Staying ahead of the sustainability curve has been saved
The authors would like to thank Nele Bauerschaefer, Chris Wagner, and the many others who contributed to the success of this article.
Cover image by: Roxanne Silverwood.
When the business environment changes, strategies must adapt. Sustainability has become an extraordinarily disruptive phenomenon impacting business, and in a multitude of different ways. Digital transformation has been a tremendous challenge for organizations, but sustainability goes further by fundamentally rewriting the rules. From globally rising inequality and social fragility to the lack of access to clean water, sanitation, health care and education, or the increasing speed at which biodiversity is being lost—the topics are as diverse as they are crucial.1 Addressing climate change is a priority in order to avoid going beyond climate tipping points.2 Hence, organizations must formulate a holistic, systematic perspective on sustainability. This perspective has to reflect all critical challenges ranging from the environmental3, social (for example, in terms of quality of life, equality, diversity, social cohesion, democracy, and governance), and even economic (in the context of industry, innovation and infrastructure, responsible production and consumption, clean energy, or paths of economic development). It must also link them together in a set of interdependent elements that impact upon one another.
From political decision-making to our daily lives, sustainable thinking is infiltrating the very fabric of our society. A recent Deloitte study showed that 67% of participants were willing to pay up to 41% more for products if they were sustainable, and that inclination was higher among younger age groups.4 In 2022 almost all respondents (97%) to Deloitte’s C-Suite Sustainability Report indicated that their companies have already been negatively affected by climate change that has disrupted business models and supply networks worldwide.5 Those developments will influence every aspect of the future global business environment and how business is done in the medium to long term.
Business leaders need to better anticipate the developing trends and uncertainties in social, environmental, and business dimensions. The future must be understood as being essentially driven by sustainability.
Looking ahead, strategic thinking and strategizing will become a much more complex challenge. Future business leaders must think through strategy not just from the customer, product, or competitive point of view but also with awareness of their own organization’s impact on society and environment. Reflecting on, understanding, and managing sustainability to embed it into the core of a company’s strategy will become the most pressing challenge to gain or keep competitive advantage. From a strategic positioning perspective, the role of sustainability for business will be “as a long-term corporate strategy and as a common practice,”6 or at the least as a way to safeguard a business’s license-to-operate.
While sustainability has become a strategic top priority and choice, its diversity of topics and implications have risen into a complex system of interdependencies, each with diverse fields of actions. For business leaders, sustainability becomes a Gordian Knot that is difficult to disentangle and even more difficult to strategize for. The global business environment has already begun to see significant change. Stakeholder groups discuss what business should be about, driven by a shift in mindsets. Stakeholder capitalism (see sidebar) is one of the top emerging trends in this regard.7
The concept of stakeholder capitalism revolves around the understanding that businesses should interact with and orient themselves towards all stakeholder groups and is driven by increasing transparency on businesses’ ecological impacts, and the targeting of regulations and international environmental governance, such as via the Paris Agreement8. Companies are already feeling a moderate to large degree of pressure to act on climate change from many different stakeholder groups—from regulators to customers to employees.9
Businesses are also already experiencing the physical consequences of a lack of progress towards sustainability. Natural catastrophes due to the changing ecosphere are beginning to disrupt supply chains while social inequalities are provoking strikes and social activism.
Consequently, business leaders face the new imperative of a sustainability-driven business environment and have the choice: Either comply with minimal regulatory requirements such as reporting requirements, or actively pursue sustainability as a key strategic choice with the potential to anticipate emerging innovations, business opportunities and stakeholder dynamics, thereby future-proofing their business model and embedding sustainability into the core of their strategy as a competitive advantage.
While the path towards achieving a sustainable future on a global level is still steep and difficult to grasp, global futures will be shaped by the tendency towards sustainability, including direct and indirect developments from a social, technological, economic, environmental, political, legal, and security perspective.
Sustainability adds to the current market and regulatory complexity. We see an intensifying VUCA world that is highly volatile, uncertain, complex, and ambiguous. Because we are reaching the limits our global ecosystem can bear, issues such as fair access to scarce resources, intergenerational equity, and qualitative growth are becoming ever more pressing. It is not just about doing business anymore: The new expectation is that business should have an overall positive social, economic, and environmental impact.
Establishing evidence-based sustainability agendas will become a key challenge for businesses. Leaders must understand what sustainability actually means for their organization from an inward- and outward-looking perspective. What are the current as well as the emerging topics in their industry now and in the future? What is the company’s footprint and impact on society and the environment? And what is the appropriate forward-looking strategy in a sustainability-driven business environment in coming years?
Strategy must adapt to the complex, dynamic and challenging sustainability-driven future business environment. It needs to reflect the significant level of uncertainty associated with the upcoming mid- to long-term fundamental drifts: the push towards decarbonization and renewable energy along with economic transformations, geopolitical crises, and supply chain disruptions. And it must consider the diverse stakeholder expectations and fundamentally changing rules in the business environment. At the same time, the path towards sustainability is long term. We design, plan, and execute actions and expect outcomes on a global level that will materialize over the course of the next 10–30 years, such as the deep decarbonization of entire sectors that must be anticipated and factored into strategy formulation. This requires not only a holistic perspective on the business environment but also a reasonable, valid way of thinking ahead, which goes beyond a tactical, short-term planning horizon.
Strategic foresight is a framework to enable this shift in mindset. It is a set of methodologies used to gather and process information to develop valid, reasonable outlooks on a future environment in the long term, usually about 5–20 years ahead, in contrast to traditional strategic planning, which focuses on a short-term, tactical horizon of 1–3 years ahead.
The information involved can include, for example, social, technological, economic, environmental, political, legal, and security developments and underlying dynamics. The methodology does not attempt to forecast what the future will hold—it is not a prediction of a future state—it seeks to understand the future as an emerging playing field that is only partially visible now. The goal of strategic foresight is to expand and reframe the range of plausible developments that need to be taken into consideration in order to avoid static thinking or a tunnel vision.
It is not possible to predict the future, but strategic foresight allows us to explore the external environment for relevant drivers of change and leverage those insights to develop perspectives of an emerging landscape based on a logical model. This can be a starting point to stress-test a company’s strategy baseline, ideate innovations, or drive transformative change. Strategic foresight itself does not express a strategy or an explicit way ahead for an organization but it enables strategy formulation by considering diverging yet plausible futures and their strategic implications. It helps to provoke the right questions, questions that might have gone unasked during a strategic planning process, and thereby helps to reveal and challenge potentially fatal assumptions or expectations built into a strategy.
Strategic foresight, therefore, helps organizations to mitigate emerging risks and capture opportunities by anticipating long-term developments triggered by the diverse range of sustainability-related developments. It does this by:
Strategic foresight uses a range of different methods, such as trend and horizon scanning to identify emerging changes; megatrend analysis; scenario planning or strategy wind-tunneling in order to reveal and discuss useful, reasonable perspectives about the future, while reflecting the exponential speed and multidimensional change in a specific environment. Therefore, it is important to focus not only on the direct market or ecosystem of an organization, but also to identify drivers of change in adjacent fields or in society at large.
While a broad set of different strategic foresight methods are available, most can be categorized in three primary use cases:
Scientary is a fictional multinational life science company looking to review its corporate strategy in face of the upcoming sustainability challenges. The company has a global footprint, with facilities in Europe, the United States, and China, including R&D and production sites. Recently, Scientary faced calls from its stakeholders to review the company’s impact on society and the environment and commit to relevant corporate sustainability goals. Therefore, Scientary decided to apply strategic foresight methods to anticipate the upcoming drifts in its industry over the next 15 years in order to develop a robust, resilient corporate strategy that reflects sustainability developments:
In comparison to traditional strategic planning, the followed process to assess and design a future strategy for Scientary, that reflects sustainability in a holistic way is more robust against the diverse, potential future paths since it embraces uncertainty in its process instead of excluding or simplifying it as in most planning or forecasting processes. In this way, sustainability can be moved beyond risk and compliance to identifying, innovating, and capturing revenue-generating opportunities.
Sensing methods aim to understand the current and future dynamics within a specific context: What are the crucial developments and how certain are we about them? Through various forms of structured research, sensing aims to identify drivers of change shaping the dynamics of a specific context. Going beyond mere descriptive analyses, sensing also involves the evaluation and categorization of the identified dynamics and provides a sense of direction regarding future developments. Above all, sensing focuses on identifying clusters of uncertainty.
Sensing methods widen the perspective of what constitutes the “environment” of a company and its own sphere of influence, i.e., it zooms out from the company’s immediate sphere of activity. These methods can set the basis for the perception of stakeholder expectations and raise awareness of companies’ externalities. For example, involving and interviewing human rights organizations as part of a sensing exercise can highlight emerging developments in the realm of digital ethics or lead to the discovery of human rights violations for further legal investigation.
Complementing other data sources, the insights from a sensing exercise, such as maps of a company’s broader ecosystem, constitute valuable input for materiality assessments, a key component of sustainability strategies nowadays. This is especially important given that materiality assessments often must cover a broad range of all relevant sustainability-related topics for an organization and they, therefore, benefit from a strategic foresight methodology.
The relevance of sustainability is subject to public perception and can change significantly over time.10 By periodically sensing and scanning the environment for novel sustainability-related drivers of change, materiality assessments can be made to respond dynamically to changes in the organization’s market or regulatory environment. The increasing prominence of sustainability makes such methods useful to identify new fields of action and ensure a company retains its license to operate and avoids scandals.11
With the help of modern artificial intelligence (AI)-based sensing tools, the identification of relevant sustainability-triggered topics and material issues can be further enhanced. Natural language processing (NLP) enables the automatized analysis of vast amounts of news articles and social media posts, streamlining the traditional desk research that still dominates activity in the sustainability domain. This also offers a continuous, neutral perspective on key drivers of change, guarding against behavioral biases on the part of the involved stakeholders and ensuring holistic consideration of social and environmental developments, including fringe events.
In addition to informing materiality assessments, sensing offers a valuable building block for stakeholder engagement. Scanning the environment for relevant political deciders, NGOs, and suppliers of critical technologies provides guidance on organizing solution-oriented ecosystems. Forming the right alliances is crucial for tackling systemic issues, such as challenges in public education12 or biodiversity loss,13 and creating a positive impact across the entire value chain.
Modeling methods build upon the outcomes of sensing insights or the existing understanding of drivers of change within a specific context. They help to develop concrete, reasonable hypotheses about how the future might unfold within a logical, systematic model. The key is to conceive how critical elements in an environment are going to configure and interact to form a novel setting. Given the complexity associated with sustainability-triggered challenges and issues, especially the diversity of relevant topics and the wide range of societal responses to them, modeling methodologies are particularly fruitful for strategizing in this field.
The best-known methodology in this context is scenario analysis, which provides the means to differentiate potential states of the world in the long-term future. Based on the most critical uncertainties for a specific context, the scenarios have the potential to capture divergent, yet plausible outlooks of a specific environment, e.g., what might the sustainability-driven future environment of retail banking look like in 10 years? Through rich, detailed narratives, scenarios stretch the imagination and nurture awareness of different potential changes, and, most importantly, can create conviction about necessary strategic moves. Applying scenario analysis creates a unified frame of reference, which allows for efficient communication about future outlooks and thereby facilitates cultural change. In addition, scenarios provide a framework for the development of a company’s vision and/or strategic options.
As an example, the decarbonization of our energy system is shaped by numerous drivers of change, from the development of green technologies to the level of political ambition. Aggregating these drivers into meaningful scenarios provides a structured, reasonable perspective on one of the most complex issues of our time, as we set out in The Future of Power14 and The Future of Energy15. Moreover, it highlights specific opportunities and risks linked to the dynamics of the industry. The Task Force on Climate-related Financial Disclosures actively recommends the application of scenario analysis to identify risks and opportunities associated with climate change, stating that the approach “can challenge many traditional practices and structures within a company, as well as its culture”16.
Modern AI-enhanced tools mean that the unfolding of scenarios can be tracked continuously and kept up to date. This is possible using modern NLP algorithms and the definition of indicating assumptions, which are aligned with the underlying uncertainties as well as trends that build the foundation of the scenarios. These indicators can then be leveraged to track changes in response to current qualitative data (such as news, new patents, social media posts, etc.) as well as quantitative data (such as derivates, stocks, market sizes, etc.) and collectively show the level of scenario realization on a continuous basis. This makes it possible to monitor specific sentiments and dominant perspectives within certain pockets of society via social media screening. These technological enhancements help organizations keep up with the complexity of a sustainability-driven business environment, especially with regard to the ongoing, dynamic changes in sustainability regulation around the globe, the high number of diverse stakeholder voices in social media, and the constantly evolving and/or emerging green technologies.
In addition to modeling enriched, holistic scenarios, a dedicated uncertainty analysis for the most crucial and uncertain topics a company faces might be required. Identifying a set of potential end states for, say, energy prices, and evaluating their systemic relevance to the company, can help to develop a reasonable, forward-looking hypothesis. The Delphi method is a widely used technique for business forecasting and policy-making. It offers the possibility to tap into the “wisdom of the crowd” by formulating a concrete question about the future, i.e., “how high will the price of a ton of CO2 be in the year 2030?” or “how large will the market for sustainable fashion be in 2040?” and conducting repeated expert surveys to find an answer. While the Delphi method usually engages with a defined set of experts, it can be effectively complemented by big data analytics in order to reinforce the process with additional evidence or deep dive into specific assumptions, e.g., by continuously monitoring the price dynamics of CO2 on global exchanges or early-warning signals related to these price developments and aligning these insights with the expert-based assumptions.
While strategic foresight is often focused on methods to sense and model, it is necessary, having made sense of the generated insights and logical models, to act upon them. The strategic foresight perspective changes at this point from “outside-in” to “inside-out”—from “how will the environment affect our company?” to “what effect will we have on our environment and which strategic choices do we have?”
It is important to distinguish the methods required at this stage from the modeling in order to prevent focusing too early on actionable insights directly related to an organization’s current activities and thereby limiting the considered range of possible outcomes. To prevent this operational blindness, the acting methods should be conducted as independently as possible of sensing and modeling.
A shift in mindset on the part of business leaders is particularly crucial. It is one thing to imagine a sustainable future and the way stakeholder groups might evolve. Acting, however, is about asking the right questions based on this future and, together with business leaders, aligning all relevant strategic choices:
Using one or multiple scenarios, business leaders can challenge the robustness of their current strategy with the help of a stress-testing exercise: How effectively does the current strategy baseline perform against a specific scenario set? Here, the orientation and organization of the company is tested under the different scenarios, qualitatively or quantitatively. This makes it possible to differentiate which strategic initiatives or business units are robust in a sustainability context and which are risky—for example, in that they lag behind competitors or might face greenwashing accusations.
Well-informed materiality assessments highlight which areas of society and nature are impacted by the company and therefore require attention, and the setting of dedicated targets for improvement. When business leaders are in the process of developing long-term scenarios they should ask themselves which they prefer and how they can set a strategic course aiming at their realization. They should integrate long-term sustainability ambitions into their corporate strategy. Profitability and sustainability should not be seen as separate but be placed on an equal footing when choosing which markets will be supplied and which products and services will be developed.
In order to plan their next actions and reactions within a shorter-time horizon, business leaders can engage in business war gaming exercises, e.g., in interactive, lab-based formats. This is especially relevant to anticipate new competitive pressure arising from the sustainability transformation, such as the shift towards emission-free technologies.
Overall, a strategic foresight mindset can become a source of highly relevant forward-looking intelligence in the context of our increasingly sustainability-driven future—a future that is characterized by complexity, diversity, systematic dependency, and uncertainty. It makes it possible to break free of disadvantageous management practices, strategic tunnel vision, and a short-term perspective, and instead embrace the complexity that comes with breadth and a long-term sustainability-oriented perspective. Applying strategic foresight helps organizations to:
Strategic foresight is most effective when applied as a way of strategic thinking that fuels the decision-making process. It is not a one-time exercise, but a dynamic, continuously informed way of looking at possible futures and a key enabler for organizational resilience.
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Monitor Deloitte, Sustainability as a value driver—How sustainability elevates product innovation and price differentiation, December 2021.View in Article
Ioannis Ioannou, and George Serafeim, Corporate Sustainability: A Strategy?, Harvard Business School Accounting & Management Unit Working Paper, no. 19-065 (2019).View in Article
Deloitte, Embracing sustainable value creation in the boardroom—Four pillars for a new paradigm, April 2021.View in Article
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Impact Management Project, “Statement of intent to work together towards comprehensive corporate reporting,” September 11, 2020.View in Article
World Economic Forum, Embracing the new age of materiality—Harnessing the pace of change in ESG, March 2020.View in Article
Anna Muoio and Kaitlin Terry Canver, “Shifting a system—The Reimagine Learning network and how to tackle persistent problems,” Deloitte Insights, April 29, 2019.View in Article
World Business Council for Sustainable Development, “What does nature-positive mean for business?” November 9, 2021; Guy Williams, “Starting the business journey to nature positive,” Deloitte, December 21, 2021.View in Article
Deloitte, The Future of Power—Four scenarios for the European utility sector on its path to climate neutrality by 2050, accessed August 11, 2022.View in Article
Deloitte, “The Future of Energy—Planning amidst an uncertain future for the energy industry,” accessed August 11, 2022.View in Article
Task Force on Climate-related Financial Disclosures, Guidance on Scenario Analysis for Non-Financial Companies, October 2020.View in Article
The authors would like to thank Nele Bauerschaefer, Chris Wagner, and the many others who contributed to the success of this article.
Cover image by: Roxanne Silverwood.