Integrating sustainability into core strategy is crucial for long-term success and resilience in today’s complex business landscape. Organizations and investors worldwide are recognizing the need to align their business strategies with sustainability principles to meet stakeholder expectations, comply with evolving regulations, and secure their future competitiveness.

Our Strategy Assessment tools empower both organizations and investors to navigate this complex terrain by providing a clear, facts-based and objective way to evaluate and benchmark sustainability strategies. We not only help understand why it makes sense to pursue a strategic sustainability management (which we like to compare to be going on a ‘hiking trip’), but also assist in choosing the right sustainability ambitions that align with the business model/strategy, the desired Impacts Levels, and risk-opportunity landscape of the organization or investment portfolio. Think of it as choosing the right mountain to hike to – different sustainability ambitions offer various benefits, each requiring different levels of effort and investment.

At PI, we understand that every organization, including non-profit organizations, must ensure that its income covers its costs. This is why we’ve designed and scientifically tested five financially sustainable Strategies where the benefits can outweigh the necessary investments. This approach ensures that sustainability efforts contribute positively to overall financial health, whether for an organization’s operations or an investor’s portfolio.

> Assess the current Strategy Integration and Management Quality Score

> Understand which Ambition Levels are plausible to pursue (see Impacts introduction and Strategy Stress test for more)

> Benchmark against industry peers and best practices for the desired Ambition Level

> Make an informed decision on the Ambition Level that is considered best for the organization’s (mid-/long-term) value creation

> Identify gaps and overshoots to the desired Ambition Level, representing risks and opportunities

> Align sustainability efforts with business objectives to ensure consistency

> Enhance communication and reporting on sustainability matters and abandon “Only PR” approaches

Our PI Ambition Level Concept provides the conceptual basis for all our Strategy Tools. It outlines five levels representing different strategy imperatives for integrating sustainability beyond legal requirements (and focus on why doing more than what is legally required can pay off for an organization). They are complemented by two variations for organizations without a clear sustainability ambition. The range goes from reactive to proactive strategies:

Variations of No Ambition:

> No Ambition: No integration of sustainability apart from complying to existing regulation – rarely plausible in today’s business environment

> Only PR: “We have communicated commitments on sustainability, but there are no appropriate measures/processes” – not recommended to pursue in any case given the high risks that are attached to this (e.g., impacting employee morale, leading to fraud/corruption, next to reputational risks)

Five Ambition Levels for Integrating Sustainability into Strategy:

> Legal Compliance: With a focus on reducing regulatory risks (future compliance)

> Stakeholder Compliance: With an additional focus on reducing reputational risks

> Pragmatic: With an additional focus on productivity gains, i.e., cost savings

> Strategic: With an additional focus on revenue growth

> Sustainability Driven: Using sustainability as a brand strategy (covering all the above, plus providing a brand promise)

Lower Ambition Levels represent a reactive strategy, while higher levels indicate a proactive one. With each ambition level, investment requirements typically increase with each ambition.

 

Our research on major German stock-listed firms reveals a spectrum of sustainability strategies, each with distinct financial implications:

> Applying a “Only PR” approach (identified through low consistencies) and lower Ambition Levels (Legal and Stakeholder Compliance) often lead to financial disadvantages, representing reactive approaches.
> Applying a high consistency and higher levels (Pragmatic and Strategic) are more likely to yield financial advantages

In addition, we noticed that selected B2C companies that apply the highest level (Sustainability Driven) have experienced significant revenue growth, with some achieving 15-40% annual growth.

As ambition levels increase, so do investment requirements. The key question is: Which strategy best suits your organization or investments, and is your management aligned with this goal?

Interested? Read more in our study series

We uniquely balance societal impacts with business impacts (financial materiality). We understand that both Impacts on society, where we take a clear societal perspective and avoid impact washing, and impacts on business (i.e., financial materiality), where we take a clear business perspective, are interconnected. Any guide for integrating sustainability into strategy, governance, and processes must have a business perspective in mind. This dual perspective is crucial for effectively integrating sustainability into strategy, governance, and processes. Our approach:

> Links societal Impacts to risks and opportunities, identifying plausible strategies:

> Offers five distinct strategies, each with a clear business imperative, including the highest level of integration (as a brand strategy)

> Provides a non-binary, nuanced view of strategy implementation (as strategy is not a tick-the-box-exercise)

> Bases recommendations on logic and facts, not PR or political preferences

> Aims for financial gains when applied correctly (to avoid financial losses when not applied correctly; scientifically proven on a sample of companies)

Our Strategy Framework complements our Impacts assessment approach, providing actionable insights that empower organizations and investors to make informed, fact-based decisions:

> Tailored approach based on unique contexts and chosen Ambition Levels > Integration of sustainability into core business strategy and operations that fits the chosen Ambition Level

> Comprehensive framework from assessment to implementation and communication

> Alignment with over 36 global sustainability standards and emerging regulations, such as the EU-CSRD, the ISSB, and TCFD

PI’s Ambition Level Concept (summary)

PI’s Ambition Level Concept provides an unbiased, objective basis for understanding how managing sustainability can yield benefits without prescribing one single strategy that should be pursued. It covers a range of imperatives from risk management and cost savings to revenue growth (see PI’s Ambition Level Concept for more).

PI’s Strategy Framework: the Basis for the Strategy Assessment Tool

The Strategy Framework focuses on evaluating the integration of sustainability into an organization’s management approach and strategy and does not assess the organization’s sustainability impacts (performance). It comprises three dimensions, 20 criteria, and 40 questions that evaluate the current state of integration of sustainability into the organization. The three dimensions are Strategic Baseline, Operative Integration, and Engagement & Reporting:

This framework has been scientifically tested and developed over four years, mapped against over 36 other frameworks, and reviewed by renowned experts. It offers up to five answers for each question, aligned with different Ambition Levels, plus a compliance-focused option.It thereby represents a comprehensive approach for evaluating the level and consistency of sustainability strategy integration, allowing the identification of gaps and overshoots to the desired strategic Ambition Level.

> Nine criteria with 18 questions assessing fundamental aspects of sustainability strategy

> Covers areas like overall strategy, materiality assessment, and executive compensation

> Nine criteria with 17 questions assessing practical implementation of sustainability

> Covers areas like governance structures, integration into core business processes, and operational practices

> Two criteria with five questions focusing on external communication and engagement

> Assesses stakeholder interaction and reporting practices

These metrics provide a clear measure of an organization’s sustainability disclosure practices:

> Measures the level of transparency across the 40 framework questions – management transparency

> Measures the level of transparency across the 14 indicators of our Impacts Framework – performance transparency

> Useful for evaluating and improving transparency & disclosure or strategically managing public information releases

This score offers a comprehensive view of how extensive sustainability is embedded within an organization’s operations and strategy. Each of the up to five answers to the 40 questions in the Strategy Framework is allocated to one Strategic Ambition Level and translated into a score, with 0.5 being the default score for Legal Compliance and 4.5 being the default score for Sustainability Driven (i.e., 0 for No Ambition). PI’s Strategy Integration Score:

> Quantifies the level of sustainability integration into strategy, management, and processes

> Higher scores indicate more comprehensive integration (see PI Ambition Level Concept)

> Considers factors like governance, target-setting, operational integration, and reporting (see PI Strategy Framework)

PI offers various weighting options to calculate the average scores based on expert judgment and data-driven priorities (either focusing on maximizing financial returns, impacts, or a combination), enabling you to choose your priorities.

The deviations in the answers given to each of the 40 questions allow for measuring consistency between the answers. Thus, it shows the level of management deviations between the Ambition Level answers. This provides insights into the consistency and, thereby, the quality of an organization’s sustainability management approach: Measures the consistency of sustainability management across the 40 framework questions. In addition, it allows for measuring the divergence, which shows if the organization is more ambitious on less or more important questions.

The two management quality scores mentioned above can be used to evaluate the Only PR risk, as both can indicate this. Managers of two companies with high scores in these indicators (indicating low management quality) confirmed on a call with PI that their sustainability reporting was “Only PR” and that we were the first to notice it. The Only PR risk evaluation helps to identify various risks, such as strategic risks, reputational risks, and greenwashing risks.

Strategy Benchmarking

Organizations can benchmark their sustainability strategies against industry peers and leaders, and gain insights into their sustainability strategies . This analysis helps organizations to identify best practices for a chosen Ambition Level and decide upon their competitive positioning.

Investors can benchmark and compare the sustainability strategies of portfolio companies or potential acquisition targets, and gain insights into how companies approach sustainability within their industries. This comparative analysis highlights each company’s strategic positioning/Ambition Levels, and integration of sustainability into core operations. It enables investors to make informed decisions, identify leaders and laggards in sustainability strategy and management, and engage effectively with portfolio companies to drive improvements. Ultimately, this benchmarking capability supports better risk management and helps uncover opportunities for sustainable growth within investment portfolios.

A completed Strategy Assessment forms the basis for conducting a gap assessment. This assessment tool helps organizations identify and address discrepancies between their current sustainability approach and their desired ambition level, and formulates a feasible roadmap to close the gaps to the desired Ambition Level. A gap represents a state where the current management approach will likely not lead to the strategic outcome the board or investor wants to pursue, leading to missed opportunities or unmanaged risks. An overshoot represents a state where the current management approach aims at a higher strategic ambition than the board or investor wants to pursue, potentially leading to higher costs that will not produce a benefit and reputational risks. However, overshoots can make sense if the organization is aiming to move from one Ambition to the respective Ambition of the overshoot. Our Gap/Solutions Assessment:

> Identifies key gaps and overshoots in your current sustainability approach and desired Ambition Level

> Provides tailored measures to address inconsistencies

> Highlights cost-saving opportunities (overshoots) and potential investments (gaps) in your management approach

> For investors: Identifies strategic sustainability risks and opportunities in current and targeted portfolio

This comprehensive database links sustainability topics to their potential financial impacts:

> Provides research on financial effects tied to 200+ sustainability topics, sub-topics, and sub-sub-topics of the PI Topic Taxonomy

> Supports double materiality assessments and risk/opportunity evaluations

How do you get there? We provide you with guides on your sustainability integration journey.

PI’s Integrated Impats, ESGF Risk & Opportunity Assessment and Valuation tool offers a holistic approach to evaluating and managing sustainability-related risks and opportunities.

>Provides a thorough, impact-washing-free approach to monitor the change in impacts that you achieve

> Enables thorough, fact-based evaluation for risk reporting and opportunity management

> Identifies risks and opportunities holistically, including those originating from impacts

> Evaluates gross risks and opportunity potentials

> Identifies and tracks mitigation measures

> Calculates ROI of risk management and overall NPV of risk & opportunity management

Our frameworks and tools have undergone extensive pilot-testing on a diverse sample of companies, including SMEs. This rigorous process aimed to:

> Evaluate sustainability management based solely on public information

> Validate the effectiveness of our assessment questions and answers

> Uncover new insights through our innovative approach

Our unique methodology separately assesses Strategy, Quality, and Sustainability Performance. This approach, pioneering in its field, has yielded groundbreaking results, which were published in our “Demystifying the links between sustainability/ESG and performance” paper series. Notably, these findings hold true across sectors, years, company sizes, and prior financial performance, as confirmed by back-testing from 2019 to 2022.

Our Strategy Assessment tools offer valuable insights for both organizations and investors; empowering them to enhance their sustainability strategies.

For Organizations

Intention: Create a comprehensive, Impacts, Risks & Opportunities-informed sustainability strategy

Challenge: Aligning sustainability goals with business objectives and stakeholder expectations

Solutions:

> Utilize our Strategy Stress test (under Both) to assess if your current management approach fits with your risk/opportunity profile

> Benchmark your sustainability strategy against industry peers and leaders

> Make an informed decision on the Ambition Level that is considered best for your organization

> Identify gaps in current management approaches to the chosen Ambition

> Prioritize areas for improvement in current management approaches and design/plan the implementation following the PI Strategy Framework and integration guide for the chosen Ambition Level

Intention: Effectively execute sustainability initiatives across the organization

Challenge: Translating high-level strategy into governance structures, processes, actionable plans, and measurable outcomes that are consistent with your chosen Ambition Level

Solutions:

> Implement governance structures and processes following the PI Strategy Framework and integration guide for the chosen Ambition Level

> Align your sustainability initiatives with core business objectives

> Implement our tracking tools to monitor progress both on sustainability strategy KPIs, such as Management Quality, and Impacts-Level in % and $ or €

Intention: Effectively communicate sustainability strategy, management, and Impacts to stakeholders

Challenge: Presenting sustainability strategy and impacts in a clear, compelling manner

Solutions:

> Effectively communicate your strategic positioning, your Impacts-Level and Desired Impacts-Level to stakeholders

> Create comprehensive, stakeholder-friendly sustainability reports with the insights from the Strategy Assessment and Impacts-Level Assessment

> Use our benchmarking tools to highlight your Impacts (performance) or even strategy relative to industry peers

> Utilize our Impacts Assessment to quantify and communicate the added societal value of your sustainability initiatives

For Investors

Intention: Thoroughly assess potential investments’ sustainability impacts, risks, opportunities and management approaches

Challenge: Integrating sustainability factors into traditional financial analysis

Solutions:

> Stress test target companies’ strategic sustainability positioning to identify impacts, risks, and opportunities of their current strategy

> Quantify potential risks and opportunities in target companies with our Integrated ESGF Risk & Opportunity Assessment and include them in your financial analysis

> Use our assessment to benchmark a target company’s sustainability strategy against peers to determine the best strategic Ambition Level for your target

> Assess the long-term value creation readiness of investments

Intention: Make informed investment decisions that align with sustainability objectives

Challenge: Balancing financial risk, returns, and impacts (sustainability strategy/management & performance) investment considerations

Solutions:

> Compare your portfolio sustainability strategy (risk, return or impacts) with the strategy of portfolio companies, ensuring that your acquisitions meet your sustainability criteria

> Utilize our PI® Strategy Matrix to assess how potential acquisitions align with your sustainability investment objectives

> Employ our Impacts valuation tools to integrate sustainability factors into your financial models

Intention: Optimize portfolio performance across both financial and sustainability metrics

Challenge: Continuously monitoring and improving the sustainability profile of diverse investments

Solutions:

> Align your portfolios with your sustainability investment objectives (risk, return, impacts)

> Inform engagement strategies with portfolio companies

> Use our engagement strategy tools to guide interactions with portfolio companies

> Leverage our Tools to track sustainability performance across your investments

> Use the approach to define exit strategies and prepare sell-side Due Diligence reports

Intention: Provide transparent, comprehensive reporting on portfolio sustainability strategy focus (risk, return, impacts)

Challenge: Aggregating and presenting complex sustainability data from multiple investments

Solutions:

> Utilize the stress test results to compile sustainability strategy information across your portfolio

> Use our benchmarking to ols to contextualize your portfolio’s strategy against competition and industry average performance

Translating analysis to actionable insights is crucial for effective sustainability management that generates a competitive advantage. Our frameworks and tools identify areas for improvement and provide a clear roadmap for implementation. Our process facilitates this transition through:

> Clear Recommendations: Tailored recommendations based on assessment findings to advance strategic positioning

> Detailed Roadmap Development: Comprehensive plans addressing identified gaps and overshoots in sustainability strategy

> Management Buy-In: Workshops to secure buy-in for proposed strategies and define the highest feasible ambition level

> Implementation Support: Ongoing support to effectively integrate sustainability into core operations > Progress Monitoring: Regular assessments against defined targets & sustainability goals

By leveraging these tools and insights, organizations can move beyond compliance to truly integrate sustainability into their core strategy in a way that fits, driving long-term value creation and resilience in an ever-changing business landscape.

Our Strategy Assessment Tool: Two Perspectives for the Assessment of

  1. Your Own Organization:
    > Assess and reflect the current sustainability strategy, governance and management approach of your organization
  2. External Organizations:
    >As an Organization:
    Assess and reflect the sustainability strategy, governance and management approach of your peers, customers, targets, partners, or key suppliers enabling you to gain strategic insights for improving the resilience of your own strategy or tailoring your products/services to the strategic imperatives of your customers
    >As an Investors: Assess and reflect the sustainability strategy, governance and management approach of your assets, the assets in your funds, and targets, enabling you to ensure both a strategic fit to the focus of the investment strategies of your funds/the asset owners and that the assets focus on delivering the double dividend in their defined ambition to reduce strategic and reputational risks and balance your Impacts-Risks-Return focus.

The assessments can be conducted by you, by the external organizations themselves, or by PI, while sharing the results with you through our platform. PI can also verify all self-assessments. This gives you full flexibility and control to understand the basis for the presented information and its inherent limitations (such as public reporting or verification).

The following applies to all variations of our Strategy Packages:

Common for all product scopes below

Own organization

* We use this information as a basis for the assessment. However, assessments can also be conducted on a plan, e.g., if you plan significant changes to your strategy, governance and management approach.

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Strategy Assessment Lite (free)

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Assessing other Organization’s Strategies:

Example use cases:

> Peers: Benchmark your strategy against key peers

> Clients: Understand the sustainability strategy of your clients to understand where your products/services can help them to achieve their strategic goals

> Suppliers: Understand the supplier risks by identifying poor sustainability management practices

> Assets or M&A targets: Complement your fiduciary duty/Due Diligence to identify poor sustainability management practices as well as unutilized opportunities for improving it

* We use this information as a basis for the assessment. However, assessments can also be conducted on a plan, e.g., if you plan significant changes to the strategy, governance and management approach of a target.

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CSRD Readiness Check:

> Are you affected? If yes, how can you prevent doing the same mistake as NFRD-compliant firms that created losses by poor ESG management?

> We check your current sustainability/ESG strategy against the CSRD and the requirements of 30 other frameworks.

> Does your sustainability management make sense for your business strategy? We defined five different ways to comply with the CSRD and at the same time offer a strategic fit to different business imperatives

More on the CSRD Readiness check

Ambition & scoping workshop(s)

Based on the benchmark, status quo, gap/overshoot, and solution assessment, we discuss the findings with the management, agree upon the highest feasible ambition, and determine the scope of the assessment phase.

> Obtain management buy-in and clarity on the potential strategy for your firm

> Define the highest feasible ambition and define/modify the approach for the assessment phase

> Identify the portfolio items (divisions, products, services) and their level of segmentation for the assessment and determine the value chain scope for the assessment phase

> FS: Understand the ambition level of capital providers, identify targets, and complement your due diligence

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