1. Make it simple, but not too simple
The sustainability transition is inherently complex. Organizations need to make it simple, but they should not pretend the complexity does not exist. That would confuse simplicity for ignorance.
Before you can find a simple and actionable way forward, you need to become aware of the full complexity of the issue at hand. Only then can you decide what’s relevant and what isn’t, what’s a priority and what can wait.
Examples of these underlying complexities abound. From a sustainability perspective, governments around the world are tackling climate change by taking actions such as using tax measures to reduce emissions and meet their commitments on carbon neutrality, as well as to raise revenue and fund important policy objectives. While these goals are shared, the policies established to achieve them vary greatly. The EY Green Tax Tracker has identified more than 3,600 different sustainability incentives, 80 carbon pricing initiatives, and more than 4,300 environmental taxes with over 1,100 exemptions. Staying current as policies rapidly evolve can be a challenge, especially for global businesses.
Measurement of ESG issues also varies widely. For example, a private equity client that asked EY to review how well the 30 companies in its portfolio were performing on board diversity. We found that all of the companies were measuring diversity, but none of them were doing it the same way.
Sustainability reporting is also not consistent around the world. When it comes to financial reporting you could argue that global companies are working with one set of international standards and around 30 key performance indicators (KPIs). The data they need to generate these KPIs is usually held in one computer system. Let’s say one set of standards, times 30 KPIs, times one system, gives you a ”complexity factor” of 30.
But sustainability standards in much of the world are not set, and where they are set (e.g., The Corporate Sustainability Reporting Directive in the EU, the UK Carbon Act, SEC carbon reporting rules) they are not aligned. That means there are hundreds of potentially relevant KPIs. And the data they require is stored in as many as 20 systems in a diverse landscape, which ranges from energy meters to accounting software. The complexity factor is daunting.
The examples above reveal how the sustainability agenda is driving complexity in just two business disciplines – reporting and taxation – but the same thing is happening across all disciplines, from technology and talent to finance and supply chain.
Faced with such potentially overwhelming complexity, the goal is to get to the heart of what really matters. You can simplify the challenge or opportunity by starting to build a comprehensive and holistic view of the situation, using deep and diverse perspectives from across the business. Don’t go too narrow too soon. To borrow from Einstein, can you make it “simple, but not too simple”? From there, you can choose what matters most.