Luma Saqqaf is a sustainable finance advisor assisting companies and funds to incorporate sustainability in their business.

With the race to net zero, organisations are increasingly faced with the question of how relevant sustainability is to them and if so, how to incorporate it into their business. But corporate sustainability, by its very nature, is much broader than just climate and net-zero and can mean different things to different businesses. After all, no two businesses are the same – a large plastics manufacturing company, for example, will have different challenges than, say, a marketing agency.

What is corporate sustainability?

To determine its meaning, we need first to examine its definition. Corporate sustainability is derived from the concept of “sustainable development”, as defined by the UN Brundtland Commission in its report “Our Common Future” in 1987: <Sustainability is the> “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Put more simply, sustainability has three main pillars: economic, environmental and social, otherwise known as: ‘planet, people and profits’, or the ‘triple bottom line’. These pillars formed the basis of the 17 UN Sustainable Developments Goals (SDGs), adopted in 2015 by 169 nations as goals to work towards by 2030.

In the context of corporate sustainability, the prevalent term is ESG. This can be seen as a subset of SDG’s in that it focuses on three areas from within SDG’s Environment, Social and Governance or ‘ESG factors’.

Why corporate sustainability is more than just about climate change

Even when a business develops a good understanding of corporate sustainability, sustainability’s broad definition means organisations often face the insurmountable challenge in knowing where to start.

Businesses need to remember that sustainability can – and should – cover a wide array of issues. While of course it includes the urgent concern of climate change, sustainable business also extends beyond that – to environmental, social and ethical matters such as gender equality, creating employment and jobs and helping communities.

These goals are often closely interlinked with each other – people on low incomes, for example, are often those worst affected by environmental problems and environmental policies can often impact their economic well-being.

A focused approach

Tackling all of these goals, however, is not necessarily the best and most effective solution. Instead, companies should focus their efforts.

To do this, they should first understand they are already being impacted by various sustainability factors. For example, an organisation’s daily water and energy consumption falls under environmental factors – the ‘E’ in ESG; their relationship with employees, consumers and the community falls under ‘S’ for social factors and management and shareholder decisions, relationships with the regular and tax authorities fall under ‘G’, for governance.

In other words, considering ESG factors could be seen as simply formalising the relationship between these factors and the business and operations of the company. Shifting the focus means that companies don’t always need to start anew, but can build on and improve what they already have in place.

The right ESG goals for a company can help not hinder

Looking at ESG in this way can also have a positive impact on a company. Indeed, there are many studies that find a positive relationship between businesses that incorporate sustainable activities in their business models and improved financial performance.

ESG can cut costs and increase revenues. Insulating a company premises, for example, not only saves money, but also reduces energy use.

Keeping production machines well-maintained and replacing worn parts and old equipment may make pure business sense, but steps like these will also mean that they reduce the risk of labour accidents and workers’ absenteeism. This therefore goes to the heart of the social aspect of ESG – taking care of workers’ health and safety.

Companies could also look to adding more sustainable products and services to their offering. This may increase revenue by opening new markets and appeal to more segments in the market that is currently growing exponentially in some sectors. Unilever, for example, reported that in 2018 its Sustainable Living Brands grew 69% faster than the rest of the business.

In other words, it may already be possible to improve company performance in a way that simultaneously achieves a more sustainable long term vision for the business.

ESG as an opportunity 

Governments around the world are responding to demands for high-quality corporate reporting on ESG information and improved disclosure. Led by the EU, many countries are mandating sustainability related disclosures.

Organisations who set themselves up early to capture ESG information relevant to management decisions will be in a good position to understand forthcoming regulation ahead of others and take advantage of the opportunities these represent.

According to Morningstar research as of July 2021, in Q2 of 2021, ESG focused funds combined assets globally have climbed to $23 trillion for the 5^th consecutive quarter, up 12% since Q1 of 2021.  This is why investors are asking companies, asset managers and issuers of sustainable financial instruments to communicate on how they are managing ESG-related opportunities and risks and integrate them into their management decisions.

What is key for these investors is being able to find transparent, comparable and qualitative information on the companies they want to invest in.  Thus improved opportunities to access funds in the form of capital or indeed financing.

Examples include the recently announced EU €300 billion investment plan to scale green energy transition or the $300 bn committed by Standard Chartered Bank to finance green and transition financings to help their clients in Asia, Middle East and Africa achieve their net-zero targets.

Another important factor is stakeholders’ interests.  On many occasions stakeholders such as consumers and shareholders have been very vocal about wanting to see businesses incorporate more sustainable and ethical oriented visions in their operations or business models. We all remember how in 2012 -2014 Starbucks had to change its UK tax structure and pay voluntary tax on its UK profits in response to heavy criticism and boycott of its products.

Competitiveness needs to be taken into account too: Many businesses have already started to disclose on the impact of ESG factors on their business and some have made clear commitments to improve their performance in specific areas.

If a business does not adopt policies that other companies in its sector and jurisdiction are already on board with, it could leave it with a competitive disadvantage.

How to design your corporate sustainability strategy

So where does a company start? Firstly, by reminding themselves that sustainability is a broad issue and that It is impossible for any business to contribute to, or focus on, all of its aspects.

Instead a wiser strategy is to choose a few or even just one goal that is most relevant and material to the organisation; one where it can create the most impact. Such aims can then be mapped against the company’s operations, own goals and long-term strategy for maximum impact.

There are various frameworks such as the SDG and GRI that can assist you define the key areas to consider. You may, for example, choose a single SDG or some connected targets under an SDG to focus on.

In practice, SDGs are interconnected in various ways. Thus by focusing on one, the business is likely to be contributing to others simultaneously.

Following on from the 2015 UN announcement, pharmaceutical giant Pfizer chose SDG3 (Good Health and Well-Being) as a key commitment. They saw that it was a goal they could not only significantly contribute to, but also that it was also fundamental to advancing all 17 goals.

Once a specific sustainability aspect is chosen, the organisation can determine what specific impact they want to have on that goal in a way that can be easily articulated, but more importantly can be accomplished and measured. This can be achieved through the following three steps:

1. Linking your business strategy to the newly identified goal(s)

It is important to show clear links between strategic goals, the business model, risks, opportunities, operational indicators and financial performance , as well as establishing the changes to the business strategy that are needed to achieve this impact; deciding on the specific objectives and KPI’s to achieve the identified goal(s). With strong connections between each of these areas, a company’s ability to identify and manage risks, evaluate and measure success, as well as identify future challenges and opportunities will be improved.

2. Measuring your goals

Key to success is pinpointing which indicators to use for measuring.

Once a company has established which ESG themes to report on, it can begin to disclose specific performance indicators to demonstrate progress. These indicators may be generic, industry-specific or company-specific. It is recommended that companies use widely accepted indicators developed via a credible process. The GRI, for example, produces the most widely used set of indicators for corporate sustainability reporting with detailed guidance on their application. Another useful resource is the TCFD  which was designed to improve reporting of climate-related information.

3. Reporting on the outcomes

Tracking and reporting on the progress and identifying and collecting the data on a regular basis is also equally important.

A decision needs to be made as to whether reporting is intended to be to investors/ shareholders or to stakeholders and the public generally. Each type of reporting serves a different purpose.

A fairer, better and greener future

Deciding on the steps you need to take for your business’s ESG goals is not an insurmountable task as it first may appear. By thinking of ESG in a broader way, by understanding that sustainable goals are linked, and by choosing the goals to focus on where you can really make an impact, you can do your part to build a fairer, better, cleaner, more resilient business and in turn, a fairer, better, more resilient world.