Sustainability transformation: sorry, what

What on earth is sustainability transformation?

In 1987, sustainable development was defined by the Brundtland Commission report as meeting the needs of the present without compromising the ability of future generations to meet their own needs. Sustainability transformation consists of applying this principle to businesses, by helping them develop and grow in an environmentally friendly manner without them having to sacrifice their profit or performance level.

Embracing such a process comes with risks and, as any other change will, it will ask for a close examination of the actual model and some restructuring. However, it offers a mid-to-long-term competitive advantage as well as complying with coming regulations and let’s not forget, a business model that will not negatively impact the environment.

At the moment, one of the most common ways to determine is sustainable is to grade it by the ESG metrics, created by governing bodies and NGOs as a common indicator. ESG is the acronym for the three areas that are closely examined:

• Environmental sustainability

It evaluates everything that has to do with the ethics and behaviour of the company concerning the environment. For example, how involved they are in fighting climate change with emissions, resources and clean tech use or their waste.

• Social sustainability

Regarding the ethics and behaviour of the company towards their members but also, the local community. It includes topics like respect towards diversity, respect for human rights, care for employees' health and other policies concerning their wellbeing.

• Governance sustainability

Ethics and behaviour governance-wise are studied through business practices, corporate policies and more specifically by issues like their funding, tax strategy and suppliers.

How to find out if you have a sustainable model?

Knowing for sure if your business has a sustainable model is almost impossible if you do not examine the whole of it and measure its impact. When we want to figure out, we have diverse ways of measuring our business’s sustainability.

One of them is using the Greenhouse gas emissions (GHG) unit to measure the global warming potential of your GHG emissions. To do so, you should measure the amount of greenhouse gas emitted and multiply it by its global warming potential, and you would obtain the total amount of carbon dioxide equivalent (CO2e) in kilograms. For measuring them you should remember that, following the Greenhouse Gas Protocol global standard, businesses generate emissions in three levels or scopes:

• Scope 1: in this level, we find direct emissions that we can track and that are directly linked to the activity, like the emissions from facilities or vehicles.
• Scope 2: this level adds distance between the emission and the activity, as they are necessary, but they are not exclusive to the product/service of the company. For example, the energy consumed and its origin or the heating of the facilities.
• Scope 3.: these are the most difficult ones to track and the ones that can start making the difference between you and other businesses when trying to gain a competitive advantage. They are the most indirect type of emissions and are usually related to the supply chain, capital goods, logistics and other activities around the business but not directly linked to it.

Measuring your GHG emissions and transforming them into their equivalent in carbon emissions will help you calculate your carbon footprint. The carbon footprint is a term that has been around for quite some years and businesses started reacting, shaping their policies to reduce it or, at least, control it better. These are some of the most popular models since then:

• Carbon neutral

It is called neutral because the business takes care of balancing its released emissions by removing the same amount through actions like investments in projects that help reduce environmental impact or research that works towards greener practices.

• Net-Zero

In this model, the focus is on reducing and avoiding emissions as much as possible. Nonetheless, some emissions cannot be avoided, so they are neutralized by carbon removal offsets. The limit for being declared net-zero is in only offsetting 10% of your emissions.

• Carbon negative/climate positive

This model goes further and moves the focus from only removing or avoiding emissions to, besides that, creating a positive impact on the environment. A trendy option has been carbon absorption for transforming it into a different resource. It is needless to say this approach is heavily backed by technology innovations.

By measuring both your GHG emissions and your carbon footprint, you can have a peek into the main environmental impact of your company, and you can start drafting a plan to reshape it.

Sustainable transformation: a lengthy but rewarding journey

A transformation like this can seem daunting due to the holistic approach that must be taken to successfully implement changes that can make a difference in, the short, mid and long term.

If you read our articles on industrial and digital transformation, you will already know that when we say transformation, we mean that it is a process that requires preparation and the proper following to ensure the desired outcome.

The first step for this transformation is, in case we did not make it clear in the previous section, collecting valuable data from your business. Before you start changing procedures and introducing new ways of developing the activity, you should be aware of how your business looks like. This step is fundamental, and you should collect, classify, and monitor as many pieces of relevant data as possible.

It is not uncommon to find out that your business is not prepared to collect data around sustainability, hence the need for indicators and KPIs that reflect the ESG impact, so part of the process consists of filling those data gaps.

Once you have collected all that precious data, you need to define how sustainability fits in your company. It does not look the same for every company and adopting a model that does not suit your purpose, your culture or that will not hold long-term will end up in a loss of time and resources. Each company must define a tailored strategy and embed it in the company culture. That way, it will be part of the company’s DNA and its development will be intertwined with the whole of the activity.

The current market and regulations demand a new model of business that complies and continues to do so with the global compromise of a sustainably engaged global model, but that does not mean that you cannot reconcile ethics with profit. Not transitioning will eventually mean the disappearance of the business, so it is better to do it with time and on your own accord rather than being forced to walk a path you were not ready for. Remember that profit comes in different shapes and forms as well as sustainability is measured in ESG terms, not only environmental, you can also gain other types of value.

Now you have the data, you have the context and the vision of where sustainability fits for you, so now, it is the moment to find the technology, the procedures and the policies that will make the change happen. For that, you will need to establish realistic targets and create a defined strategy. Here is where digital technologies and innovative methods come in for transforming your business. Sustainability is deeply linked to technology, as we will develop further with examples.

If done properly, and even if it is a big investment, you will be able to improve performance through these sustainability-oriented changes. Remember that part of embedding sustainability within the culture pursues integrating it without prioritising the activity. Do not make the mistake of tackling sustainable practices just because it is trendy, or regulations force you to do it! Sustainability transformation is here to stay, so integrate it to turn it into an advantage rather than a burden.

Transformations need to be led, developed, and integrated but also measured. It is key to track performance and constantly readjust to find the coveted balance between being sustainable and growing a business and its profit.

Keep in mind that all these transformations should have the three Ps in mind: planet, people and profit.

A sea of regulations to navigate. All aboard!

Sustainability is growingly demanded by consumers, companies but also by institutions. What some years ago was a recommendation or a guideline for better practices is starting to turn into a mandatory regulation. It is one of the reasons why this transformation is still a choice but will not keep on being so in the future. Choosing to undergo sustainability transformation can save you time and put you at the forefront of your competitors, due to investors and stakeholders demanding sustainability more and more too. These frameworks are some of the guideline providers for companies to report their ESG performance.

For now, one of the most important rules is the CSRD (Corporate Sustainability Reporting Directive) created for the EU, which imposes a sustainability report for all large companies listed on EU stock exchanges as well as non-EU companies with substantial EU operations (entities with more than 250 employees and a net turnover exceeding 40 million euros or 20 million euros in total asset).

The TCFD (Task Force on Climate-related Financial Disclosures) Framework, now transitioning into the ISSB (International Sustainability Standards Board) Framework, is a collection of standards to measure sustainability from an investor-focused perspective. The first one is still used but the IFRS Foundation has improved them and modified them, so it is expected that the market will transition gradually to its use.

The SBTi (Science Based Targets initiative) is a collaboration between several institutions, including the United Nations Global Compact, after the Paris Agreement to mobilise the private sector and create science-based targets to help comply with what was agreed upon. They have several frameworks to fit different sectors, so we recommend you find the one that adapts better to your business.

Many of them are still in the making or rapidly changing, so it is recommended to research the mandatory reports and regulations for each of the geographic areas in which you carry out your activity. It is also relevant to know that these sustainability indicators and regulations will play a role in your funding, making you more appealing if you can show the credibility of your project’s sustainability. In this field, data is the only spoken language, so make sure to have a good showcase, financial and non-financial, that is reliable, consistent, and meaningful. If this part of the process seems too challenging, you have the option of seeking help by consulting an ESG advisor who will help you unravel regulations.

What challenges await you (and how to face them)

It is easier than ever to transform your business into a more sustainable model, but no one said that was easy! Facing a transformation (digital, industrial, or sustainable) comes with obstacles, questions, and difficulties, but if you could solve the other problems your business presented, so will you solve these.

We have already gone through the challenges of navigating regulations, but once we know the whole context, we are confronted with the question of where to implement those changes in the company. However, this is the wrong question! A transformation affects the whole company, which means that you should plan a transformation that encompasses the whole company.

Information is what will make your transformation journey thrive or fail. Firstly, you need to make sure that you have in place effective data collection systems and that you are covering all the areas that can provide you with information relevant to measuring ESG performance. After making sure those systems are in place, the smartest choice is to keep track of the transformation’s efficiency by comparative and comprehensive databases. Technology can help with this task by automating the registration of the data and the comparison of the values. This tracking system will warn you in the event of inefficiencies as well as the possibility of readjustments to improve performance.

You can kickstart the change, but it is like a domino: everything else should follow. Succeeding relies on the engagement of all the parties involved, starting with a committed leader who is sure of their vision, through a team that brings ideas and energy to the project and ending with the necessary rigour to tie up everyone’s efforts.

Another concern is the funding, which will always be necessary and not always available. There are several answers to this obstacle, some that include extra funding and some that will make the already existing funds work. One way is reallocating resources to sustainable causes, where they might start the transformation engine while you search for further funding. This is not the ideal option, but it can be a good starting point as you work on a more ambitious plan and build momentum, something that will prove useful to start that ripple effect. Another option is to invest your gains in this transformation instead of using these funds to invest elsewhere. The third option would be to look for external funding, and this exact step can already be taken toward a sustainable direction. Right now, green bonds and green funds are a significant help for companies that are committed to complying with sustainable practices.

As you can see, there are major challenges, but they are not impossible to overcome. Planning, monitoring, readjustment, and a clear vision can bring you a satisfying result.

Dos and don’ts of sustainable transformation