Sustainability is on everyone's lips. Some companies make the effort with conviction, others do it to keep up with the times, while all others will be forced to do so sooner or later. As an expert in sustainability transformation, the Terra Institute provides an insight into which sustainability drivers affect companies and how they can proceed methodically.
In the last 50 years, our lives and economic activity have changed the earth dramatically: The population has doubled, total economic output has increased sixfold and water consumption has almost doubled. Around 153 million people are already threatened by rising sea levels, half of the world's population lives in areas where water is scarce and we are currently losing around three to four tons of fertile soil per person per year on our planet. It can be deduced from this that sustainability issues are embedded in a highly complex network of socio-economic systems. They encompass lifestyles, infrastructure, technology, climate extremes, communication and people, which makes both their structure and their behavior difficult to change. If change is to succeed, a multi-layered sustainability strategy is therefore required.
The biggest sustainability drivers in the company
Figure 1: Sustainability drivers in the company
Modern corporate management includes sustainability as an integral part of the corporate strategy. Other major drivers come from regulation. Among other things, the European Union has set itself the goal of becoming the first climate-neutral continent by 2050. The legislator has formulated the Corporate Sustainability Reporting Directive (CSRD) from 2024, all companies with 250 or more employees and EUR 20 million in total assets and/or EUR 40 million in net sales will be required to make their environmental, social and governance (ESG) impact and level of ambition, including their transformation path, transparent through mandatory reporting. The key topics include: Climate, climate adaptation, biodiversity, circular economy, pollutants, water and human rights. In addition to the company's own impact on the environment, the impact that environmental changes are likely to have on its own business model should also be analyzed.
The German Supply Chain Duty of Care Act (LKSG), in force since 01.01.2023 for companies with 3,000 employees or more, extends the focus far into the company's supply chain. The law includes, for example, the prohibition of child labor and forced labor and the obligation to respect freedom of association. A company must comply with these due diligence obligations for the entire global supply chain in this country and take appropriate, robust risk minimization and prevention measures. The European Supply Chain Directive (CSDDD) goes further. In addition to social issues, it also includes environmental concerns, expands the scope of affected companies, enables civil action to be taken by those affected and obliges larger companies to adapt their business activities to the 1.5°C target.
Companies are therefore coming under pressure from several sides. On the one hand, from regulation. On the other hand, it is already noticeable that suppliers are being actively integrated into larger value chains. Then there is the measurable demand on the markets from consumers and in the recruitment market to deal with sustainability. And very similar logics are also being implemented at financial institutions, which, for example, are being required by the supervisory authorities to take sustainability risks into account when granting loans.
Seven steps to a sustainability strategy
The tried and tested toolbox of methods for strategy development and change management already contains many approaches that can also be used for a 360° view of a sustainability strategy. The proven seven steps are
Step 1: The whole and its parts - working out the basic logic. At the beginning, the sustainability team and the project management are defined, as well as the internal and external stakeholders who are to be involved in the various project phases. After a holistic view of the organizational system and its functioning - in the form of processes, material flows, knowledge, relationships and dependencies - the most important impacts are identified. This can be done based on standards such as the GRI, taking into account the 17 Sustainable Development Goals or based on the UN Global Compact. The aim of this phase is both the definition of an individual vision for sustainable development and a common understanding of the work results of the individual phases.
Step 2: Networking and preparing the stakeholder dialogs. The next step is to develop a control system in which the role and contribution of each individual is clearly defined, as well as a monitoring system to identify best practices and areas for improvement. At the end, the impact and stakeholders are defined for each segment.
Step 3: The system and its environment - the stakeholder dialogs. The defined impacts can be qualified and prioritized in discussions with stakeholders and technical experts. This also starts a process of value development. Although it is difficult to change basic convictions, convergence can be achieved by addressing a large number of stakeholders and initiating a continuous dialog.
Step 4: Managing complexity - the materiality profile. In order not to lose focus in the abundance of impacts, the key content from phase 2 and phase 3 is now brought together. The result is the materiality profile - the core of every sustainability strategy.
Step 5: Ambition level & KPIs. In an analysis of the current situation, the most important content is collected for the key topics, targets are derived and key performance indicators (KPIs) are defined. In terms of sustainability, it is advisable to be guided by a standard such as the ESRS and legal requirements such as the CSRD. The end result is a KPI system and a developed data collection concept.
Step 6: Control - Mirroring the results. In cooperation with the company management and, if applicable, stakeholders, the target image and ambition level are compared in the short, medium and long-term internal projects of the defined areas of action.
Step 7: Development - the end is the beginning. The final phase involves measuring sustainability performance in relation to the company's most important sustainability impacts in accordance with the selected reporting standard. Key sustainability messages are communicated externally.
The earlier and more specifically broad sections of an organization are involved in important aspects of strategic work, the easier it is for the organization to adapt to the galloping pace of change and not only react to it in a damage-limiting way, but also to actively and profitably participate in solving global sustainability problems with innovations. Felix Pliester
