ESG 2.0 - Towards Outcome-Based Sustainability
The era of feel-good sustainability is over. Now, a company’s impact has to count.
Whether it is climate goals, labour rights, or protecting biodiversity – the direction is clear: It is not imaginable that we will ever go back to a world without science-based climate targets, respect for human rights in business operations, or biodiversity safeguards. Today, stakeholders are not just asking for commitments but are demanding tangible outcomes. They expect companies to quantify and disclose the real-world outcomes of their Environmental, Social, and Governance (ESG) efforts. This shift is evident in several recent developments:
Germany’s new supply chain due diligence law compels businesses to not only implement human rights protections in their supply chains but also to prove their effectiveness.
The Science-Based Targets Initiative expects companies to reduce their carbon footprint along their entire value chain. It requires companies to report how much they are reducing their CO2 emissions.
The Access to Medicine Index is a tool used by investors to gauge the social responsibility of pharmaceutical companies. Starting in 2024, it requires companies to have a methodology and report how many patients they actually reach with their products in low- and middle-income countries.
The shift to outcomes and societal impact is happening and it is here to stay. The examples make it clear that the impact genie will not go back into the bottle. For companies who embrace this change, this is great news.
A growing body of research shows that managing impacts also makes business sense:
It saves money: Unilever, for example, reported saving $1.5 billion since 2008 through energy and water efficiency alone.
Consumers demand it: 71% of consumers globally are making changes to how they live and what they buy in an effort to live more sustainably.
Employees love it: ESG leaders have higher employee satisfaction and companies with the most satisfied employees grow faster and are more profitable.
Yet, while the shift towards prioritising ESG outcomes is irreversible, companies’ sustainability don’t always live up to these standards.
Five impact killers
Having worked with over thirty multinational companies on impact strategies and implementation projects, we've seen our share of sustainability initiatives. Yet, despite originating from billion-dollar enterprises, companies often do not apply the same rigour compared to their core business. Too often, sustainability is driven by good intentions rather than the professionalism that companies apply in other fields of their work.
In analysing companies’ impact programmes, there are five impact killers we have seen again and again:
Misguided Missions: Many projects and initiatives lack a clear understanding of the challenge. Often, root causes, the target group’s needs, and the stakeholders’ expectations are insufficiently understood. Yet, without an accurate diagnosis, any cure is unlikely to help.
Aimless Archers: A project must be clear on what change it wants to create for whom. Yet, surprisingly few projects specify what it aims to achieve and how it will get there. A major retail company had over 100 sustainability projects – less than 30 had a goal, could quantify the intended impact, or even specify the target group.
PR Projects: Only a small fraction of projects is embedded into the company’s actual business decisions or practices. For instance, a fashion company funding a school in Bangladesh doesn't address labour rights violations at nearby suppliers.
Sustainability Sandcastles: Few projects are able to explain how the results continue beyond their duration. Often, impacts cease after funding ends. A med-tech company had donated medical supplies with a three-year maintenance contract. The strategy was to “transition responsibility to government ownership”, without having consulted them before.
Guessing Game: Over 60% of the projects we analysed did not have a monitoring framework that measured changes for the target group. In one instance, the management of a pharmaceutical company could not quantify the results of their $10m per year flagship “access to medicines” programme. If companies can’t prove the impact they achieve, budgets become difficult to justify.
The consequences of this feel-good sustainability are severe. Companies waste significant amounts of money without realising the impact that they desire. At the same time, they also risk missing out on the opportunities that impact-oriented work carries.
When the outcome counts, strategy matters
When the focus is on outcomes, the main concern is about how we can achieve our goals in the most efficient way possible. It is no longer about how many resources you invest, but about how few resources are needed to achieve your goal. No company would measure the success of their marketing in terms of how many advertisements it published but instead look at the impact the campaigns had on sales. By prioritising outcomes over output, companies can achieve greater efficiency, optimise resource allocation, and ultimately drive sustainable success.
To increase impact and efficiency, companies need to get two things right: Firstly, they need to ensure they're doing the right things. This translates to focusing on the right projects and strategies that bring the most value to the company. This also entails having a thorough understanding of the context and target group, defining a clear target, theory of change, and monitoring framework. Secondly, they need to ensure they're doing things right. This means implementing projects and strategies efficiently to achieve their goals. It also involves constantly assessing and refining their methods to improve productivity and impact.
At POTS, we identified three levels for companies to improve their impact game:
Level 1: Implement better projects
Implementation projects are the workhorses of impact. They’re about making actual change, like reducing CO2 emissions with key suppliers or removing access barriers to a life-saving pharma product. These projects typically aim to bring lasting change through capacity development – enabling people, groups, or organisations to take matters into their own hands.
We focus on four concrete steps to improve your implementation projects:
Establish good practice quality standards for projects: We define clear guidelines and benchmarks to ensure project quality: impact, efficiency, effectiveness and a contribution to a company’s objectives.
Review your project portfolio: We analyse existing projects to identify strengths, weaknesses, and opportunities for improvement or optimization
Professionally design new projects: We develop well-defined projects, maximising impact with clear goals, activities, timelines, and resources – in line with the POTS quality standards
Implement solid project management: We implement projects in difficult contexts and multi-stakeholder settings by creating operational plans, managing project execution, monitoring progress, and refining implementation based on learnings.
Level 2: Move towards integrated strategies
Implementation projects are just one tool in a company's arsenal. Integrated strategies, which combine multiple tools, are better suited to achieve strategic goals. In supply chain management, this could involve audits, better supplier communication, or incentives. In product access, strategies might include pricing, off-take agreements, or awareness campaigns. For a company’s outcome goals like responsibly sourcing a raw material or improved patient product access, integrated strategies typically provide greater value-for-money and greater effectiveness.
We focus on two concrete types of integrated strategies:
Integrated supply chain strategy: Together, we develop a comprehensive approach that combines various tools like communication, capacity development, and incentives to achieve responsible sourcing goals, including a monitoring framework across the strategy.
Integrated access strategy for a pharmaceutical product: Together, we design a holistic strategy encompassing product access topics like pricing and licensing, while addressing barriers to access, including a monitoring framework across the strategy.
Level 3: Embed impact into company processes
At this level, the focus shifts from individual projects and strategies to embedding impact considerations into the very fabric of the company. This ensures a holistic and sustainable approach to creating positive change.
Our services include:
Setting up a monitoring system across projects: We help you establish clear metrics aligned with your impact goal, design a robust system for collecting and analysing data across projects and help you evaluate impact performance and identify areas for improvement.
Creating shared sustainability goals across teams: We help you develop a comprehensive set of goals that include economic and sustainability considerations within and across teams.
Working with teams to adopt an impact-oriented mindset: We empower employees to understand and integrate impact into their work, foster collaboration, and encourage innovation for collective positive change.
Together, let’s create the next chapter
Taking a strategic and professional approach to your company's impact is no longer optional. By addressing common pitfalls and implementing robust practices, you can ensure meaningful and measurable positive change. We're here to partner with you on this journey – let's discuss how we can help you turn your impact aspirations into reality.
