How sustainability strategies can create competitive advantage

Five steps to create and execute a successful sustainability and ESG strategy.

The environmental and social challenges the world faces today are complex, alarming and urgent. Governments, nongovernment organizations and many corporations  have been working to meet these vast challenges for at least a decade — and in some cases, several decades, catalyzed by climate change and the depletion of natural resources; an understanding of the value of diversity, equity and inclusion (DEI) to human performance; increasing transparency of supply chains and products; and the rise of employee and consumer power.

The operating context for organizations implementing environmental, social and governance (ESG) strategies is changing exceptionally fast. While there are broad definitions of what we mean by ESG, in practice these are impacted by the material issues of a sector, geography or time frame. There are pressures from investors, employees and regulators to strengthen nonfinancial reporting and disclosures, and apply a universal set of performance measures to make these disclosures meaningful and comparable.

Leading companies are embracing sustainability and ESG not just to put a brake on harmful practices but also to accelerate business and societal transformation and to protect and create value. This transformation focuses on long-term value creation both for the company and its stakeholders and the wider context, both environmental and human, in which it operates. By focusing on benefits — sustainable and circular product cycles, innovative and equitable employment models, sourcing transparency, investment in innovation — and embedding sustainability in different functions of the business and across the value chain, companies in the vanguard are discovering new sources of competitive advantage.

Five key steps to create and execute a sustainability and ESG strategy

1. Define stakeholder expectations

To deliver long-term value to shareholders, companies need to understand and respond to the needs of all the communities they serve. By aligning the board, management and employees, partners and suppliers in a common goal and ambition, companies can embed sustainability as a way to generate significant environmental, social and financial value for all. Shared goals are critical to a sustainability strategy, but so is shared accountability.

2. Establish commitments and ambitions

Ambitious, measurable goals and aspirations need to reflect a broader purpose and vision that the whole company can get behind. A strong unifying culture that is inclusive and inspiring can catalyze change across an organization, creating its own dynamic. By describing broad ambitions for addressing impacts on climate and the environment, improving DEI in all company relationships and strengthening governance measures to drive accountability, companies can unite their stakeholders in a common purpose. Setting tangible commitments, and reporting on them, helps organizations keep that purpose authentic and real.

3. Infuse ESG into organizational strategy

To bring sustainability and ESG programs to life, a “whole of business” perspective is needed. Every function within the business has a part to play, from upstream and downstream operations across an organization’s value chain to product and service development, talent management, customer experience and supplier relations. Embedding sustainability into a whole-organization integrated strategy should inform the decisions, investments and actions the company undertakes. Leaders need to demonstrate their commitment through accountable and transparent processes, policies, controls and reporting mechanisms. Every function has a role: strategy and operations, talent, communications, supply chain management, tax and finance, sales and marketing.