Review value chains for sustainability opportunities and risks
Companies need to look beyond their internal operations when assessing sustainability risks and opportunities. Boards should call for the management to review value chains — from upstream to downstream — to understand material sustainability risks and opportunities. The management should also consider forming effective partnerships with stakeholders in the value chains to scale up its efforts to address the various sustainability risks or opportunities.
Technological advances, such as artificial intelligence (AI) and blockchain, have made such collaborations easier — companies can now connect more closely with suppliers, collect more granular data, and achieve greater transparency in their supply chains. An example is Unilever’s partnership with Google to use satellite imagery, cloud computing and AI to support sustainable sourcing and create a deforestation-free supply chain by 2023.1 The technology provides insights on the impact of the company’s sourcing activities on the environment and local communities, which allows Unilever to take timely action, if necessary, to raise sustainable sourcing standards for its suppliers and bring it closer to its goal of ending deforestation and regenerating nature.
Link executive remuneration with sustainability performance
Among leading companies in sustainability, a growing trend is the inclusion of sustainability performance as part of the management’s key performance indicators (KPIs). This measure is effective on two fronts. First, it helps to incentivize the achievement of sustainability goals. Second, it sends an unequivocal message of the organization’s commitment to sustainability, which in turn helps to instill a sense of purpose in employees.
For example, Singaporean real estate company City Developments Limited — whose ESG goals are mapped out in its Future Value 2030 sustainability blueprint — links ESG performance to the appraisal and remuneration of its heads of department and line managers.2
Setting KPIs to drive behavior is a compelling move in an organization’s bid to future-proof its existence. It is worthwhile for boards to explore how linking sustainability performance with the management’s appraisal and remuneration could be a viable option to drive greater accountability for the organization’s sustainable goals and practices.