What does ‘business sustainability’ really mean in today’s world? It can be a hard-to-define concept. In the environmental and social sense, sustainability is a set of actions to minimise harmful practices towards people and the planet. In the wider futureproofing sense, business sustainability can include all aspects of an organisation’s strategy to survive and thrive in the modern world – such as having the right technology, the right people and the right products to compete. 

However, considering the reputational and financial risks of failing to act in a socially responsible and environmentally friendly way, it’s becoming increasingly clear that if businesses haven’t got that first ESG aspect of business sustainability covered, they might as well forget the rest. Organisations simply won’t find long-term success without clear ESG priorities. Businesses today cannot develop products without considering the ethics of making, using and disposing of them. They’ll struggle to attract the right talent if social and environmental policies are dubious, and net zero implications must be part of a tech transformation strategy. Meanwhile, arguments that ‘for good’ policies aren’t economically viable increasingly lack weight. 

Increased pressure

As such, the way people view sustainable business has clearly changed over the past decade. “Companies used to be proud to have removed a minor piece of plastic such as a straw or a single-use carrier bag,” says Bob Gordon, director of Zero Carbon Forum, a non-profit dedicated to carbon reduction in the UK's hospitality sector. “It used to be acceptable to claim ‘carbon neutrality’, which effectively involved offsetting your emissions and not taking much action to reduce them. That simply doesn’t cut it anymore.”

That’s true for a wide variety of stakeholders, who are increasingly making decisions based on a company’s environmental, social and governance performance. “Consumers are choosing brands for their ethical behaviour and [impact on] climate change,” says Nicola Stopps, CEO of Simply Sustainable, an ESG and sustainability consultancy. “Investors are favouring businesses with substantial holistic strategies. And governments are implementing regulations requiring organisations to increase transparency in areas such as diversity, equal pay, carbon emissions and modern slavery.”

Sustainability strategies are also affecting hiring and employee retention. Indeed, as Professor Paolo Taticchi, professor of strategy and sustainability & deputy director (MBA and Global Engagement) at UCL School of Management, says: “Sustainability should be treated as a priority if businesses want to attract and retain the best and brightest young talent.”

Meaningful change

While the opportunities and risks associated with sustainability are clear, businesses still have varying degrees of understanding of how it applies to their operations. “It doesn't matter what size, sector or geography a lot of organisations are in, they’re still struggling to understand what sustainability is within their business model,” says Alex Smith, co-founder and partner of sustainability management platform, FuturePlus, part of the Sustainability Group, which aims to help organisations implement more sustainable, just and profitable business practices.

Many firms still see sustainability solely in terms of carbon and climate, says her fellow co-founder Mike Penrose. And while this is a vital element of sustainability, “there are so many interrelationships between, for example, climate change, carbon and the environment, but also with social impact, with economic impact.”

The depth of knowledge and action needed to address the risks and opportunities posed by climate change, biodiversity decline, economic inequity and other interconnected issues may seem overwhelming to some businesses.

“The reality of the scale of change required to tackle the sustainability challenges we face is unprecedented,” says Anna Lungley, chief sustainability officer at Dentsu and senior associate at the Cambridge Institute for Sustainability Leadership. “It will require new skills, disruptive business models, diverse perspectives and multi-sector collaboration.”

Schneider Electric’s Sustainability Impact (SSI) programme, which is aligned with the United Nations Sustainable Development Goals, offers an example of the kind of collaboration that is required. “The SSI programme is not just about ESG compliance,” says Eloise Cotton, UK&I sustainable development lead at the firm. “It’s about boosting our efforts toward fighting climate change, social inequality and fulfilling local commitments by working with our entire ecosystem of employees, clients, suppliers and partners, and progressing together.”

Net zero commitments by major firms also represent a leap forward for emissions reduction targets – one that more and more businesses will need to take. “Every organisation will need a net zero strategy, underpinned by science-based targets, that places people and nature at the heart of the transition,” says Lungley. Transparency and the radical decarbonisation of supply chains are also increasingly essential. “But most importantly, sustainability must be a lens through which you do business,” she adds.

Karina O’Gorman, head of force for good at Innocent Drinks, agrees.“Being sustainable means putting people, planet and profit at the heart of your business strategy rather than considering them as separate, or even competing, priorities,” she says. “Businesses need to ensure they are not focussing on short-term economic growth at the expense of advancing social or environmental sustainability. Instead, they should consider these three factors as working in partnership, with the security and growth of one area being complementary to the other two.”

Finding a purpose

Penrose feels that sustainability is often falsely positioned as a trade-off – i.e. you can have a highly profitable business or a socially and environmentally sustainable business, but you can’t have both. “But what we're finding more and more is that if you get businesses to understand how taking a sustainability approach can improve their overall business model, that's when the light bulb moment happens and they really start to build it into aspects of their business process.”

If you get businesses to understand how taking a sustainability approach can improve their overall business model, that's when the light bulb moment happens

However, Mark Lee, director of the SustainAbility Institute by ERM and co-author of The Sustainable Business Handbook, says that to successfully navigate the myriad priorities and demands associated with sustainability, “a company needs clarity of purpose, sharp understanding of its material issues and an outstanding business case mapping how improved sustainability performance will reduce risk, unlock innovation and value, and build reputation.”

Despite all that’s going on in the world today, from the war in Ukraine to rising inflation and energy costs, businesses must meet this challenge head-on in order to thrive in future. “Designing out waste, creating more resilient supply chains, reducing energy consumption – all of these drive efficiency,” says Lungley. “And in an environment of uncertainty and growing expectations for sustainable practices, shifting how businesses work can provide fiscal stability in the long term.”

Of course, many of these changes won’t happen overnight. “Sustainability is a journey that will take time,” says Professor Taticchi. “Business owners need to be clever when planning investments and strategies and remember they can’t do everything at once.” 

Indeed, as he points out, companies are not expected to change in three years but in the next 30 years. “That being said, people want to see drastic action taking place within this decade, and I can’t stress enough the importance of strategic sustainability planning to achieve this.”

Environment, social and governance (ESG) can no longer live in a separate dimension to organisations’ wider business transformation strategies, and organisations must remember that sustainability is, first and foremost, a business decision. 

Sustainability is a metric that goes beyond occasional efficiency reports or emissions audits. In reality, ESG will be the difference between future business success and failure, as it will decide who wants to work for an organisation; who wants to work with them; who wants to buy from them; and who will be the most profitable. 

Here are three key drivers which emphasise this need to address ESG in the same breath, and with the same vigour, as all adjacent business transformations.

Making yourself attractive

It shouldn’t be underestimated how important sustainability is in the eyes of, well, everyone. Business partners across the supply chain will also be experiencing individual pressures to reduce carbon emissions and will want to team up with businesses with similar ambitions. Similarly, consumers are more conscious than ever about who they purchase products and services from, with sustainability now a foremost consideration. 

Perhaps most important, though, is how much a company’s own existing and prospective employees value ESG performance. “We can clearly see a one-to-one correlation between ESG focus and financial success across our portfolio of companies, and a key reason for this is talent requiring a sense of meaning in their work,” explains Sara Rywe, partner at Danish company, byFounders, who themselves have put ESG front and centre of their investment decisions. “Attracting the best talent is the number one challenge for most early-stage companies and an ESG focus can be the dealbreaker when it comes to that attraction."

Showcasing compliancy

Rywe adds that a helping hand is often required to push organisations in the right direction, with new regulation a rightful “threat to old-fashioned and non-sustainable companies”. This helping hand has already resulted in more than 1,200 companies putting in place science-based targets in line with net zero, according to a recent UN update.

Rajesh Gharpure, executive vice president and global head of manufacturing and energy, Larsen & Toubro Infotech (LTI), notes: “The European Commission is also tightening up regulations and creating a more transparent playing field with the launch of Level 2 of the Sustainable Financial Disclosure Regulation (SFDR), coming into effect in 2023.” 

Upon this new playing field, organisations should be turning to solutions and microservices that can target data collation around ESG, specifically.

Gharpure adds: “The pressure is now on for organisations to improve the accuracy and consistency of their ESG reporting, moving away from spreadsheet-based processes that can take up to six months to yield reports. Instead, IoT technologies such as advanced sensors can monitor blind spots and produce accurate data readings in real-time, and this is where organisations should be looking to.”

Outperforming competition

Encompassing and epitomising the above driving factors is the age-old lure of profitability. Talent attraction, talent retention, optimum supply chain partnerships, data-driven insight, and assured compliance, are all indicators of ultimate business success that can be driven through effective ESG strategy.

Compared with 77% in 2009, 93% now agree that ESG programmes add long-term business value, and that derives from a McKinsey study prior to COVID in early 2020. In reality, that figure should be 100% two years on.

“Meeting sustainability goals isn’t just about reducing the risk of fines and non-compliance,” concludes Alex Saric, smart procurement expert at procurement software provider, Ivalua. “It is absolutely critical to protecting the bottom line. 

“There is an ever-growing link between financial and ESG performance, and organisations must now bolster their ESG strategies to drive meaningful change. The heavy cost of a backlash should they fail to do so, will far outweigh the investment needed to improve current levels of transparency and control.”

A resilient business knows how to manage disruption – and that’s never been more important than it is today. Companies of all shapes and sizes face multiple challenges stemming from Covid-19 and the conflict in Ukraine, including supply chain issues, energy shortages and labour shortfalls. Their environmental, social and governance credentials are also under increasing scrutiny from consumers, investors and regulators. And let’s not forget the challenge of digitally transforming to meet new customer expectations.

Dassault Systèmes' annual executive survey series, which has reported significant growth in business risk and disruption since 2019, shows these issues are a high priority for almost every business leader. In fact, over one-third of the 183 companies surveyed for the 2022 edition said that risk and disruption had grown “significantly” over the past five years. For example, while only 13% of respondents reported that armed conflict had significantly impacted their business in 2021, it’s a different story in 2022 – a stark reminder of how quickly the business environment can change. 

Despite such challenges, respondents continue to place a strong focus on new markets and long-term growth. But how can they practically achieve this and build true resilience in a world of seemingly ever-increasing disruption?

Stéphane Lecomte, Euronorth industry process consultant leader at Dassault Systèmes, says it comes down to the three key pillars of business sustainability: product and service innovation; workforce development; and new business models.

Product and service innovation

“Innovative products are key for our customers,” says Lecomte, “because if you’re not innovative in your design and manufacturing processes, you can easily be removed from the landscape by an industry disruptor.”

Dassault Systèmes provides businesses with the “virtual twin” solutions needed to develop these innovative – and sustainable – products and services. Its collaborative platform allows any firm to design a 3D model that represents the shape, dimensions and properties of a physical product or system. Simulations can then be run on that virtual model to explore its performance, reliability and safety, essentially eliminating the need for countless physical prototypes and reducing the time to market.

The virtual twin also accompanies the physical product or service throughout its lifecycle, thereby incorporating new sources of data as and when they become available. “Virtual modelling is not enough,” Lecomte explains. “You need to connect these models with the real world – [to understand] real behaviour in a physical environment in order to enrich the next generation of the design.”

The single source of truth and collaborative environment that Dassault Systèmes' platform provides also ensures that the entire value chain is connected, from the design stage up to the end customer. This helps businesses to not only select the best suppliers and partners, but also ensure that they are designing “what the customer really needs,” says Lecomte.

Workforce development

Respondents to Dassault Systèmes' 2022 survey said they were increasing their attention and focus on workforce development, no doubt to counteract recent trends like “the great resignation” and market shifts such as “the great retirement”. Indeed, when it comes to sustainability, talent is essentially every company’s most important asset. “There is no point in having advanced digital technology if you don’t have people who can use it to support the sustainable evolution [of the business],” says Lecomte.

The right training and support play a huge role here. “[Many of] the jobs we’ll have in ten or fifteen years don’t exist today,” Lecomte explains. “So we need to enable the digital transformation of resources and curricula to support the education needed to create the workforce of the future.”

Dassault Systèmes' platform supports this transformation by centralising information, capturing knowledge from across the value chain and empowering collaboration. What's more, Dassault Systèmes' education hub, which offers both a physical and a virtual space for analysing the skills of the future, provides the kind of experience-based learning that will empower students to take on the jobs of tomorrow.

New business models

Regardless of whether a business is an established player or a disruptive start-up, “They are all aware that we cannot live or consume in the way that we did twenty years ago,” says Lecomte. Many of today's business models therefore need to be rethought and redesigned – and technology can help to address much of the risk involved.

Virtual twins provide a safe testing environment for disruptive green and circular business model innovation – for example, by modelling reverse logistics for a circular system. In other words, they support the kind of strategic decision-making that can improve current practices and the overall resilience of the business.

As Dassault Systèmes' technology helps its customers to map the entire value chain, it allows them to connect the dots between different business units and see how certain strategic decisions might play out. In short, “we help them define the business model of tomorrow,” says Lecomte. 

By digitising the EV battery value chain, for instance, virtual twin technology can help to optimise how batteries are reused, remanufactured and recycled. “We can demonstrate everything from the way the molecules will interact with each other to how to optimise extraction at the mine,” Lecomte explains. It’s yet another example of the kind of innovation that, in an era of ongoing disruption, will ultimately help businesses to remain resilient, agile and sustainable.

Read the executive strategies for long-term business sustainability 2022 survey results in full at discover.3ds.com/executive-strategies-long-term-business-sustainability-2022

As organisations look to recover from a deluge of black swan events, while preparing their supply chains for future unforeseen crises, it’s important not to disengage from adjacent transformations and priorities. In particular, this is no time to stall environmental, social and governance strategies, even in the face of ongoing supply disruptions.

As Darren Pearce, group CEO, TXO Systems explains: “The world’s major OEMs (original equipment manufacturers) continue to face supply chain challenges which aren’t expected to end any time soon. Rather than distracting from sustainability ambitions, however, there should be an increased appetite to invest in the circular economy to maintain the overall pace of modernisation.”

As such, the supply chain can become the perfect metric to assess organisations’ ability to be both short- and long-sighted towards the future.

Customer pressure

In TXO Systems’ case, the telecoms industry has revealed that 84% of operators believe the circular economy can help to solve supply challenges, while accelerating business development in tandem. And this acknowledgement that progress can’t be halted in the face of adversity derives largely from public pressure. 

Just as telecoms customers would expect an ever-improving service, they are also now scrutinising how providers conduct themselves or are performing from an ESG perspective. This reflects a broader consumption trend, where fulfilment promises must be kept despite the impact of outside influences. All the while, customers are also more vigilant about who an organisation is partnered with, what their ethical credentials look like, and what their collective operations contribute in the form of emissions. 

There is less willingness to forgive errors or shortfalls in either column, which is why organisations can’t afford to shut down plans to improve their ESG performance, even if wider operations are under more intense strain than before.

The importance of making a connection

At least this seems to be a realisation that has hit home for most. For example, despite the impacts of Covid-19, Brexit, the Suez Canal incident and global chip shortages, more than half of all FTSE 100 companies came together at COP26 last year and declared their commitment to eliminating climate change contributions over the next 30 years.

“Sustainability is no longer being viewed as a cost, but as an opportunity to drive efficiencies and deliver for the customer,” affirms Wayne Snyder, vice president of retail industry strategy at supply chain management specialist, Blue Yonder. 

Simply, the prospect of black swan incidents co-exists with the very present need to improve sustainability credentials. And Snyder argues that an organisation’s supply chain makeup can reveal a lot about how able a business is to address both. 

He says: “It is only by connecting all parts of a company’s processes – product decisions, network design, logistics management, energy efficiency, waste minimisation, returns management, etc. – that companies can deliver the optimisations required in today’s world. In this regard, profitability, sustainability and resiliency to risk are completely congruous; and it’s only by delivering a visible, real-time supply chain supported by control towers and advanced tech that companies can deliver on all of those fronts.”

It should perhaps come as a slight concern then, that despite pledges declared at events like COP and through the UK Net Zero 2050 declaration, and the clear connection between resilience and progress, only 10% of suppliers across Europe are currently judged on sustainable practices when entering initial contract negotiations. This statistic unearthed by Forrester, through research commissioned by procurement software company Ivalua, is compounded by only 24% of suppliers who say they are then measured routinely on their carbon emission standards. 

At the epicentre of outcomes

Immediately, red flags should be raised. We know that the majority of businesses have ESG metrics high on their agendas, and yet this is seemingly not filtering through to partners, and therefore organisations stand less chance of meeting ultimate ambitions.

“Firms need to ensure they’re addressing sustainability in a meaningful way to bolster supply and business continuity, but many organisations lack the visibility into their supply partners to actually deliver on the initiatives they need to,” explains Ivalua’s smart procurement expert, Alex Saric, off the back of the company’s research.

As such, Saric believes that this current shortfall is what separates organisations from achieving both supply resiliency and ESG progress. “The same values of transparency and visibility that are key in ensuring supply resilience are also impacting organisational priorities such as driving innovation, promoting sustainability and preserving profitability,” he adds.

To this end, Saric calls for a more predictive, communicative, collaborative and transparent suite of tools to be adopted across businesses’ supply chains. This will help organisations to become more efficient in line with ESG goals, while boosting resilience to outside challenges in tandem. 

As such, whether it’s heightened agility and resilience in the face of black swan disruptions, or improved sustainability amid ESG expectations, it makes no sense to delay one core transformation, while safeguarding elsewhere. The supply chain must be at the epicentre of a holistic, all-encompassing futureproofing effort.