6 minute read 19 Aug 2021

Follow these five steps to create and execute a successful sustainability and ESG strategy.

Aerial view of road over water

How sustainability strategies can create competitive advantage

Authors
Orlan Boston

EY Americas ESG Markets Leader ; Senior Partner, Health Sciences & Wellness, Ernst & Young LLP

Sustainability champion, Innovator. Entrepreneur. Social justice advocate. Presidential appointee. Film producer. Author. NYU alum.

Velislava Ivanova

EY Americas Chief Sustainability Officer; Americas Climate Change and Sustainability Services Leader

Globally recognized sustainability leader. Experienced in development of innovative sustainability services and methodologies. Led professional practices and teams in global consulting companies.

6 minute read 19 Aug 2021
Related topics Sustainability ESG

Five steps to create and execute a successful sustainability and ESG strategy.

In brief

  • By focusing on benefits and embedding sustainability in different functions of the business, companies can discover new sources of competitive advantage.
  • Strengthening nonfinancial reporting and disclosures, and applying a universal set of performance measures, drives more meaningful and comparable disclosures.

The environmental and social challenges the world faces today are complex, alarming and urgent. Governments, nongovernment organizations and many corporations  have been working to meet these vast challenges for at least a decade — and in some cases, several decades, catalyzed by climate change and the depletion of natural resources; an understanding of the value of diversity, equity and inclusion (DEI) to human performance; increasing transparency of supply chains and products; and the rise of employee and consumer power.

The operating context for organizations implementing environmental, social and governance (ESG) strategies is changing exceptionally fast. While there are broad definitions of what we mean by ESG, in practice these are impacted by the material issues of a sector, geography or time frame. There are pressures from investors, employees and regulators to strengthen nonfinancial reporting and disclosures, and apply a universal set of performance measures to make these disclosures meaningful and comparable.

Leading companies are embracing sustainability and ESG not just to put a brake on harmful practices but also to accelerate business and societal transformation and to protect and create value. This transformation focuses on long-term value creation both for the company and its stakeholders and the wider context, both environmental and human, in which it operates. By focusing on benefits — sustainable and circular product cycles, innovative and equitable employment models, sourcing transparency, investment in innovation — and embedding sustainability in different functions of the business and across the value chain, companies in the vanguard are discovering new sources of competitive advantage.

Five key steps to create and execute a sustainability and ESG strategy

1. Define stakeholder expectations

To deliver long-term value to shareholders, companies need to understand and respond to the needs of all the communities they serve. By aligning the board, management and employees, partners and suppliers in a common goal and ambition, companies can embed sustainability as a way to generate significant environmental, social and financial value for all. Shared goals are critical to a sustainability strategy, but so is shared accountability.

2. Establish commitments and ambitions

Ambitious, measurable goals and aspirations need to reflect a broader purpose and vision that the whole company can get behind. A strong unifying culture that is inclusive and inspiring can catalyze change across an organization, creating its own dynamic. By describing broad ambitions for addressing impacts on climate and the environment, improving DEI in all company relationships and strengthening governance measures to drive accountability, companies can unite their stakeholders in a common purpose. Setting tangible commitments, and reporting on them, helps organizations keep that purpose authentic and real.

3. Infuse ESG into organizational strategy

To bring sustainability and ESG programs to life, a “whole of business” perspective is needed. Every function within the business has a part to play, from upstream and downstream operations across an organization’s value chain to product and service development, talent management, customer experience and supplier relations. Embedding sustainability into a whole-organization integrated strategy should inform the decisions, investments and actions the company undertakes. Leaders need to demonstrate their commitment through accountable and transparent processes, policies, controls and reporting mechanisms. Every function has a role: strategy and operations, talent, communications, supply chain management, tax and finance, sales and marketing.

4. Create value through innovation and technology

Sustainability ambitions can rarely be achieved by minor improvements to existing business practices. They need radical innovation that harnesses advanced technologies and human ingenuity to rethink how products and services are designed and delivered. Innovation that transforms whole ecosystems can deliver exponential growth, fueled by data analytics and futureproofed by a commitment to constant improvement cycles that propel the organization along its sustainability transformation road map. 

5. Communicate outcomes through governance and disclosures

Monitoring and reporting on progress toward sustainability goals is vital to maintain the trust of all a company’s stakeholders. It is also a vital part of the board’s and management’s governance responsibilities, which are subject to increasing regulation in some countries. But beyond legal requirements, the company needs to be both accountable and transparent. Communicating progress effectively requires reliable systems to manage, track and report data, while creating meaningful metrics will allow a company to benchmark its progress. Nonfinancial reporting and disclosures, both statutory and voluntary, are important elements in a company’s overall sustainability narrative. The story the company tells its stakeholders, based on robust and transparent measures, can bring its sustainability and ESG ambitions to life and strengthen its culture. Organizations must proactively own their ESG narratives, or the market and external stakeholders will create their own.

“Environmental” refers to the natural resources (energy, water, raw materials) a company uses, the waste it discharges and the impact it has on biodiversity and the natural world. The environment is a key stakeholder in the company, vital to its long-term value. It’s reductive to think about the environment solely in terms of decarbonization and global warming; instead, a company’s guardianship of natural capital.

“Social” speaks to the relationships a company, government organization or nongovernment organization has with people. It centers on culture, community, setting and maintaining a healthy corporate culture, and the impact an organization has on the communities in which it does business or operates. Social considerations include labor policies such as fair pay; DEI-related employee matters; and relationships with suppliers (and their labor policies), customers and communities. It also includes legal obligations such as the US Foreign Corrupt Practices Act, which outlaws bribery, and the European Union’s General Data Protection Regulation, which preserves data privacy. Companies carry heavy responsibilities for the health and safety of their workforce and for training, but also for rooting out exploitation across the supply chain; improving working conditions broadly; and being a force for good that provides opportunities for all, irrespective of gender, racial or ethnic background, or ability.

“Governance” is often the best understood of all ESG dimensions since it has been enshrined in corporate law and regulation for many decades. Governance includes board diversity, compensation, internal controls, risk management and company policies that govern corporate actions; it also enables the company, its officers and employees to comply with prevailing laws and act responsibly to meet the needs of external stakeholders, strengthened by external audit. Governance requires companies to be accountable and demonstrate that they act in accordance with the spirit and letter of the law. In today’s environment, board governance of ESG and sustainability practices in both the boardroom and the broader company is more critical than ever.

Summary

Sustainability and ESG strategies start with a bold goal — achieve net zero carbon emissions by 2030 for example — and from there grow to inform every organizational function and business decision. A strong sustainability strategy can transform how a company operates; how it manages its relationships with its workforce, suppliers and customers; how it manages resources; and how it creates long-term value for all its stakeholders.

About this article

Authors
Orlan Boston

EY Americas ESG Markets Leader ; Senior Partner, Health Sciences & Wellness, Ernst & Young LLP

Sustainability champion, Innovator. Entrepreneur. Social justice advocate. Presidential appointee. Film producer. Author. NYU alum.

Velislava Ivanova

EY Americas Chief Sustainability Officer; Americas Climate Change and Sustainability Services Leader

Globally recognized sustainability leader. Experienced in development of innovative sustainability services and methodologies. Led professional practices and teams in global consulting companies.

Related topics Sustainability ESG