Three keys for a sustainability-focused operating model

The sustainability advantage

Some businesses choose sustainable practices because of ideological beliefs and values, others do so to comply with regulations and ecosystem pressure.

By adopting sustainability practices, businesses can eventually bring in value and realize benefits that include:

Brand building

Projects a “doing good” image and improves reputation by showing their commitment to environmental protection, social justice, and good governance. Customers, especially those from Gen Z, are more environment-conscious and willing to pay higher for sustainable products. Moreover, a sustainable, healthier work environment attracts employees of the right caliber, reducing stress and improving employee morale.

Access to capital

Improves the company’s position to raise funds from venture capitalists, private equity, debt, and equity markets. Interestingly, market participants are increasingly focusing on sustainable investing, which looks at companies’ ratings in sustainability and balances risks with potential returns.

Operating efficiency and risk management

Utilizes and conserves resources properly for efficient, streamlined operations and reduced operating costs. Moreover, sustainability can also mean self-sufficiency or stability in the long-term. Organizations can mitigate risk through good governance and business practices that can, for instance, limit climate vulnerabilities or avoid social conflicts.

Regulatory compliance

Protects the environment through regulations enacted by an increasing number of state and federal government agencies. The European Union (EU) is at the forefront in making key changes in sustainability legislation and regulations. This will affect businesses like International Sustainability Standards Board’s (ISSB) Sustainability Disclosure, the EU Taxonomy’s Climate Delegated Act, Sustainable Finance Disclosure Regulation (SFDR), and Corporate Sustainability Reporting Directive (CSRD). Businesses need to adopt sustainability best practices that will enable them to adhere to regulations and guidelines.

Beware of challenges

Beyond doubt, weaving sustainability in an organization’s DNA offers exponential benefits. However, implementing a robust sustainability program has multiple challenges and complexities involved.

Some of these challenges that organizations face today include:

• Absence of C-level ownership: Traditionally, sustainability has not been a part of an organization’s core business strategy. C-level ownership and dissemination of targets to lines of businesses were missing, leading to misalignment of sustainability with the broader business strategy, lack of awareness, and sustainability initiatives not being taken seriously.
• Need for funding: Embedding sustainability ethos in the organization setup is often perceived to be expensive. Organizations don’t have a centralized, formal budget for sustainability initiatives, leading to delays in approvals and getting overridden by other business initiatives.
• Lack of a long-term strategy: Having a multi-year strategic implementation roadmap is key to coherent execution and tracking. Although businesses are jumping head on to execute top sustainability initiatives, they don’t have a sound, long-term strategy to sustain and reap the benefits from their sustainability efforts.
• Greenwashing: It is an unsubstantiated claim to trick stakeholders into believing that a company's products are environment-friendly, or that the company is making great strides toward becoming truly sustainable. Lack of audited reporting and data management are the top reasons for increase in wrongdoings like emissions cheating and unsubstantiated sustainability claims.

Reimagined operating model

Adopt the right strategy, tactics, and approach to overcome challenges in implementing sustainability programs.

To effectively embed, drive, and extract value from sustainability, it needs to be imprinted in the organizational DNA. This calls for reimagining the operating model and will require executive and operational ownership, sound governance, and reporting of regulatory compliance. By doing so, organizations can successfully weave sustainability in their operating structure and deliver desired results.

1. Establish a solid foundation with leadership alignment, vision, and governance

Executive sponsorship is the key to successfully governing, executing, and measuring sustainability.

• Make sustainability a strategic goal, and part of the core business strategy with C-level sponsorship and centralized budgets. That way, its progress and results can be closely measured, monitored, and discussed in the boardroom.
• Define the vision that conveys purpose and value, guiding employees and other stakeholders to understand what they need to do to realize the vision. For this, establish a top-down governance structure to continuously manage progress toward long-term objectives with limited friction. Furthermore, cascade long-term sustainability goals across departments, brands, and regions. For example, who’s responsible for what, how to communicate or decide on budgets.
• Streamline reporting to reduce redundancy, resolve inconsistencies, and produce third-party audited and regulatory compliant reports.

2. Leverage change management and data observability as enablers

Implement a change management program to effectively manage and track all sustainability initiatives. Throughout, the aim must be to:

• Trace program outcomes, aligning them with business objectives, while managing interdependencies across programs.
• Allow strategic decision making and resolution of group, business unit, and region-level risks.
• Establish best practices and standards for processes and procedures, including those for third-party suppliers, to realize envisaged outcomes.
• Streamline communication channels with key stakeholders to align with leadership.

Sustainability-related data is mostly maintained in silos for each function or use case like carbon accounting, supplier audit, or life cycle assessment, making it accessible to specific users, and creating barriers to information sharing and collaboration across functions. Data quality often suffers due to inconsistencies in data that may overlap across silos, making it hard for business leaders to get a holistic view. To address this, establish a robust and business-aligned data strategy for efficient management and utilization of data, simplified data integration ETL, reduced technology and data management costs, and common data standards and policies.

3. Drive execution based on sustainability value drivers and track results with digital solutions:

Reimagining the business function embeds sustainability throughout the organization. Each business function is empowered to meet their share of the goals. This entails identifying sustainability value drivers and digital solutions that enable them, SMART KPIs to track and measure efficacy, and the digital technologies to implement these solutions for each business function. Figure 3 represents this construct for a manufacturing organization:

A three-step approach

Let’s look at three steps that are crucial to reimagine the business function construct.

Step 1: Identification and prioritization of sustainability initiatives

Identify sustainability initiatives aligned to the organization’s strategy and vision. While each industry requires contextualized initiatives, there are several initiatives that span across industries as shown in figure 4. For example, the BFSI industry can adopt specific initiatives like sustainable lending, sustainable investing portfolio, and additionally adopt cross-industry common initiatives like water management, transportation optimization, and green data centers.

Step 2: Implementation of digital technologies

Once identified and prioritized, leverage various cloud and digital technologies (individual or combination) to implement these solutions.

• Artificial intelligence (AI) or machine learning (ML) models: Offer effective prediction capabilities that can reduce greenhouse gas (GHG) emissions and carbon footprint by detecting energy emission reductions, predicting extreme weather conditions, and identifying greener transportation networks.
• Internet of things (IoT): Enable data collected using smart sensors and meters in factories, office buildings, equipment, and transportation to be monitored and analyzed for optimized energy usage in buildings, predictive maintenance of equipment, and reduced emissions in transportation.
• Big data: Provide data from sources like web, social media, biometrics, and machine-to-machine that can be leveraged to identify patterns, extract insights, identify process inefficiencies, and determine consumer sentiment. This enables organizations to gain a competitive advantage and take sustainable, positive actions.
• Cloud computing: Drives sustainability goals through:
  • Efficient IT operations: Commercial cloud services operate with greater operational efficiency than smaller, on-premise deployments through dynamic provisioning and multitenancy. For example, a hyperscaler’s hardware like chips consume less energy when compared to traditional compute devices, resulting in lesser carbon footprint.
  • Effective usage of resources: Data centers of hyperscalers use power and water more effectively than typical enterprise data centers by leveraging economies of scale.
  • Renewable electricity: The shifting of electrical demand from inefficient and highly dispersed on-premise data centers to highly efficient hyperscalers unlocks the potential for large-scale purchases of green power at scale.

Moreover, enterprises can exit data centers and migrate their IT infrastructure to hyperscalers like Amazon Web Services (AWS), Google Cloud, or Microsoft Azure, which have their own sustainability targets, indirectly enabling enterprises to reduce their carbon footprint.

Step 3: Tracking of SMART KPIs

Define metrics to track sustainability initiatives, including:

• Sustainability metrics – Assesses environmental impact, including energy consumption, emissions, and climate change.
• Communications metrics – Measures intention to purchase, brand awareness, net promoting score, and social media exposure and impressions.
• Business metrics – Analyses costs, revenues, and returns.

These metrics help track the results of implemented sustainability solutions and report them through interactive dashboards for real-time visibility and improvement or tweaking of the solutions. What’s more, enterprises can calculate their carbon footprint and manage reports efficiently with environmental, social and governance (ESG) reporting services from hyperscalers like Microsoft Sustainability Manager, Google Cloud Carbon Footprint and AWS Customer Carbon Footprint Tool.

Profitable sustainability

Truly sustainable enterprises need to be profitable.

It’s time to move beyond the headlines and symbolic initiatives. Sustainability needs to be embedded into enterprises’ daily operations and driven through a reimagined operating model. This offers a practical way for them to ensure compliance and realize operational efficiencies, while building a strong brand image.