Sustainability between customer wishes and strategic anchoring

written by

Paula Bobzien

Not only should ESG regulations influence a sustainability strategy, but customer preferences and the overall strategic direction within the company are two critical factors to consider.

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Sustainability between customer wishes and strategic anchoring

Sustainability is becoming an increasingly important decision criterion for customers. Customers expect companies to communicate transparently about the sustainability of products and services. The main focus is on factors relating to environmental and climate protection. But (potential) buyers are also increasingly interested in the way companies treat their employees and the general positioning of their management with regard to sustainable business practices.

Companies that do not have a credible positioning on these topics or do not even consider the topic of sustainability in their customer and corporate communications run the risk of losing market share. Put positively: Companies that have an active sustainability management record positive influence in customer growth, pricing and external impact. This makes the anchoring of a dedicated sustainability strategy in corporate management almost inevitable. It is therefore important to address the issue of sustainability in one's own company now and to adapt and position oneself accordingly. After all, the topic of sustainability will change markets, countries, sectors and companies in the long term.

Sustainability as an important purchase criterion

In order to successfully master the challenges of sustainability management, it is initially important to define how customers feel about sustainability and what they pay particular attention to. Companies are increasingly being asked by customers to make ESG information transparent and disclose it. Some companies have already recognized this need for information on the part of their customers and report on their website about the topic of sustainability and how they position themselves on ESG criteria or even use them.

This is particularly evident in B2C markets. At the latest since the start of the Fridays for Future movement and the Corona pandemic, customers are concerned with more than just products and services. More than ever, customers want to know where products come from and under what circumstances they were made. This is increasingly true whether customers are considering purchasing decisions, investment decisions or career changes.

Companies have recognized that customers are often more inclined to purchase a product if it is labeled as "sustainable". As a result, the price can play a subordinate role for customers, as the issue of sustainability is more decisive for them. However, companies should not fall into the greenwashing trap, but should only use reputable seals, certificates, etc. and also deal with the topic transparently.

In addition to the consumer sector, the food industry is also strongly influenced by sustainably oriented customers. Customers are increasingly concerned with the impact their consumption and purchasing decisions have on the environment. The resources used in food production and what carbon footprint they have have become central aspects of a purchasing decision. This also means that customers are sometimes willing to pay a higher price in order to have a better impact.

The employee world has also been strongly influenced by the sustainability transformation. The social aspect in the ESG area in particular has become much more important. More than ever before, customers are also interested in the purpose of a company and its culture. Topics such as work-life balance or more flexible work models such as home office are playing an increasingly important role in the choice of job. If companies do not offer such models, this can lead to employees even deciding against a company.

ESG means more than just calculating CO2 emissions in the company and optimizing waste management. Against this background, it is not surprising that ESG is at the top of the agenda for most executives, in almost all industries worldwide. It is therefore important to promptly consider and establish a suitable sustainability strategy within the company.

The call for sustainability is becoming louder and louder and affects every area, so that companies can no longer afford to neglect ESG or not position themselves on the topic of sustainability at all. The more transparently the topic is dealt with, the more willing customers are to deal with the company. But banks are also more likely to grant loans on better terms if a company demonstrates transparency with regard to ESG. It is important to avoid greenwashing, as this can have a significant negative impact on the company's image and can even lead to the loss of customers, as trust is lost.

The external image of the company in terms of sustainability to customers is particularly crucial. Here, seals and certification help to show customers that international standards are met and guidelines are fulfilled. Therefore, as a company, it is important to define the optimal customer for the company and what specific sustainability requirements they have for the company or for their own product. Furthermore, if ESG criteria are met within the company or even used to strategic advantage, new business models can emerge and new customer bases can be generated.

Strategic alignment

In addition to customer needs, strategic alignment is a critical factor in how to successfully navigate the challenges and complexities of sustainability management within the company. A holistic ESG strategy can help the company prepare for the sustainability transformation and define the company's individual focus areas. However, before developing a suitable ESG strategy, it is important as a company to consider some aspects and define them accordingly.

As a company, it is important to work out what the ESG requirements are for the particular industry the company is in and which ESG area the company should focus on most. In addition, company executives should be aware of current ESG regulations before developing an ESG strategy and take them into account every step of the way when developing the strategy. Only then can the strategy create long-lasting value for the company. Additionally, it is important to understand which ESG criteria are most important to stakeholders. It can be helpful to involve them in the transformation from the very beginning in order to prepare them for corresponding adjustments and changes and to respond to their wishes. In addition, the appropriate customer segment and the optimal customer should be defined beforehand. This is the only way that an ESG strategy can address the right customer and respond appropriately to customer wishes.

It is important that the ESG strategy fits the company. The implementation of the strategy must be adapted to the individual needs of the respective organization. Each company has different ESG criteria that need to be addressed more closely in order to keep pace with the market. When developing the strategy, it therefore makes sense to create and define a plan with individual measures and targets in advance and to go through them step by step. ESG risks are often complex and change quickly. By carefully assessing opportunities and risks in advance through analysis and monitoring, it is possible to react better and more consciously to changes later on. By assessing risks in the various analyses, possible risk factors can be defined in advance and addressed accordingly.

In order to successfully integrate ESG into the company, goal-setting methods such as the OKR (Objectives & Key Results) framework help to efficiently implement and execute the strategy. The OKR is used to define, organize and monitor objectives and results transparently and across departments. The objectives form the value proposition for internal as well as external stakeholders. The Key Results measure whether the value propositions have been met. Since the OKR framework is particularly suitable as a goal-setting method for strategy implementation, this can be particularly helpful for the implementation of the ESG strategy.

Through a well thought-out ESG strategy, a company can minimize risks right from the start and generate competitive advantages to remain in the market in the long term.

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