How CXOs Integrate Sustainability With Digital Frequently To Stop Business Loss And Anchor Their Legacy

For the very first time, Sustainability ranks within the CEO's top 10 strategic business priorities according to Gartner . The race to lead is on.

In 1987, the?United Nations Brundtland Commission ?defined sustainability as “meets the needs of the present without compromising the ability of future generations to meet their own needs.” Every industry vertical, operating enterprise, team, and individual is likely to have a perspective on how this definition applies to their situation.

In my conversations, some questions are surfacing. Why is sustainability talked about more now? Can sustainability and ESG be synonyms? How are digital transformation and sustainability linked? How to measure sustainability? Are there any best practices?

As I learn more, I have tried answering these along with a few pointers that may help.

The Dynamics. The Forces.

According to Bloomberg Intelligence , ESG (Environmental, Social, Governance) assets are set to balloon to $53 trillion by 2025, representing more than a third of the projected total assets under management. What's striking here is that the growth will be due to fund inflows amid concerns about climate change and other societal issues.

The governmental bodies are acting as well. 30% of the EU’s €1.8 trillion budget and recovery plan for 2021-2027 will be made available for the green transition. Now that the funding is decided, the focus shifts toward spending.

From the end customer perspective, the Covid-19 pandemic has forced people to be mindful of the environmental impacts of their purchases. In PwC’s?Global Consumer Insights Pulse Survey , half of all global consumers surveyed say they’ve become even more eco-friendly.

Rating organizations like?Standard & Poor's ,?Deloitte ,?MSCI ,?Sustainalytics , and?RepRisk aim to calculate and track a company's social and environmental impact, as well as assess its governance over time. These ESG evaluations are going to be crucial for corporations.

Technology players are reading to meet these demands. Gartner ?predicted that by 2025, 40% of all manufacturing IT will own the responsibility of data modeling for sustainability and net zero carbon targets. To support this, 53%+ manufacturers are already investing in data infrastructure, business analytics and AI, and data orchestration.

For CXOs, sustainability offers an unprecedented opportunity. One that can define the CXO legacy and yield value through top-line, bottom-line, and market valuation improvements. Addressing business, environmental and societal outcomes caters to the demand of both the shareholders and stakeholders.

I think Sustainability + Digital is a growth lever. It is no longer a "nice to have". It is core to the company's survivability and the planet's health.

There are two aspects worth pondering while the race to rein in sustainability is on.

Two aspects. The push and pull.

On one hand, there are daunting macro drivers such as broad stakeholder influence and climate change, humanity's single biggest health threat , fueling the urgency for sustainability agendas. The UN Secretary-General?António Guterres said the IPCC (Intergovernmental Panel on Climate Change) Working Group 1 report was nothing less than "a code red for humanity .?

In case you missed how dire this situation is, Prof. Johan Rockstr?m shares the 10 new striking insights in climate science at the UN Climate Change Conference 2021 (COP26).

On the other hand, BCG found that only 1 in 5 sustainability initiatives showed any meaningful connection to drivers of business value and advantage. The ambition and impact are disconnected according to another Deloitte survey with 2,000+ C-suite executives. These indicate that the organizations are struggling to implement actions that demonstrate they have embedded climate considerations into their culture and have the senior leader's buy-in to effect meaningful transformations.

Executives are weighing the risk of not acting, regulatory non-compliance, and missing the opportunity to step change and contribute to both business and societal outcomes. Almost one-third of mid-market businesses say they face a high risk of losing business if they fail to act on environmental, social, or governance policies, according to a new survey from accountancy and business advisory firm?BDO . When asked to think ahead to the next five years, 24% of respondents said there was a ‘high’ risk of losing business - or eligibility to bid for new business - if they failed to meet acceptable ESG standards.

In my discussions, I see the business issues for sustainability initiatives wrapped around the opportunity categories of increasing productivity/efficiencies, managing cost by conforming to the customer/regulatory needs, and increasing revenue/market share/influencer mindshare.

Like any transformation, I have also noticed challenges in achieving these business issues around the lack of urgency and collaboration, unclear business cases, ambiguous executive sponsorships, data siloes, and non-aligned metrics for tracking progress.

First things first. Is Sustainability = ESG?

No. Frequently used interchangeably, they are complementary yet different.

As shown in the figure below, Sustainability is the overarching "what", and ESG is the underlying "how". Leading companies focus on both.

Sustainability helps to define the future. It is one of the several attributes of a "future" state. An organization may choose to strive for it, use it as a north star purpose, and include it in its documented vision, mission, and objectives. It helps to rally the organizational stakeholders. It provides clarity of the business impact on the environment and society, hence is inside-out.

Under this definition of sustainability, ESG provides a framework. A framework that has the categories of Environmental, Social, and Governance. Organizations may choose to use these categories to organize their initiatives, allocate priorities, define KPIs, assign operating teams, and track progress. It is outside-in as it clarifies the environmental and societal impact on the business.

Digital + Sustainability. The proof of togetherness.

As 波士顿谘询公司 noted, a search of 3.6 million global news and blog sources deduce that the conversation around digital and sustainability has become more interconnected.

Here is what is intriguing!

Digital technologies are already having a positive impact on the sustainability goals of 40% of survey respondents who represented various industries and regions and shared this with the World Economic Forum and 贝恩公司 .

Companies linking digital and sustainable transformation, called Twin Transformers by 埃森哲 , are 2.5X more likely to be among tomorrow’s strongest-performing businesses than others that do not.

While transforming digitally, companies leverage levers of XaaS business models , modern technology incubation, data monetization, ecosystem engagement, and customer experience reinvention. It will be key to identify use cases that use digital technology to improve sustainability.

Technology. The success catalyst.

Once value-based outcome(s) is defined, the key to success shifts to identifying the use cases that 1) address the sustainability challenges and roadblocks, and 2) maximize the usage of modern digital technologies.

For instance, Price Waterhouse Coopers- PwC identified 80 use cases that illustrate the potential of Fourth Industrial Revolution innovations and their application to the world’s most pressing environmental challenges. These include optimized energy system forecasting, precision agriculture, smart grids, “hyperlocal” weather forecasting for crop management, smart traffic management, sustainable building design, early crop yield prediction, industrial machinery optimization, and supply chain monitoring and transparency.

The Digital and Sustainability Survey conducted by Bain & Company and the World Economic Forum shares the top 10 digital applications companies are using digital to improve sustainability. These span from increasing energy/water/fuel efficiency, optimizing the resources and processes and reducing carbon emissions, to making supply chains traceable.

Many of these applications demand a transition from non-connected to autonomous machines, from a break-fix product model to predict-prevent services business model, and from big iron hardware to software-defined machines. All that with data analytics, real-time actions on IoT sensory data, digital feedback loops, distributed edge-cloud compute, collaborative workflow platform, zero tolerance for jitter and delay, machine learning/AI, and digital twins. When tracking sustainability performance, it is also crucial that data is easy and fast to access, is integrated with business applications, and can be cross-correlated across different sources.

These technology solutions are being considered, developed, deployed, and operated already to realize sustainability goals.

For instance,

• 41% of energy industry leaders believe that intelligent systems can positively transform how carefully and efficiently we use environmental resources. This is according to Forbes 2021 survey , commissioned by 风河 .
• 57% of organizations ?believe digital twin technology is critical to improving sustainability efforts, according to a 凯捷咨询 report.
• Manufacturers plan to use more digital solutions to track and advance their environmental progress, with 18% selecting IoT as their second most important technology in the future for sustainable business practices, per Hitachi Vantara and IndustryWeek survey .

So, is there a flip side? A concern? The Digital and Sustainability Survey also unveiled the executive's concern about automation's impact on jobs, data privacy, security-related risks, and electronic waste among other worries.

These are genuine concerns crucial for architecting solutions.

Ok. So, what standards to keep in mind?

Since regulatory compliance is going to be critical, it is important to understand what is required for your industry segment. Some of the following frameworks may help:

• The?SASB Standards ,?under the IFRS Foundation , apply to 77 industries. These include Food & Beverage, Extractives & Mineral Processing, Health Care, Infrastructure, Renewable Resources & Alternate Energy, Resource Transformation/Manufacturing, Technology & Communications, and Transportation. For determining the financial materiality of ESG problems, consider the?SASB Materiality Map ?as well to help with the intra-organization buy-in.
• The?UN Sustainable Development Goals (SDGs) ?are a set of 17 aims created to pave the way for peace and prosperity for the planet and its people. They are a good benchmark for ideas on what your company can do.?
• The UN Guiding Principles on?Business and Human Rights ?can also help companies prevent and respond to human rights violations in their business operations. By simply highlighting key areas, your firm can identify where to look closer and rapidly evidence both what it is and what it finds. If necessary, this can inform changes that mark a real change to your business.?

Monitoring and reporting progress. How?

Corporations have been disclosing sustainability for a while. There are reporting standards requirements being issued by the?Corporate Sustainability Reporting Directive ?now that are being adopted especially in Europe. Below video talks about how early movers are using the International Business Council and World Economic Forum Stakeholder Capitalism Metrics to achieve a sustainable future.

Also, at the World Economic Forum Annual Meeting 2020 in Davos,?120 of the world’s largest companies ?supported efforts to develop a core set of common metrics and disclosures on non-financial factors for their investors and other stakeholders. In 2020, over 120 companies co-designed the Stakeholder Capitalism Metrics – a set of data points that allow companies to consistently report non-financial disclosures.

The ISSB, the?International Sustainability Standards Board ?has been announced at the climate conference in Glasgow, COP26. It is a standard-setting board set to provide a globally aligned standard on how to report on climate, gender pay gap, diversity, equity inclusion metrics, etc.

I am sure there are others I may have missed that need to be added to the mix here.

Digital + Sustainability. How to start?

World Economic Forum published?a playbook, Bridging Digital and Environmental Goals , designed to provide leaders with recommended actions and examples. These are framed around 10 pillars: three strategic foundations and seven dimensions of digital transformation. This playbook?recommends how leaders can integrate sustainability priorities with their digital transformation roadmaps.

To determine which business aspects to prioritize and combine the sustainability transformation with a traditional transformation needs a mindset shift. 波士顿谘询公司 offers recommendations on determining where to focus for the greatest impact, how to put the right transformation engine in place, and how to fund the journey.

Besides these, I would also recommend below for maximizing success:

• Keep the direct and indirect (including society) stakeholders at the center of your vision, strategy, and priorities.
• Define outcomes and KPIs that measure the financial and non-financial results.
• Use a lens of sustainability enabled by potent digital technology to prioritize investments and reinvent business models.
• Adopt an operating model that combines the resources of traditional and sustainability transformation.
• Select stakeholders including staff, suppliers, and board members who have an aligned sustainability vision.
• Re-skill and up-skill talent around these topics.

Thoughts. Final.

If you have read this far, I hope you can help your company transform and invest confidently in a more digitally sustainable future.

Please connect with me to share what you think.