How Do You Design Strategies to Meet Emerging Systemic Challenges?

By Ralph Thurm & Bill Baue

This is part 5 of the Reporting 3.0 series that highlights the ‘burning questions’ of Boards and Sustainability Professionals why we need Reporting 3.0 and what it aims to deliver with its Blueprints on Reporting, Accounting, Data and Integral Business Model Design.

What’s the issue?

Corporate strategy increasingly considers environmental and social issues, but it typically falls short of assessing the sustainability of company impacts on the ecological and social systems within which it operates. This oversight is one of the drivers behind the Sustainability Gap, so Reporting 3.0 developed a tool to address this shortcoming — the r3.0 Strategy Continuum.

Figure 1: r3.0 Strategy Continuum

The r3.0 Strategy Continuum visualizes progress:

On the horizontal axis, from incremental to transformative strategies, with (context-based) sustainability as the midline, and regeneration and thriveability on the far side of the line; and

On the vertical axis, from current economic system design to the emergence of a new economy, with transformation scaling up from the micro (company) level through the meso (industry / portfolio / habitat) level to the macro (economic, social, and ecological systems) level.

The first companies to pilot the Strategy Continuum remarked that the tool helped them distinguish corporate social responsibility (CSR) initiatives and environmental, social, governance (ESG) ratings & rankings — with their focus on incremental improvement — from more transformative sustainability, which links micro-level impacts to macro-level systems viability. As Global Reporting Initiative (GRI) Co-Founder Allen White said:” “ESG does not, by nature, carry a true sustainability gene. Incremental performance assessment [is] insufficient. [S]ustainability … call[s] for assessing … performance against thresholds and limits.

Figure 2: Plotting well-known strategies on the Continuum

What can you do about it?

In piloting the r3.0 Strategy Continuum, we developed the below “legend” to guide users in determining where to plot a strategy.

On the Horizontal Axis:

BAU: No evidence of sustainability assessment / progress

Improving: Evidence of incremental progress, uncontextualized vis-à-vis sustainability thresholds

Sustaining: Evidence of performance improvement vis-à-vis carrying capacities of capitals / sustainability thresholds

Sustainable (mid-line): Performance meets break-even point — no worse than the sustainability threshold

Regenerating: Evidence of (context-based) net-positive sustainability performance (regenerative impacts on capitals)

Thriving: Evidence of gross-positive sustainability performance (no negative impacts on capitals needing to be netted out)

On the Vertical Axis:

Micro Level: Evidence of progress at the company level

Meso Level: Evidence of company-level progress catalyzing industry / portfolio / habitat level transformation

Macro Level: Evidence of company- / industry- / portfolio- / habitat-level progress that catalyzes economic / ecological / social systems level transformation

Figure 3: r3.0 Strategy Continuum

Additionally, piloting the Strategy Continuum led to the development of a color-coded system for recognizing goals and assessment mechanisms that take a context-based approach to achieving sustainability (orange), as well as recognition for the next step of actually achieving sustainable performance.

In addition to plotting current strategy, goals, and performance, the Strategy Continuum enables visualization of scenarios as well as plotting roadmaps for transition planning in order to create Maturation Pathways.

Figure 4: Multi-use of the r3.0 Strategy Continuum

To demonstrate the Strategy Continuum in action, we provide below a few hands-on examples from the pilots.

Figure 5: Applying the Strategy Continuum to a climate change strategy

Current Strategy

· The company has a 1.5°C Science Based Target strategy that transcends the context-based mid-line threshold at the micro / company level.

· The company goal to drive further emissions reductions through customer use of its technologies has resulted in 1.8x more reductions than its own reductions, thus demonstrating meso-level transformation.

· The company also collaborates with GeSI, RE100, and other initiatives driving meso-level transformation.

Recommended Actions:

· Horizontal Axis

To move into the regenerative zone, the company would need to add “negative emissions” — ie carbon sequestration — to its portfolio. This would require to support significant reforestation / land use transformation toward removing “fugitive carbon” from the atmosphere. As well, the company can codify its commitment to climate by producing a “transition report” documenting all the ways in which its business models need to change in order to help achieve a <2°C world — including shifts at the governance and strategy levels.

· Vertical Axis

Clearly, the company’s current goal and program represents its strongest lever to scale up sustainability through balancing out the carbon cycle, so the maturation pathway here would entail enhanced ambition. As well, the company can leverage its position as a pioneer on climate stabilization amongst peer companies for industry ecosystem transformation, and more importantly at the government level, seeking to apply its climate stabilization approach to national level measurements.

The second example looks at a social impact, human rights:

Figure 6: Applying the Strategy Continuum for a human rights strategy

Current Strategy

As John Ruggie says, the United Nations Guiding Principles on Human Rights and Business represent norms, so the company’s use of them move it toward the sustainable line, though its performance has yet to demonstrate full compliance with the UNGPs.

Recommended Actions

· Horizontal Axis

Human Rights are largely binary at the company level, with progress gradations on the unsustainable side. The goal at the micro level is simply to uphold all human rights — including freedom from enslavement. Complexity arises when rights conflict.

· Vertical Axis

The primary maturation path on human rights / modern slavery is upscaling to the meso & macro levels — for example through supply chain engagement at the meso level. At the macro level, one could argue that human rights abuses are encoded into the DNA of monocapitalism, so advocacy for economic system transformation holds the potential to engineer human rights abuses out of the economy’s DNA.

What will you have achieved afterwards?

The use of the r3.0 Strategy Continuum enables companies to assess the sufficiency of their current strategies in navigating the transition to an economy built for sustainability. The Strategy Continuum thus provides a starting point for defining an ambition level. Maturation Pathways combine scenarios with transition planning and allow for tracking trajectory targets, enabling adjustments as needed along the way.

What question will we discuss next time?

Integral Materiality: What are the essential process requirements to instigate transformative change? Please read part 6 here.

Please add your feedback, the authors Ralph Thurm and Bill Baue of Reporting 3.0 will look at all responses. Don’t forget to ‘wave’ if the above resonated with you ;-).

[Context of this series: The sum of these articles form the basis of an Implementation Guide that summarizes the total value of Reporting 3.0 in implementing a future-ready sustainability strategy and disclosure approach, in line with the idea of a Green, Inclusive and Open Economy. By posting these articles here Reporting 3.0 seeks feedback in the writing process of the final document, to be released as Blueprint 5 at the 5th International Reporting 3.0 Conference in Amsterdam, The Netherlands, on June 12/13, hosted by KPMG, see www.2018.reporting.org]