Simple guide to sustainability strategy for SMEs

Building a sustainability strategy isn’t just about ticking an ESG box - it’s about making smart, future-proof business decisions that protect your profitability and market position. When I work with clients, strategy development is a process that takes a couple of months. It is important not to rush through the steps, as each one contributes to the success of the final result.

We begin with a business context analysis. This means reviewing your operations, market trends, and regulatory environment to understand where your company stands today. We then identify environmental and social impacts, assess risks and opportunities, and carry out a stakeholder analysis to map the needs and expectations of customers, suppliers, employees, and investors. A targeted industry analysis reveals benchmarks and best practices, helping you see where your SME can gain a competitive advantage.

Next comes strategy design. Through focused strategy workshops, we work with your leadership team to set clear, ambitious yet achievable goals, and choose the priority areas that will have the biggest impact for both your business and the planet.

Finally, we move into planning. Here, each strategic goal transforms into concrete initiatives with clear budgets, assigned responsibilities, and defined deadlines. This is where vision meets action - turning sustainability from a nice idea into a measurable business advantage.

A roadmap to sustainability strategy

STEP 1: UNDERSTANDING OUR CURRENT POSITION 

Business context analysis 

When developing a sustainability strategy we start with the foundations. SMEs often do not have readily available business model information and do not know how to elaborate on their business strategy. In this first step, we use business model canvas to better understand what are the resources used, what are the key business activities, how products/services are distributed and delivered, who are the customers and end-users, what is the value proposition and how partnerships come into place. We also look into the cost structure and revenue drivers. 

Understanding the business model and how a company differs from others is important in understanding the specific impacts, risks and opportunities related to ESG matters.

In this step we also ask questions about business strategy: 

• How do you position in the market against peers? 

• What are your business goals in the short and long term?

• In which markets are you now and where do you want to enter?

We use SWOT and PESTLE analysis to uncover risks and opportunities that will help us in the next steps. 

And finally, we look at the value chain. Where in the value chain is the company situated? A value chain encompasses all activities, resources, and relationships an organization uses to create, deliver, and manage its products or services, from conception to end-of-life, including both upstream and downstream activities. It essentially covers the entire scope of operations and their impact, both within the company's own operations and in its interactions with external actors in the supply chain. Great way to look at the value chain are 15 scope 3 categories as developed by GHG protocol which define all the potential sources of environmental impacts. 

Stakeholder analysis 

Another tool we use is stakeholder analysis and engagement. Understanding stakeholders’ interests and expectations we can prioritize the most important once and engage them in stakeholder dialogue. These discussions or surveys can uncover sources of their dissatisfaction or unmet needs, helping companies to adapt and mitigate risks. 

Stakeholder category	Type of engagement	Their inputs	Conclusions
Employees	Focus groups	Perceived unfairness in career advancement and rewarding  There are a lot of benefits they do not use as they are not applicable to them  Poor work-life balance	Need for transparency in remuneration policy  Personalization of benefits package Introduction of the shorter work-week

Impacts, risks and opportunities assessment 

Having insights into the organization and a good understanding of its position in the world, we start to unveil impacts on the environment and stakeholders and risks and opportunities that can impact organizations’s goals, profits and reputation. We start with the long list of impacts, risks and opportunities categorized by the sustainability matters (eg. energy and emissions, circular economy, employees, local community etc.). Finally, we need to prioritize impacts, risks and opportunities by assessing their severity and probability.

Example: impacts, risks and opportunities related to climate change

	Impact	Risk	Opportunity
Climate change	Contribution to climate change due to emissions related to energy consumption in company vehicles fleet	Increase in energy prices due to stringent emission taxes for fuel suppliers	Reducing fuel costs by investing in fleet electrification and own renewable energy sources

When identifying impacts, risks and opportunities we need to apply different lenses. It is not just enough to think about what has the most significant impact on company's bottom line, but it is also important to understand what are expectations from our internal and external stakeholders, what are emerging trends in the industry and what aligns with our corporate purpose. 

This assessment of IROs is based on the ESG data, inputs from decision-makers within the company and results of previous analysis. It is important to be as objective as possible and to apply many lenses, however there is also a need to be realistic about the company's current abilities and vision of the future. 

STEP 2: WHAT DO WE WANT TO ACHIEVE 

Strategy is designed based on the outputs of the first stage. It is important to include topic owners (experts) from the company in this stage as they are crucial to provide inputs and they will be the ones executing this strategy in the future which is why it makes sense to include them in its development. 

After the first stage, we should be aware of material topics we want to tackle and how we want to contribute to sustainable development. 

A good sustainability strategy should answer these essential questions: 

• How are we going to reduce negative impacts?

• What kind of positive impacts do we want to generate?

• How will we adapt to emerging risks? 

• What opportunities will we pursue? 

Questions a good sustainability strategy should answer.

Have a look at these examples of sustainability strategies from the ferry sector. All these sustainability strategies focus on similar topics: climate change, marine pollution, health and safety, responsible operations, engagement with local communities and sustainability in the supply chains, thus we can conclude these are material topics in this sector. 

Table: sustainability strategies of ferry companies

Stena Line	BC Ferries	Fjord 1
No negative impact on the climate No harm to the oceans  Full responsibility in the supply chain and CSR Safe, healthy, diverse and gender equal workforce Responsible offers to our customers	Operating safely, reliably and efficiently Supporting our People Engaging customers ‘ communities  Reducing our impact on the environment Investing sustainably	Taking responsibility for the climate and the fjords Protecting people and local communities  Driving innovation and development  Acting sustainability throughout the value chain

All these companies recognize their responsibility and are committed to a future where they minimize environmental impacts from greenhouse gas emissions and ocean pollution. This commitment is driven not only by their sense of corporate responsibility but also by the need to comply with evolving EU regulations aimed at reducing fossil fuel use in marine transportation. Additionally, to maintain their market share, they must demonstrate to customers that they are aligned with emerging trends, such as digitalization, and are enhancing reliability and efficiency. 

To attract and retain top talent, they aim to offer high-standard working conditions. Work-related injuries and illnesses can negatively impact employees and pose financial and reputational risks for the company. Therefore, their objective is to establish a safe and healthy workplace. 

They consider themselves active stakeholders in the local community, serving as a vital connection for many island residents. By taking further steps, they aspire to contribute more by actively supporting local initiatives and positively impacting the development of local communities. 

Lastly, they recognize their supply chains as potential sources of risk, ensuring that both current and prospective suppliers adhere to their sustainability standards. 

STEP 3: HOW ARE WE GOING TO ACHIEVE OUR GOALS 

In the stage 2 we defined what we want to achieve and where we want to be in the future, and in the stage 3 we specify measures and actions, deadlines, budgets and responsibilities for strategy to turn into action.

Measures and actions

Companies need to select from wide range of possible directions on how they want to achive their goals. They need to design strategic initatives that best align with their ambitions, needs and capabilities. For example, in order to achieve “No negative impact on the climate” in the long run, Ferry company will need to: 

• Establish a supply chain for biofuels 

• Procure E-ships for shorter lines 

• Improve energy efficiency of their fleet 

Responsibility

Each strategic initiative needs to be assigned to a specific department or even better a specific role. Having an oversight and responsibility will increase the likelihood of successful implementation.

Budget

Furthermore, each initiative requires a cost/benefit analysis and a breakdown of budget. It is important to include sustainability strategy into financial planning. CFO should be part of this process from the beginning. If the CFO is not on board from the beginning, we risk not having their support.

Monitoring

Finally, setting realistic deadlines and taking into account the order to initiatives is important for smooth implementation. These goals need to be measurable, so it is crucial to assign sustainability metrics and to monitor their performance. A good approach is to report on the progress annually through a sustainability report. This transparency ensures accountability and pushes the company to actually realize its strategy. 

WHY IS IT IMPORTANT TO HAVE A SUSTAINABILITY STRATEGY?

Identification of opportunities 

At the initial stage of sustainability strategy development (described above), a significant amount of analytical work is undertaken. This phase provides a crucial opportunity to thoroughly assess your organization and its environment, uncovering new business opportunities. These opportunities include:

• Enhancing efficiency and cutting costs related to energy, waste, or employee attraction

• Gaining a competitive edge in the market

• Developing innovative products and services

• Entering new markets

• Boosting reputation and attracting new customers and employees

Guidance for capital investments 

A clear strategy empowers you to allocate resources effectively to crucial matters and accurately measure results. It streamlines the search for sustainable finance opportunities and secures better terms from financial institutions.

Conclusion

While sustainability strategy is not a regulatory requirement, it is a recommended step (and extremly important) step on SMEs' sustainability journey. Your sustainability strategy is the compass guiding your sustainable development. In order to develop a quality strategy you need to invest time and effort into building a solid foundations - baseline assessments, stakeholder engagement, IRO analysis, sectoral screening... Based on the results, in the strategic workshops goals, priority areas and vision is developed. This is complemented with strategic initiatives coupled with the budget and responsibilities in the last step.

Stella Hrvatin, MA in Leadership for sustainability

HOW SUSTAINABILITY OFFICE CAN SUPPORT YOU?

We have experience in developing sustainability strategies for ferry companies, healthcare sector, manufacturing, wholesale and retail, packaging and other industries working both for SMEs and large corporates. 

We put time and effort into each and every client, and we not only advise you on the steps but go through all the research, analysis, discussions, workshops and decisions with you. We provide sustainability lenses, tools and advice needed for resilient and successful sustainability strategy. 

Sustainability strategy is also part of our Sustainability Office as an outsourced service offer.