A businessman thinks about ESG strategy while staring at a globe with those letters superimposed on it
©GLOBIS

Strategy: Creating Value Inside Your Company

Have you ever wondered why certain companies are more successful than others? The answer is strategy: internal processes that control costs, allocate resources, and create value. This course from GLOBIS Unlimited can give you the tools you need for that strategic edge.

Strategy: Understanding the External Environment

To plan strategy on any level, you need to understand your company's external environment. In fact, your level of understanding can impact hiring, budgeting, marketing, or nearly any other part of the business world. Want to learn how to do all that? This course from GLOBIS Unlimited is the perfect first step!

The bottom line of profits is no longer a respectable guiding star for businesses. All stakeholders, from employees to customers to investors, increasingly expect a demonstration of sustainability. And since a business is nothing without its stakeholders, every company needs to keep up with the three-pronged positive impact on the environment, society, and governance.

Or, as they’re more commonly called, ESG factors.

An infographic of ESG, showing the environmental, social, and governance criteria that impact an ESG strategy
©GLOBIS

Like any major transformation, working ESG impact into your strategy can mark a major shift in priorities and business practices. But where do you start with an ESG strategy? Do you tackle all three criteria at once, or one at a time? Start with the easiest changes, or dive right into a major overhaul? Rely on top-down direction, or bottom-up management?

To answer some of these questions, we spoke to three ESG expert faculty members and researchers at GLOBIS University. Here’s how they advise MBA students on business strategy for a brighter future of environmental, societal, and governance impact.

Where to Start with ESG Strategy

Maybe you think you know ESG—after all, how complicated can it be? Your business’s ESG strategy going forward needs to be good for the environment and society, and it needs to have fair governance. Do that, and all your stakeholders will love you, you’ll pull ahead of the competition, and your company will enjoy long-lasting success.

Don’t get ahead of yourself.

Mari Yao says you need to work out some important basics before thinking that far ahead.

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“ESG is quite unlike conventional competitive strategies.”

First of all, what is “strategy”? According to Harvard Business School (based on Michael Porter’s research), “Strategy defines the company’s distinctive approach to competing and the competitive advantages on which it will be based.” That means your strategy should be oriented toward maximizing value to customers and shareholders within the market.

Strategy: Creating Value Inside Your Company

Have you ever wondered why certain companies are more successful than others? The answer is strategy: internal processes that control costs, allocate resources, and create value. This course from GLOBIS Unlimited can give you the tools you need for that strategic edge.

On the other hand, installing ESG in management is a way to rethink and redefine a company’s activities in the context of the overall system. For that, you look at stakeholders outside the market and the global environment—that’s quite unlike conventional competitive strategies.

In other words, ESG strategy it is a long-lasting effort to find symbiosis with a sustainable society. It’s more than a struggle against competitors.

The incorporation of ESG varies from industry to industry and from market position to market position. Every business should take a serious look at the negative externality generated by the company and evaluate impact on the environment and society—that’s your first step. From there, you can identify the key issues (materiality) and prioritize.

—Mari Yao, GLOBIS University Research Fellow

Once you’ve got your understanding of strategy straight, you can start considering how to approach ESG. But that, too, takes careful planning, says Hiroyuki Aoi.

“Priorities among E, S, and G will vary from company to company.”

It is very important for today’s business leaders to manage their business with ESG in mind—and to note that the E (environmental), S (social), and G (governance) can be related, but they are inherently separate issues. That means you will naturally need to plan separate actions toward each of them. Priorities among the three will vary from company to company.

For instance, environmental factors will be important for manufacturing companies with high CO2 emissions, while the social factor will be important for companies with major suppliers in developing countries that use child labor. If you’re an autocratic or one-man operation, then the governance factor is important.

In this way, it’s best to recognize and prioritize the issues that your company should address. While that may seem obvious, many companies tend to prioritize issues that seem easier to solve than the ESG issues that they should be addressing. That’s how we get greenwashing, and ESG investors are very wary of this and vigilant about avoiding companies who do it.

—Hiroyuki Aoi, GLOBIS University Faculty

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If you’re feeling overwhelmed by all the possibilities of ESG in its many aspects, Hiroyuki Egami has a suggestion: use governance as a foundation and focus on reducing negative impact first.

“ESG is a process of sustainable learning and growth.”

With governance as a foundation, work on areas of the environment and society that your organization wants to make an impact on or is especially good at—and never stop learning. Continuing these efforts will strengthen governance, which will lead to a new chain of activities and positive impact on the environment and society.

Even while working toward that positive impact, we must not forget the reality that corporate activities are having a negative impact on the environment and society. It should be a high priority in every business to reduce or eliminate such negative impact.

ESG is not limited to actions that produce tangible outcomes. It’s also a process of sustainable learning and growth.

—Hiroyuki Egami, GLOBIS University Faculty

ESG: Possible for New and Established Companies?

If every company in the world were to incorporate ESG into its strategy, the positive impact on our environment, society, and corporate governance would be immeasurable.

Strategy: Understanding the External Environment

To plan strategy on any level, you need to understand your company's external environment. In fact, your level of understanding can impact hiring, budgeting, marketing, or nearly any other part of the business world. Want to learn how to do all that? This course from GLOBIS Unlimited is the perfect first step!

Unfortunately, such changes can’t happen at the flick of a switch.

Are ESG initiatives even possible outside of startups and transformative tech companies with the flexibility to reset quickly? Yao says yes. In fact, they must happen everywhere.

“Businesses that predate the push for sustainability need to change in order to save the planet.”

Tesla, for example, is a change maker with a mission “to accelerate the world’s transition to sustainable energy.” The company is driving sustainability through the manufacture and sale of things like electronic vehicles and solar power generation—new technologies and business models.

That’s great, but the majority of businesses predate the push for sustainability. It’s those businesses that need to seriously change in order to save the planet. That transformation needs to speed up, and the emergence and success of disruptors like Tesla will help with that.

—Mari Yao, GLOBIS University Research Fellow

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The How of ESG: Dialogue, Doughnut Economics, and Stewardship

Poor communication has the power to break just about anything. That means good communication can work wonders.

Egami says ESG transformation in business starts with two things: management initiative and . . . the doughnut.

“What is the purpose of your company?”

Transforming an existing business into a sustainable company is not just a matter of “doing it because we can.” In fact, you only can do it if management asks some key questions:

  • What is the purpose of our company?
  • What do we want to pass on to the future?

In addition to that, ESG-focused management needs to have a dialogue with employees and stakeholders.

There are many examples around the world where management has led ESG transformation. Ørsted, an energy company in Denmark, has transformed itself from a former coal and oil business into a green energy company. Marui, a department store in Japan, has made a major shift to a “store that does not sell things,” focusing instead on the exploration of a shopping experience.

Kate Raworth, a British economist who invented the concept of “doughnut economics,” surveyed a number of companies taking on sustainable initiatives. Her analysis describes their business model transformation in five stages:

1. Do nothing.

Maximizing profits is the goal of the company. As long as company practices comply with the law, there is no need to change the current way of doing things.

2. Take action for ROI.

Activities turn to what is good for society and the environment, but only because it brings a competitive advantage.

3. Begin fulfilling a responsibility.

Company priorities begin to include a sense of obligation and responsibility from a position of influence on society and the environment.

4. Do no harm.

It’s no longer enough to decrease negative impact. Conducting business activities must now be done in a way that increases positive impact.

5. Give generously.

Corporate responsibility informs all actions. The goal now is for future generations to inherit a world that’s in a better state now than it was before.

All of this begins with dialogue around those two questions: where your organization is and what it aims to achieve.

—Hiroyuki Egami, GLOBIS University Faculty

Infographic explaining doughnut economics, a model for a more sustainable economic future
©GLOBIS

Finally, Yao notes that following any roadmap to a brighter future for ESG issues is great, but it needs to come with a sense of stewardship. That’s how you drive your business’s ESG strategy forward.

“Stewardship is essential for the promotion of ESG.”

We all share the limited resources of the Earth, and we have to cooperate with others in our economic and social activities. Stewardship is essential for the promotion of ESG because it helps us take responsibility for those precious resources, as well as our collective property, health, and cultural heritage.

A good place to start is dialogue, both with market and non-market stakeholders. Learn about the negative impact of your company on individual stakeholders. Share and discuss that impact within your company. Only then will you be able to awaken the sense of stewardship within yourself.

—Mari Yao, GLOBIS University Research Fellow

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