31. January 2023 By Yelle Lieder
Making sustainable decisions: understanding sustainability through digital solutions
In the years to come, no company will be able to avoid the challenges associated with sustainability aspects. Those who are not severely affected by regulation see themselves confronted with challenges such as a shortage of skilled workers, award criteria or difficult access to capital. Sustainability is becoming a matter of course in more and more areas of the business world and a risk factor for those who fail to achieve it. In this blog post, we will demonstrate why understanding sustainability is the first step to achieving sustainability goals in order to gain an understanding of sustainability as a long-term value driver in organisations.
How companies can benefit
If we are being honest, decision-makers who are aware of sustainability issues are also aware of the hidden opportunities and risks they involve. Everyone else will always come up with arguments as to why they, of all people, are unaffected by them. The fact is, however, that no company that thrives in the long term can get by without clients, customers, capital or personnel. Those who position themselves early on in order to avoid doing nothing but playing catch-up in response to change and regulation are well advised, as it is precisely these factors that will increasingly influence sustainability goals in companies in future.
Institutional and private investors are enquiring about sustainable asset classes with increasing frequency. Many companies in the financial sector are even encouraged to allocate portions of their capital to sustainable assets. Those who fail to sustainably position themselves because they have no plans to raise new capital will have to explain themselves to existing investors in future as to why they are not adequately managing sustainability as a risk factor. Those publicly traded companies that are included in ESG standards see share prices increase because funds have to buy additional shares. Access to capital, which is being influenced by sustainability aspects with mounting regularity, is directly related to the availability of sustainability information – because only companies that make the relevant data transparent can be evaluated for their sustainability. You can learn more about sustainable finance in this blog post.
Capital market investors consider environmental aspects when making their investment decisions: seventy-one per cent agree that there needs to be stronger measures to combat climate change.
Large and public clients as well as business partners usually define clear award criteria for cooperation. The awards range from simple purchasing decisions to loans, all the way up to multi-year framework agreements. It is becoming more common to also include sustainability aspects as part of these award criteria. In tenders, greater attention is being paid to more than just compliance with minimum requirements, especially in the wake of increasing regulatory requirements. For tenders such as these, providing a sustainability report is often not enough; additional certifications and the disclosure of associated sustainability data are also required in order to classify suppliers as sustainable.
Seventy-five per cent of large companies factor sustainability into their award criteria
Just as the needs on the institutional side change, so do those on the consumer side. There has never been as many vegetarians in Germany as there are now, and rarely has the public discourse been so fired up as it was after ‘Fridays for Future’ and following the actions of the ‘Last Generation’. Customers prefer sustainable products and services and demand that their preferred brands show they are committed to providing these. Those who succeed in authentically integrating the sustainability of their company into their brand communication create additional added value for customers as a result and enable them to make more sustainable decisions regarding consumption.
Sixty-six per cent of consumers would be willing to spend more money on sustainable products and services
A skills shortage
Customers are people too. Those who wish to remain attractive to skilled workers in the future must also position themselves as a sustainable company. Not only does this reduce recruiting efforts, but it can also have a positive impact on employee satisfaction and loyalty. What is more, having skilled workers is also the key to true internal sustainability. By creating awareness in the workforce, for example through training and campaigns, employers are able to put themselves in a holistic position in the long term.
Employee satisfaction is fifty per cent higher in companies that invest in sustainability.
Legal requirements particularly have an impact in the areas where autonomous action had no effect in the past. In the next four years, around 15,000 companies will be affected by the extended obligation to report on sustainability. The requirements are gradually being increased and extended from merely being obligated to report on sustainability to defining and complying with sustainability targets. Concrete data is needed for these reports, as they have to be reliable in the same way financial reports do.
Sixty-three per cent of CEOs say that the difficulty of measuring ESG data across the entire value chain constitutes a barrier to sustainability in their industry
What companies have to pay attention to
Against the backdrop of the complexity the global sustainability goals entail, the case seems rather hopeless at first. Quantifying a company’s electricity consumption is still a manageable challenge. But when it comes to more complex contexts such as water, waste and social issues such as equality and accessibility, we quickly reach our limits with Excel spreadsheets. Scalable and easy-to-use solutions are needed in such cases.
Providing explanations and creating awareness
In the future, sustainability issues will also play a role for every position in the company. From making purchasing decisions to providing services, to consulting customers and making sales, new skills have to be created everywhere. Specific skills and factual knowledge are not the only things being sought after; many companies have to start their awareness training for new employees as soon as they begin. Training formats on digital learning platforms can be used to quickly teach employees the most important topics and do so in a way that is cost effective. It is also often necessary for companies to first explain their own perception of sustainability to customers in order to create an awareness of what sustainability means against the backdrop of the products or services they offer.
Measuring, counting, weighing
Sustainability goals can only be managed and reviewed if relevant data is available. And reliable statements on sustainability issues can only be made if efforts to gather relevant data are begun at an early stage. There is no getting around using specific digital solutions in this context, and especially not when it comes to life cycle assessment and reporting. It often happens that the efficiency of different measures is called into question. The only way to objectively say whether budgets for sustainability are truly being optimally utilised is by recording and evaluating specific figures in all areas of the company. You can gain some insights into using software to aid in performing life cycle assessments in this blog post.
When discussing sustainability, public positioning is often considered to be one of the drivers for companies to position themselves more sustainably. As long as it is a matter of reproducing facts, there is most likely no objection to this. Sustainability would of course not be a differentiating factor in an ideal world, but rather it would simply be the standard. However, as long as individual companies continue to communicate trivialities and compliance with legal requirements as sustainability initiatives, documenting sustainability aspects with transparency is the best protection against greenwashing. In the past, we far too often saw companies that were celebrated for choosing the lesser of two evils, that could not disclose evidence of the effectiveness of the improvements they communicated or that advertised having done things that were simply taken for granted against the backdrop of legal requirements. Companies must meticulously document things before they engage in communication in order to avoid damaging their reputations and remain attractive to clients, customers, capital investors and personnel in the long term. There is no way around using digital solutions in this context either due to the wide array of recipients and data points. Since it can be assumed that external auditors will inspect and approve the sustainability report in the future, as is the case with the financial report, it is necessary to standardise and automate the report to a significant degree in order to keep the amount of effort spent on the audit, and thus the costs for it, low.
This means that in order to make sustainability a value driver in a company, we must first understand and objectify it. We have to build and impart awareness and knowledge. We have to collect, process and analyse relevant data. And we need to document things before we engage in communication. With this foundation, companies are enabled to position themselves as sustainable enterprises and thereby not only attract clients and customers but also gain easier access to capital and skilled workers.
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