Sustainability’s Dual Role: Creating competitive advantage and resilience

Sustainability is more than a regulatory requirement. Guided by the European Green Deal (EDG), the regulatory framework is evolving and increasing pressure on companies to publicly disclose information on their environmental and social impacts. Frameworks and regulatory measures as the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD) and soon the Corporate Sustainability Due Diligence Directive (CSDDD) are not only reshaping the regulatory landscape but fundamentally redefining the narrative surrounding economic growth. With a renewed growth strategy that emphasizes resource efficiency, resilience, and emission reductions, the EU aims to attain a competitive advantage by placing sustainability at the center of the economic reorientation.

Sustainability extends beyond being a mere checkbox in annual reports and holds significant importance for the competitive future of a company. It presents an opportunity to reconsider the entire value chain, identify inefficiencies, and establish new value systems.

In a market that increasingly demands accountability and transparency, investing in sustainability can be a strategic investment to mitigate risks in the face of climate change and resource scarcity, comply with evolving regulations, meet the demand from consumers for eco-friendly products, and address investors’ concerns towards sustainability.

Companies embracing sustainability not only fulfill social and environmental responsibilities but also position themselves for a competitive edge and strategic advantages in the evolving business landscape.

Concrete opportunities for companies

Companies can reap clear benefits from embedding sustainability practices into their business model. Yet, identifying where to start and ensuring a smooth transition can be challenging. Let’s look at the areas within a business that present the highest levers for sustainable value creation: 

Transparency

As companies prepare to report their sustainability performance (CSRD), early adoption of sustainable practices will yield strategic advantages—drawing in investors, winning over consumers, and enabling long-term growth. The first step is for companies to understand where they stand by identifying their impacts, risks, opportunities and blind spots. The first challenge that companies will face is access to reliable data, notably to meet the CSRD disclosure requirements. Conducting a comprehensive double materiality assessment across all operations, engaging key stakeholder groups and identifying gaps in information represents the foundation of sustainability governance. The effort required being substantial, this assessment must be used as a strategic instrument to guide decision-making.

Strategy

Shifting a company’s values and perspective on business starts at the top. Companies that prioritize sustainability can tap into new markets, cater to conscious consumers, and build long-term viability. Yet, a look at the UN Global Compact 2022 CEO Study reveals that while 98% of CEOs acknowledge their responsibility, only 39% are actively increasing their R&D funding for sustainable innovations, 58% are providing physical and/or mental wellness resources for their workforce, and 49% are making investments in renewable energy sources to decrease their reliance on fossil fuels. CEOs and Managers can drive change by embrace the benefits of aligning the company’s strategy with its Environmental, Social, and Governance (ESG) sustainability matters.

Innovation

Innovation is being propelled by development towards more sustainability practices. From groundbreaking renewable energy technologies to biodegradable materials, the quest for sustainability is reshaping industries and creating waves of innovation. Encouraging businesses to evaluate their entire value chain can unlock innovations in processes, technologies and approaches. This, in turn, will strengthen a company’s competitive advantage while resulting in cost savings and risk mitigation. 

Supply Chain

Most of a company’s sustainability impact is typically concentrated within its supply chain, where scope 3 emissions often account for over 90% of the total emissions. Additionally, significant labor and human rights challenges often arise within the supply chain. A comprehensive sustainability strategy needs to address the entire value chain. A sustainable supply chain is not merely a symbol of ethics; the ability to become agile, resilient and drive ESG performance — in a collaborative manner with partners across the supply chain—is essential for success, even survival.

Operational Excellence

Sustainable practices create efficiency. Sustainable operations consume less energy and water, use less materials and create less waste. In essence: how to “create more with less”. By reducing waste, optimizing resources, and streamlining processes, companies can achieve significant cost savings while improving the efficiency of their products.

Resilience

Adaptation is a key component of a company’s success. Rooting a company in sustainable business practices means that supply chains are more resilient to disruptions, economic volatility is met with long-term planning and cost efficiency. Managing potential and actual sustainability impacts not only minimizes the impact of external shocks but also fortifies the overall structure, creating a more robust foundation for the company’s future.

While these points in themselves are good starting points to drive sustainable change within a business, they should be viewed as a holistic approach to becoming a sustainable business. 

What should you take away?

We are at a turning point in the accountability of companies with regards to their environmental and social impacts. As companies embark on their sustainability journey, their initial step involves comprehending and leveraging sustainability to their benefit. Collecting data and information to meet mandatory disclosure requirements should be seen as an opportunity to foster transformation.

Beyond meeting the environmental and social obligations, integrating sustainability into business strategy must be considered an investment in long-term success and adaptability. The results can lead to first mover advantages in a new economic landscape of sustainable business activities and can help to build a competitive advantage by proactively investing time and resources.

To achieve this, companies should conduct a comprehensive double materiality assessment, obtain leadership commitment, set measurable goals, engage stakeholders, build in-house capabilities, allocate resources, and drive a sustainability roadmap.

In conclusion, navigating the evolving requirements and complexities of sustainability will require effort and time. However, using this as an opportunity to reassess value systems within a company and proactively adopting sustainable practices will strengthen business models.