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Insight Article: Sustainability and the Board

ESG and Business Digitalization

Why Sustainability?

It seems that climate change is rarely out of the news these days; jostling for top-spot with COVID, Brexit and US politics. Yet, in SKCI’s experience, the Directors of many companies are still struggling to define a clear strategy for sustainability and climate change.

Smaller companies are often doing little whilst it is easy for larger companies to focus on the legal requirements (e.g. SECR in the UK) and lose sight of the benefits of taking more aggressive action (e.g. to achieve net zero).

Yet, taking a longer view, there will be very few Directors who will want to tell their children and grandchildren that they failed to use their influence and authority to take a lead on climate change!

Why Now?

In November 2021, the UK will be hosting the COP26 climate change conference. Whilst the challenge of running a business during a pandemic remains huge, and will inevitably take up most of the Board’s time, the run-up to COP26 provides an opportunity for all Directors to stop and reflect on sustainability and the challenges of climate change.

As well as the enormous risks from climate change, there will be many opportunities; from spending on low carbon infrastructure through to the increased online activity that will accompany reductions in commuting and business travel.

Boards need to spend time to develop a proper understanding of these changes and look at a full range of scenarios. Armed with this insight they can then work out how they can innovate and change their companies’ business models to ‘stay ahead of the curve’.

These changes to business models will often be painful… especially in the short term. They usually involve an element of ‘creative destruction’ and the tangible benefits may not be seen for some time. But we are seeing increasing evidence that companies are prepared to take a longer-term perspective on sustainability and the climate crisis; acknowledging that if they stick rigidly to a short-term planning cycle, their chances of survival are greatly diminished.

How Awareness Of The Climate Crisis Is Changing Business Models

Increased awareness of the climate crisis is forcing companies to reassess the assumptions behind their business models. In many cases COVID has acted as an accelerator to existing changes.

At one extreme, there are oil companies such as BP and Shell, who can see that previous assumption on the continued growth in the use of fossil fuels are no longer valid. Concerned about the danger to their balance sheets of huge ‘stranded assets’ they are pivoting to become clean energy suppliers with, for example, BP and a partner recently paying £900 million for the rights to build wind turbines in the Irish Sea.

Art the other extreme, COVID has exposed the fragility of global supply changes, and we now see more importers of products starting to question not only the stability of their supply chains but also the energy and climate implications of shipping products from China, when they could be made locally in a more energy efficient manner.

COVID has also made many businesses question whether they need all the office space they currently have. Whilst there is some dispute about the net effect on the climate of increased working from home, it is clear that COVID and climate change will combine to create significant reductions in carbon emissions from commuting, business travel, and the amount of office space that companies need. An example of how that will affect business models can be seen in hotels that had relied on ever-increasing business travel: increasingly they are looking at changing their business model to, for example, have more rooms that can be converted into rentable day offices, and offer food delivery services to people in their communities.

The Change Process – Developing A Vision & Strategy

At SKCI we encourage people to use Eight Stage Change Process defined by John P Kotter in his book ‘Leading Change’. After the first stage of ‘Establishing a sense of Urgency’ the next step is to ‘Create a Guiding Coalition’. To be successful, this Guiding Coalition will inevitably include at least some members of the Board, and preferably the CEO.

The next step in the change process is to ’Develop a Vision & Strategy’. Whilst the vision for climate action may be as simple achieving net zero by a certain date next, the vision for other aspects of sustainability will likely include a number of additional nuances.

Setting an appropriate sustainability vision is the foundation on which the organization can build the rest of its sustainability strategy, which will include answers to questions such as:

  • ‘How do we measure our performance?’
  • ‘Do we want to seek external certification of our performance?‘
  • ‘How can we reduce our carbon footprint?’
  • ‘How do we get our staff more involved in driving change?’
  • ‘How can action on sustainability translate into short-term business benefits?
  • ‘How do we integrate our sustainability strategy into our overall corporate strategy?’

Having a clear sustainability strategy allow business leaders to create a clear narrative around climate change, which will help bring the plans to life and can be used to communicate the urgency of the plans to those who will implement them.

Next Steps

It is for all companies to take action to improve their sustainability and to address climate change; and it seems clear that the time to do this is now…

We will be addressing the process of a sustainability strategy in more detail in future articles. In particular, how to manage the vast amounts of information on climate change, and how Boards and senior leaders can apply our 5KQ (5 Key Strategy Questions) process to sustainability and climate action.

How SKCI Can Help

SKCI can help you work through the risks and opportunities affecting your organisation; how your corporate strategy needs to evolve to embrace these risks and opportunities, and how to communicate these changes to your staff, customers and shareholders.

If you would like more information, please contact us and we will be happy to book a complementary discussion with one of our consultants.

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