different GRI indicators, and maybe the 10 Global Compact principles, which were introduced already in 2000. The perspective on communication was quite rudimentary. Typically, a communication strategy would also try to use the same factors and build some meaningful communication around. In this early phase, communication often failed to engage and was seen as fragmented and hard to understand. The impact on business was quite small.
2. Outside in and focused
A second phase was a reaction to the first phase, which got the process started, but generally was frustrating to all involved because it delivered quite little value. Although reporting on many different factors is important from the point of transparency, it actually has very little to do with business strategy, which is all about focus. The tricky strategy process is as much about deciding what not to do as about what to do. Prioritising is hard. For sustainability to have a real impact also on business, prioritisation is necessary. What issues are closer to core business, and how can they be a part of our business strategy?
While we continue to report on the whole spectrum of issues, we need to prioritise where we should make bigger difference. These are the issues where we set tough goals and these are the issues we try to build our communication around.
In this phase, communication strategies started to evolve and become more effective. A big shift was in the ambition to communicate from a positive, outside-in perspective, rather than a pure inside-out perspective. What does this mean? Well, the companies who succeed with sustainability communication typically focus their storytelling about positive impact and what world they want to be part of building, rather than the tedious day-to-day job of reducing negative impacts. It is important to note though, that those companies that were pushing too hard on their positive impact could get a backlash and be accused of greenwash. The balance is important. Be transparent about what you do, but build focused communication about what you wish to accomplish.
3. Benchmarking, Partnerships and Competitive Communication
In a third phase, both strategies and communication became even more sophisticated. Let’s say that in this phase, sustainability really started becoming an important lever in the competitive landscape, which means it became even closer associated with the business strategy. In practice, this meant that as we developed strategies, more and more focus was moved to understanding the competitive landscape. The need to benchmark your sustainability work with your competitors and peers became really apparent, but not only with them, also with your customers. Since sustainability started to be an important part of the value creation process to customers, it became really important to understand how. Which issues are most important to our customers? How can we work together with our customers regarding these issues? Overall, the importance of working with sustainability in the ecosystem became increasingly important.
In the strategy process focus was now on one hand on benchmarking in the industry: we want to be as good or better than our competitors. But on the other hand on differentiation: How can we integrate sustainability in a way which is more engaging and value creating than what our competitors do?
As regards communication, we could see another step forward. Who are most credible when describing the value from your sustainability work? Is it yourself or is it those external stakeholders who are impacted? Rhetorical question, of course it is even stronger when someone else talks positively about the value you create. So how do you achieve this? Through sustainability partnerships and collaboration platforms. There are many great examples of how this is achieved. Just to mention a couple: The Global Change Award is an initiative by H&M Foundation to solve the challenges in the textile industry. It is a platform for collaboration and communication with great value for H&M. Another example is Ericsson Response. This is an initiative by Ericsson to contribute with emergency relief in natural catastrophes together with UNHCR. A great way of showing the societal value of Ericssons technology and efforts.
4. Added Value and Business Model Focus
Since we are really starting to integrate sustainability in business development and business driving communication, the focus on changing business models and value creation increases. You can also say that this is a consequence of just incremental improvements not having enough impact. From a business perspective, it is mainly driven from an opportunity perspective. How can we develop and strengthen our business and brand by changing or adding a more sustainable business model. Cases in point are e g the different initiatives from product companies to start working with their products in a PAAS (product as a service) environment. See for instance Husqvarna’s Tools for you or how Volvo has been engaging for a long time in Sunfleet, M, and Volvo On Demand.
Creating added value can also come from side streams or parts of the product. For instance, Absolut Company has been working a long time to try and make different parts of the ecosystem more circular and value creating, such as returning the residual “drank”as animal feed or choosing circular approaches to their packaging.
5. Circular Ecosystem
Circular Economy has been on the agenda for a long time, but the real push is coming now. While leading think tanks and thoughtleaders like Ellen McArthur foundation has been advocating for decades, little has changed in practice, at least if we look at the total impact. Circular business has been in focus for regulatory development in EU for several years. The EU has recognized that Circular Economy is a necessary strategy to adopt more widely to reach climate goals, to reduce waste and to save virgin resources of all kinds. Now this is being pushed through legislation including CSRD, CSDDD, CBAM, the Taxonomy and the Circular Economy Action Plan. Circular economy is a natural continuation of the previous phase, since it is all about developing business models.
The tricky thing with circular economy is that everything happens in the ecosystem. Very few companies today have full control over the entire lifecycle of their products. This means that in order to develop circular economy, they need to develop business models and processes in the ecosystem, which may include competitors, suppliers, customers and industry organisations or platforms. It can become quite complex.
Thus, to develop circular business, you typically have to develop your relations, your circular strategy and your circular demands and processes towards your suppliers as well as your customers and maybe even other stakeholders. This is new territory for most companies, and the strategic challenges and work to be done is significant.
In terms of a communicative strategy, the circular business initiatives also provide some challenge. The changes are typically small scale at start and progress takes time, which means that it is more challenging to build an engaging and energetic story around.
It becomes important to address also circularity strategically. On one hand to focus circularity where it is most material. This is important, but is typically where it will take the longest time, since it is a whole industrial ecosystem that needs to change.
In addition, companies can focus on circularity in areas that are material but also provide more immediate showcases. An example of this is circular offices and indoor design. Almost all businesses have offices, which are important parts of their identity. At the same time, an office project consume a lot of resources and can be very material in terms of impact. Increasingly, companies see that a circular approach to these projects provide visible value, a showcase both for employees and customers while also showing that their circular journey is for real. Just don’t underestimate what a strategic approach means – you need to have a circular strategy, circular requirements towards suppliers, a circular purchasing process and circular governance all the way.
6. The Next Phase or Wrapping It Up
I don’t know what the next phase will be. It is interesting to note, that while I have described the above evolution as “phases”, it is clear that what we did in the early phases, we still do. We just have added additional layers of sophistication on top, and thereby creating a more effective and value creating integration with business, governance, compliance and communication. The job of developing a really effective and value creating strategy in a company is not getting easier. It is the job of the entire leadership team to engage in and it requires the right competence as well as prioritised resources.
CEO
Matters Group
(Published in Aktuell Hållbarhet, here)
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