Insights: Five steps to transition to a sustainable business

We live in an era where organisations must integrate sustainability into their business models. They play an essential part in the battle against global warming. Therefore, the single biggest challenge for organisations remains how can they successfully implement sustainability goals that are aligned with their business model and objectives?

Before we can answer the billion-dollar question, let us first attempt to define sustainability in a robust manner that goes beyond climate change and other environmental issues. The most familiar definition of sustainability for most people is the UN Brundtland Commission’s definition in 1987, which talks about meeting the needs of the present without compromising the needs of the future.

However, we’d also like to go beyond this definition, beyond just the environmental risks and opportunities for businesses. A most encompassing definition and one which the University of Michigan’s Erb Institute uses is to consider a full range of social, environmental, human rights and diversity issues.

For many companies, the challenge lies in linking sustainability to company objectives and financials and making a profit while having a positive net submission. Here, it’s essential to recognise that sustainability doesn’t always guarantee a fast win-win outcome since implementing sustainability into the day-to-day running of the business will require investments, an evolution in practices and long-term planning.

Sustainability generates a long-run orientation, which is consistent with producing better returns in the long run. We all know that many businesses nowadays face many short-term pressures that they need to react to, hence favour short-term over long-term issues. Sustainability helps to resolve that and improve that perspective. Secondly, sustainability can also lower costs for businesses through eco-efficiency, a very familiar concept of reducing waste and keeping costs down even in the short run.

Terry Nelidov, managing director of the Erb Institute at the University of Michigan, said: “For many years, our work was focused on making the ‘business case’ for sustainability – why social and environmental impact matters to a for-profit company. We’re beyond that now! Most global business leaders have some understanding that sustainability is integral to their companies’ competitiveness, indeed to their long-term viability as ongoing enterprises. Now the conversation has turned from the why to the how—in other words, how do we ‘get sustainability done’, through strategic planning, risk assessment, management systems, metrics and reporting, employee engagement and talent management? This is the realm of business and leadership, and it’s exciting to see business discipline now applied to improving companies’ social, environmental, human-rights and diversity performance.”

It can seem quite overwhelming to take the first steps to make this transition to a sustainable business. The institute offers businesses five key resources that can help business leaders get started on implementation.

The first tackles stakeholder engagement. It’s a simple process, that defines the stakeholders – from employees to the community to regulators and investors. Secondly, what are their key issues and expectations of the company? Thirdly, create a stakeholder map to prioritise and rank the stakeholders.

The second is the materiality assessment. This aims to answer what sustainability subject matters most for the business. Since it’s impossible to cover all areas of sustainability immediately, it’s essential to choose which area to focus on first. Assess what matters most to your company and your stakeholders, such as environmental issues, community issues, and human rights, and then focus on just a handful of issues at that intersection of stakeholder priorities and business drivers.

The third is a simple process for a sustainability strategy. Strategy means prioritising what to do, what to focus on and even more important, what not to do. Create a strategy that filters out the most important issues for your company. So out of all the issues, pick the three most important ones, that you’re going to build a sustainability strategy around, and that is based on your stakeholder expectations and your materiality assessment above.

The fourth focuses on the implementation of the strategies and priorities you’ve created in the previous factors. Develop global codes of conduct and a system for how to report on the implementation process. By implementing these, you’ll move your organisation into taking action and thus be one step closer to reaching your sustainability goals.

The last is reporting and metrics. This is a key step that’s often overlooked. It is important to measure the impact, not just the outcome of what your organisation is achieving but to also report it back to the stakeholders, external and internal.

These resources or toolkits create a holistic cycle that takes into consideration stakeholder expectations and business dynamics and then moves on to identifying issues that matter most to stakeholders and the organisation. The next step involves designing a strategic approach with a set target. After reporting back to those stakeholders, you need to evaluate what needs improvement in the next cycle’s sustainability strategy.

It’s fantastic to see a growing number of corporate businesses change their mindset in terms of setting sustainability goals and incorporating them within their KPIs and business goals. Many companies are experiencing a great outcome when they implement a sustainability strategy since they are building better relationships with their stakeholders and customers, while improving short-term profitability and long-term competitiveness. But most importantly, they are contributing to a more sustainable world now and for future generations.

Jay Srage is head of operations – MEA, University of Michigan Ross School of Business