One of Dave Snowden’s three basic rules for knowledge managers is: We can always know more than we can say, and can say more than we can write down. I’ve had an image of Incite’s overall approach to Sustainability integration in my mind for a while. I finally wrote it down at the request of a client. True to my promise to share our IP (CC BY-SA) on this site, here it is with a little preface.
For the purposes of our work (and this blog):
- Sustainability refers to an organisation’s response to the constraints imposed by its intersect with society and nature.
- This is different to ESG, which refers to Sustainability-related elements that investors and other stakeholders typically expect us to disclose.
- Sustainability integration seeks to engage the requisite parts of the organisation in making the overall response as effective as possible.
More on the first two definitions here. Sustainability integration will inevitably require a view on the business model and operating system through the lens of your organisation’s unique intersect with society and nature. Facilitating integration encompasses the entire business and is a daunting undertaking for any person or team. Where do we start?
We could probably start anywhere, but we’ve see integration getting traction when companies achieve a shift in two areas: strategy (how they allocate energy) and disclosure (how they share and use information). These are both important to remain competitive, but they require markedly different approaches. Disclosure integration requires alignment with increasingly standardised requirements. Strategy integration requires multi-level innovation in pursuit of competitive advantage. For those familiar with the Cynefin framework, doing strategy requires us to engage with the complex domain; enhancing disclosure takes us deep into the complicated domain. If we’re trying to use the same approach for strategy and disclosure integration (or assuming one will lead to the other), we only have ourselves to blame for the pitiful pace of change.
Generally speaking, disclosure requires informed box-ticking (not to be confused with being ‘bad’ or ‘undesirable’); strategy is a walk on the wild side. Companies hit a snag when they use disclosure expectations as the basis of their ‘strategic’ response. A perverse pressure pushes them to do this because:
- Investors are accelerating their ESG disclosure expectations; and
- The costs of a badly focused strategy are likely to be delayed.
But… if a company delays strategy integration too long, those costs escalate significantly. For many companies, reality is starting to bite around about now. For investors, it’s probably going to bite a little later.
The flow diagram roughly depicts Incite’s approach to sustainability integration. Every client does it differently, in their own time, but the steps are broadly consistent if they are taking it seriously.
The map is not the territory. Of course, things will never happen in exactly this way, but a rough idea of the territory can be useful in turbulent times. The critical first step in any integration process is to clarify your ambition and where, in broad terms, your organisation offers you potential to deliver on that ambition. Making this explicit will deliver a high level strategic framework. Then follow the arrows for integrating into strategy or disclosure. Essentially, there are four sub-cycles depicted in the diagram. The grey shapes are what you’re aiming at.
Integration is about getting teams within the different parts of the operating model to take responsibility for what they do best. This releases the Sustainability team to focus on coordinating the broader transition. Transition management should not go on forever. Once integration has occurred sufficiently and in the requisite areas, it should gather its own momentum. At that point, we should all be glad to find other jobs!
A few thoughts on the strategy side:
- Incite does strategic alignment with almost every client, even if they have already decided on their focus areas. The process counts as much as the output.
- The initial commitments (1) can sometimes be integrated into business planning immediately.
- You will not have enough information to create BHAGs, hard targets or roadmaps at this stage. These commitments are primarily directional and highly strategic (determined by the profit-enabled ESG envelope). They commit the organisation to exploring scalable options with requisite urgency rather than to outcomes or other milestones along the way. We just don’t know how best to do things at this stage so rather admit that and double down on your efforts to find the next best step. (This particular stance – based on what The Cynefin Co calls the ‘Frozen II’ approach – puts me at odds with many people, including those I tend to agree with on other issues.)
- Don’t stop there. It is important to increase the granularity of your analysis and subsequent ideation (3), ideally as part of an organisation-wide awareness and inclusion process.
- Strategic metrics (5) are imperative and they will almost certainly be different to the standardised disclosure requirements you are prioritising through the parallel disclosure process. These can take a few years to get right. Unilever’s metrics task team worked for about 10 years before they considered their sustainability metrics to be sufficiently integrated and the metrics capabilities sufficiently distributed to disband. Rushing this part to please any stakeholder group is a bad idea.
On the disclosure side:
- Strategic alignment will help you keep the present disclosure madness in perspective: the execs are onboard and once you’ve explained, they will fully appreciate the difference between strategic indicators and standardised disclosures. (Remember these are both important.)
- Beyond an initial review and prioritisation (1), the rest of the disclosure integration process is about focusing your effort. Prioritise based on explicit criteria, including relevant standards or frameworks (e.g. GRI, TCFD, JSE disclosure guidance), cross-referenced against the rating agency benchmarks used by your biggest investors (e.g. MSCI, FTSE Russell). The others stay on the sideline. They aren’t irrelevant, but they don’t count as much.
- Disclosure and communication are not the same. Disclosure reveals or provides information; communication encompasses the exchange of information. By integrating these flows, they can be used to reinforce each other.
The point of Sustainability integration is to integrate into existing business cycles as far as possible (the grey shapes in the flow diagram). It is not to make the sustainability team more visible or give them more power. By getting these weighty things off their back, it helps the Sustainability Lead and his/her team focus on coordinating the overall transition.
Banner image cropped from a photo by Markus Spiske on Unsplash. For many years, practitioners have been desperately trying to counter the limiting assumption that Sustainability = Green (+ Good). The leaf image here speaks to what Snowden calls “naturalising sense-making” which is something else entirely. More on that in relation to our practice soon.