ArticleFebruary 12, 2024 · 6 min read time
On the horizon loom Generation Z and shifting values, the green transition, Corporate Sustainability Reporting Directive, and the increasingly ubiquitous artificial intelligence – to name just a few. Businesses see how their operating environment is changing at an accelerating speed, and anchoring to a sustainability horizon is becoming their lifeline. What does it take to create a sustainable strategy?
The past few years have been turbulent for many companies. The pandemic, fluctuating energy prices, and conflicts in neighbouring regions have shaped markets in a manner that is not only swift but also fundamental and multifaceted. Simultaneously, environmental issues such as climate change and biodiversity loss have escalated rapidly, making us increasingly aware that change does not end here. That is ensured also by evolving expectations regarding sustainability and regulations. For instance, the Corporate Sustainability Reporting Directive (CSRD) sets new requirements, especially for large companies. With these changes, the need for data-driven management will only increase, and sustainability will no longer be a communication exercise in isolation but a part of the business core.
Amidst these upheavals, companies must seek to solve what sustainable business means for each of them, how to integrate sustainability into their own business and how sustainability can also create a competitive advantage in their market.
“The change is evident: the expectations of our customers’ customers have changed, the technological landscape has altered, the legislation and the political climate are in flux,” says Satu Koivulehto, Director of Strategy Services at Nitor.
“At Nitor, we help our clients build a future-proof digital business, considering the operating environment of each company. Sustainability is no longer seen as an isolated entity or part of regulation but increasingly as a key part of a company's core business and value creation. We can help clients by providing tools to build a sustainable business through data, technology, and design. We don't operate with a single reference point, offering support only at the managerial or operational level. Instead, our operational philosophy is to be integral to our clients' daily lives, from the grassroots to the top management level,” says Eveliina Lakka, Business Strategy Consultant at Nitor.
Myriad new technologies, led by artificial intelligence, have thrown curveballs into the game, progressing at a staggering pace that no one could have predicted just a few years ago. While AI development is challenging for businesses, it also enables them to stay on the cutting edge in a data-driven and proactive way. None of us possess a crystal ball, yet we are already seeing the impact of AI in accelerating innovations, creating more sustainable supply chains and optimising energy efficiency.
Change is also driven by evolving expectations and new generations. Generation Z, those in the early stages of their careers or about to enter into the working life, are an interesting group. Their expectations for sustainability surpass those of other age groups, challenging us to ponder what kind of change is required from companies. For instance, Generation Z is passionate about the circular economy, and many are critical of consumption overall.
“In terms of sustainability expectations and consumption habits, the shift is fundamental and could have a dramatic impact on the core business of many companies,” says Lakka.
Sustainability provides a focal point for technology choices
The pace of change in the business environment has accelerated to such an extent that the time perspective for strategy has become much shorter. On the other hand, sustainability work is a long-term process that anchors a company's operations in a longer-term trajectory, enhancing business sustainability.
Several current issues, such as climate change and biodiversity loss, are so huge that addressing them inevitably takes time. The window of opportunity for fundamental change is narrow; hence, sustainability action is needed now.
"When envisioning alternative futures in our clients' strategic projects, sustainability aspects are increasingly important elements. In fact, taking them into account enhances a company's ability to make swift decisions," says Koivulehto.
A company making sustainable choices considers the ecosystem it operates within. This assessment provides a basis for decisions on how to address customer needs, who to work with, what technologies to use to move towards the future, what expertise will be necessary and how it could be developed.
“Often, we assist our customers in making strategic technology choices, which means examining them from a sustainability and responsibility perspective. For example, architecture must be considered to ensure that choices are flexible, sustainable, and long-lasting. The choices should support eco-efficiency, safeguard from data misuse, enable delivering more responsible services, reduce the organisational burden, and adapt to changing needs,” says Koivulehto.
Technology strategy projects are transitioning from long-term solutions tailored to a company's needs to product and cloud-based options. In times of change, the question of a fair transition might arise: will digitalisation replace me? As companies evolve towards socially and ecologically more sustainable practices, they will face the challenge of how to align new technologies, changing skills requirements and employees.
“Digital transformation is often an opportunity as well. New technologies enable automating a broader range of routine tasks. This frees up time and expertise from running basic processes for tasks that build competitive advantage and are also more meaningful for the employee,” Koivulehto reminds.
From shrinking margins to business opportunities
Thinking of sustainable business as a cost item or a profit margin reducer is an outdated stance. Sustainable business also creates huge opportunities for growth, improved employee well-being and innovation. It can also be seen as an investment in securing future demand. People are willing to pay for sustainable product portfolios and solutions because their value is undeniable.
If sustainability has been seen as a competitive factor in the past, today, it is a default value. Maintaining a hygienic level is no longer enough, but companies must strive higher.
“I have seen the rise of several different ‘isms’. However, sustainability is not a passing trend, but delves deep into the core of companies. Investments and expected benefits from a sustainability perspective are long-term and enduring over time and change, considering environmental, social, societal, and technological factors, “ Koivulehto says.
Sustainability is increasingly important not only on the agenda of customers and employees but also investors.
“Sustainability is seen as a sound business practice, and sustainable investment products are increasingly appealing. Thus, it must genuinely be part of companies' strategy, business model and operating logic.”
Sustainability has proven to have positive effects on the overall success of a company.
“It is also important to remember that business and sustainability are not a zero-sum game. Focusing on sustainability also creates new business and growth, for instance, when seeking solutions to combat climate change. Studies prove that the most sustainable companies are also the most profitable. For example, according to an analysis by consultancy Ernst & Young in 2021, the Corporate Knights 2020 Global 100 companies ranked as the most sustainable in the world outperformed their industry peers in gross profit, EBITDA, EBIT and net profit. Sustainability can impact the bottom line directly,” Lakka concludes.
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