Impact Strategy: How do businesses align themselves with sustainability goals?

ESG (the environmental, social, and governance dimensions of sustainability) has been a hot topic in the business world. But what does the alignment of business activities with sustainability mean? And how can managers and business owners approach that?

82% of global investors intend to increase allocation to ESG / sustainable investments in the coming future

Alignment of business practices with ESG goals implies two things:

1. Internal Alignment: Articulating alignment of business activities and ESG goals for rigorous management, and
2. External Alignment: Articulating the alignment for effective communications of positive impacts and contribution to reducing negative impacts, to investors and other enterprises.

5 Steps to Construct Impact Strategy

To enable the aforementioned alignment, businesses will need an impact strategy established through the following 5 steps. Setting an impact strategy is within the first step of a four-step approach to impact management in line with the UN SDG Impact Standards for Enterprises.

1. Define Purpose:

• Define the business’s purpose–what value it offers to the market and what strategic objectives for achieving the purpose are;
• Identify Sustainable Development Goals (SDG) objectives that could be aligned with the business’s objectives, these could be business objectives (both explicit and implicit) that share overlaps with SDG or those whose achievements would help the business thrive in the long term.

2. Identify Desired SDG Outcomes:

• Review the business activities and relationships throughout the value chain, including suppliers and contractors.
• Identify potential and actual impacts the business cause, contribute to, or is directly linked to via its activities and business relationships.
• Engage with stakeholders (including investors, employees, customers, civil society, and the environment) to identify desired outcomes according to the five dimensions of impact (changes in outcomes):

1. what outcome (results of impacts) is important
2. for whom (which stakeholders) the outcome is important
3. how much impact (i.e. in terms of percentage change in outcomes) is should occur with impact strategy
4. contribution to impact (i.e. what is done to achieve the target outcomes)
5. risks of not having the target contribution

• Find the biggest risk or opportunity that the business can affect through its activities and business relationships. This means identifying the business’s most significant impacts — desired outcomes are the most important, troublesome, or have the highest potential for change.
• Identify the SDGs related to the most significant negative impacts the business strives to reduce, and/ or the most significant positive impacts that the business strives to increase via its market offerings.
• Document stakeholder engagement approach and consult third-party proxies (such as NGOs) to reach hard-to-reach stakeholders and for recommendations for risk mitigation, adaption, or prevention.

3. Principled Prioritization:

To optimize impact management for the best outcome aligned with time and resource needs, businesses need to prioritize impacts for more focused and active management. This impact or outcome prioritization process is in line with the UN Global Compact’s recommendations for enterprises. This implies the following:

• Decide which SDG should be prioritized for the time being, based on stakeholder and impact materiality assessments. This means the SDG prioritization should be done with the identification of the most significant impact(s) specific to each stakeholder group, and the assessment of the severity of negative impacts, as well as scale, scope, and likelihood of (potential) positive impacts.
• Establish a sequence of desired SDG outcomes based on prioritization.

4. Set specific goals/ targets: Set measurable goals specific to each desired outcome to be focused on. To do this, the business should:

• Review each prioritized SDG at the target level, instead of only at the goal level. Each SDG listed by the UN contains specific targets with corresponding indicators.

SDG 13 "Climate Action” contains 5 targets within which 8 indicators are listed for assessment of progress towards reaching SDG 13

• Set qualitative/quantitative goals according to SDG targets to effectively assess the business’s impact performance on SDG target commitments. For example, for a company with manufacturing operations in draught-prone regions, which has identified SDG 13 “Climate Action” as the prioritized SDG, establishing risk assessment and prevention strategies for prolonged draughts caused by climate change could count towards the business’s contribution towards SDG 13.1.2. The reduction of draughts likelihood or severity expected to be reduced after such assessment and strategies are established could be used as a specific and quantitative goal towards SDG 13.

5. Construct Impact Thesis:

• Define an actionable approach to achieving each desired outcome.
• Define which business activities could lead to achieving the set targets. This means linking business strategy to value creation for the society and environment.
• Demonstrate taking actions toward SDGs contribution.
• Demonstrate tracking progress towards SDGs target contribution.