When it comes to sustainable transition, one of the first areas that companies need to analyse is their business model. Indeed, the sustainability of the business model is the foundation on which not only the success of the organization's sustainability strategies depends, but also its competitiveness and, before that, its very viability over time. In reference to the business model, in fact, sustainability indicates not only the impact of the company and its operations - and those that occur upstream and downstream its supply chain - on the environment or communities where the company is located, but also the economic sustainability of the model over time. This analysis, as well as the work to streamline and improve the critical issues detected, must consider all aspects that impact the company's business model, as well as all areas impacted by the company. In this journey, ESG plays a primary role, as it helps companies to identify those issues and areas where they need to focus on to monitor current performance and develop strategies for improvement.
ESG role in the sustainability of the business model
ESG primarily relates to sets of measurement criteria and standards (in many cases still under development) of an organization's environmental, social and governance activities. Criteria that take the form of a set of operational standards, must drive a company’s sustainable business model, as well as its operations, to ensure that certain environmental, social, and corporate governance outcomes are achieved.
These criteria - and how the company positions itself in relation to them - are extremely important because:
- They are used by investors to evaluate and decide on their investment choices.
- They are used by public and government agencies to choose companies that can participate in public projects and/or receive public funds.
- They guide supply chain stakeholders in choosing which suppliers to include in their supply chain.
What does ESG says about the sustainability of your business model
The assessment of a company's ESG performance says a lot in respect to the sustainability of its business model. For example, the assessment of a supplier's ESG performance could point to critical issues that could indicate the supplier's lack of solidity and thus the risk, for the company using it, of having its supply interrupted at any moment.
Similarly, ESG indicators also provide a snapshot of the solidity of the company itself, as they look at so many different aspects that, if not addressed properly, can erode the competitiveness of the business model over time. Disruptions to supply chains that have occurred in recent years, for example, have underscored the disadvantages of relocating sourcing or production solely for economic advantage, when there is an alternative closer to the country of operation.
Looking within corporate boundaries, indicators related to employee turnover might point to inadequate internal resource management, which could be the result of few opportunities for growth, little attention to employee welfare and a management culture that is not attentive to the needs of workers.
But how does this contribute to make a sustainable business model? In an environment where skills mismatch is growing, a company's ability to build the skills needed for its innovation internally and to be able to retain those already in place, can determine the company's ability to remain competitive over time.
How to evaluate the sustainability of your business model
Therefore, ESG and how the company and its entire supply chain is positioned with respect to the associated indicators, plays a strategic role in relation to the sustainability of its business model. However, when it comes to moving from words to measuring these indicators and evaluating the company, both overall and in the different areas to which these indicators refer, the road is anything but easy.
This is why there is growing interest in software solutions that can automate this evaluation process. In choosing a solution, however, there are several factors to consider, such as:
- The availability of data based on which assessment will be carried out.
- The quality of data
- The standards on which the solution is based, such as those of the Global Reporting Initiative, that have the role of both providing a common yardstick for measurement and certifying ESG performance.
- Attention to the specific context in which the company operates, thus to the country and sector of reference.
- An intuitive result that can provide a general overview of the company, as well as a detailed analysis of its performance in the main macro areas referred to by ESG.
- The possibility of certifying the performance, in order to access market opportunities.
By addressing all these issues, the company can get an insight of the strengths and weaknesses of its sustainable business model and measure improvements over time. This will allow the organization to have a compass that will indicate if it’s moving in the right direction.
