“Sustainable transformation”: just the latest empty buzzword?

Menno Kooistra, Partner & Head of ESG Advisory, KPMG in the Netherlands

“Sustainable transformation” is a term that’s heard in boardrooms, business conferences and online forums across the world. But is it just the latest empty buzzword? If not, what does it actually mean? And what, if anything, should you being doing about it?

Any serious discussion of sustainable transformation must start by accepting that a company’s potential to create long-term value, resilience and financial returns depends – in part – on improving its impacts on people and the planet

Why? Because businesses are subject to regulation that requires better environmental, social and governance (ESG) performance. Because your investors and lenders are factoring your ESG performance into their decisions. Because your customers are demanding you shape up. Because NGOs and communities may take legal action against you if you don’t improve on ESG, and your people may start to desert you.

The direction of travel is very clear and it’s even more obvious with every passing year.

If you don’t believe this, you’d might as well stop reading now. For those of you still with us, “sustainable transformation” at its simplest means integrating these trends into your business transformation strategy and process. It means that every company that wants to stay healthy needs to bring sustainability into the heart of its business planning. It means that you, as a business leader, need to ensure your company and your people understand the scale of environmental and social change that is underway and are responding skillfully to the emerging risks and opportunities

At the end of the day, it’s about good business and good leadership. It’s easy enough to say, but not so easy to do. So, how do you begin?

First, you need to start with the right mindset, ready to explore the future of your business in a new way. Your company needs to view sustainability not as a matter of complying with regulations or changing the way you report, but about identifying new commercial opportunities, developing new business models and creating new routes to competitive advantage through positive impact.

Culture is crucial. You can’t trigger transformation through old patterns of thinking. Fresh ideas and license to innovate are key to success, from the Board down.

With a positive ethos of exploration in place and a tone-at-the-top that encourages change, it’s time to dig deeper into the specific opportunities and ask bold questions to build business cases. How can a more sustainable business model, products and services create a point of difference for your company? How could they enable price premiums and cost reductions? How could they enhance your brand proposition to attract new customers and open up new markets? How could they reduce the cost of capital and ultimately enhance the valuation of your business? Big questions like these must be asked and answered in order to kickstart the ongoing process of sustainable transformation and make an impact.

Then it comes down to implementation. Do you have the capabilities you need, do you need to acquire them or can you enter partnerships to move forwards? Do you need to reshape your supply chain or even your own organization? 

Of course, it’s impossible to provide a complete roadmap in a short article like this, but the journey needs to start with acceptance and attitude. Acceptance that sustainable transformation is not an option, but a necessity. And an attitude that is oriented to opportunity. As ever, the first movers will claim the advantage; those that are late to the party – those that may believe “sustainable transformation” is nothing more than an empty buzzword - will be left struggling to catch up. Which will your organization be?

Improve your understanding of your company’s ESG strengths and weaknesses by taking KPMG’s ESG Health Check.