While a rising number of organizations are appointing chief sustainability officers, many leaders will argue that businesses cannot isolate sustainability in a single function. To achieve their ESG targets, it must be embedded across every part of the business.
“Sustainability is part of our company’s strategy to a point, but it must become a normal part of how each function works,” said the sustainability director of a consumer business, which preferred to go unnamed. “If you take any sustainability target — for example, net zero — it affects every part of our business, from supply chain to R&D to product development. For us to make progress, CO2 management must be built into how those teams work.”
This same scenario exists in every industry. For most businesses, impacts on environmental and social sustainability are concentrated not in their own direct operations, but in their value chains. For one healthcare company that Sustainability Leaders recently spoke to, only 5 percent of its impact on various ESG issues exists in its direct business. The remaining 95 percent is upstream in its supply chain and downstream in its consumer base.
To effect change in these parts of a company’s value chain, the strategy cannot lie within a corporate sustainability function alone. This approach requires that procurement and supply chain teams factor sustainability into purchasing decisions; that product development and R&D teams consider the environmental impact of what they design; and that finance operations invest in the people and structures necessary to enable these changes.
Consider the product and supply chain work happening at one technology company. The organization’s R&D team has an ecodesign process that requires that new products improve environmental performance in at least one of five ways: energy; packaging; substances; weight and materials; or circularity. The company currently has a target to ensure that all product introductions meet these requirements by 2025.
This policy has changed not only how the company’s R&D and innovation teams work but also how its procurement organization works with suppliers. “Certain materials are more carbon-intense than others,” according to the company’s director of supplier sustainability, who chose to remain anonymous. “For instance, the energy used to liquify aluminum is much greater than plastic. With plastic, we can electrify the process, whereas with aluminum there are ovens with temperatures of over 1,000 degrees.”
This makes achieving carbon neutrality with aluminum impossible, so the procurement team is working with suppliers to transition towards alternatives. That may require that the supplier be connected to the corporate sustainability team or the company’s R&D and engineering to help make the transition.
While many sustainability leaders will champion this more decentralized model of managing sustainability, they will also acknowledge it is not without its challenges. As responsibility for improving sustainability spreads out across the organization, it becomes more difficult to coordinate and track the pockets of work. Projects from different functions may overlap or undermine one another, or they may not contribute to overarching ESG targets.
To ensure this does not happen, formal management and engagement practices must be put in place. There are several ways chief sustainability officers and their teams are achieving this, with three standing out:
- Translate corporate sustainability targets into specific functional goals. While many businesses set corporate ESG targets, it is less common for those targets to be turned into separate functional goals and for those functions to be incentivized to meet them. Translating corporate targets into specific team goals and building them into each function’s performance metrics helps embed sustainability into regular workflows.
- Appoint functional sustainability leads to coordinate with corporate sustainability. To address the risk of sustainability work becoming uncoordinated, some companies appoint dedicated functional sustainability leads who work between the function and corporate sustainability. For example, at one food and beverage business, a sustainable sourcing director role was created to ensure procurement and supply chain sustainability work is coordinated with broader ESG work.
- Introduce sustainability collaboration forums. As responsibility for sustainability is spread across the organization, it becomes increasingly important for information to be shared. To do so, companies often organize collaboration forums where cross-functional leaders meet to provide updates on sustainability work. This could cover anything from changes to the corporate sustainability strategy to how a sustainable sourcing decision impacts product development to how a particular sustainability project is being communicated externally. As the sustainability director of the consumer company noted: “People around the business understand how to make sustainability a part of their job if they are better informed about it.“