How To Effectively Integrate Sustainability Into Enterprise Planning & Governance
Without embedding sustainability into business decision-making and processes the work will be at risk.
Of the three foundational elements needed to successfully integrate sustainability into your business, we believe enterprise planning & governance is the most important - and most complex.
Here are detailed recommendations and best practices for making sustainability an integrated part of your business plans.
This is part 3 of 3 in a series highlighting the what, why, and how for robust sustainability integration in your business. You can find part 1 here or part 2 here.
Recall (Part 1): What does sustainability integration mean?
We hear this a lot: “sustainability must be part of corporate strategy” to make progress. That’s true.
But how it’s integrated into strategy and other kinds of business decisions can make a huge difference.
If sustainability isn’t integrated in the cascade of decisions that flow from enterprise mission, goals, and strategy then you will have limited success in addressing the impacts your business has on people and the planet.
Recall (Part 2): Establish Planning & Governance Measures to Support Multi-Year Execution
Here’s what few people talk about and even fewer people have experience doing:
Effective sustainability integration requires translating strategy into where much of the real decision-making happens in a business - operational plans, department roadmaps, financial plans (aka budgets), and corporate governance.
This is where we have unique expertise and experience.
Key Points of Leverage
Depending on the specifics of how your business runs their planning and governance processes, there are numerous opportunities to effectively integrate sustainability into decision making.
In our experience, there are several places where we find consistent opportunities across industries.
These key points of leverage represent the most effective places to influence business decision-making across the integrated enterprise business planning process including the following phases:
Strategy Development
Operational Planning
Financial Planning
Governance
The following sections articulate the specific opportunities that exist for effectively integrating sustainability into each of these business processes.
Strategy Integration.
Enterprise strategy can act as a powerful and compelling force that helps prioritize where investments are made.
Since enterprise strategy should link directly to what work (e.g. programs, projects, etc.) gets executed in the operational and financial plans it’s an important input for the decision-making that happens in those phases.
In our experience, here are the best integration opportunities for strategy development:
Strategic insights: Data and analytics designed to serve as the fact base for strategy development. Do they include info on material sustainability issues for the business? This information is needed not only for risk mitigation but capitalizing on places where sustainability leadership can drive value creation.
Barrier identification: What are the barriers to executing the directional approaches designed to achieve enterprise goals and win with customers in your strategies. Do they include material sustainability impacts that must bee addressed to be successful? Depending on how these are structured, sustainability should be included where material impacts will influence implementation. Doing so helps serve as an important foundation for developing OKRs based on strategic priorities/pillars and enablers.
Enterprise OKRs: Goal management and prioritization framework for aligning the business on what matters most. Do the objectives and/or key results include inputs/outputs/outcomes related to material sustainability issues? Integrating sustainability into OKRs is one of the most effective ways to ensure that there is cross-functional alignment, collaboration, and accountability.
Operational Planning Integration
For many companies, the annual operating plan contains the complex, cross-functional bodies of work (i.e. programs and projects) that are designed to execute your strategies.
The process of crafting an operational plan should include a cycle of program ideation, development, evaluation, and prioritization.
In our experience, the best integration opportunities for operational planning include:
New program development: When building new programs for evaluation and potential funding, cross-functional teams involved in defining projects should include a sustainability stakeholder to help identify and address material environmental and impacts through integrated scopes of work. A “sustainability sponsor” similar to the way you would include a technology or finance partner by name in a submission signals that the proposed program has rigor and sufficient due diligence on this topic.
Program intake: When collecting new program submissions, the team responsible for leading intake of the information should include mandatory sustainability-related questions/fields/data. A sustainability/ESG/impact sponsor can sign-off on major new program submissions as a gate keeping function prior to evaluation.
Program scoring: When scoring new program submissions, sustainability criteria should be included and weighted appropriately. For programs that are exclusively sustainability or impact driven projects without clear linkages to other new or ongoing programs, how are financial costs and benefits addressed in scoring? One option is a dynamic rate of return or ROI hurdle for these projects, another option is to link sustainability focused programs to the baseline revenue that drives the impacts. The idea is that you help level the playing field with more revenue-driving programs that are competing for the same resources.
Program ranking & prioritization: In building a ranked list or other approach to prioritizing which new programs will receive funding in the coming fiscal year, nature and extent of impacts for material sustainability issues associated a program should be a factor. Depending on the nature of the programs being ranked, sustainability criteria can include both binary and weighted.
Financial Planning Integration
Allocating internal capital is often where the rubber meets the road when it comes to sustainability integration.
When allocating capital as part of a financial plan, two of the common budget buckets include capital expenses and operating expenses.
These pools of money are often managed separately, which itself can cause barriers to effective sustainability integration.
In our experience, the best integration opportunities for financial planning include:
Sustainability oversight: In making budget decisions for major new or ongoing investments, is a sustainability executive included in determine the final allocations? Having a sustainability executive working collaboratively with the CFO and finance team helps ensure that material impacts associated with capital investments have been quantified and are the costs associated with mitigation are captured in the final budget.
Capital expense allocations: The design, construction, and operation of physical assets can dramatically change the sustainability profile and performance for a company. Have the material environmental and social impacts associated with this investment been effectively quantified and mitigated over the life of the investment? What about externalities that are not easily captured by traditional financial analyses (e.g. true costs)?
Governance Integration
Governance provides critical oversight and accountability when it comes to achieving goals, executing enterprise plans, and managing budgets.
Robust governance functions to help manage risk and enable agility in times of volatility and uncertainty.
Increasingly sustainability or ESG issues and metrics are included in governance as key measures of success. And board members are continuing to develop expertise in these areas.
In our experience, the best integration opportunities for governance include:
Program tracking: Regular tracking and evaluation of program delivery provides a number of benefits. Because sustainability experts and stakeholders are often siloed, regular program tracking and progress reports during business reviews can help ensure that the sustainability-related work streams are on track.
New budget requests (off cycle): To stay agile your business should establish a process for evaluating funding requests for new programs that come up outside of operational planning. The key here is to support the same level of rigor and due diligence during off cycle program evaluation as you use during the regular planning process - including how effectively sustainability impacts are addressed through the portfolio of projects being proposed.
Quarterly business reviews (QBRs): These business reviews can serve as the backbone of your governance process and key milestones in you rhythm of business - allowing leadership to determine what’s working and what’s not, which helps with informed decision making and enables timely pivots in resource allocation. In addition to tracking progress on enterprise OKRs and operating plan implementation, they can provide a review of sustainability-related KPIs and provide your ESG committee with key data prior to regular board meetings.
Performance management: When cross-functional partners are accountable for sustainability-related OKRs as well as KPIs through the structure of their compensation, they can be far more collaborative and solutions oriented. Given the nature of sustainability efforts, coupled with traditional organizational structures it can be difficult to deliver on these critical projects without properly aligned incentives.