corporate-sustainability
Article

The what, why, and how of corporate sustainability

January 17, 2023

As the world shifts to a more responsible view of business, corporate sustainability or ESG has been gaining momentum with no signs of slowing down. In this article, we explore what sustainability means for corporations, why it's important, what corporations stand to gain from it, and how to adopt and measure sustainability.

The meaning and importance of corporate sustainability

Corporate sustainability is the practice of doing business in an environmentally sustainable and socially ethical manner, while remaining profitable. Corporate sustainability revolves around three fundamental aspects of business: 

  • environment, 
  • social, 
  • and governance, 

otherwise known in short as ESG

Some definitions also include the economic aspect as it relates to economic contributions in the form of employment creation, payments to suppliers and government, industry collaboration and industrial development, etc.

Why sustainability for corporations?

Traditionally, sustainability was the reserve of government and civil society, both functioning as a watchdog to police corporate behaviour. Corporations' sole purpose was to turn a profit – and leave the sustainable agenda to non-profits. A profit-at-all-costs mindset typically drives business operations, keeping costs down while offloading true costs as externalities. But times are changing, and government as well as societal expectations have shifted to focus on the impact of business on non-business spheres. Investors are not only interested in the profitability of a company, but they are also concerned about how that profit is made. For corporates, sustainability is not so much an option as imperative now that they are being held to higher standards.

ESG issues such as labour violations, human rights breaches, environmental pollution, and safety incidents have caused serious damage to corporations, both reputationally and financially. As a result, sustainability is regarded as a risk that must be managed. Management of ESG risks is now often absorbed into a corporation's enterprise risk management framework, becoming a core part of the business strategy and continuity plans.

Principles for corporate sustainability

Different frameworks use slightly different principles for sustainability. For example, the United Nations Global Compact is a framework with ten guiding principles, while the Triple Bottom Line concept is built on People, Planet, and Profits. Despite these differences, corporate sustainability principles share a core set of principles that encompass the ESG pillars.

  1. Environment: Many companies take a mitigation approach to manage the environmental impacts of business. Aspects related to the environment include waste management, greenhouse gas emissions, water and energy consumption, etc.
  2. Social: A business does not exist in a vacuum. It maintains relationships with the people and communities in and around its operations. The social footprint of a business covers employee health and safety, community development, company practices on diversity, equity and inclusion, etc.
  3. Governance: Corporate governance is the structure, processes, and controls that govern decision-making. Strong corporate governance improves the transparency and integrity of a company and is a key factor in the oversight and management of ESG.

The benefits of practising corporate sustainability

With large operational footprints that can span the globe, corporations are responsible for significant impacts on the environment and society. Big business has a responsibility to manage their impacts and embrace an active role in corporate citizenship. Here, a distinction should be made between corporate social responsibility (CSR) and corporate sustainability. Corporations stand to gain much more from integrating sustainability into the business compared to CSR. Juggling between profits, environmental sustainability, and social responsibility is a delicate act, but taking control of sustainability risks and opportunities can lead to huge business payoffs.

There are several benefits to practising sustainability as a corporation, many of them directly beneficial for the economic bottom line.

  1. Comply with existing and upcoming sustainability-related regulations.
  2. Fulfil investor requirements or access sustainable funding opportunities.
  3. Build goodwill by supporting communities and aligning with customer values.
  4. Cut operational costs through resource-efficiency.
  5. Create safer and healthier workplaces.
  6. Gain market share by meeting customer preferences.

Implementing sustainability in your corporation

Sustainability looks different for every corporation, depending on the industry and the unique challenges of the business. There is, however, a standard approach that corporations take to implement sustainability strategically.

  1. Set up a sustainability governance structure. Decide who within the corporation should have oversight over sustainability-related matters, and who will be responsible for execution and implementation. Consider tying KPIs to these new responsibilities. Define reporting flows and frequency in the governance structure.
  2. Conduct a sustainability risk assessment to identify the top material risks to your corporation. Map out the risks in order of priority, from most material to least material. Risk assessments should involve widespread stakeholder engagement. At the same time, consider the potential opportunities that lay in store from adopting sustainable practices.
  3. Develop strategies to manage the risks and opportunities. Identify mitigation actions for your top material risks, and define objectives for tapping into opportunities. Perform a baselining exercise for the metrics and objectives, then set SMART goals with progressive targets over the short, medium, and long term.
  4. Communicate your sustainability plan to everyone within the corporation, and publicly commit to your intentions.
  5. Ensure efforts and progress are well documented for monitoring and reporting purposes.

Measuring corporate sustainability

How you measure sustainability is essential for the design of your sustainability plan, as it will inform the strategies and metrics involved. It is also important for tracking your progress over time. Most corporations publicly disclose their sustainability performance annually. This practice of sustainability reporting is heavily influenced by sustainability standards and frameworks developed by independent bodies and experts. Frameworks provide guidance on what metrics to use for different sustainability topics and how to correctly measure and report them. For an introduction to the most common sustainability reporting frameworks in use today, see our article on a guide to sustainability reporting standards and which one to use.

Keep in mind to set up the measurement and data collection processes as early as possible during the design and implementation stage of your sustainability planning. Ensure that data owners understand the metrics they have ownership of so that when the time comes for collating the data, information exchange can flow easily between parties.

Corporate sustainability has the potential to transform the future-readiness of a corporation and build its resilience. Like any other corporate strategy, the risks, and rewards from sustainability should be approached with method and commitment.

How we help you

  • We provide a centralised platform to manage all your ESG data, integrating with your existing enterprise software such as ERP, HRM, EMS, etc.
  • We guide you on the ESG data and metrics to collect that are most material to your business.
  • We offer insights powered by data analytics, enhancing your understanding of the strength of governance.
  • We help you complete the requests from investors on corporate governance matters and guarantee the protection of business-critical information, for example about sensitive business strategies.

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