Getting Strategic About Sustainability

Strategy, it is often said, is about choosing what not to do. But when it comes to sustainability, many companies toss that advice aside and try to tackle too many issues at once. The result? Scattered efforts that fail to generate either business results or meaningful impact. In extreme cases, overpromising and underdelivering can even lead stakeholders and watchdogs to assume that the companies are greenwashing.  

Why does corporate attention get spread so thin when it comes to sustainability? And how can companies get more focused when setting their sustainability strategy, just as they do for corporate strategy?

A materiality analysis is—on paper—the way a company winnows down environmental, social, and governance (ESG) issues to focus only on those that have a material impact on its financial performance.  Because reporting is costly, firms do try to reduce the number of issues they report, and they often resort to creating a materiality matrix with two axes, one listing the firm’s interests and the other those of stakeholders and society.   The trouble is that this approach does not provide focus.

Core premise is that achieving a tighter focus requires a firm to hold two tensions. The first is between outside-in and inside-out perspectives: Leaders must understand the major social and environmental issues of our time and the perspectives of regulators, customers, investors, employees, and suppliers. Without it, they are operating within a bubble.  The second tension is between perception and reality, or the subjective and the objective. Although data-driven insights and financial metrics are crucial, a firm’s success often hinges on stakeholders’ perceptions, which are sometimes ill-informed. 

To manage these tensions and clarify which issues are most critical to address, companies need to apply four lenses: business value, stakeholder influence, science and technology, and purpose. The Business Value Lens i.e, What Affects Our Bottom Line?  The Stakeholder Influence Lens – What Are People Trying to Tell Us?  The Science and Technology Lens – What Does the Data Tell Us About Our Impact and Future?  And The Purpose Lens – What Do We Stand For?

The types of data and the methods of inquiry are different for each of the lenses. And each lens will bring a particular set of issues into focus. Companies should invest in, innovate around, and build strategic coalitions for issues that fall at the intersection of all four lenses. Doing so will help them balance the tensions between an outside-in and an inside-out approach and between the subjective or intangible and the objective or quantifiable modes of inquiry.