Transformative sustainability strategies: a must-have for your business’ long-term success 

25 January 2024

As sustainability takes centre stage on regulatory agendas, businesses are undergoing a profound shift in their approach to navigating the sustainability landscape. The traditional view of sustainability as an optional endeavour “on the side” is rapidly becoming outdated. However, many current strategies prioritise incremental improvements over holistic change. It is crucial to emphasise that sustainability transformations are at risk of failure when approached in isolation from business models and commercial strategies. Such an approach not only overlooks potential value creation but also neglects the pressing global sustainability challenges at hand. 

Failure to embrace transformation undermines business and ecosystem stability

Today, no company can claim to be truly sustainable – not even the frontrunners of corporate sustainability. A truly sustainable company would have fully eliminated its negative impacts on people and planet – and ideally amplified societies’ and ecosytems’ ability to provide us with the services needed for business to thrive. This includes adhering to the 1.5°C scenario set forth by the Paris Climate Agreement, but doesn’t end there. Whatever harm business operations cause today – a fully sustainable company would have found ways to combine commercial success, human flourishing, and thriving ecosystems. 

Regulation is pushing sustainability strategy beyond incremental improvements 

Today, the EU’s corporate sustainability transformation is largely dominated by an ambitious regulatory agenda: The Corporate Sustainability Reporting Directive (CSRD)  is set to come into force in 2024 and many companies have started preparing for the associated European Sustainability Reporting Standards (ESRS). Particularly two challenges are taking up a lot of time in the diaries of sustainability professionals: conducting double materiality assessments and preparing data management for an anticipated ocean of disclosure requirements. 

These exercises are incredibly time-consuming. Many companies spend months on determining the right sustainability topics and enhancing data structures for reporting. While necessary and truly important to get right, it is easy to get bogged down into efforts that do not directly contribute to creating value for the business, its stakeholders, and our ecosystems.  

Recognising this, forward-thinking leaders have long begun working strategically with sustainability, setting long-term transformation targets and following through with tangible action plans. Accordingly, we’re seeing target-setting and investments break new ground. Sustainability has made it to the top of the C-suite agenda, businesses increasingly set ambitious targets and follow through with increased investments. According to a recent survey conducted by Gartner, Inc., 87% of business leaders anticipate boosting their company’s sustainability investments in the coming two years. 

With this approach, sustainability evolves from being a mere reporting exercise towards creating value for its stakeholders. Classic benefits of strategic work with sustainability are widely acknowledged: Operationally, companies can realise significant cost savings by optimising resource use and improving energy efficiency. Moreover, this proactive approach to sustainability can open doors to new markets and customer bases, fuelling revenue growth. From a stakeholder perspective, sustainability has emerged as a pivotal differentiator. Companies that prioritise these practices not only attract top-tier talent but also benefit from favourable ESG financing options.  

Aspirational sustainability goals prone to failure without integration into core business models and commercial strategies

However, if these targets and actions are pursued in isolation from adapting the company’s commercial strategy and business model, they are set to fail in the long run. For example, consider a traditional company growing their revenue based on selling physical products while aiming to decarbonise their value chain. Initially, the company would work to eliminate the easy-to-address emission sources, bringing about fast progress towards their decarbonisation targets. 

In the mid-term, the return of investment on decarbonisation initiatives diminishes. As emission sources become more difficult and costly to address, only incremental gains can be made while commercial growth further contributes to increasing emission from the company’s supply chain or production processes. Long-term, unchecked growth of unsustainable business models makes it impossible to achieve full decarbonisation. As emissions from material consumption and land-use change rise with commercial success, decarbonisation becomes too costly to finance. The company is stuck in a dilemma: commercial growth leads to rising emissions and rising emissions drive decarbonisation costs, but decarbonisation costs stun commercial growth. It will be one or the other. 

Consequently, the largest potential for value creation lies in reimagining your own business and its value chain. As environmental crises and tighter regulations loom, fundamental change should be seen as a once-in-a-lifetime strategic opportunity. By finding ways to grow commercially without scaling negative impacts on people and planet today, businesses can shape the inevitable transformation to suit their goals. By dictating the pace (“We determine the speed of change”) and quality (“We determine the direction”) of their value chain transformation, early movers will future-proof their ability to succeed commercially for generations to come.  

Oatly and Vestas: thriving by staying true to sustainable strategies

In our September 2023 webinar, “Sustainability at the Core of Business Model & Strategy”, we delved into the importance of businesses prioritising sustainability in their core strategy. Together with our guest speakers, Lisa Ekstrand from Vestas and Caroline Reid from Oatly, we explored the commercial opportunities arising from such alignment. You can access the full recording here

The Swedish purpose-driven oat drink company, Oatly, has integrated sustainability into its core business strategy since its inception. Oatly’s business model serves as a powerful example of replacing a more ecologically damaging one. By offering an alternative to cow’s milk, they contribute to a more sustainable planet. In this way, their business success and sustainability goals are intrinsically linked, and this approach has yielded remarkable commercial success. Oatly not only measures its carbon footprint but also the positive “handprint” they create by reducing emissions through consumers choosing their product over traditional milk products. 

Vestas Wind Systems, the world’s leading wind turbine manufacturer, has always prioritised sustainability. But as the industry looks to scale its critical solutions for the climate crises, one big challenge has come into focus: wind turbine rotor blades are difficult to recycle and often end up in landfill. Vestas has tackled this challenge head-on, forming industry collaborations across the value chain to develop technology for fully circular wind turbine blades. That way, the company is solving one of the biggest sustainability challenges of the industry just as well as creating commercial value for their customers. 

The imperative for future-proofing business 

Ultimately, these examples showcase that a successful sustainability transformation is about the core business model and commercial strategy just as well as reporting and sustainability targets. By spearheading their value chain transformations, companies can create unparalleled potential for new commercial avenues and organisational resilience. Integrating sustainability into the core of a company’s strategy and business model must therefore be a top priority to accommodate the inevitable shift of global markets realigning with the pressing boundaries of our planet. 

Author details

Felix Bärmann

Manager

Sven Beyersdorff

Managing Partner