- Improving brand equity and loyalty
- price premium
- New growth through expanding market share, penetrating new markets, new businesses, etc.
- Reduce operational costs
- Procurement advantages such as reliable supply of rare raw materials
- Improving access to capital or reducing cost of capital
- Risk reduction
- Rating premium
Once these business cases are clearly articulated, companies can ensure that key areas of their business, such as marketing, sales, product development, and finance, have the ability to not only understand, but also accurately track and measure the value created. You need to make sure that you are.
Companies can move quickly to test and scale changes and initiatives in areas where value capture is easy and the potential for immediate financial results is high. Such initiatives can validate the power of overall sustainability transformation and provide a source of revenue or cost savings to fund other aspects of this initiative.
For example, consider decarbonizing automotive OEMs. According to BCG analysis, reducing 60% of Scope 1 and 2 carbon emissions in the early stages of decarbonization would result in significant annual savings, as those cost savings would reduce the remaining 40%. can cover the cost of. Even when producing sustainable products does lead to higher costs, the increases are often small and more than offset by the increased value perceived by customers. For example, BCG analysis shows that the cost increase associated with creating a smartphone with a net-zero supply chain is less than 1% for a $400 smartphone.
Building a new sustainable business
Businesses have a huge opportunity to unlock new sources of growth, especially with the trillions of dollars invested each year by the public and private sectors to bring the global economy to net-zero carbon emissions. They need to look for where they have unique advantages in those new markets and create new products and business models that leverage those advantages.
Digital tools and technologies will be critical in building new businesses and helping companies create solutions that meet customer needs in new ways. For example, Norwegian mobile operator Telenor has partnered with microfinance bank Tameer (with additional support from the Bill and Melinda Gates Foundation, the International Finance Corporation, and the Advisory Group to Support the Poor) to support the unbanked We launched a mobile-based financial services platform for people. Unbanked consumers in Pakistan. By the end of 2019, the operation had become Pakistan's largest branchless banking service with 6.4 million users. Companies also have the opportunity to invest in deep technology innovations such as artificial intelligence (AI), synthetic biology, nanotechnology, and quantum computing to create and commercialize breakthroughs in areas such as decarbonization.
Additionally, companies that embrace sustainable business model innovation can help transform entire value chains and ecosystems. For example, new circular business models can be introduced to restructure the entire product usage cycle. You can then invest in ventures that create new business models or address pressing shortages of critical sustainability inputs. Consider recycled plastic. About 45% of demand for recycled polyethylene terephthalate will go unmet by 2025, according to BCG analysis. Many companies are already investing in innovations to address the gap, including through research and development and investments in recycling infrastructure.
Make your core sustainable
Companies aiming to become sustainability leaders need to assess and strengthen the sustainability of their existing portfolios and operations.
For example, in the supply chain, there is an opportunity to achieve end-to-end transparency from sourcing to distribution. New tools and technologies are important in this area. AI helps businesses monitor, predict, and reduce their carbon footprint. At the same time, companies can work with suppliers to impose standards, track and improve their performance, and drive the ecosystems in which they operate towards greater sustainability. Companies also need to redesign their existing products to make them more sustainable. This includes reformulating products with more sustainable ingredients, reducing packaging, refillable products or concentrated versions that reduce weight (and therefore the carbon footprint associated with transportation), water consumption, and packaging. may include the development of For example, Beyond Meat has redesigned one of the world's most famous dishes, the hamburger, by leveraging plant-based proteins. This innovation not only launched a popular new meat alternative, but also helped fuel one of his most successful IPOs of 2019.
Build function
Companies that want to drive sustainability transformation need to ensure they have the right capabilities and foundations in place to succeed.
First, they need to design robust governance for their sustainability efforts, including accountability and incentives related to ESG goals, both at the board level and within the company. Second, companies will develop powerful, granular data capabilities and robust ESG reporting processes so that they can direct and adjust their efforts based on real-time performance data and meet increasingly stringent regulatory reporting standards. need to do it. Third, build new partnerships that can pool resources, combine expertise, co-invest in ways that minimize the risks associated with high fixed-cost investments, and deliver large-scale, sustainable results faster. need to do it. Fourth, sustainable business model innovation must be embedded in the organization.
This last element is particularly important. As sustainability standards will inevitably rise over time, companies must continue to adapt their operations, product portfolios and business models. For example, what is considered a strong performer on carbon emissions or fair business practices today could be a big bet in the future. As a result, companies need to adopt an “always on” mindset towards sustainability innovation. The process of driving sustainable business model innovation is central to the idea, with companies assessing the extent to which their current business models have a positive environmental and social impact and improving their performance over time. I can.
Own the story and involve investors and stakeholders
Leading companies need to create a compelling and unique narrative around their sustainability strategy that connects and amplifies their purpose. At the same time, rather than relying on rating agencies or investors to tell their story, companies can own their sustainability story in the public markets and share it in a way that resonates with investors. This means not only sharing relevant information with rating agencies, but also communicating an effective narrative directly to investors that includes four key elements:
- A clearly defined view of what is most important to your business
- Clear link between purpose and overall sustainability strategy
- Goals, milestones, and efforts to get there
- Reliable measurement and disclosure of ESG performance
The measurement and disclosure component is particularly important because it provides investors with evidence that the company is locking in the narrative within the organization. Companies should go beyond annual or semi-annual reporting cycles and provide real-time ESG measurement and reporting mechanisms that increase investor confidence in a company's ability to monitor and course correct progress. Companies can also use ESG measurements to establish clear incentive and accountability mechanisms for employees and leaders.
Companies need to actively engage with shareholders when sharing their narrative with investors, and not just when they release quarterly results. In particular, you need to maintain a strong dialogue with active investors, who, unlike ETF or index investors, may move in and out of stocks over time. You also need to share your story with other important stakeholders, such as customers, employees, and members of the communities in which you operate. The buy-in of these stakeholders is ultimately the driving force behind value creation.
Successful sustainability transformation requires a fundamental shift in mindset. Corporate leaders need to view sustainability initiatives not as a compliance exercise or a cost of doing business, but rather as an opportunity to create new value. Companies that do so will be equipped to expand their competitive advantage and continue to reimagine and reinvent their businesses as sustainability expectations inexorably rise in the coming years. Probably.
The authors would like to thank Fanny Berthaud for her assistance in preparing this article.
