Putting sustainability at the core of the business agenda

When investors began valuing companies according to their sustainability performance, the goal posts moved. They saw poor sustainability performance as an indication of risk that could have a negative effect on business resilience.

Companies had to understand these risks and learn to mitigate them or else be valued at a discount. What is more, companies that could explain their impacts on climate, nature and people, were in a more robust position: they would be able to confirm that these impacts would not have a negative effect on cashflows. And companies started to comprehend that, if they understood, could manage and communicate their impacts, they could be valued at a premium.

But it all starts with companies asking themselves: what are the risks to our business of our climate and sustainability impacts? This is how issues such as supply chain risk and the cost of recycling develop into the business plan. Thought too is needed to see the opportunity cost of the lack of innovation in low carbon materials.

And then comes a further upside to doing this work: companies learn to evaluate the opportunities. They should be asking themselves: how can we use this information as a point of differentiation for competitive advantage? Climate risk can then become a commercial advantage as opposed to a cost disadvantage. Alongside this there will be opportunity for sector-wide learning and change.

The importance of leadership

Once climate-related risks and opportunities have been evaluated, understood and acted on, there comes the question of leadership.

How does a company demonstrate sustainability leadership in a particular sector? How does it show that its expertise is real and not just a story? This takes it from aspiration to business planning, metric setting and external communications as well as effective control and implementation.

So, companies who have acted on the science and truly understood what sustainability impacts mean for their own prospects can articulate those findings in terms of their value proposition, not only from the investment case point of view, but also vis à vis their individual commercial relationships with their customers. That is how they achieve a competitive advantage.

In this way, over the last five years, sustainability has shifted from being a fringe activity to being core to business planning. And that's been achieved – in part – by leaders on boards risking being ignored but continuing to push for change.

For some leaders, the arguments for action were compelling from the start – the risk of doing nothing was not an attractive option. These leaders have energised others and built support systems.

And businesses have benefited from those who have challenged the status quo. Embedding sustainability into business planning isn't just a philanthropic exercise; it’s about resilience, leadership and business success. That's the motivation.

Innovation and thinking differently

Clearly, different companies in different sectors must address different impacts: waste, single-use plastic, water and so on. This demands an assessment of materiality – both business impact on the issues and the impact of the issue on the business. Action at the practical, granular level is one part of the equation, but tackling impacts at the strategic level, such as analysing carbon costs in an investment case, is the other.

But let’s not be dismissive of the granular work. This is the exciting bit. Collaborating across an organisation to markedly reduce its waste markers, remove single-use plastic and replace it with other ways of packaging, and trial technologies for reducing the use of water in the value chain – these are what stimulate the step change that shifts the dial.

This is rarely achieved from the top down; it’s about empowering teams throughout the business to embed sustainability thinking into the DNA of an organisation.

And yes, there must be reporting and regulatory compliance, but being able to report on innovation is the result; it’s not the work itself.

So keep on pushing

Once the case for change has been made, the allocation of resources and action should follow. But it takes time. And senior management may take convincing that climate-related risks and opportunities must appear in the business plan. Then comes alignment – across reward structures, strategic imperatives and planning, all within appropriate governance structures.

But companies must not overburden teams in the short term; it’s a question of transition – that is how we make sense of the need for change. Many value chains depend on the grid going green and may be cautious about setting net zero targets. However there is plenty of other action needed, data to be collected and validated, and reporting and control to be implemented to satisfy future regulatory expectations.

That will take support; and it will take recognition that there will be mistakes. So, let’s build confidence in teams such that they are empowered to make assumptions to make a start until the data is in place. Once the data is there, let’s figure out the explanations and do it well, and then communicate them.