Incorporating sustainability into the top management agenda – our highlights and view on the current state

Article in brief 

• The current sustainability crisis demands rapid actions from companies to both maintain the ‘license to operate’ and obtain long-term competitive advantage. As such, sustainability thinking should be integrated throughout the organization 
• We present a set of key considerations for embedding sustainability in the main corporate activities (strategy, commercial excellence, operations & supply chain, organization & steering, and culture)  
• We also discuss companies’ typical ‘maturity’ of sustainability transformation. On average, companies have somewhat proceeded, but there are still several areas of improvement. We provide some actionable recommendations for advancing sustainability efforts

Introduction: Why sustainability should matter 

There is exceptionally broad scientific evidence that humankind should act quickly to avoid further escalation of the environmental crisis. In this respect, all main stakeholders in society – politics and the public sector, individuals and civil society as well as companies – must contribute. There is both a moral and a pragmatic reasoning for this: while it is our duty to leave a habitable and thriving planet for future generations, also our own survival and economic prosperity is ultimately dependent on the environment. 

When it comes to companies, sustainability is a strategic issue that calls for holistic consideration throughout the organization. Regardless of the industry, sustainability generates both opportunities and threats. Companies should acknowledge the potential changes in the expectations and requirements of the different stakeholders as well as understand the implications of the rapidly expanding sustainability related regulation. Taken together, sustainability concerns all activities within a company instead of merely touching upon a specific unit or a theme. 

Our sustainability theses: What are the ‘top picks’ for embedding sustainability?  

At August, we are working with top management around a range of topics that are strategic by nature. Our typical engagements relate to 1) strategy, 2) commercial excellence, 3) operations and supply chain development, 4) organization development and business steering, or 5) culture. Sustainability relates to all of these activities. Below are our highlights for embedding the sustainability perspective in all relevant areas of the business – from company’s mission definition to daily behavior and decision-making. These ‘sustainability theses’ ensure that the company will possess the required resilience, license to operate and potential competitive advantage in the evolving operating environment around sustainability. Picture 1 summarizes the theses. 

Strategy: Integrate sustainability into the core business strategy and targets 

1. Create holistic understanding on the material issues (i.e. ‘materiality analysis’): Quantify sustainability related opportunities and risks. Strategy work should begin with gaining a comprehensive understanding of the sustainability context, including material issues, opportunities, and risks specific to the industry and company. This involves an in-depth materiality analysis (i.e. mapping of all sustainability-related factors) and a look into the sustainability performance baseline to ensure a strong foundation for strategic decision-making covering sustainability.

2. Integrate sustainability into strategy, targets and roadmap: Clarify the business case and linkage between financial and sustainability targets. After creating the awareness, sustainability should be embedded into the core business strategy, targets, and roadmap. This ensures the alignment between financial and sustainability goals and translates sustainability objectives in ‘business language’. Ultimately, reaching the sustainability targets should also be good business from a financial point of view.

Commercial excellence: Innovate offerings for ‘handprint’ and capture value from greenium

3. Develop offering and business models to allow customers to make sustainable choices. Companies should increasingly innovate their offerings and business models to enable customers to make more sustainable choices, in contrast with merely improving the impact of the company’s offering itself. This ‘handprint’ perspective, referring to a positive contribution to the clients’ own footprint with the supplier’s offering, might in some cases imply even radical changes to the company’s ‘legacy’ offering and business models. 

4. Aim to capture value-add from a more sustainable and intelligent offering. When possible, companies should aim at a ‘greenium‘ by leveraging value-based selling principles to capture the price premium on sustainable products. In practice, this is achieved by highlighting the tangible benefits such as long-term cost reduction and enhanced environmental impact to create win-win scenarios for customers and the company. Here, it is important to bear in mind that the overall maturity of a given industry and market will determine how easy or difficult it is to aim for a greenium – in some industries, sustainable offering might already be a ‘business-as-usual expectation’, thus asking for greenium does not work.

Operations & supply chain: Enhance resource efficiency and collaborate on value chain sustainability 

5. Take care of the ‘own base’: Operational efficiency, energy savings & greener materials. In own operations, a good starting point for an improved sustainability impact relates to enhancing operational efficiency by redesigning processes to use fewer inputs, saving energy, and utilizing greener materials. Even though more transformational approaches are often needed, these ‘low-hanging fruit’ opportunities anyway demonstrate sustainability commitment and result in incremental footprint reduction.

6. Seek deep collaboration in the value chain to co-improve the Scope 3 footprint. Typically, companies generate most of their negative impacts in the value chain outside their own operations. Therefore, it is crucial to engage deeply with value chain partners to co-improve the broader footprint. This requires shared objectives, top management engagement, and transparency, resulting in mutual benefits and potential new business models or even ecosystems.

Organization & steering: Align operating models and management with sustainability goals 

7. Align operating model for transformation: Organization design, roles & responsibilities. To bring sustainability into the company’s core, it should be reflected in organization design, roles, and responsibilities. Ideally, there are clear mandates for sustainability positions (including a ‘CSO’), while sustainability is also integrated into the ordinary governance processes and made a part of everyday decision-making. Additionally, when rewarding systems reflect sustainability, its importance is demonstrated clearly to employees.

8. Incorporate the sustainability lens in all steering horizons: strategic, tactical & operative. Sustainability lens should also be integrated into the company’s business steering practices, i.e. in target setting, planning / budgeting, forecasting, and performance follow-up. In practice, this can involve assessing the financial impact of sustainability (e.g. cost of CO2e) and embedding it into strategic, tactical, and operational decisions.

Culture: Merge sustainability deeply in values and management practices 

9. Embed sustainability thoroughly in company values. Finally, the transformation boils down to people through cultivating a widespread culture of sustainability, accommodating it in employees’ values and everyday actions. This involves clear communication about required changes, emphasizing individual choices, and supporting these with appropriate metrics and incentives, all of which ensure that sustainability becomes the inherent way of working.

10. Ensure top management commitment and encourage sustainable everyday actions. As with all cultural questions, management is in a key position to boost the culture of sustainability. Therefore, the company must achieve broad management buy-in and ownership by reviewing the current state of sustainability, appointing change agents, addressing potential fears, and potentially also conducting identity work. Management must emphasize the environmental and social impact, holistic development approach, long-term perspective and transparent engagement with external stakeholders. 

Current state: How are companies proceeding? 

Based on our work, we have seen that both sustainability contexts and ‘maturity’ of the required transformation differ considerably between individual companies and industries. In some cases, there might be a need to begin from scratch, explaining what climate change and loss of biodiversity are all about, thereafter continuing to renew the strategy and the entire business model. For others, the question might be more about e.g. embedding the perspective fully into tactical and/or operative level steering or ensuring that a culture of sustainability will truly support the transformation. 

After analyzing a range of firms, we have been able to build our first synthesis concerning where companies typically are on their sustainability transformation. As it turns out, most companies have already taken some incremental steps, but completed full-blown transformations are still very rare. Below, as well as in Picture 2, is our summary per key activity. The estimates represent our view on ‘average maturity’ – in practice, some companies perform both better and worse than the portrayed average of each thesis. 

Strategy: Understanding on the current state but lacking comprehensive integration 

In terms of strategy, most large companies have nowadays a rather good understanding of their key sustainability impacts (such as emissions across Scopes 1, 2, and 3) and have identified key material sustainability issues. However, there is often a gap in comprehending the long-term implications of these issues. Many companies set sustainability targets, but the integration between these targets and financial performance is frequently unclear. While some organizations have begun to link sustainability with their core strategy and mission, others still treat it as a peripheral concern. This results in varied levels of commitment and execution – and sub-optimal performance in the longer run. 

Commercial excellence: Initiatives often in place, but value capture through ‘greenium’ is limited 

When it comes to commercial development, many companies have already initiated efforts to offer e.g. lower-carbon products and support their customers in understanding emissions – not least driven by regulatory demands. Some organizations have even implemented handprint targets, emphasizing the positive environmental impact of their products. However, the ability to capture value through ‘greenium’ or, put differently, price premiums on sustainable products, remains limited. Companies generally support their customers’ sustainability efforts but struggle to fully leverage value-based selling strategies. As a result, the commercial aspect of sustainability is still evolving, with significant potential for further development. 

Operations & supply chain: Internal efficiency measures are insufficient alone 

Within operations and supply chains, the focus has largely been on improving internal efficiency, energy savings, and the use of greener materials. While these measures represent important steps, they often result in only partial solutions to the broader sustainability challenges. As Scope 1 and 2 emissions are typically smaller compared to Scope 3 emissions, which dominate most industries, many companies recognize the importance of collaboration with value chain partners and have initiated related projects; however, the level of ambition and success varies significantly, with some organizations setting ambitious science-based targets and others lagging. 

Organization & steering: More effective steering from the sustainability angle required 

There is a growing recognition of the need to align operating models with sustainability goals and, consequently, many companies have dedicated personnel or teams leading sustainability initiatives. Organizational structures are being adapted to integrate sustainability more effectively, but there is still a wide variance in how deeply these changes impact business decisions. While sustainability targets and KPIs are often established, they do not yet influence decisions on the different time frames (strategic, tactical, and operative) consistently. This indicates a gap between strategic intent and practical implementation, suggesting that deeper integration into organizational processes is necessary. 

Culture: Widespread engagement and top management commitment vary 

Cultural transformation towards sustainability is underway in many organizations, but the progress is mixed. Compliance programs and related training are commonly in place, indicating a baseline level of awareness. However, embedding sustainability into company values and ensuring it is visible in everyday actions remains a challenge. Management commitment is crucial, and while top management in some companies visibly supports sustainability, this does not always translate into widespread engagement or consistent sustainable actions at all levels. Developing a pervasive culture of sustainability that aligns with strategic objectives requires ongoing effort and deeper integration than what is usually seen thus far. 

Call to action: Ensure your sustainability transformation 

In conclusion, we have learned that companies have clear areas for improvement even though many show a promising understanding of their impact and have started integrating sustainability into various aspects of their business. In a nutshell, the key takeaways per main corporate activity are: 

• Strategy formulation needs a more robust link between sustainability and financial performance 
• Commercial operations can benefit from applying value-based selling more effectively 
• Operations and supply chain management require more ambitious targets and comprehensive collaboration throughout the value chains 
• Business steering efforts must consider sustainability lens more than currently 
• Lastly, cultivating a genuine culture of sustainability would demand more consistent top management commitment and widespread employee engagement 

Interested in finding out where your company is on your sustainability journey? Acknowledging the key areas of development but lacking execution capability and/or sufficient resources? We are happy to discuss your situation and the key topics relevant for you. Concerning all the above elements of sustainability transformation, we have the thinking, approaches, and tools in place to make your company fit for both financial and broader sustainability impact. By embedding sustainability in this way, we will also take part in performing those moral and pragmatic duties set for our generation. 

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