Achieving Sustainable Returns: The Strategic Integration of ESG Metrics

Following the materiality assessment, our Sustainability as a Strategy™ Framework shifts focus to strategic development. This phase is crucial for embedding sustainability into the company’s core activities and operations. It ensures that the identified material ESG metrics influence products design, processes, services, and ultimately, the entire business model, with the overarching goal of generating sustainable returns—financially, environmentally, and socially.

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Key Elements of Sustainability Strategy

The Strategy pillar of ESG integration focuses on embedding sustainability into the core of companies’ business model in order to address opportunities linked to customers transitioning to sustainable products & services. This integration influences products, processes, and services design, addressing current challenges and fostering long-term viability. It involves identifying sustainability-related risks and opportunities (SRROs) such as regulatory changes and emerging sustainability-focused procurement processes, which guide targeted initiatives. Key Performance Indicators (KPIs) are established to measure success and monitor ongoing effectiveness, ensuring the company remains aligned with its sustainability goals and adapts to evolving environmental and market conditions, while generating financial returns. 

1. Metric and KPI Identification

Identifying and defining key performance indicators (KPIs), linked to material ESG topics, that measure the success of ESG integration in business operations is crucial. Metrics and KPIs that are connected to the unique business, available data, and strategic priorities are key.

Examples:

    • Under Environmental:
      • Percentage of recycled content in products
      • Percentage of products re-captured at end-of-life (circularity metrics)
      • Reduction in greenhouse gas emissions
    • Under Social:
      • Employee engagement in sustainability initiatives
      • Customer satisfaction with sustainable products or services
      • Percentage of local suppliers with human right related policies and standards
    • Under Governance:
      • Percentage of revenue coming from sustainable products & services
      • Percentage of R&D investment going towards sustainable products & services
      • Responsible supply chain scoring

2. Sustainability-Related Risk & Opportunity Identification and Management

Identifying and managing sustainability-related risks and opportunities (SRROs) that may impact business operations in the short, medium, and long-term is the essential step. SRROs should be assessed for their likelihood and returns/impact (financial, environmental, social), and appropriate deployment, mitigation and adaptation strategies should be developed. This step aligns closely with the ISSB S1 and S2 disclosure requirements.

Examples:

    • Under Environmental:
      • Physical climate risks such as sea-level rise or extreme weather events
      • Resource scarcity and price volatility
      • Biodiversity impacts
    • Under Social:
      • Social risks such as labor rights violations or community opposition to operations
      • Consumer demand for ethical and sustainable products & services in the industry 
      • Grants & subsidies for development of sustainable products & services focused on improving labor conditions and community well-being.
    • Under Governance:
      • Technological advances that could disrupt existing business models
      • Regulatory changes that pose risks to the business
      • Emerging sustainability-focused procurement processes that present opportunities

         

3. Development of a Coherent Strategy and Roadmap for Action

Developing a comprehensive strategy and roadmap that can bring highlighted KPIs and metrics associated with sustainability to life by outlining the steps and actions needed to embed it into your business model, including products, services, and business processes. The strategy should be aligned with the organization’s overall business goals and values, and the roadmap should provide a clear path to achieving the desired outcomes.

Examples:

    • Under Environmental:
      • A roadmap for transitioning to renewable energy sources and/or increase energy efficiency across your operations
      • Initiatives for reducing waste and improving resource efficiency
      • Integration of circular economy principles such as product as a service business models
    • Under Social:
      • A strategy for engaging employees in sustainability initiatives
      • Engagement with customers to understand current and future needs
      • A communications plan for raising awareness of the organization’s sustainability efforts
    • Under Governance:
      • A reporting framework for tracking progress on sustainability goals
      • A plan for implementing sustainable supply chain practices
      • R&D investments and pilots for sustainable products and services
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Monitoring and Adjusting the Strategy

The dynamic nature of the business environment requires that sustainability strategies be adaptable. Regular monitoring and evaluation of the strategy’s performance against set goals allow the company to make informed adjustments. This adaptability is key to responding to new challenges and opportunities that arise as market conditions, competitive and regulatory environments, and technologies evolve.

Integrating Sustainability into the Core Business Model

The ultimate goal of strategic development is to seamlessly integrate sustainability into the core business model. This means sustainability considerations are intrinsic to how the business operates and competes in the market. Initiation is imperative even if it means starting small. Commencing with small-scale pilots enables the building of confidence, demonstration of feasibility, and establishment of foundational elements for broader implementation.

 

Within CHS’ SaaS Framework, strategic development is a comprehensive approach that ensures sustainability is deeply embedded in every aspect of the organization. This includes setting clear sustainability objectives aligned with business goals, engaging stakeholders across the supply chain and community, and optimizing processes to reduce environmental impact and enhance social responsibility. By methodically addressing these elements, companies can effectively transform their business models to be more sustainable and resilient in anticipation of future challenges and the evolving global market landscape.

 

Achieving this integration not only enhances the company’s sustainability performance but also enables leveraging this performance for competitive advantage in its sector. Companies that successfully integrate sustainability into their core business strategies often benefit from improved brand reputation, reduced operational costs through efficiency gains, access to new markets demanding sustainable products and services, and enhanced employee morale, talent attraction and retention. This holistic approach not only supports long-term business viability but also contributes positively to broader societal and environmental goals.

Business Case-based Examples:

1. IT Networks Management Company

Strategy: GHG reduction initiative exemplifies as environmental efforts are leverages to generate positive returns through an initiatives-based strategy:

Outcome:

    • Over 20 initiatives identified with positive ROI potential
    • Deployed initiatives quantified for environmental impact and integrated under the sustainability umbrella

To read more about this business case, click here.

2. A Global Industrial Equipment OEM

Strategy: set a GHG reduction strategy blueprint to leverage its climate efforts and status as a globally trusted brand to pioneer the creation of innovative sustainable product lines, thereby securing a position of long-term competitive advantage:

Outcome:

  • 20% annual emissions reduction identified
  • 90% quantified initiatives with positive ROI, with most breakeven point within 18-36 months

To read more about this business case, click here.

Continuing with CHS’ SaaS Framework

This discussion on Strategy is part of our comprehensive Sustainability as a Strategy (SaaS) approach. To gain a complete understanding of how these elements integrate and complement each other to fortify your organization’s sustainability initiatives, we encourage you to read the complete SaaS Framework article.