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Summary Winning Sustainability Strategies - Corporate Social Responsibility (6013B0501Y)
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Winning Sustainability Strategies1. Chapter 1: Introduction
This book attempts to reveal the keys to designing and implementing a stronger sense of focus and momentum
in sustainability efforts.
The effective combination of direction and speed, which generates impact in sustainability programs, is dubbed
Vectoring in this book because it is analogous to the navigation service provided by an air traffic controller,
whereby the controller decides on a particular path for the aircraft, composed of specific legs or vectors, which
the pilot then follows.
Sustainability programs, lack air traffic controllers or often pilots for that matter:
- They tend to have weak direction, that is, with respect to the specific sustainability issues (referred to as
materialities) that will be most relevant and impactful.
- The board of directors and CEO should assume the role of air traffic controller.
2. Chapter 2: Patterns of frontrunners
Climate strategy: an example of data analytics
The generic approach adopted in this book can be illustrated using the environmental, social and governance
(ESG) benchmark scores of global companies on climate strategy.
To realistically assess the performance of companies on climate change, DJSI (Dow Jones Sustainability Index)
composer, RobecoSAM, developed a climate strategy criterion in collaboration with CDP (Carbon Disclosure
Project). CDP claims to have built the most comprehensive collection of self-reported environmental data in the
world.
The survey developed for the climate strategy criterion includes
detailed questions on topics such as transparency in disclosure,
emission targets, the presence of products and/or services
classified as low carbon. For each criterion, companies receive a
percentage of the maximum score; based upon the full set of
questions in the climate strategy criterion, participating
companies are awarded a score ranging from 0 to 100.
From the example in Table 2.1 on climate strategy:
- Frontrunners outperform industry averages by some 16%—a meaningful difference.
- The scores of the highest-scoring industry (Construction Materials) and lowest-scoring industry
(Telecom) are different by a stunning 36%, on a topic that is relevant for both industries.
Not all companies see their icebergs as melting at the same speed, and these different perceptions lead to more
or less effective strategies for addressing climate change issues.
In certain industries, such as food products and banking, sustainability champions outperform their industry
averages by as much as 25%. That situation makes it even more important to understand what these
frontrunners’ executives and their sustainability departments are doing differently, and why.
Sustainability-based transformations
Umicore: from mining bad boy to Tesla partner
Former mining company Umicore left its dark past behind to become a global leader in the circular economy
movement, touted around the globe for its battery recycling technology. This turned Umicore into a stock
,market darling, ultimately earning the company a place as the European partner in Tesla’s Closed Loop Battery
Recycling Program.
What was behind the magic that engulfed Umicore? It was all about focus and speed. Umicore adopted a
radically new business model: leading-edge recycling-based model that relied on chemistry and metallurgy. The
team succeeded in turning Umicore into a frontrunner in its industry in terms of innovation and sustainability
Raising the bar in chocolate
Tony’s Chocolonely, a Dutch chocolate brand whose only purpose is to eradicate slavery from the chocolate
value chain. This startup company, initially run by amateurs with hardly any funding, grows 50% year-on-year
in a market dominated by global players such as Nestlé, Mondelez, Lindt and Mars.
Daintree Estates was established in 2010 in North Queensland by a group of passionate chocolate aficionados
and entrepreneurs: their plantation-to-plate value chain enabled Daintree to capitalize on higher-yield cocoa
beans while avoiding the old-style sustainability issues of smaller-sized farms.
Identifying key success drivers
Each company is unique and faces different challenges and opportunities in its sustainability journey. But, is it
possible to identify the key genetic sequences in the DNA of frontrunners, that is, companies that shine in their
sustainability approaches?
The discovery of key genetic sequences in the DNA of leading sustainability programs supports the view that
transformational companies are approaching sustainability differently.
To summarize some of the key findings, transformational companies have a much higher sense of direction and
accelerate execution by embedding sustainability into their core businesses, not adding them as appendices.
This combination of direction and speed (or momentum) is what we refer to as vectoring.
Vectoring step 1: Getting the bearings right
For companies developing sustainability programs, it can be incredibly tempting to support a vast number of
sustainability causes. But focus helps in delivering a clearer story to stakeholders. And evidence suggests that
shareholders react positively (by increasing the firm valuations) when companies deliver on key sustainability
issues.
Frontrunners are obsessively focused on a limited number of critical, relevant, and material sustainability
issues. Focus is the key to proper implementation and ultimately capturing value from the efforts.
Example of the concept: Bodegas Torres. They stated its deep personal commitment to combating climate
change. By focusing on climate change, and not dozens of other sustainability causes, Bodegas Torres was
named the World’s Most Admired Wine Brand by Drinks International magazine in 2017.
Vectoring step 2: accelerating execution and getting momentum
Once the appropriate materialities have been selected, the concern turns to activities required to develop and
roll out strategies to capture the opportunities that arise from these sustainability activities.
Frontrunners rigorously implement sustainability programs that deliver value through reputation, cost
reduction and/or growth, usually all three simultaneously. Laggards, on the other hand, often limit their efforts
at reporting activities as part of their customary non-financial information cycle.
Compliance and reporting are indeed formidable tasks today,
and they will likely get much worse.
Eco-efficiency can be a very good indicator of the maturity of
the execution of sustainability programs. The direct benefits
for sustainability programs can typically be found in areas
such as reductions in waste, energy and water conservation,
minimization of natural resource consumption and waste-
generating activities, leading to lower costs and, in some cases,
new business opportunities.
,Going back to the DJSI data sample, an analysis of the operational eco- efficiency criterion sheds light on how
well industries are capturing the low- hanging fruit in implementation. The key focus of the operational eco-
efficiency criterion is on inputs and outputs of business operations and questions that include topics such as
direct greenhouse gas emissions, energy consumption, water consumption and hazardous waste.
- Food Products displays the biggest distance between the frontrunners and the industry average, with the
frontrunners scoring 28% higher.
The business case for sustainability
An intriguing discovery from the research is the sheer number of companies that lack direction and momentum
in their sustainability efforts. Some 90% of global companies consider a sustainability strategy important to
remaining competitive, but only 60% actually have a sustainability strategy! Even more damning, only 25%
claim to have uncovered a clear business case for sustainability
The absence of a clear business case puts many sustainability programs at risk of turning into pure
communication exercises, handled by generalists, and put on the low priority list at the corporate level.
So how can such a business case be constructed? According to the Integrated Reporting (IR) Framework, a
business case for sustainability can be assembled from four distinct building blocks:
Cost savings from eco-efficiencies, for instance, by reducing waste, water usage or energy consumption
Revenue growth from sustainable innovations
Enhanced reputation with stakeholders, such as clients, employees, and shareholders
Lowering risk, for instance, by reducing the cost of capital or the dependency on scarce resources.
The four archetypes of sustainability
According to the World Business Council for Sustainable Development (WBCSD) a clear disconnect exists in
many firms between their enterprise risk management and their sustainability practices, leading to vastly
understated sustainability risk exposures 71% of the sustainability issues that these businesses deemed
material were not disclosed to investors as risk factors. Part of the blame can be attributed to the fact that
“enterprise risk” is a rather ambiguous term.
To avoid falling into the open ditch, RobecoSAM attempted to provide some clarification. The description of
risks and opportunities by the ESG (environmental, social and governance) specialist includes the following:
Revenue opportunities and risks arising from changes in market growth, market share and competitive
position
Cost implications arising from expenses related to regulatory compliance, maintenance of social license
to operate, environmental management, safety, and human resources management
Capital efficiency trends reflecting additional investments required to meet regulatory and other
stakeholder requirements, environmental management, trends in the cost of installed capacity and in the
operational life of assets
Risk exposure arising from governance, regulatory, business conduct, environmental and social
connection to non-investor stakeholders.
The data from RobecoSAM can be used to identify possible patterns in the development of sustainability
programs.
Four archetypes of company sustainability programs, each with its own characteristics:
o Traditional: this sector encompasses many companies with a relatively high-risk profile and limited
development of their business cases for sustainability. Traditional companies tend to be compliance-
driven, leveraging regulations to justify and extend their licenses to operate. Most of them have
sustainability departments reporting to regulatory affairs or investor relations. (Ex: tobacco and
weapons).
, o Communicative: this sector covers companies with a limited capture of the opportunities provided by
sustainability and high ESG compliance, such as corporate governance and codes of business conduct.
The limited capture of the opportunities can be because of sustainability measures are costly, impact is
difficult to assess, or the market is not mature enough for sustainable solutions. Their sustainability
depart- ments are most likely to report into the corporate communications department. (Ex: automotive
industry).
o Opportunistic: this sector includes companies that recognized the
opportunities offered by sustainability but are still struggling with
the relatively high-risk profile of their portfolios. These companies
often suffer from a form of sustainability schizophrenia, where the
least-sustainable parts of the company often end up being spun off.
(Ex: demerger of the zinc and copper commodity businesses from
Umicore, energy sector).
o Transformational: This last sector covers companies that have
embraced sustainability in a holistic fashion, that is, both to capture
opportunities and to reduce risk exposure. By focusing strongly on
execution, transformational companies (re-)set the standard for
their industry, as illustrated later with the examples of Bodegas
Torres. The sustainability programs of transformational companies
are more closely tied to business operations, driving new
opportunities for eco- efficiencies and revenue growth, with co-
creation with external stakeholders a valuable source of new business development.
Red: A backbone provider with some real… provider
Red Eléctrica Group is an energy transmission agent, also known as a backbone provider. Red has a front row
seat in the ongoing energy transition journey and also looks for the maximum integration of renewable energy
into its energy mix. Red formulated an innovation strategy based on four pillars: people, sustainability,
technology, and digitalization. To help focus its efforts, a sustainability model was adopted for the entire
company.
In its approach to sustainability, Red was covering both risk reduction and opportunity seizing. This holistic,
pro-active stance toward the new energy future put the company squarely in the top transformational quadrant
for electric utilities, scoring over 90% on both counts, that is, risk reduction and opportunity seizing.
The Integrated Reporting SpiltIRSpigt framework
The first two forms (financial capital and manufactured capital) are most commonly used in traditional, non-
integrated corporate reporting. The other four capitals are new and represent the softer areas such as intellectual
capital. In brief, the six standard capitals within the Integrated Reporting SpiltIRSpigt Framework can be
defined as follows:
• Financial Capital The funds that are available to your organization for value creation such as debt, equity and
grants.
• Manufactured Capital Your manufactured capital is made up of assets such as buildings, infrastructure and
production equipment.
• Intellectual Capital The most common forms of intellectual capital are, for example, tacit knowledge,
intangibles from brand and reputation and patents.
• Human Capital Human capital is created from your people’s competencies, their capabilities and
experiences.
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