How to Bring Strategy to Sustainability

Now for the bad news. All that effort is being spent in a scattershot approach that is not yielding the results it could. Managers in leading firms often use sound strategic planning tools and frameworks to achieve their traditional business objectives, such as launching new products or entering new geographic markets. But these same firms fail to strategically design and structure their sustainability efforts.

Why does sustainability lack strategy? Mainly, because sustainability demands come from many people and places, and it’s hard to know who to listen to. Many firms let ESG ratings guide their sustainability priorities, which leads them to take actions that don’t align with their capabilities. Sometimes the loudest and most compelling social activists, protests, and media issues commandeer corporate attention on issues that companies aren’t best positioned to address. As I recently found in a paper, U.S. companies located closer to large Women’s March protests were more likely to appoint women to their boards following these marches. And sometimes, sustainability efforts shift according merely to the personal preferences of the CEO and other upper managers.

I’ve seen these scenarios playout countless times since I began tracking companies’ sustainability efforts more than a decade ago. The cost to firms has been high, but the opportunity cost to the environment and society has arguably been higher. Global firms have incredible power to tangibly move the mark on myriad social issues, but only if they channel their efforts on the issues where they can make the biggest difference.

This requires making trade-offs. And yet, where I see managers willing to make trade-offs in other areas of their business (e.g., picking one market or product over another), they rarely do so in their sustainability programs. Managers dabble in a wide range of social issues with little inclination to make sacrifices in some issues to meaningfully impact others. This leads to inefficient investments that take a “flavor-of-the-day” approach to sustainability.

There is a better way. As I teach to Tuck and Dartmouth students in my Social Entrepreneurship and core Strategy courses, and in the Tuck Executive Education program, firms need to think strategically about sustainability. I typically outline this strategic process in five steps, which I simplify here. This process will help companies without sustainability programs know where to start, as well as companies with long-established sustainability programs know where to better focus their efforts.

Smart sustainability planning starts with what strategists have long acknowledged as a pillar of strategic planning: internal analysis. All companies have unique resources and capabilities that set them apart from their competitors, at least in some manner. Conducting a deep internal analysis, companies need to figure out which sustainability initiatives their existing resources and capabilities best position them to address. The same company may be well positioned to launch a local hunger program, but ill-equipped to address water quality. This depends on the resources and capabilities the company has available to support the initiative of choice.

Once a broad set of potential initiatives is defined, the next step is to narrow that list. This comes by identifying the set of issues those initiatives will best address, and the issues the firm wishes to address. I often have teams use sticky notes. On one set, team members list each initiative and the resources and capabilities needed to support it. On another set, they list as many social issues they think could be relevant to their company, sometimes using ESG ratings for inspiration.

After the list of potential initiatives is streamlined, the task is to create what I refer to as “issue-initiative alignment.” This is done by assigning each initiative a “home” issue, or the one it most directly addresses.  

Then, applying their strategic thinking hats, I have managers think about their own sustainability programs across a horizontal and a vertical axis. As is common with product markets, sustainability programs can be expanded horizontally (targeting more social issues) and vertically (launching additional initiatives to target the existing social issue set).

Too often, I see companies go horizontal too quickly, targeting too many issues without much impact. This is costly, as it requires investing in new resources and capabilities, and it is risky because an overly diversified sustainability portfolio can come across as superficial. Sure, these efforts are sometimes motivated by good intentions, but as my research shows, companies that try to do it all and invest in too many sustainability initiatives are at higher risk of shareholder backlash, and actually do worse in terms of their financial and social performance.

Instead, as a final step, managers often need to go deeper vertically in their sustainability programs. This requires “stacking” initiatives to tackle single issues more comprehensively. This makes extra sense when initiatives can reinforce one another, which is where sustainability programs can become highly strategic.

Take, for example, a company looking to help its employees improve their work-life balance and mental health. The company may launch a work-from-home policy to do this. But instead of declaring victory and moving on to another issue, the company could launch another initiative to strengthen the impact of the new work-from-home policy—say, a stress management training program. Stress management training can amplify the positive impact of the work-from-home policy by improving the ability of employees to manage work- and home-specific stressors simultaneously.

From my experience, these types of interactions are almost always possible in sustainability programs. But because sustainability planning lacks strategic discipline, they are often overlooked. Just like any other facet of business, designing a winning sustainability strategy—that both benefits the company and society—requires strategic discipline, and the willingness to make trade-offs. Only then will managers design sustainability programs whose total value exceeds the value of the sum of their parts.

This piece originally appeared in print in Tuck Today magazine.