Sustainable Value Creation: A three-part series to navigate the sustainability business landscape.

Today’s businesses are experiencing a natural tension between ensuring financial security while meeting environmental sustainability objectives. Can an organisation truly create value by rooting its strategy in sustainability? One only needs to look at the challenges facing countries throughout Africa to realise the complexity and scale of this especially when it comes to how energy security is driving many boardroom discussions.

Businesses thrive when the lights stay on, translating to profit. Yet, many push alternative energy measures without fully considering the environmental repercussions. This often stems from necessity rather than oversight.

Nevertheless, it’s not all bad news. We're observing intersections where financial interests meet environmental conservation. More recently, there’s been a pivot from ESG metrics to leveraging Artificial Intelligence (AI). Though AI isn’t new, its potential for boosting sustainability is turning heads.

As we navigate the complexities of sustainable business practices, there are five key pathways that stand out as essential for companies who want to integrate sustainability into their strategies. Each pathway offers unique opportunities and challenges:

1. Harnessing the power of sustainable practices: AI can help enhance sustainable practices by analysing complex supply chain data, forecasting demand more accurately, and optimising resource allocation. For instance, with SA’s significant exports to regions like the US, Europe, and China, AI can help in processing and interpreting emissions data efficiently.

2. Embedding sustainability into organisational culture: As data becomes an important part of decision-making, AI-driven insights ensure that sustainability initiatives are rooted in tangible evidence. This not only informs but empowers stakeholders to make informed decisions and become stewards of the vision.

3. Merging sustainability into corporate structures: Beyond traditional data processing, AI plays a significant role in understanding non-financial impacts. While financial metrics might be straightforward, gauging sustainability initiatives' real-world effects often requires sophisticated data analysis. AI can parse through massive datasets, finding patterns and correlations that might be missed otherwise, assisting companies in aligning more closely with the UN’s SDGs.

4. Building a resilient reputation: AI-driven sentiment analysis tools can monitor brand perception in real-time, allowing companies to assess how their sustainability efforts are being received by consumers globally. Such tools can provide invaluable insights into areas of improvement and highlight successful initiatives.

5. Navigating the capital markets: AI can offer predictive analytics to guide sustainable investments, optimising for both financial returns and positive environmental impact. As investors become increasingly interested in how firms advance sustainability, AI can help decipher complex datasets to showcase genuine efforts and weed out instances of greenwashing.

Proceed with precision

Embarking on a sustainable journey means recalibrating the company's core strategy, aligning it with overarching global goals. This not only holds businesses accountable but fortifies them for future growth.

Sustainability isn't a mere buzzword; it's a value enhancer. By integrating it into both strategy and environmental stewardship, businesses can strike a chord between innovation, culture, and profitability. This requires a forward-looking approach that relies on data -driven insights and an awareness of both potential pitfalls and the rewards that lie in linking business values with environmental conservation.

In today's globalised economy, staying current with the regulatory landscape can be challenging for any business, especially those operating across different geographical jurisdictions. The regulations that companies must navigate, whether country-specific or regional (think the European Union), are complex and ever-evolving. Yet, within this complexity lies an opportunity to harness advanced technologies like artificial intelligence (AI) to ensure compliance while also leveraging the benefits embedded in these regulations.

AI stands out as an incredibly potent tool in helping organisations stay ahead of regulatory changes. With its capacity to digest vast amounts of data, AI can assist businesses in sifting through intricate regulations across different jurisdictions, making compliance more manageable. For instance, EY has recognised the significance of AI in this regard and have integrated it into our suite of tools to assist businesses with cross-jurisdictional requirements.

The upside of compliance

Beyond the ‘grudge’ aspects of compliance, there are benefits to capitalise on. We have expert teams who delve into the nitty-gritty, helping businesses identify incentives, grants, and other potential benefits. For instance, restructuring to capitalise on trade agreements and revised tariffs, though it is more long-term, can result in financial advantages.

But what about the environmental and financial trade-offs? Take, for example, the decision between flying goods from Europe or trucking them from Egypt. Which has a lower carbon footprint? And which is more financially beneficial? Such decisions must be made with a holistic view of sustainability, considering both environmental and economic impacts.

Regulatory ripple effects

Europe's regulatory decisions often send ripples throughout the global market. The Carbon Border Adjustment Mechanism (CBAM) will significantly impact South African businesses, influencing how they import and export products to the EU. This will further reverberate down their supply chains. While European consumers may willingly bear the cost implications of adopting more environmentally friendly products, African consumers often don't have that luxury.

Much of the effects of these regulatory shifts depend on the sector and the size of the organisation. While sectors like automotive, especially with South Africa's considerable combustion engine exports, are more focused on survival than compliance, it's crucial to keep an eye on international requirements.

However, not all organisations feel the same heat. South Africa's entrepreneurial market may not experience an immediate impact of regulations like CBAM. Instead, local regulatory changes might bear more relevance to them.

Capitalising on opportunities

There's a silver lining for businesses willing to embrace the changing landscape. By capitalising on opportunities, such as infrastructure project incentives and stronger engagement based on BEE status, businesses can strengthen their market position.

But should companies tackle these challenges alone? Leveraging expertise, by outsourcing to specialists, can prove invaluable. Given the multiple touchpoints in understanding the regulatory environment, having a partner that's well-versed in the rules can make all the difference.

While the regulatory landscape might seem intimidating, with the right tools and partnerships in place, local businesses can not only navigate it successfully but also uncover hidden opportunities. It's about understanding, adapting, and leveraging to ensure that as the rules change, the business strategy evolves alongside them.

When it comes to sustainability and business practices, a common question is ‘what does good look like?’ There's a multitude of factors to consider, and often these sway between intricate data analysis and telling a compelling story.

Let's begin by acknowledging the dual perspectives that underpin sustainability reporting. On the one hand, there's the precise lens required by regulators, investors, and ratings agencies. They demand meticulous data analysis that often requires large investments. On the other hand, there's a more nuanced art of communicating this data to the market and employees, which calls for storytelling. Think of it as colouring in the raw information that the data presents.

Those companies who’ve been able to differentiate themselves are masters at integrating both these pillars. They invest heavily, often employing dedicated teams, to present a narrative that is both compelling and easy to understand. At EY's Integrated Reporting Awards, the thing that top-ranking companies had in common was their collaboration with creative agencies, proving the point that distilling complex data sets requires a narrative flair.

The art of selecting metrics

While the UN's Sustainable Development Goals provide useful guidelines, aligning with the World Economic Forum Measuring Stakeholder Capitalism framework becomes equally important. It’s essential to narrow down to three or four primary principles or measurement mechanisms tailored to specific metrics. This approach not only provides more focus, but also ensures alignment with global benchmarks.

Companies constantly face the conundrum of how much to spend on producing these reports. Striking a balance is crucial. While one wants the reporting to be comprehensive, it's equally vital to manage costs effectively. Many are now revisiting their investment strategies, with a surge in the inclination to repurpose investments towards artificial intelligence.

A starting point

For many, the journey begins with Diversity, Equity, and Inclusion (DEI). However, as companies progress, they need to come to grips with the quantification of carbon emissions and the science-based targets associated with them. Initially, the focus might be on tangible factors like energy and emissions. However, soon, this expands to more intricate components like water consumption, carbon footprints across supply chains, and even travel habits.

Particularly relevant to developing countries, the measure of social impact becomes a focal point. It’s not just about the numbers but also about the real-world benefits to communities where sustainability can make a meaningful difference.

What’s startling is that while 60% of South African CEOs have thought about sustainability, they’re yet to act on it. Three out of every five CEOs lack a concrete plan. While global dialogues like the fast fashion debate rage in the UK, South Africa grapples with different concerns, like affordable options amidst the cost-of-living crisis.

A continuous dialogue

Historically, tangible changes in sustainability have emerged when regulations come into play. But governments worldwide, with their bureaucratic tape, can be slow to enact these. So, what's the tangible cost of carbon? When we assign a value to it, businesses will be more inclined to plan and pay for their footprints. The journey towards sustainable solutions may lie in revisiting First Nations principles and practices such as considering a comprehensive approach to projects, considering not only the technical aspects but also the social, cultural, and environmental implications  and favouring sustainable practices that benefit both present and future generations.

In a business landscape that’s continually evolving, the onus is on us to strike the right chord between data-driven insights and impactful storytelling, ensuring that sustainability isn’t just a buzzword, but an actionable strategy with measurable outcomes.