Sustainability Practitioners are constantly exposed to their organisation’s Intersect with society and nature. We notice the dynamics and relationships at play almost without realising it. We forget how overwhelming it can be for colleagues with other day jobs. We get frustrated when they ‘don’t get it’. The problem is not them, it is us. We understand more than we think we do. If we are not aware of this cognitive bias, often called Unknown Knowns, it impacts our effectiveness as practitioners.
My own bias became obvious when I was working on Profit-Enabled Impact with alcoholic beverages company Distell. I naturally gravitate towards Sustainability initiatives that have potential for scale and always assumed others did too. Carin Fouche, Distell’s strategy lead, had listed their Sustainability initiatives in a 2×2 that made it easy to see the difference between initiatives that deliver profit-enabled impact and everything else.
I’ve reworked it a bit, but this is essentially her framework. It makes explicit the tacit knowledge that many practitioners don’t realise they have.
The matrix categorises initiatives according to their potential for scaled social/environmental impact (x-axis) and the degree to which they leverage key capabilities or assets of the organisation (y-axis). The examples below all focus on the same issue: climate change. (Many organisations use disclosure frameworks to do strategy. This is another cognitive bias at play and you can read more about those here. The description below should clarify why dividing up your initiatives into E-S-G may limit your strategic thinking.) In no particular order:
- Philanthropic initiatives are low scale and low leverage. They are extremely important to the people they seek to support. They protect value through positive brand association, but don’t create value for the organisation. A climate example might be planting trees to create shade and beautify a local crèche.
- ESG compliance and risk management draws on key capabilities and a significant amount of time, but the impact of these initiatives is unlikely to scale at the organisational level. This is because there are diminishing returns for an organisation to go beyond a certain point, so we’ll withdraw the resources as soon as we’ve dropped our risk to an acceptable level. These kinds of initiatives also protect value, but don’t create it. A climate example might be calculating, reducing and disclosing our carbon footprint.
- Profit-Enabled Impact happens when sustainability initiatives are scaled through the business model. These require us to leverage key capabilities and assets. They will either increase revenues, decrease costs or tangibly improve the business ecosystem, or combination of these, over time. Their direct connection to the profit formula drives scale. This creates value all round: the bigger we get, the greater the positive impact. A climate example might be a transition to renewable energy across the entire operation.
- Advocacy and collection action initiatives scale through external partnerships rather than through the business model. These are low leverage in terms of assets and capabilities, but tend to leverage the respect and gravitas of a senior leader. They may enable value creation through first mover advantage or by encouraging stakeholders to work together on systemic threats to the entire market ecosystem. A climate example might be the retail CEO’s open letter to President Cyril Ramaphosa on South Africa’s energy crisis.
We are constantly trying to make sense of our Intersect, so typologies can be useful. Of course, this is not the only way we categorise our initiatives. We slice our organisation’s portfolio of initiatives into E – S – G to meet investor expectations; we assign initiatives to the functional areas that are responsible for managing them; or we divide them up based on whether we are starting, maintaining or exiting them. Each of these approaches can be useful depending on the context. I like Carin’s approach for strategy work because it keeps us focused on value rather than values.
As always, a few notes from the frontline:
- Strategy seeks scale and leverage. Use this tool to analyse your distribution of effort in respect of protecting, creating and enabling value. This delivers insight into your organisation’s current and future potential, as well as how much learning you may need to do along the way.
- Avoid category blinkers. Initiatives can start in one quadrant and move to another. For example, Anglo American adopted a partnership approach to develop nuGenTM, a zero-emissions haulage solution. When its competitive potential became evident, it moved into the Profit-Enabled Impact quadrant.
- Positive impact can be reinforced by connecting up initiatives across these four quadrants. How might philanthropic initiatives do two jobs simultaneously: for example, tick the Broad-based Black Economic Empowerment box and pilot Profit-Enabled Impact that may be scaled through the business model in the future? We always look for multi-functionality in complexity and ticking the box on BBBEE does not mean you’re fronting.
- As we coordinate our portfolio, we increase our ability to gather intel that will improve risk and opportunity detection at the Intersect. This is our entry point into greater resilience. It is what long-term investors should be starting to track, but more on that later.
How might you use this framework to support more strategic thinking when working with your teams?