Bridging the gap between the CSR/ESG targets and the new business models for sustainability: the alignment challenge!

Over the past decades, many corporations have long performed some form of corporate social responsibility (CSR) which is defined by Primavera et al. as “initiatives either voluntary or legally mandated designed to have a positive environmental or sustainable development impact” [1]. Nowadays, there is an increasing demand to reshape the old CSR targets to deliver clear business results by applying the Environmental, Social and Governance (ESG) criteria to gauge companies' actions. 

There is no question that corporate commitment to sustainability is at an unparalleled apex. According to the 2020 Leadership for the decade of action report [2], 92% of CEOs agree that sustainability integration with the business strategy is a critical step for long-term success. The paradox lies on the fact that only 48% of CEOs say to be implementing it in their operations and just about 21% believe their businesses are contributing to the global Sustainable Development Goals (SDGs) [3], showing a clear gap in aligning corporate environmental initiatives with business purpose and values. 

The coordination of a company’s sustainability vision and effective business strategy implementation, although challenging, may lead to several gains such as risk mitigation, reputation boost, profitable results, and real environmental change. 

The lack of coherence on typical CSR approaches may be one of the reasons to hinder true business strategy integration. Many organizations have traditionally been operating based on two main CSR/ESG approaches:

1. Social conscience or philanthropic-based approach: this tactic includes initiates that are not primarily planned to enhance business performance or generate profits. Instead, these activities may improve social standing, increase employee motivation, attract young professionals [4], but they can also contribute to increased costs.
2. Operational improvement approach: includes initiatives that support a company’s operations within existing business models. They may lead to cost reductions and even possible increase in revenue, which is not always the case, while also contributing to improving corporate reputation and mitigating some environmental impacts.

Now the real challenge is not only to connect the vision within these two approaches but correlating them with the new business models and partnerships that are arising to sustain long-term business results. Building the bridge between corporate vision with regional business opportunities is a critical step towards strengthening the concept of ‘shared value’ by generating opportunities for the entire value chain.

So how could a company build a sustainable bridge to close the gap between its CSR/ESG targets and the new opportunities to drive sustainability as a business?

Proposed bridge - a coherent business model transformation: Projects and initiates considered with this novel approach would generate new business models designed to effectively address environmental issues while improving business performance. They may also represent a significant potential to mitigate large scale social and environmental problems while fostering improvements in financial performance. This implies, in most cases, the need for new (and even audacious) business strategies that differ from the typical operations improvement approach previously discussed. 

Now that all approaches have been laid out, it is time to consolidate a framework that connects them all to ensure the effective implementation of the proposed bridge. Here is an initial streamlined three-step process to initiate a coherent strategy:

1. Simplifying the message for a reasoned alignment of the approaches: after a thorough assessment of the projects in each approach, eliminate or at least minimize the ones that either do not address important environmental/social issues or are not fully aligned to the company’s values. This implies a clear business purpose definition which will dictate the criteria required for this pipeline refinement.
2. Gauging performance through tangible metrics: appraising success of the philanthropic-based approach is more subjective since it requires measuring non-financial impacts such as social standing and public perception. Now, operation effectiveness allows using typical KPIs such as energy, water, and waste usage as a tangible metric of the benefits. As expected, the bridging approach for new business models will demand a tactic that assesses both, the environmental/social value generated as well as the profitability results created in the short-term along with their projection to sustain the long-term vision. A crucial factor in defining the KPIs for the new models is to ensure that a thorough business risk assessment is completed, meeting compliance strategies [5] and that the value-generation can quantitatively be demonstrated to the different stakeholders.
3. Managing and implementing the sustainability portfolio in a coordinated fashion: After simplifying the message, aligning the targets, and establishing the metrics; a more coherent portfolio can be established compassing both, the CSR/ESG projects and the new business models to be implemented. This does not mean that all projects should unavoidably tackle identical sustainability issues. Nonetheless, they should be complementary in reinforcing the company’s business values generating a robust and intelligible sustainability portfolio aligned to a long-term vision.  Coordinating corporate and day-to-day business initiatives requires the support of executive levels. Depending on the organization size, the integration may be more successful by establishing a position with the primary responsibility to assess the pipeline from the different approaches and ensuring the full alignment in the strategy definition and implementation. This may include, but not limited to, frequent internal and external stakeholder updates to revisit priorities and guarantee continuous communication to the right audiences. Without a proper and unified strategic approach, barriers may arise during the process hampering the possibility of establishing a truly sustainable project pipeline with real impact. 

“CSR/ESG and new business strategies should be complementary in underpinning the company’s business values while generating a robust and intelligible sustainability portfolio aligned to a long-term vision.”

Fostering a real ‘go-getting’ business-model transformation is a pivotal step to bridge the gap between corporate and business goals. This process utilizes the gains brought by CSR/ESG initiatives such as improve social standing, increase employee motivation with a real environmental impact and definition of new business opportunities through improving operations and addressing big sustainability issues that can generate profit in the long run, hence resulting in a sustainable strategy. The companies that attain the alignment of these approaches with their business purposes will certainly be advancing partnership and collaborations across the value chain, enabling positive business results in a faster pace, and paving the way for sustainable long-term plan implementation. 

References

1] Jurgenne H. Primavera, Daniel A. Friess, Hanneke Van Lavieren, Shing Yip Lee, "Chapter 1 - The Mangrove Ecosystem", World Seas: An Environmental Evaluation (2019).

[2] Leadership for the decade of action, The United Nations Global Compact and Russell Reynolds Associates — “Study on the characteristics of sustainable business leaders” (2020).

[3] The Decade to Deliver: A Call to Business Action, The United Nations Global Compact — “Accenture Strategy CEO Study on Sustainability” (2019).

[4] Ohen, Marcos et al. “Corporate Social-Environmental Responsibility as an Attraction and Retention Factor for Young Professionals”. Brazilian Business Review., vol. 14 (2017).

[5] Junsong Bian, Yi Liao, Yao-Yu Wang, Feng Tao, “Analysis of firm CSR strategies”, European Journal of Operational Research (2020).