Sustainability strategy - SUM: Sustainability Management Wiki

Authors: Franziska Katharina Hoff, Kristeen Meinecke, Franziska Pabel, Ramona Schöll
Last updated: June 22, 2022

1 Definition

Rothaermel defines a strategy as: “[…] a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors.”¹ A good strategy implements three characteristics. The first is a study of an institution’s external and internal environments to ensure an assessment of competitive challenges. With this background and as a second step, a strategy can be elaborated upon and implemented into a corporate strategy to create the possibility of mastering competitive challenges. The third characteristic is the execution of coherent actions during the implementation of an elaborated strategy.¹²

For a short definition of sustainable development, the Triple Bottom Line is used in this wiki entry. Originally defined by Elkington, it says: “[…] business is now developing new ‘win-win-win’ strategies in this area to simultaneously benefit the company, its customers, and the environment.” This concept has become increasingly popular. Elkington describes it as the answer to the challenges of bringing about real ecological progress, including social and economic factors.¹ Therefore, for sustainable development to be successful, it should always consider social, environmental, and economic factors.

Dyllick and Hockerts specified corporate sustainability as: “[…] meeting the needs of a firm’s direct and indirect stakeholders […], without comprising its ability to meet the needs of the future stakeholders as well.”³ Salzmann et al. expanded this definition to include profit-oriented and strategic feedback on the activities of a company’s actions.⁴

All the points mentioned above are included in the following definition:
“Sustainability business strategy is the integration of economic, environmental, and social aims into a firm’s goals, activities, and planning, with the aim of creating long-term value for the firm, its stakeholders, and wider society. This means that strategy is formulated and executed so that the needs of the firm and its stakeholders are met today, while protecting, sustaining, and enhancing the natural resources that will be needed in the future.”⁵ The definition of a strategy is expanded here by taking the long term and Triple Bottom Line into account. It is not only about competing with other companies and generating optimal performance today but also about maintaining future livelihoods.

2 Pathways

A sustainability strategy can pursue different goals. An efficiency strategy tries to achieve the greatest possible output per unit input.⁶ Accordingly, the focus is not on absolute quantity but rather on generating benefits. An efficiency strategy supports economic efficiency thinking. However, even if it tries to use fewer resources for the same result, this does not ensure resource conservation. A rebound effect can occur in which efficiency gains become overcompensated by an increase in absolute quantity.⁷ The two characteristics of sufficiency are modesty and frugality. Hubert equated the pursuit of this with renunciation.10 This is about transforming the way we produce and consume nowadays.⁸ A post-growth economy, for example, is oriented toward the idea of sufficiency.⁹ In consistency, the goal is to reintegrate man-made systems and technologies into the natural life cycle.⁶ An example of this is a closed-loop economy in which energy comes from renewable sources. If such technologies are successfully adapted, absolute quantity is no longer a decisive factor.⁷
The challenge of a sustainability strategy is to implement it into a corporate strategy.¹⁰ A corporate strategy determines where to act in a possible environment, a business strategy describes how to compete there, and a functional strategy determines how to implement that business strategy.¹ During this implementation process, there are different stages and milestones. These have different labels in the literature but build on the same idea. Kashmanian et al. described the stages as “in compliance; beyond compliance; beyond fenceline; and beyond footprint.”¹¹ Baumgartner and Ebner first named the introverted strategy, which serves to minimize risks. Besides the introverted strategy, there is the extroverted version. Here, the focus is on legitimization and external relations. The conservative strategy, on the other hand, focuses on (ecological) effectiveness and cleaner production. A holistic view is provided by a visionary strategy. All parts of an economy consider aspects of sustainability.¹²
Similarly, in other elaborations (see, e.g., Caroll and Wartrick as well as Chochran), the four stations of “obstructionist, defensive, accommodative, and proactive” describe comparable circumstances.¹³ Rosenberg et al. distinguished the penetration of such a strategy by applying a two-dimensional map in which classifications are made. The horizontal axis represents the level of compliance, and the vertical axis represents ecological sensitivity.¹⁴ When a high intensity is reached for both, this could be compared briefly with the beyond footprint stage, a proactive strategy, and a visionary strategy. This step may be considered an overall goal to ensure value creation from sustainability. It is noteworthy that value creators address sustainability mainly for reasons of corporate strategy (e.g., goals, mission, and values) and making a measurable positive impact, whereas other companies see sustainability as a topic for improving corporate reputation or complying with governmental regulations.¹⁵ Lastly, Van Bommel added the resign strategy, which decides not to implement sustainability.¹³

3 Developing a sustainability strategy

Nowadays, managers must deal with a bunch of different projects. They have to account for various economic, environmental, and social issues – in a business environment characterized by uncertainty and complexity.¹⁶ Due to the 2030 Agenda, which includes the SDGs, organizations are driven to include sustainability issues in their strategies to be long-term successful in the market.¹⁰ To become more sustainable, an organization can increase efficiency, consistency, and sufficiency within its strategy. The focus depends on an organization’s pursued goals.⁶ Hence, there is a call for some guiding framework. A clear vision, a mission, and core values provide this by stating a strategic direction and mapping ways to go from the status quo to a desired future state.¹⁷

3.1 Vision, mission, and values

“Organizations need to embrace an adaptive and emergent yet also workable and practical process to ensure that sustainability is tightly connected to and deeply embedded in the organization’s vision, mission, and overall objectives.”¹⁸
Therefore, it is important to clarify why a company exists by differentiating and identifying its vision, mission, and values. A conceptual overview of these key elements of a strategy provide Mirvis et al.:¹⁷

Vision (What?): shows the prospective picture of an organization
Mission (Why?): shows the purpose of the organization
Values (How?): show how the organization will achieve its vision

3.1.1 Vision

According to Mirvis et al., “a vision provides an intellectual framework for company strategy: it defines a strategic direction and presents a conceptual map of how a company moves from its current reality to a desired future state.”¹⁷
This means that a vision shows where the organization is going in the next years. Thus, it has a mid-to-long-term perspective and is market-oriented. With a vision, an organization creates a statement about how it wants to be seen by the world.¹⁹ By defining the organization’s desired end goal, a future-out view for the striven achievements arises.²⁰
According to this, it is important for an organization to see the clarification of its vision as the first step in its business path. Once the vision is set, the organization has cleared what it wants to achieve while always keeping employees’ motivations in mind. This is important because staff need to internalize the company’s vision for better performance by feeling part of it and realizing the meaning of the work. Therefore, a vision should be inspiring, motivating, and future-oriented. This possible improvement in performance should not only be measured financially in the short term because it often leads to higher success in the long term.¹

3.1.2 Mission

When a vision is clear, an organization needs to deliver it. This happens through a mission, which briefly summarizes a purpose – the why. A mission operates as a beginning for a strategy by defining what, who, and how an organization is doing business.²⁰ More specifically, it explains what an organization does, what it offers in which markets, and hence how it wants to reach its goals.3 As part of a sound strategy, a mission clearly positions an organization in its external environment and leads the way to the required competencies for reaching long-term success.¹⁸

3.1.3 Values

Values reflect a company’s desired culture and its intended behavior and character.¹⁹ Hence, these values can be seen as the guiding principles for an organization.²⁰ They show commitments and guardrails according to a clarified vision and mission by acting legally and ethically responsible. Setting values is important for a company´s strategy because it breaks down a vision and mission for employees into concrete and tangible pieces. With this, employees can adopt company culture more easily, using the given values as a moral compass.¹

CASE STUDY VAUDE

Mission: “We create innovative products, solutions, and services that are both environmentally friendly and socially fair. We minimize our ecological footprint with sustainable quality and circular systems that allow us to operate within planetary boundaries. We are a driving force and role model for sustainable business practices on a global level.” ²¹

Vision: “Improving the quality of life with sustainable outdoor products and future-oriented business strategies.” ²¹

Values: “1. Our roots: “The Mountain” The Mountain: The exhilaration of the ascent, the peace at the top, the far-sighted view, and the joy of descent drive us.
2. Value “We” Mountain. Nature. Team. Partnership. Fun. Family. We.
3. Driver “Forward” Trends change as fast as the weather in the mountains. Sustainability endures.” ²²

3.2 Identifying issues that matter

Michal Porter sees the key approach of a strategy as “choosing what not to do.”²³ Once an organization has clarified its vision, mission, and values, the next step focuses on identifying issues that matter. This step is important because an organization can operate more effectively once it sets a clear focus, as it is impossible to address all issues. Therefore, it is useful to check the materiality of issues, pick out the most important ones, and order them.²⁰ For prioritizing, it is important to take the macro- and microenvironments, also known as external and internal environments, into consideration.¹⁹

External Environment – PESTEL Model
For a macroenvironment, the PESTEL Model counts as a solid established tool. It builds a framework that sorts the following six external parts: Political, Economic, Sociocultural, Technological, Ecological, and Legal. Taking these segments into account, an organization can scan, monitor, and evaluate its macroenvironment. This is important for an organization because these factors can be both an opportunity and a threat.¹ With this external perspective, an organization analyzes what it might do.¹⁸

Internal Environment – Value Chain Analysis
For an internal environment, the value chain analysis by Michael Porter is a common tool. This management concept focuses on the added value and cost of each internal activity. It orders activities and helps analyze and compare individual steps in a value chain. By doing so, an organization can determine which activities already create value and where costs still exceed the created value. Porter differentiated between primary and supporting activities along the value chain. Each of these activities should add value; therefore, costs must be lower than added incremental value.¹ With this internal perspective, an organization analyzes what it can do.¹⁸

SWOT Analysis
Once the macro- and microenvironments are analyzed, a SWOT analysis is often used to combine both parts for a better general overview. With this tool, an organization can clarify its strengths and weaknesses (internal) and opportunities and threats (external). It gives a useful overview of internal and external environments and can help to finally identify (sustainability) issues that really matter.¹⁸¹⁹

3.3 Prioritizing effectively

When the step of identifying relevant issues is complete, they need to be ordered. It is important for a sustainability strategy to have a clear path. When this hierarchy is set, an organization has an effective framework and knows where to focus. This framework is needed for implementation and targeting.²⁰ For instance, greenhouse gas emissions may be relevant for a broader range of organizations, whereas responsible raw materials sourcing may mainly be an issue of priority for producing-companies compared to service providers. Hence, it is about clear prioritization and the related allocation of (financial) ressources.²⁴
In practice, companies usually conduct a materiality analysis to assess issues that matter.²⁵ This concept is a vital part of the Global Reporting Initiative (GRI) – a global framework for sustainability reporting.²⁶ The main goal is to classify several issues due to their importance for a company and its stakeholders.²⁵

3.4 Targets and key performance indicators

As companies can make a substantial contribution to reaching the goal of sustainable development, targets should be in line with the SDGs.²⁶ For better measurability, it is useful to set clear targets and key performance indicators (KPIs). These can be seen as a quantification of a vision that defines the desired results for a sustainability strategy.¹⁹ A study showed that companies creating value from sustainability focus significantly more on linking their sustainability strategies to targets and measurable KPIs than the other companies analyzed.¹⁵ Having targets is necessary and even expected from stakeholders to illustrate performance ambitions and make the process judgeable. Therefore, each identified priority needs an assigned target. To set good targets, they need to be meaningful, material, complete, consistent, and ambitious. KPIs have different key characteristics. They should be accessible, relevant, responsive, and comparable.²⁰ To measure these sustainability goals even better, it is important for an organization to use certain KPIs for economic, social, and environmental fields, which are shown in the table below.¹⁰

To measure an organization’s performance, the balanced scorecard (BSC) is a well-known tool.²⁷ BSC encompasses several dimensions: financial, customer, internal business processes, organizational learning and growth, and sustainability, each obtaining measurable KPIs.¹¹²⁷ With the sustainability BSC, this tool has been adjusted for social and environmental issues.²⁷ Therefore, sustainability aspects are either integrated into the original BSC or the entire template is complemented by a nonmarket view.²⁷ Thus, the sustainability BSC can be seen as a modified tool that helps to turn a developed strategy into certain targets.¹⁰

CASE STUDY SAP

SAP’s mission is to “help the world run better and improve people’s lives.” Therefore, SAP established a target system including economic, ecological, and social indicators – leading together to the overall goal of profitability. Economic KPIs encompass growth and customer loyalty. Social KPIs include employee engagement, a share of women in management positions, and business health culture (BHC Index). At the ecological level, carbon emissions and energy consumption are the main indicators tracked. SAP goes one step further and shows how the different indicators are intertwined. For instance, BHC fosters employee engagement. Employee engagement drives successful carbon emission reductions, and reducing carbon emissions helps achieve the target of economic growth, as sustainability-related criteria are becoming increasingly important to customers.²⁸

4 Implementation

A formulated strategy can bring value to a company only if there is a plan for how to implement it successfully. Implementing a formulated sustainability strategy into practice is highly challenging for most companies, and so far, there has been scant research on sustainability strategy with a focus on successful implementation.²⁹ In general, strategy implementation “is the process that turns plans into action assignments and ensures that such assignments are executed in a manner that accomplishes the plan’s stated objectives.”²⁹³⁰ Before taking action on implementing a strategy, a long-term perspective should be regarded – especially in a sustainability context, which naturally holds a long-lasting view.¹¹³¹ In many cases, a sustainability strategy is mistranslated into numerous rush measures with no coordination of its connections.³² By this, organizations do not make a meaningful impact and risk their competitiveness.³²³³

4.1 Organizational Design

With an adequate organizational design, managers can implement a written strategy into a realized one. Organizational design describes “the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.”¹ To implement a strategy, changes within an organizational design are usually necessary. Managers are often too afraid of disturbing current practices (status quo); they cannot make the necessary changes due to unfitting power distribution and resource allocation.¹³⁴
As organizational design sets general conditions for a company, it must be flexible and adaptable to a new strategy while fostering change and growth.¹ Existing frameworks to describe the key factors of organizational design have yet to be able to include the entire complexity of organizational dimensions. Keeping this in mind, they can still be used to analyze an organization’s ability to adapt to changes, such as the implementation of a sustainability strategy.³⁵
A model by Lemus-Aguilar et al. is based on Galbraith’s Star Model³⁶ but puts a stronger focus on strategy as a link that connects all factors of organizational design.³⁵ With this strategy-centered framework, the importance of aligning all factors to a sustainability strategy should be emphasized.

A strategy sets boundaries for organizational design alternatives and connects all factors. Structure refers to hierarchies, distribution of resources, and responsibilities within an organization. Processes describes information flow, decision-making, and information technologies. People [LINK WIKI HR] refers to human resources and related policies and qualifications. Behavior includes several factors that can also be found separately in other papers: organizational culture, leadership, rewards, and other types of motivation (e.g., acknowledgments, and social incentives that strengthen employee commitment). These are key factors for successful strategy implementation. Lemus-Aguilar et al. added external linkages to the model, which represents circular interactions between internal and external actors to promote sustainability by delivering and capturing social, environmental, and economic value.³⁵ This includes e.g., external partners like joint ventures.³⁵³⁷ A CEO of outdoor company VAUDE highlighted that finally, a strategy must be managed at the executive level in everyday business: “It is like a puzzle, everything complements each other. In the center stands the sustainability topic.”³⁸

4.1.1 Organizational structure

“A mismatch between strategy and structure will lead to inefficiency.”³⁹ Organizational structure must align with a sustainability strategy; however, in reality, it is oftentimes the other way around.¹ Designing a structure that supports a sustainability strategy is strongly connected to the interdisciplinarity of sustainability itself. The layouts of organizational departments and the location of sustainability decision-making (e.g., a sustainability board) create friction in communication between units of an organization.²⁹
The key elements of organizational structure are specialization, formalization, centralization, and hierarchy.¹ According to an organization’s structure, resources are distributed to teams and individuals. It describes how jobs and tasks are divided and integrated. A structure also sets communication channels and reporting relationships along a hierarchy and defines a team’s coordination of work efforts.¹⁴⁰
The division of tasks into separate jobs and functions is described by specialization and is commonly influenced by a firm’s size. Higher specialization increases productivity but can also have negative impacts (e.g., reduced employee satisfaction due to the repetition of tasks).¹ Sustainability specialists (or sustainability champions) are needed across all levels of an organization to act as multipliers for sustainability approaches in their business units. They can positively affect changes and transfer knowledge across an organization.⁴¹
The extent of guidelines, rules, and predetermined procedures that steer employee behavior is described by formalization.¹ Depending on the business field, a high formalization might be necessary to ensure safety standards and reliability, although, generally, formalization can slow decision-making, reduce creativity and innovation, and inhibit customer service.¹⁴²⁴³
Centralization refers to the convergence of decision-making at the top of an organization.¹ Decentralized organizations can profit from faster response times because problems are solved directly, and decisions are made by employees closer to the source of the issue. However, there is the possibility of communication issues if not all issues are discussed in a central position.¹ Diversity in sustainability knowledge and backgrounds in top management is a powerful factor for a holistic sustainability approach.⁴⁴ Therefore, it is necessary to spread accountability for sustainability goals across multiple departments.⁴¹ In the initial phase of sustainability implementation, a centralized structure can be helpful to guarantee good coordination. Later, reaching a higher degree of maturity in sustainability integration can lead to unclear communication and accountability.⁴⁵
The term hierarchy summarizes the formal standing of accountability and reporting lines throughout an organization.¹ An organization with many levels between its frontline employees and CEO has a tall structure, while one with only a few levels has a flat structure. Flat structures have a wider span of control, which describes the number of employees who report directly to a manager. Research suggests that a middle way with a span not too wide nor too narrow is most effective because of conflicts of different objectives within an organization.¹⁴⁶

CASE STUDY SAP

Software company SAP implemented a network structure in line with a holistic transparency approach. A centralized sustainability team of specialists was originated to plan, evaluate, and execute operational activities in strong teamwork with respective business units. Collaborative decision-making led to higher acceptance and eventually anticipated better outcomes, which justified higher coordination and time efforts. This multiplication effect made it possible to achieve a broad impact on the company. Furthermore, SAP established a champions network for all employees to voluntarily engage in sustainability projects. Participating champions could count up to 10% of their work time, which increased employee engagement and individual motivation. Simultaneously, these champions act as decentralized multiplicators for sustainability implementation in their respective business units. The sustainability team organizes regular sustainability conferences and moderates an intensive exchange on a collaborative platform for SAP sustainability projects worldwide. Furthermore, an external sustainability council consisting of customers, investors, NGOs, workers’ representatives, and partners was established to consult about the strategy and its implementation.⁴⁵

4.1.2 Organizational culture

When implementing a sustainability strategy, it should adapt an organization’s culture accordingly to maintain a competitive advantage.⁴⁷ The importance of culture was described by Peter Drucker, who said, “culture eats strategy for breakfast.”⁴⁸ It is worth mentioning that a study revealed that of companies creating value from sustainability, almost 60% integrate sustainability as part of their corporate culture, whereas 39% of all the other companies interviewed focused on this matter.¹⁵ When companies fail, it is often because CEOs were not able to transfer their strategy into a culture.⁴⁷ Culture can be one of the strongest features of an organization; however, at the same time, it can become a downfall if a culture is not adapted to changes in a company’s environment;¹ thus, it represents a driver and a barrier in one. Organizational culture describes “collectively shared values and norms of an organization’s members”¹ and is part of organizational design.⁴⁹ Through socialization, the process of internalizing values and norms during everyday business operations, employees learn about their organization’s culture.⁵⁰ Strong internalizations of values and norms among the majority of employees create a strong culture.⁴⁷ ⁵⁰ Culture is expressed via artifacts, which are elements of the design of physical space (e.g., private vs. open-plan office), symbols (e.g., workwear), vocabulary, stories, what events are celebrated, and how (e.g., casual BBQ for reaching a sales target).¹³²
Often, organizational culture is characterized by its founder. As a founder usually sets the initial strategy, this so-called founder imprinting can define a company’s culture for many years.⁵¹ Examples are Steve Jobs (Apple) and Walt Disney (Disney).¹
Usually, people with similar values to a company’s culture are more attracted to having that company as an employer.³²⁵² This also works the other way around, as recruiters look for people with a mindset that fits a company.⁵³ In regards to implementing a sustainability strategy into a culture, it should be considered that concepts of sustainability as a value are highlighted in culture, especially when recruiting new employees.³²

CASE STUDY ECOLIBRO

Mobility consulting company EcoLibro shows how entrepreneurial thinking and employees’ personal responsibilities can increase efficiency and productivity while reducing individual accountability through decision-making distribution. High effective commitment to living sustainability values in daily business led to empty car parks, a fleet of bikes and public transport tickets, tremendous know-how, strong employee retention, openness to new possibilities, engagement in decision-making, and creative drive. Experiencing meaningfulness is key to sustainability integration in culture.⁵⁴

4.1.3 Leadership and commitment

An effective means for cultural change is new leadership that follows the necessary adaptations in organizational design. To manage this change effectively, strategic (vision), tactical (enabling environment), and operational (everyday practice) action is required.⁴¹⁵⁵ For the integration of a sustainability strategy at all levels, employees need clear guidance on expectations that come along with a new strategy.²⁰ Leading by example is key to strengthening sustainability objectives throughout an organization.³²⁵⁶ Furthermore, learning new sustainable practices and unlearning those that are no longer fitting with a sustainable strategy is a crucial part of an implementation process. Therefore, education on new tools for all employees is necessary.¹⁸ To achieve higher engagement, creative communication on a rational and emotional level is an effective tool for employees to understand what sustainability means for them and their everyday work.²⁰³² Leaders require a sustainability communication approach along an entire value chain to create a mutual understanding of sustainability with all employees.⁵²⁵⁷ Furthermore, it is possible to gain insights into the effectiveness of set measures and the status of implementation via extensive consultation with employees.²⁰
A cross-cultural study by Müller et al. showed a positive correlation between socially sustainable actions (Corporate Social Responsibility) and employees’ effective commitments. The results imply that companies benefit from strong social sustainability.⁵⁸

4.1.4 Controls and rewards

“Strategic control-and-reward systems are internal governance mechanisms put in place to align incentives of principals (shareholders) and agents (employees). These systems allow managers to specify goals, measure progress, and provide performance feedback.”¹ An example of such a mechanism is already found in culture. It can act as a social control system (e.g., values and norms provide controls in unpredictable situations for employees).¹³²
On the one hand, input controls are used to define ways and instruments to achieve strategic goals to achieve a predictable outcome. The most prominent example is budget distribution, for example, when focusing on a sustainability research and development project by allocating a certain amount of money before the start of a project. On the other hand, output controls define expected outcomes, while input factors to achieve those goals can be chosen by employees.¹
Achieving sustainability goals strongly depends on employee motivation. Decisive factors for high intrinsic motivation are autonomy (about what to do), mastery (how to do it), and purpose (why do it).¹⁵⁹ The introduction of performance management systems that connect accomplishments in sustainability goals with rewards brings up a strong enhancement in sustainability goals, values, and strategy.³²³³

4.1.5 Involving stakeholders

With the integration of sustainability into corporate practice, it is important to highlight the value of all dimensions of sustainability. Social sustainability makes it essential to put more focus on stakeholders, especially on a variety of external stakeholders that ‘conventional’ organizations generally do not consider.³⁸ This demands a high commitment to extensive interaction with ‘new’ stakeholder groups.³⁵ Those groups may have different and maybe conflicting needs and interests and may have further interconnections as well.³⁸⁶⁰ Therefore, stakeholders can directly or indirectly influence a company’s sustainability performance.³⁸⁶¹ Thereby, stakeholder groups’ power, legitimacy, and urgency indicate their influence on a sustainability strategy.³⁸⁶² A survey of leading firms in Mexico showed that 81.5% of the firms indicated collaboration with an environmental organization as a business opportunity while only 23% saw issues with such an engagement.³¹
Especially important for international organizations is to understand issues of globalization for them to act sustainably entirely.¹⁸ Furthermore, stakeholders increasingly expect reporting about organizational sustainability, strategy, performance, and progress. To determine the most relevant reporting topics, a materiality analysis can be useful. Good reporting that includes non-financial aspects creates public trust in an organization’s sustainability efforts.¹¹ It creates transparency and strengthens organizational learning.⁴¹ An example of reporting guidelines gives the GRI. Therefore, a sustainability strategy should include comprehensive ways of communicating with stakeholders.¹¹

5 Drivers and barriers

In the following, drivers and barriers to a sustainability strategy are clustered into three core categories: institutional (beyond a firm’s scope), organizational (within a company’s business), and individual (with a focus on the people representing a firm).43 Some of them may both act as drivers and barriers depending on the context. In the best case, potential barriers are handled properly and turned into drivers, e.g., via communication, involvement, and sound fact-based reasoning – the foundation for developing and implementing a sustainability strategy.34 After providing an overview of potential drivers and barriers at the mentioned levels, chosen issues considered particularly important will be discussed in detail.

5.1 Institutional level

On the institutional side, compliance with governmental standards and incentives, consumer awareness, and requirements to take responsibility could act as drivers.³⁸⁶³ Also, gaining a strategic competitive advantage and a pioneer position in the field of sustainability via a corporate strategy may foster the development of a sustainability strategy.²⁰³⁸⁶⁴⁶⁵ The same holds for shareholder interests and requirements, public pressure by NGOs, or suppliers’ requirements.⁶³ Contrary to this, weak, unclear environmental and social standards, missing governmental incentives, or actual consumer behavior (e.g., high price sensitivity) may impede motivation for a sustainability strategy.³⁸⁶⁶ Besides, intensive price and cost pressure on the market side and lack of trust and support by shareholders, industrial lobbying groups, or suppliers could make the development and especially the implementation of a sustainability strategy difficult.⁶⁶

Drivers	Barriers
Compliance to governmental standards	Low pressure from regulation side (weak standards)
Governmental incentives	Lack of governmental incentives
Consumer awareness and requirements	Consumer behavior: price sensitivity
Pioneer role among competitors	Loosening competitiveness (price/cost pressure)
Shareholder interest and requirements	Lack of trust and support from shareholders
Public pressure by NGOs	Industrial lobbying groups
Suppliers’ interests and requirements	Lack of trust and support from suppliers

Table 2: Institutional drivers and barriers ²⁰³⁸⁶³⁶⁴⁶⁵⁶⁶

5.1.1 Government regulation

A study stated governmental regulations as a core barrier to engaging in sustainability. Firms consider compliance with the growing number of sustainability-related standards difficult.³⁸ In particular, lack of governmental support, missing incentives, and few training or consulting options provided by a government were named.⁶⁷ Thus, a fuzzy, unclear regulatory framework results in uncertainty.⁶⁶⁶⁸ By contrast, this uncertainty in a fast-changing regulatory context may also lead companies to proactively comply to reduce vulnerability and pressure from stricter regulations.⁶³ Therefore, governmental regulations and standards act as important drivers in the same way.³⁸⁶⁸⁶⁹

A study revealed legal sustainability-related requirements as the means with the greatest influence on a business.⁶³ When talking about the relevance of this driver, one has to keep in mind the different levels of compliance: whether a firm simply intends to comply with minimum standards or is willing to proactively go beyond requirements.¹¹ Compliance with laws may be more relevant for ‘low-sustainability performers than for those who follow a holistic approach in addressing sustainability where they even contribute to the establishment of laws for systemic change.⁶³⁷⁰ These laws will be beneficial to these sustainability leaders over their competitors – thus creating a sustainability-related competitive advantage.⁷¹

5.1.2 Competitive Position

Companies may think engaging in corporate sustainability will weaken their competitive position in a market.⁷⁰ They believe that sustainable business is costly from the first point of view (e.g., high initial capital cost)⁶⁷ and lacks short-run financial benefits.⁷⁰ Due to difficulties in forecasting particular sustainability-related benefits and costs, and the high uncertainty of future framework conditions (e.g., market demand), companies believe they cannot create a successful business case for sustainability.⁶³ They are struggling with defining and quantifying sustainability-related (profitable) outcomes (e.g., via KPI).⁴¹ This impedes motivation for a core strategic approach to sustainability; instead, single sustainability-related initiatives are worked out separately from main business goals.⁷⁰

By contrast, 95% of the companies participating in a representative study claimed that sustainability is a vital factor for a successful business in the long run.⁶⁹ Also other studies show that this core belief drives engagement in sustainability.¹³⁶⁷⁷² Cici and D’Isanto linked the integration of sustainability into a strategy to the “ultimate goal of increasing competitiveness and supporting durable profitability.”⁶⁵ To gain credibility and effectiveness for one’s actions, a firm has to go beyond tapping sustainability in several non-linked operational tasks (e.g., selective engagement in donations or advertisement).⁶⁴ By contrast, all sustainability-related actions have to be related to an overall strategy.¹⁶ A study showed that the share of companies successfully creating value from sustainability was significantly higher than the share across all other companies interviewed when it comes to explicitly classifying sustainability as a strategic topic.¹⁵ This way, a firm will be persuasive and able to set itself apart from the mass of sustainability-related activities on the market.⁷³ By taking a pioneer position based on an integrated sustainability approach, firms will be less reachable to competitors.⁶³⁷⁰ As strategic approaches are set on a long-term basis, they are not easy for competitors to copy; neither are those able to establish the required core competencies shortly nor can they buy the gained reputational position at the organizational level.¹

5.2 Organizational level

Drivers	Barriers
Corporate reputation and brand image	Difficulty to align with other business fields
Increased operational efficiency	Lack of financial resources
Increased revenue streams (e.g., new markets)	Lack of R&D and innovation capabilities
Reduced operational costs	Lack of time and human resources
Open-minded, innovation-oriented culture	Prevalence of deep-routed routines

Table 3: Organizational drivers and barriers ²⁰³⁸⁶³⁶⁴⁶⁵⁶⁶

From an organizational perspective, enhanced brand image and reputation, operational efficiency (e.g., energy savings), higher revenue streams (by tapping new customer segments), reduced costs (e.g., better resource management), and a generally open-minded, innovation-oriented company culture could be seen as success factors.³⁸⁶⁴ By contrast, companies face difficulties in aligning their (competitive) business strategies with sustainability strategies.⁷⁴ Moreover, a lack of financial resources, R&D capabilities, and time and human resources can be obstacles.⁶⁶

5.2.1 Corporate reputation

A core driver for engaging in sustainability is beneficial corporate reputation and image,¹³ which increasingly determines a business.³⁸ It represents the way stakeholders think about a company⁷⁵ and provides trust, which, according to a 2019 study, is a core condition for remaining competitive in a market for 76% of participating CEOs.⁶⁸ Linked to growing public awareness toward sustainability, improving corporate image is among the top drivers of sustainability.⁶⁷ In the worst case, unresponsible social and environmental behavior may also lead to the full breakdown of a company.³⁸ Also, the above-mentioned fact that many companies lack a corporate plan for tackling sustainability and instead focus on several non-linked initiatives (e.g., products, employees, and society) with minor changes within the actual business⁶³ may threaten a company’s image when thinking of greenwashing.¹⁴ This phenomenon describes firms using sustainability claims in their communication that do not meet their actual sustainability-related performance.⁷⁶ In sum, a firm improving its image and reducing greenwashing-related risks may force active engagement in a sound corporate strategy.

5.2.2 Organizational structure and culture

Organizational structure and culture are essential factors that can drive or impede a successful sustainability strategy.²⁹ A study revealed business structure as one of the most relevant barriers to engagement in sustainability.⁶⁷ Organizational structures that rely on the idea of business units and incentive-based systems focused on short-term financial success may foster an old-fashioned mindset and thus impede strategic engagement.⁷⁷ Linear thinking with hierarchical orders and communication processes putting only a limited view on separate components rather than a big picture of a whole may hinder full integration of sustainability.⁷⁸ Sustainability has to be interdisciplinarily integrated into the entire company structure.²⁹ It is crucial that each organizational unit of a company is aware of the overall company’s strategy and sees how its performance contributes to the latter (what fosters the overall commitment).¹¹ This requires good internal (and external) communication, which is key to providing transparency – a precondition for reducing and handling complexity and thus reaching a predefined goal (e.g., integration of a sustainability strategy).⁶⁴ It represents a culture not focusing on hierarchies, but on networks with horizontal communication including constant feedback flows, and may turn a company into a learning system.⁷⁸ Organizational learning helps convince people, change mindsets, and develop new daily routines. It may make it easier for employees to understand links between a main vision, a mission, and underlying goals, which increases the probability that they are set open-minded toward a comprehensive strategy.⁶⁴

CASE STUDY OTTO GROUP

At Otto Group, the Corporate Responsibility Department is the head of group-wide sustainability approaches. However, Otto has a decentralized organizational structure such that the implementation of a sustainability strategy lies at the top management level of the respective group companies. Even if there is a close communicational exchange between group managers, sustainability officers, and the CR Department, the development and implementation of a sustainability strategy is carried out separately. With the purpose of “bringing sustainability […] more at the core of [their] business,” the organizational structure was modified. The CR Department is now built by cross-functional CR teams coming out of the respective group companies. In this way, group companies are given more freedom in their decisions and more influence on their overall strategies. All actors involved work together and exchange views within so-called “Expert Circles.” To go further, groups are given an opportunity to actively shape strategic decisions during open discussions about sustainability-related topics in both annual executive board meetings. After making structural changes, the CR board, as the main actor in the field of sustainability, has gained clear legitimacy – allowing them to make sustainability-related decisions independently from the groups’ top management level.⁷⁹

5.3 Individual level

At the individual level, leadership support and commitment are crucial. The same applies to employee awareness and motivation and qualification and involvement.²⁹ Consequently a lack of commitment, awareness, knowledge, skills, and involvement of an entire personnel may act as a barrier.⁶⁶

Drivers	Barriers
Leadership support and commitment	Lack of leadership support and commitment
Employee awareness and motivation	Lack of awareness about responsibility
Employee qualification	Lack of knowledge and skills
Involvement of an entire personnel	Lack of staff involvement and empowerment

Table 4: Individual drivers and barriers ²⁰²⁹³⁸⁶³⁶⁴⁶⁶

5.3.1 Commitment of leadership

Acceptance of management is considered a core condition to successfully implement a sustainable strategy,²⁹ simply because strategic approaches are taken at the level of top management.⁷³ This depends on personal values, which influence willingness to engage in sustainability.²⁹³⁸ Managers often focus on economic performance while they are less willing or able to elaborate on sustainability issues.⁶⁴ Priorities lay on operational short-term issues rather than on a strategic long-term view.⁶⁵ Moreover, there is a lack of understanding of sustainability and its benefits for a business.⁶³⁶⁷ In addition, old-fashioned mindsets⁶³ result in a certain skepticism toward sustainability issues that may hinder institutionalizing sustainability into the above-named company culture.³⁸ Hence, poor management could impede ambitions for a sustainability strategy.¹³ Training courses may help change a mindset and explain opportunities of a sustainability strategy²⁹ such that this barrier may be turned into a driving point. Indeed, an active commitment by leadership drives the embedding of sustainability strategies. The formulation and implementation of a corporate strategy is understood as a process that is proactively driven by management and its awareness.¹³ If a member board decides to engage in sustainability, change may happen faster⁷⁰ because proper leadership puts forward the enforcement of sustainable practices and helps encourage all employees.⁷²

CASE STUDY ECOLIBRO

At EcoLibro (a provider of innovative mobility solutions), in its founding state, leadership’s understanding was highly influenced by the founders’ former engagement in military service at German Bundeswehr. After an internal revolution, a more democratic, less hierarchical leadership style was adopted. Actors at the top management level are now seen as coaches giving inspiration and providing visions. Information is shared transparently, and employees are actively involved. This change in leadership style has led to higher commitment, greater assumption of responsibility, and an increased open mindset in dealing with each other across the entire company – thus exemplifying a highly supporting factor for CSR approaches such as a corporate sustainability strategy.⁵⁴

5.3.2 Employee engagement

Employees’ support plays a crucial role in bringing management’s formulated strategy into implementation.²⁹ Employees’ interest in sustainable initiatives drives their success.⁶³⁷² A recent study revealed that employees are one stakeholder group with the greatest influence on managing sustainability.⁶⁸ Individual attitudes and personalities determine motivation. First, a personal attitude is influenced by individual qualifications. To achieve this, it is crucial to empower people by informing and qualifying them (e.g., via training courses).²⁹ A study revealed that companies who can create value from sustainability (value-creators) are those that typically engage in training their employees on how to integrate sustainability practices into their work.¹⁹ Employees have to understand the importance of a sustainability strategy and its integration into daily work routines.²⁰ Indeed, 47% of the value-creators in the above-mentioned study said that employees have an understanding of the link between sustainability efforts and an overall strategy; among all the other companies asked, this share was 27%.¹⁵ A message must be framed in a way that people listen to it.⁷⁸ Therefore, people have to be addressed on informational and emotional levels.²⁰

Besides knowledge and understanding, a strategy requires full commitment by personnel.⁸⁰ Setting incentives via reward systems may foster their engagement in sustainability implementation, although this drives motivation in the short run. In the long term, improved appreciation would be more helpful²⁹ – revealing that employees are a vital part that contributes to the success of a sustainability strategy.¹¹²⁰ Overall, it necessitates shared sustainability-related values and the integration of those as core criteria into recruitment, performance evaluation, and employee training methods.¹⁶

CASE STUDY ALCOA

At Alcoa Corporation (a mining and metals company), employees’ children had the possibility of drawing pictures of a sustainable world (through the kids’ eyes). This touchingly shows the own responsibility of engaging in sustainability to preserve our planet for future generations.⁸¹ A comparable approach follows Lenzing AG (a textile fiber producing company) with its campaign, “letter to a child.” Within this company’s sustainability report, letters – written by employees to their children – are published in which they explained to them the importance of sustainability for their future. In a way that children can understand, they described their contributions to sustainability through working at a responsible company that follows a corporate sustainability strategy.⁸²

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