Episode 6: Transforming your business through sustainability

Full transcript

Ivy Kuo:Hello, I'm Ivy Kuo, PwC Asia Pacific Sustainability Leader, and you're listening to PwC's Environmental, Social and Governance (ESG) podcast, Defining Asia Pacific's Future. The podcast for bite-size updates on the latest sustainability trends, from climate change to social and labour rights due diligence. We bring together ESG practitioners to discuss and solve today and tomorrow's sustainability challenges, reflecting PwC strategy of building trust and delivering sustained outcomes.

Following the success of earlier episodes, I'm pleased to announce that we will feature various PwC sustainability specialists in this podcast series. What is business transformation, and how is sustainability or ESG transformation different? Business transformation, as a term, has been around for a long time, and it aims to enhance performance by increasing revenue, reducing costs, and improving internal and external stakeholder engagement. In the last decade, digital transformation has become a key corporate focus. Since then, there's a consensus that fully leveraging digital technology requires a holistic strategy affecting every part of the organisation, and ultimately changes operation with a positive impact.

The same stands true for sustainability transformation. In this episode, I'm delighted to have my colleague, Annabell Chartres, to join me. Annabell is a partner in our Asia Pacific Sustainability clients and markets team, and she specialises in operating model transformation. She's also the sustainability leader at PwC New Zealand. Today we will discuss what sustainability transformation is and how it can create opportunities and what are some of the challenges and best practices businesses can learn from.

Welcome Annabell.

Annabell Chartres:Thanks, Ivy. Great to be here.

Ivy Kuo:So Annabell, the idea of business transformation, like I mentioned, is really nothing new. But how is sustainability transformation a new concept? And can you explain to our audience what exactly sustainability transformation is and why it is so important now?

Annabell Chartres:Sure, Ivy. Look, as you comprehensively outlined earlier, there are a number of different drivers of business transformation, generally. The other one that I would add is value creation and resilience, and those all hold true for sustainability transformation. When we talk specifically about sustainability transformation, there are a number of different drivers, some which are internal and some which are external. 

If we look externally from the business first, the number one driver for change at the moment that many, many organisations around the world are responding to, is the regulatory environment. We are seeing increasing regulation, legislation, and compliance requirements for businesses across nearly every single sector. Some of these are domestic, many of them are international. That's driving changes as well from banks and investors. So funding and investment access is another key driver for why you might want to transform your business with a sustainability lens, and certainly customers and consumer preferences, demands, and needs are changing very, very rapidly. If you are still going to remain relevant to your customers and consumers, you're going to need to think differently about how you operate and what you produce or provide to them in the market.

Finally, there is increasing pressure from a values perspective for organisations to be seen doing the right thing. Now, that can mean how an organisation responds to the risk of something like climate change. It can be how an organisation responsibly uses the natural resources that are very much part of its business. And, it can be how it treats its employees or the communities in which it operates. From an internal perspective, a lot of the changes that those external drivers are bringing to business means that the technology that underpins an organisations operating model needs to adapt and change as well. It's driving strategic change right at the top of an organisation and it's driving changes to how an organisation thinks about risk management and what it's exposed to in the market. 

Finally, when we talk about sustainability transformation, we can talk about it from two angles. One is certainly an enterprise transformation, where you think about changing your business holistically right from the get-go. The second is thinking about it with a business function transformation lens with a sustainability overlay. So, it might be important for you to focus on the finance function first and then think about your supply chain and what needs to change there, and so you embark on a linear transformation rather than a big bang transformation.

Ivy Kuo:Thank you, Annabell. That sounds comprehensive, as it’s across different functions. Can you give a bit more guidance on who should be really thinking about sustainability transformation in a business, whose responsibility it is, or accountability? Where does it sit? 

Annabell Chartres:It's an interesting question because that really does change depending on what sort of business you are, what sector you sit in, and where you are particularly exposed to the implications of some of those internal or external drivers I talked about earlier. 

Essentially though, there is a very real change in capability needed within a business as a result of those sustainability drivers. Generally, we are seeing, from the work we are doing with clients, that the key roles and business functions that are impacted are the office of the Chief Financial Officer (CFO) or the finance function, the office of the Chief Revenue Officer (CRO) or the risk function, and increasingly the Chief Technology Officer (CTO) or the technology function.

The key thing to remember, of course, though, is that the C-suite across all of those roles, including the Chief Executive Officer (CEO) and the Chief Operating Officer (COO), really need to be thinking about the implications of sustainability across all aspects of the business. Another thing to emphasise is to be successful with the sustainability transformation, it needs really clear guidance by an endorsement and sponsorship at the top table. Then it can be seen as being something that's taken seriously, but it's also understood at an executive level in terms of driving change across a business and is more likely to be successful.

Ivy Kuo:Thank you, Annabell. I think that accountability and responsibility is quite important, but earlier you did mention that regulatory compliance is a big driver in sustainability, and it seems like with all the regulations, whether it's coming from Europe or the United States (US) with a recent US Securities Exchange Commission (SEC), or even with the different countries that we've seen in China, Australia, anywhere in Asia Pacific, it's all coming at us. 

Now, with that regulatory driving mind, sort of compliance, a lot of people are seeing this, or sustainability is being talked about as a compliance exercise, as opposed to really driving value for business. Can you share a little bit about how can sustainability transformation really create that opportunity and value for business?

Annabell Chartres:You're totally right, Ivy. That's almost like the first step in the sustainability journey for every organisation is just meeting a compliance obligation. And if an organisation stops at that and just bears the burden of meeting a compliance obligation, or using it as a tick box exercise, they're totally missing the point of how the market is starting to change.

So the opportunity that regulation presents, in terms of how it's changing the market, is that everybody's having to comply. And if everybody's having to comply, there's a real opportunity from that perspective in taking a lead and doing it right. If your information is exposed, or you have this overhead, so does everybody else. In some respects, it becomes an even playing field.

Outside of the regulatory piece though, there are huge opportunities for organisations, certainly from a first mover advantage. If you are looking to be more sustainable or changing some of your business practices as a result of changes in the market, and you are one step ahead of your competitors or peers, then you absolutely have the opportunity to be both an industry or sector leader. Also to direct or shape the narrative for the markets that you operate in and for the products or services that you take to market. It's an opportunity also for lots of companies to respond to risk and build resilience in their organisations.

There's a huge opportunity, as we see markets change, to develop new products. To think about innovating, to go into new areas that you might not have considered for your organisation before. With that, of course, comes a need to perhaps fundamentally re-gear your organisation. If you are developing a new product, how does that change some of the processes that you have in place? How do you need to think about the capabilities required to ensure you're successful in taking that product to market and meeting consumer needs? There's an opportunity to drive operational efficiencies, and particularly cost savings, as you start using data differently within an organisation. 

So, it's not all about combating risk or meeting compliance obligations. There is a huge amount of positive upside for organisations if they see some of these changes as an opportunity for them to redefine how they might operate in the market in the future.

Ivy Kuo:Thank you, Annabell. It sounds like there are plenty of opportunities for sustainability. It almost sounds as if every business should be starting out their sustainability transformation journey. So with that in mind, how does a company start this journey, and what are some of the challenges that they need to be aware of as they get on this journey?

Annabell Chartres:Without question, the most important thing you need right at the outset is to ensure that you've got senior leadership and sponsorship of any transformation agenda.

Second, and incredibly closely connected to this is broader stakeholder engagement. With any transformation, sustainability or otherwise, you need to bring others along on the journey. And that needs to be both just in doing the hard graft of the transformation itself, but also in terms of ensuring that everyone, from a hearts and minds perspective, is passionate about what they're facing into and excited by the change that's about to happen.

The third thing I would mention is that transformation is not a short process, and sustainability transformation is no different from any other transformation your business might go through. No one should underestimate the commitment required and the complexity of changing your business. 

It's key, as a result, to face into that complexity, that you are really clear on what the sustainability drivers are that are most relevant to your business or sector. How is the regulatory landscape, or the market, or your customers, or the investor landscape changing for you and how do you need to respond? So what's the business case or the business issue that you are responding to in driving a sustainability transformation agenda across your business? Again, that's where the data that you can collect is incredibly useful in ensuring that provides the evidence base for any transformation you're wanting to go through as an organisation.

Ivy Kuo:Thank you. So I know you've shared a lot about the opportunities and the compliance mindset and internal and external, so how does it actually work? Can you share a bit of a real-life example for us in terms of how companies are actually going through this transformation journey?

Annabell Chartres:Sure. I've got two quick examples, both with completely different perspectives in terms of how they thought about sustainability and how it created a burning platform for transformation across their respective organisations. 

The first one is a large global financial services provider who has extensive operations across Asia Pacific. For them, focusing on a portfolio of products in the market that was sustainability focused was a key tenant of their business strategy. And so for them to be able to execute that successfully, they needed to ensure that they retooled their whole business to set them up for success. That meant, a huge capability change for them across the organisation. So workforce transformation with a sustainability lens, and an upskilling from both front office right through to back office in terms of how they thought about their operating model.

The other example I have is for a leading energy utility organisation in New Zealand. Leader again, in the sustainability space, but a recognition that they were being increasingly burdened by the regulatory environment and the compliance obligations they were facing into. This organisation has set some really ambitious and lofty sustainability targets. To be successful in executing those targets, they needed to be able to free up capacity and capability within their organisation. And so for them, their sustainability transformation has started with a very strong tech enablement focus. So two really good examples of how businesses are claiming a leading position in market with a sustainability lens, and building that very much into their strategy, but then using different levers to drive the change within their organisations.

Ivy Kuo:Fantastic. So just to wrap up, can you give us your top three things to help business leaders to start turning the theory into action?

Annabell Chartres:Absolutely. First and foremost, and I just mentioned this before, that senior leadership and executive sponsorship is absolutely critical to success. A sustainability transformation cannot be a bottom up exercise. It has to be driven from the top, because it's not just about the sustainability function or the sustainability team, it's about the whole business and how the whole business needs to change to access opportunities in the market. 

The second point that I would make, it’s really important to just start somewhere. But when I say just start somewhere, it must be that part of the business where it's materially impactful making change. If you choose the right place to start, that creates momentum in other parts of the business. Increasingly, we are finding that it's the finance function as the alignment and the crossover between non-financial reporting and financial reporting gets ever closer.

Of course, at the same time, you've got to make sure that somewhere is joined up with other parts of the business. Change in isolation is not transformation, so doing one thing doesn't amount to a sustainability transformation. It is ultimately about a holistic change across your whole business. 

And then the third thing I'd say is that setting an Environmental, Social and Governance (ESG) strategy is one thing, but delivering on it is quite another. And if you don't have your employee's values and behaviours aligned with your ambitions, then it's going to be really difficult to achieve a real transformation. You've got to think about the change management program that goes alongside any business transformation, and the capability uplift that you might be required to deliver.

Ivy Kuo:Annabell, thank you for sharing your knowledge with us on sustainability transformation. We now know the difference between sustainability transformation and business function transformation, with a sustainability perspective. We are aware of the many factors we need to consider before starting this journey. Businesses must begin their transformation journey to address climate risk and opportunities, implement decarbonisation roadmaps across the value chain, and establish the technology and data infrastructure required to deliver this change. Because the scale and the importance of sustainability transformation is growing. Now is the time. There are significant opportunities for businesses to reassess their priorities, transform their business models, and create sustained value for the future. 

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