Sustainability Transformation: The Big Picture

From 'Why' to 'How'

Having established the compelling rationale, or the ‘Why’, for making sustainability changes is the start point for a journey that’s bound to challenge even the most ardent of leadership teams. For many businesses, the scale or complexity involved in shifting the business model to a more sustainable one, is tough enough – but for many, the added complication is doing this amid uncertainty. The sustainability landscape remains relatively novel, with little collective experience to draw on. The pressing impetus is to move at pace from the ‘Why’ agenda to the ‘How’ agenda, where we see two streams of ESG activity happening – sometimes simultaneously within the same organisation.
The first is what we would classify as compliance-driven behaviour, and has been going on in most companies for many years – certainly the past 10 to 20.

This is the programme of incremental improvement to stay one step ahead of stakeholder and regulatory pressures, including the latest and wide-ranging requirements of the CSRD, and the implications for supply chain, data management, use of technology, and control environments.

The second is a more strategic transformation driven by longer-term opportunities and goals, and most often requiring a fundamental redesign of business activities and operations. This approach would be designed to address all the complex and geographically diverse challenges of sustainability. For many organisations, the question is to know at what pace to undertake this more comprehensive change, yet remain competitive.

Going too fast runs the risks that the business may be unnecessarily and prematurely disrupted for market opportunities that haven’t materialised yet, and being ready for more stringent regulatory requirements that are still some way off. Going too slow runs the risks of missing out on being first – or at least early – to market as a reconstructed sustainable business, or running old and new business models in parallel for longer than absolutely necessary, which can be costly, inefficient, and disjointed.

For these reasons, our messaging remains to get the current sustainability challenges dealt with; to not fall behind with compliance – but the smart businesses will also realise that this is very much the dawn of far more strategic transformations, to anticipate future trading requirements, stakeholder pressures and regulatory demands.

Leading the way

Some of our clients are marshalling resources to tackle the longer-term challenge of strategic sustainable transformation, but it’s fair to say that there are few textbook or comprehensive case study examples of how this should best be approached. Leadership teams, with their risk management and sustainability experts, are trying out different approaches. Some are examining all ESG factors – many of which are at different stages of maturity in terms of understanding business impact – and issues through the lens of performance improvement in a systematic and prioritised way. Others are starting with a future view in mind, taking their highest-level governance arrangements and amending these to align with the agreed vision for sustainability, and underpin future strategy-led change and organisational redesign encompassing all business functions.

For the more progressive and well capitalised companies, this is a time for experimentation with new ways of doing business, and delivering services and products to test what’s likely to be most viable and profitable in future. We already see the signs of multinational groups divesting subsidiaries with poor ESG ratings, in order to improve the overall ESG credentials for the group but, of course, this needs to be done within an overall strategic framework of change.

Reassuringly, we see little by way of dampening of effort and enthusiasm for sustainability change due to the current economic downturn and cost-of-living crises. These conditions may affect the style of change and, to some extent, the pace of implementation, but overall sustainability transformation is here to stay. It is now a question of shaping and implementing the changes required.

Putting plans into action

As with many journeys into the unknown, the key is to break the challenge down into manageable steps, focus on what is achievable in the immediate future, and engage the full capability of the organisation, to make the necessary changes in pursuit of the overall vision. For most organisations, this means ensuring that all areas of the business know what’s expected of them, and empowering them to both collaborate and make progress. The typical areas to involve include HR & Learning, Finance, IT, Procurement, Marketing & Communications, and those who manage relationships with customers, suppliers, and partnering organisations.

The initial steps on the path to success include planning to make full use of the existing and newly developed IT-enablers and points of competitive advantage within your overall value proposition, including the role IT departments can play through green transformation of their functions. This will inevitably involve a combination of people, processes and technology, which must come together in new ways, to shape more sustainable ways of doing business, and fit under a refreshed model of governance.

Key lessons from our practical experience

Our work with clients provides learning and benefits for all. For anyone just starting out on their journey, consider the following things we’ve learned.

1. Sustainability transformation is more than ESG reporting, and the compelling pressure to make the change comes both externally from mandatory legislation and stakeholder demand, and internally to live up to expectations.
2. Driving sustainable transformations requires cross-functional and multidisciplinary collaboration.
3. In challenging economic times, it is important to keep longer term sustainability transformation high on the agenda in balance with short-term operational demands.
4. Start small and ramp up. Don’t overstretch; begin with a small, effective scope that’s gradually widened or followed by substantial innovations to create instant impact.
5. Business agility is crucial in the transformation journey; dare to experiment, create MVPs, iterate – and learn from your experience.
6. Successful sustainability transformation requires coordination across sustainability initiatives, and measuring value across the enterprise.
7. Technology. Making the necessary organisational data available and using those smartly is often key to making the difference to effective change.

A final insight is that one size does not fit all; methodologies will have to be adapted for all organisations embarking on their sustainability transformation, regardless of their maturity level. What’s common among them, however, is that each must drive its sustainable transformation by empowering a dedicated central lead and team of ‘sustainability champions’ to drive progress across the organisation.

As an executive reflecting on how your organisation might pursue its sustainable business transformation, you should start by assessing your current strategic and transformation maturity. Then, carefully choose the execution approach that’s the best fit – ranging from an ad hoc approach to the initiatives within reach, to a centrally coordinated and financed, systematic and integrated business transformation – and focus on the transformation capabilities that will move the needle furthest.

At Deloitte, we use a variety of techniques and interventions to ensure that the path from creating a vision, to engaging with all functions within the business, developing new operating models and ways of working, and ensuring the underlying technologies and processes all work together within in an appropriate governance framework happens as seamlessly as possible. Major transformations are never easy, but our experience and insights help reduce the hassle, the risk and the cost of making successful change.

To discuss any of the themes raised in this article, or for support with any aspect of your sustainability journey, please contact us below.