Embedding sustainability is emerging as the next wave of enterprise value creation for corporate leaders. At the NYU Stern Center for Sustainable Business (CSB), we developed a Return on Sustainability Investment (ROSI) methodology to better measure and monetize these opportunities. Our ROSI research finds a strong causal relationship between well-executed, embedded sustainability strategies and better management and financial performance across many industries. Companies that integrate sustainability into the core of their business strategies will be best positioned to attract and retain talent; secure the funds needed for implementation and innovation; mitigate environmental, social and governance (ESG) risks; and increase sales and customer loyalty.
However, there is a danger that companies will approach sustainability risks and opportunities solely as a compliance issue — responding to demand for ESG reporting metrics — rather than building sustainability into business strategy. Without strategy, sustainability is neither prioritized nor well-designed and executed. Without appropriate governance, funding sustainability capital needs is challenging. Without sustainability key performance indicators (KPIs) tied to compensation, employees may be measured against metrics that conflict with sustainability goals.
Companies with embedded sustainability approaches recognize this. Unilever, for example, has an integrated sustainability strategy, Unilever Compass, with associated KPIs, and provides incentives to stakeholders such as suppliers and employees to help them meet their goals. Arca Continental (a Latin American beverage and snack company) developed a board-level sustainability committee to focus on the strategic importance, visibility and shared ownership of sustainability, and has tied a percentage of executive compensation to sustainability goals.
Companies small and large need help in navigating this new approach to sustainability strategy and management. Some companies have made robust sustainability commitments but are struggling with effective implementation. Others are just beginning their exploration and may not know what to prioritize.
Define the goals
At NYU Stern CSB, and for the purposes of our corporate strategy research, we define sustainability as embedded when the proactive management of material ESG issues and a balanced approach to the needs of stakeholders (including shareholders) are completely and effectively integrated into a company’s business strategy, with the goal of creating positive societal value as well as better financial returns. This requires internal transformation as well as the development of new tools and processes.
Assess the starting point
To enable this transformation, a company will need to assess its starting position and associated strengths and weaknesses. To help corporate leaders do so, CSB has designed an Embedded Sustainability Self-Assessment tool, providing practitioners with a framework to assess their company’s existing sustainability approaches and practices within four areas: corporate strategy; governance; culture; and communications and reporting.
- Corporate strategy: This section of the framework evaluates the degree to which sustainability is integrated into core business operations. The questions explore the relationship between understanding material sustainability issues and integrating their management into the company’s broader corporate strategy. It has a higher weighting than the other sections, as it is the backbone of embedding sustainability.
- Governance: This section evaluates the governance structure and processes in place to promote and monitor sustainability integration and investment (capital allocation) across business functions, and includes questions that explore if key decision-makers and managers have the appropriate experience and organizational structure to support sustainability.
- Culture: This section evaluates a company’s beliefs, attitudes and values at the core of its business operations. Culture speaks to the way that companies actually work, the formal and informal processes and beliefs that define what is expected and prioritized. If sustainability is not part of the culture, companies are less likely to be effective in implementing sustainability or tapping into sustainability innovation.
- Communications and reporting: This section evaluates how a company embodies its sustainability values across its communications channels. Companies that have embedded sustainability communicate with their internal and external stakeholders about plans, progress and even missing targets. Transparency allows stakeholders to reward companies for actions taken and allows the companies to maximize the benefits of investing in sustainability.
The assessment tool complements the recently released "Practitioners’ Guide to Embedding Sustainability," where CSB has summarized its research into best practices in an instructive resource. We have linked the self-assessment here to help corporate leaders evaluate their companies’ current performance as a launch pad for the next phase of embedding sustainability. Users are asked to answer and score the questions, and then use the results to determine a total weighted score (out of 100 percent). The results will help you determine where you are on your journey, and the Practitioners’ Guide will help you tackle areas of weakness and opportunity.
Watch GreenBiz for a serialized set of articles based on the guide exploring how to embed sustainability in business strategy to drive better financial performance and improve societal value.