Environmental Sustainability
Getting Strategic About Sustainability
by Jason Jay, Kate Isaacs and Hong Linh Nguyen
From the Magazine (January–February 2025)
Suzanne Saroff
Summary. Companies often overextend themselves when it comes to
sustainability by addressing too many issues at once, leading to scattered efforts
that fail to generate a meaningful impact. In this article the authors introduce a
framework leaders can... more
Strategy, it is often said, is about
choosing what not to do. But when it comes
to sustainability, many companies toss that
advice aside and try to tackle too many
issues at once. The result? Scattered efforts
that fail to generate either business results
or meaningful impact. In extreme cases, overpromising and
underdelivering can even lead stakeholders and watchdogs to
assume that the companies are greenwashing.
Why does corporate attention get spread so thin when it comes to
sustainability? And how can companies get more focused when
setting their sustainability strategy, just as they do for corporate
strategy?
A materiality analysis is—on paper—the way a company winnows
down environmental, social, and governance (ESG) issues to focus
only on those that have a material impact on its financial
performance. Such analyses are designed to answer the question
“What information do investors and other stakeholders need
about the firm in order to make their decisions?” Oil and gas
companies should disclose metrics on their greenhouse gas
emissions, whereas clothing companies should focus on labor
conditions in their textile factories, to use two simplified
examples. However, given the diversity of stakeholders and the
variety of reporting standards, exercises meant to uncover
material issues often lead firms to measure and report on a wide
swath of indicators. We’ve read materiality reports that include
KPIs on seemingly everything, including diversity and inclusion
efforts, greenhouse gas emissions, corruption, electromagnetic
field pollution, and biodiversity.
Because reporting is costly, firms do try to reduce the number of
issues they report, and they often resort to creating a materiality
matrix with two axes, one listing the firm’s interests and the other
those of stakeholders and society. The company’s leaders then
invest the most attention and resources on the upper right
quadrant of the matrix, though they continue to monitor what
Jilde Garst and her colleagues call “tensioned topics”—areas that
are material from one perspective but not the other (most often,
issues that are socially material but lack a business case).
The trouble is that this approach does not provide focus.
Materiality matrices become, as NYU’s Alison Taylor has argued,
“everything is material” matrices. Indeed, our research examined
256 sustainability reports in 2022 that included materiality
matrices or other displays that define top-priority topics. In that
sample, the number of issues that were designated as highest
priority was 11.8, on average (with a range from two to 43). That is
far too many. Strategy experts—drawing in part from
neuroscientists’ finding that the human brain can focus on only
three to five pieces of information at a time—recommend that
management teams concentrate on no more than six issues at
once, lest their attention and ability to act become diluted.
In this article we will describe a framework that executives can
use to focus on what truly matters when formulating their
sustainability strategy. It uses four lenses, or modes of inquiry, to
help companies identify issues that merit their strategic
attention. The issues that appear in all four lenses deserve the
most significant resource allocation and innovation to drive real
progress.
The Four Lenses Framework
Our core premise is that achieving a tighter focus requires a firm
to hold two tensions. The first is between outside-in and inside-
out perspectives: Leaders must understand the major social and
environmental issues of our time and the perspectives of
regulators, customers, investors, employees, and suppliers.
Without it, they are operating within a bubble. However, focusing
too much on external pressures can cause leaders to overreact to
stakeholder demands. It’s equally important to look inward,
demonstrate leadership, and decide which ESG issues the
company won’t prioritize so that it can focus on the issues that
align with its business model and purpose.
See more HBR charts in Data & Visuals
The second tension is between perception and reality, or the
subjective and the objective. Although data-driven insights and
financial metrics are crucial, a firm’s success often hinges on
stakeholders’ perceptions, which are sometimes ill-informed.
Take coffee pod waste, for instance. Life cycle analysis by Andrea
Hicks shows that pod-based coffee is efficient: It offsets the
carbon and water impacts of increased plastic waste by using
precise amounts of coffee, water, and heat. A data-driven analysis
would suggest that a company such as Keurig Dr Pepper (KDP)
might ignore the issue of coffee pod waste and focus instead on
improving coffee cultivation practices to conserve water, healthy
soils, and forests. However, as Monique Oxender, KDP’s chief
corporate affairs officer, notes, stakeholder perception of pod
waste as the main environmental issue demanded the company’s
attention. “As long as the perception is that waste is the biggest
issue,” she says, “then pod waste is important to address.”
To manage these tensions and clarify which issues are most
critical to address, companies need to apply four lenses: business
value, stakeholder influence, science and technology, and
purpose. Let’s explore the lenses to see how they can help
executives devise a focused sustainability strategy.
The Business Value Lens: What Affects Our Bottom Line?
For most companies, a key factor in focusing their sustainability
strategy is answering the question “What issues relating to
sustainability impact our bottom line?” This approach identifies
win-wins that justify investment by improving the P&L. Investors,
who are often most comfortable discussing sustainability in
financial terms, are particularly supportive of this focus. Take
Walmart’s 2006 sustainability strategy, for example, which named
“zero waste” as its first objective. The company could reduce costs
by cutting wasted fuel in idling trucks, wasted electricity from hot
incandescent light bulbs in its refrigerators, and wasted
packaging in its warehouses. Those cost reductions helped
Walmart deliver on its core value proposition of offering everyday
low prices.
The business value lens can also help a company build consensus
around sustainability strategy amid differences in ideology,
because there is rarely controversy surrounding sustainability
improvements that also drive profits. This approach is sometimes
called “single materiality” because it attempts to quantify ESG
issues that are important for the creation of shareholder value—
that is, those issues that pose risks for a company. Because of its
apolitical, purely financial nature, single materiality is the
dominant perspective in the SEC’s considerations of climate data
in the United States, in most major reporting frameworks, such as
that of the Sustainability Accounting Standards Board (SASB),
and in climate risk analysis that is now built into California and
European law.
Suzanne Saroff uses everyday objects such as glassware and flowers to play with perspectives and construct
surreal still lifes.
Skillful application of the business value lens involves mapping
environmental and social issues to the drivers of enterprise value
creation, capture, and preservation, such as cost structure, a
customer’s willingness to pay, pricing power, and the valuation of
assets and liabilities. Sometimes these connections are obvious,
as when a company has significant energy expenses and
regulatory exposure. Sometimes they require exploring what the
sustainability thought leader Daniel Aronson calls “submerged
value”—value that is not immediately obvious and is harder to
measure but can be substantial. For example, the SASB recognizes
that pharmaceutical companies depend on top scientific talent,
and so it lists employee recruitment, development, and retention
as a material ESG issue in its own right. Making a marginal
improvement in that area can be worth billions to a firm.
The Stakeholder Influence Lens: What Are People Trying
to Tell Us?
The business value lens tends to focus attention on near-term
win-wins. But if executives use only that lens, they won’t develop
the situational awareness they need to detect issues that are on
the horizon. Laurent Bouvier, a managing director at UBS
Investment Bank, explains how the bank uses ESG criteria to
assess potential investments in companies: “We are not looking at
‘nonfinancial information,’ we are looking for ‘prefinancial
information.’” A critical way that smart firms learn about
emerging issues is by engaging with outside voices, such as NGOs,
social scientists, natural scientists, journalists, politicians, and
activists who are working to elevate issues such as species
extinction, forced labor, and corruption that might touch a
company’s value chain. These stakeholders have a large impact on
the operating environment for business. They help define the
“soft law” of norms, standards, and certification schemes that can
become the “hard law” of business requirements. They can also
influence the preferences and decisions of firms’ immediate
stakeholders—their current and prospective investors, customers,
employees, suppliers, and community hosts.
Ultimately, stakeholder attitudes affect business value, but there’s
one important caveat: Firms have to anticipate what stakeholders
will do, not just what they will say. For instance, will customers
care enough about human rights and working conditions in
garment factories to boycott cheap clothes? Will prospective
employees care enough about a company’s carbon footprint to
turn down job offers? Surveys of stakeholders can help
distinguish between stated preferences and actual behavior, but
there are even better market research methods, such as forced-
ranked questions and A/B testing of advertising messages, that
produce more-reliable data.
It’s important to see stakeholders as more than critics who focus
on what a company should stop doing. Their campaigns can also
inspire innovation. For example, the New England utility
Eversource had believed that it was effectively managing gas
leaks through its focus on stopping confined-space leaks, which
pose immediate safety risks in enclosed areas. It didn’t consider
high-volume outdoor leaks to be a major issue until Mothers Out
Front, a climate activist group, highlighted the significant
methane emissions from these leaks. Instead of resisting,
Eversource engaged in dialogue with the activists. Their
collaboration led to multiple innovations, including advanced
methods for measuring methane leaks, legislation to incentivize
leak prevention, and novel district geothermal systems to heat
and cool homes without relying on gas at all.
The Science and Technology Lens: What Does the Data
Tell Us About Our Impact and Future?
Despite its promise as a source of insight, the stakeholder
ecosystem can be noisy, and companies need data to help cut
through the clamor. Nike once asked a council of advisers to help
it prioritize the information requests it received from
stakeholders about its ESG performance, as well as the issues
covered in those requests. The list included 49 dense and labor-
intensive surveys that NGOs, journalists, investor groups, and
industry coalitions had asked the company to respond to, within
which Nike identified 24 high-level issues. Even within the area of
diversity, equity, and inclusion, Nike had to prioritize 11
subissues. There was a kind of centrifugal force at work here, as
each stakeholder championing a cause worked to pull the
company toward it. The unintended effect was to spread the firm
thin.
Furthermore, stakeholders don’t always have their facts straight.
Take genetically modified organisms (GMOs), for example.
Popular opinion has demonized them, but the scientific literature
suggests they can play a role in improving climate resilience and
reducing pesticide usage. Nuclear power kills and sickens fewer
people per kilowatt than any fossil energy yet provokes far more
concern. In other cases, stakeholders are not yet vocal about
issues that are nevertheless important to the business. For
example, climate resilience is a significant issue for coffee
cultivation, with high temperatures, fires, and rainfall changes
putting farmers and coffee supply at risk—yet few stakeholders
have raised it as a major concern.
Suzanne Saroff
That’s why companies need to employ a science and technology
lens, using rigorous data and modeling techniques to inform
themselves about issues. Environmental science tools such as
climate physical-risk analysis (a process for determining the
potential impact of climate change on a community or
organization) can evaluate how changing environmental
conditions will affect a firm’s value chain. Life cycle analysis can
reveal whether its activities exceed environmental limits or cross
planetary boundaries—the ecological thresholds that define the
safe operating space for humanity in areas such as climate,
biodiversity, and resource use. Social science tools can assess
whether a firm and its suppliers meet the social requirements of
corporate citizenship in key communities, such as paying a living
wage to vulnerable workers.
In addition, tools such as technology learning-curve modeling
can help a company anticipate how emerging technologies will
alter the trade-offs between environmental impacts and
profitability. As technologies evolve, they might offer more-
sustainable options that balance both concerns. For example,
renewable energy sources and low-impact agricultural practices
are becoming more cost-effective and could reshape business
strategies.
The science and stakeholder domains are interdependent, of
course. Often, a company won’t investigate an issue until an
external group highlights it. But firms can also use scientific
insights to mobilize stakeholders around important topics. In the
artificial turf industry, for example, some companies that produce
natural infills have raised awareness about the dangers of crumb
rubber, which contains carcinogenic chemicals and microplastics
that enter waterways. (Jason Jay is on the board of directors of
Brock USA, a company that produces a wood-based infill for fields
and is pursuing this strategy.) When companies are presented
with noisy and often conflicting stakeholder perspectives, having
a neutral and objective fact base to support the conversation can
be useful. And that’s exactly what the science and technology lens
delivers.
The Purpose Lens: What Do We Stand For?
The first three lenses will bring many issues into focus for a
company. But the last one helps companies identify the ESG
issues that jump off the page as “this is ours to do.” The purpose
lens involves asking why a company exists and how it wants to
operate. It looks at the impacts that are most meaningful to a
company’s purpose and the values it strives to uphold.
For instance, Costco prides itself on investing in and taking good
care of its workers. It is what MIT professor Zeynep Ton calls a
“good jobs” company, famous for providing long careers and solid
pay and benefits, including opportunities for learning and
development. When Costco began thinking about sustainability
in the late 2000s, the first question leaders asked was “Are we
taking care of people in our supply chain the way we are taking
care of our own people?” That question drove a series of studies
and improvement efforts focused on livelihoods and working
conditions in its supply chain, particularly in the production of
commodities that are prone to exploitation, forced labor, and
other abuses.
Companies should invest in, innovate
around, and build strategic coalitions
for issues that fall at the intersection
of all four lenses.
Firms that prioritize the issues that the purpose lens brings to the
fore will have the conviction and patience it takes to reshape
markets. Novo Nordisk repeatedly revolutionized diabetes care,
Tesla spearheaded electric vehicles, Grameen Bank pioneered
microfinance, Patagonia defined responsible apparel, and
Stonyfield Farm established the organic dairy category. These
purpose-driven firms all have one thing in common: They refused
to accept existing market and institutional conditions. They
influenced stakeholders, educating and inspiring customers to
think and act in new ways. They shaped public policy and
industry norms to make them more favorable to responsible
business and society. They innovated new technologies and
management practices that changed cost/benefit equations in the
market. In doing so, they changed the markets and created a
space for their own firms to thrive.
Applying the Lenses
As we have described, the types of data and the methods of
inquiry are different for each of the lenses. And each lens will
bring a particular set of issues into focus. Companies should
invest in, innovate around, and build strategic coalitions for
issues that fall at the intersection of all four lenses. Doing so will
help them balance the tensions between an outside-in and an
inside-out approach and between the subjective or intangible and
the objective or quantifiable modes of inquiry.
Let’s look at the way KDP responded to concerns about its coffee
pods as an example of how to use the four lenses framework.
Stakeholder influence. Concern about the environmental toll of
coffee pod waste led some stakeholders to threaten to ban the K-
Cup pod. “Proximity plays a huge role when it comes to ESG
materiality,” says Neha Thatte Mallik, KDP’s director of product
management. “People care most about what they can touch, feel,
and taste. You touch the pods, you drink the coffee, and people
feel guilty about throwing pods away.” Consumers also want to
know that what they are drinking is responsibly sourced.
Science and technology. Life cycle analysis of the value chain
revealed the efficiency of single-serve coffee (in its use of coffee,
water, and energy) but also the difficulty of recycling and
composting packaging in ways that reduce emissions—a key
innovation challenge for the industry. This science lens also
revealed a business continuity issue: Because climate change was
making coffee a vulnerable crop, it was beginning to be hard for
coffee growers to make a living, and some were starting to exit the
business.
Purpose. The origin story of Green Mountain Coffee Roasters
(which bought Keurig and later merged with Dr Pepper Snapple
Group) reveals a company deeply committed to investing in
efforts to take care of coffee-growing communities. In 1999, for
example, it started funding the nonprofit Root Capital to support
farmer livelihoods and sustainable growing practices. Its
commitments evolved into KDP’s purpose of “Drink Well. Do
Good.” It combines the notion of responsibility with that of
positive impact.
Business value. Nespresso’s success with foamy high-end
espresso and a pod take-back and recycling program, as well as
the emergence of semiautomatic espresso machines, suggested
there were untapped business opportunities in the single-serve
coffee market. Inspired by competitors’ premium positioning and
sustainability initiatives, KDP began exploring ways to elevate its
own offerings rather than retreat from the category.
Finally, it’s important to note that M&A activity can complicate
the picture. A company might develop a strategic focus on
sustainability with its product portfolio and then have to
reevaluate that strategy when a merger brings new products and
markets into the picture. The 2018 Keurig merger with Dr Pepper,
Snapple, and its beverage portfolio brought the sweetener value
chain to KDP, along with its parallel set of issues, particularly
obesity concerns around sugar consumption.
When we look at the intersecting territory of the four lenses, we
see three key strategic priorities in sustainability for KDP:
eliminating waste while maintaining the convenience of single-
serve coffee; responsible sourcing that considers environmental
and social issues in coffee farming; and health and well-being
given the ingredients in Dr Pepper’s beverages. Thus, the four
lenses bring into focus three priorities as a rough first pass—a lot
fewer than the 21 medium- and high-impact issues considered in
KDP’s 2023 report. And if we did our issue prioritization at the
product category level (where business strategy often belongs),
the coffee business could narrow down to just the first two
strategic priorities.
In fact, this analysis describes KDP’s real allocation of innovation
effort. In 2024 the company announced K-Rounds, plastic-free
pods that are a compressed coffee serving protected by a plant-
based coating that can handle the high water pressure of espresso
extraction. “The innovation is expected to be plastic-free,
compostable, and plant-based,” says Mallik, who spearheaded the
product’s development. KDP hopes that the technology will
become the new dominant single-serve coffee platform in the
market.
...
Sustainability is a messy and dynamic terrain. Companies face
constant shifts in the prominence and concerns of stakeholders,
the scientific consensus, and the supply costs and customer
preferences that drive business value. Firms can even reinterpret
their own purpose after changes in leadership or mergers. So the
four lenses cannot provide a fixed view of corporate sustainability
strategy. But they can offer some focus and clarity in complicated
times and give firms the confidence to persevere, lead, and
innovate on what matters most to them.
A version of this article appeared in the January–February 2025 issue of Harvard
Business Review.
Jason Jay is a senior lecturer at the MIT Sloan
School of Management and the director of its
Sustainability Initiative.
Kate Isaacs is a senior lecturer at the MIT
Sloan School of Management and a cofounder
of its Business for Inclusive Local Thriving Lab.
Hong Linh Nguyen is a lecturer at Frankfurt
University of Applied Sciences.
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