Sustainability strategy: looking beyond compliance requirements

December 7, 2022

There have been a number of recent developments in the EU on sustainability reporting, ranging from the final approval of the Corporate Sustainability Reporting Directive to the Commission's recent proposal of new EU-wide rules on packaging and a provisional political agreement between the European Parliament and the Council on an EU Regulation on deforestation-free supply chains. While these updates may prompt companies to reassess their sustainability strategies in light of changing regulatory requirements, these developments should be seen as just one pillar of a much broader sustainability strategy.

To do this, companies must take a proactive approach to sustainability, looking at the entire value chain and assessing their operations holistically. Multinationals in particular need to engage in a comprehensive analysis of the risks posed by climate change, resource scarcity and other environmental issues in order to create a sustainable business model that is resilient to future shocks, and not simply an exercise in data collection.

A good example of this is with respect carbon offset. Companies should not just be looking to offset the emissions they cannot avoid, but also exploring options to reduce those emissions in the first place. The voluntary carbon market provides an array of options, such as investing in credits, renewables, carbon capture and storage, or supporting nature-based solutions. One company that has been a leader in voluntary offset is Marks & Spencer.

Another example is with respect of energy efficiency. While compliance requirements can be a point of departure for evaluating operations, companies need to identify opportunities for more long-term energy efficiency improvements, such as improving insulation or investing in new technologies.

In addition, water use is another example where considerable ground can be gained. Companies need to assess their water consumption and identify opportunities for reductions, such as water recycling and reuse initiatives or investing in new technologies that reduce water waste. One company that is already doing this is Unilever, which has committed to reducing its water use intensity by 50% by 2030.

In addition to these measures, companies should also consider how to best engage with stakeholders on sustainability issues. This includes not only soliciting feedback on existing business models and user experience, but also helping customers lower their own consumption. In doing so, multinationals can considerably contribute to reducing Scope 2 and 3 emissions. One company that is doing this is Ikea, which recently launched its People & Planet Positive 2030 strategy which focuses on helping customers reduce their environmental footprint.

Sustainability strategy requires looking for operational solutions outside of the company as well. In addition to completing fulsome stakeholder analysis, companies need to explore partnerships and collaborations with suppliers to minimise their carbon footprint. Where do synergies exist that will allow for lowering consumption of energy and water? Where can operations be optimized to reduce waste and emissions? The solutions to these questions do not lie in any reporting directive, but in having a perfect understanding of an industry value chain, and where inefficiencies can be closed.

Ultimately, companies should be looking beyond compliance requirements to create a comprehensive sustainability strategy that includes both short-term solutions, such as carbon offsetting, energy efficiency improvements and water conservation initiatives, as well as long-term measures such as industry collaborations. Only then will they be resilient to future shocks, and build a business model that is genuinely sustainable in the long term.

CPM