Sustainability Transformation (SX): The Three Levels Every Board Should Understand

As sustainability gains momentum worldwide, businesses are feeling the pressure to shift from treating it as a sideline initiative to making it a central part of their strategy. Investors, customers, and regulators are increasingly holding companies accountable for their environmental and social impact, requiring a comprehensive approach to sustainability. This urgency is underscored by global challenges such as climate change, resource depletion, and social inequality, which demand immediate action from businesses. These issues not only threaten our planet but also pose significant risks to economic stability and social cohesion.

But what does it mean to be "sustainable"? Much like the digital evolution, where businesses move from basic digitization to transformative digital transformation, sustainability also has distinct stages.

In this article, I’ll explore the three levels of Sustainability Transformation that every board member and executive should consider: Sustainability Adoption, Sustainability Integration, and Sustainability Transformation. Each level builds upon the previous, guiding companies from initial actions to transformative change.

1 - Sustainability Adoption: Foundational Changes

Definition: Sustainability adoption represents the foundational step in a company’s journey. At this stage, organizations are focused on introducing sustainable practices with minimal disruption to core operations. This typically includes practices that demonstrate environmental responsibility without significantly altering the business model.

Examples: Common actions include switching to energy-efficient lighting, setting up recycling bins, and encouraging employees to use digital over paper resources. Many companies also engage in sustainability reporting or commit to basic energy-saving goals as part of their corporate responsibility. For example, an office-based organization might adopt a policy of turning off all non-essential lighting after hours, or an event company could start using compostable materials to reduce waste. For example, Walmart is one company that has publicly stated its commitment to replacing traditional lighting with energy-efficient LED lighting in stores, offices, and warehouses as part of its broader sustainability initiatives.

Impact: While these efforts are often isolated and may not deliver immediate financial returns, they are essential in building awareness and setting a precedent for more substantial initiatives. The introduction of Financial Materiality at this stage encourages organizations to recognize the financial implications of sustainability initiatives, such as risk mitigation and potential cost savings. Sustainability adoption is about creating a foundation—establishing a company’s commitment and signaling to stakeholders that it takes sustainability seriously, even if its current actions are limited in scope.

2 - Sustainability Integration: Process and Workflow Enhancements

Definition: Moving beyond foundational actions, sustainability integration involves embedding sustainable practices into specific business processes. Here, sustainability isn’t an afterthought but a factor considered in operational decisions, creating improvements in resource efficiency and waste reduction.

Examples: This level might involve incorporating renewable energy into operations, reducing water usage in manufacturing, optimizing transportation routes to reduce emissions, or choosing sustainable suppliers. For instance, a retail brand could adopt eco-friendly packaging for all products, or a healthcare company could implement a robust waste management policy that reduces medical waste. Another example might be integrating sustainability metrics into performance reviews, making it a part of the organization's key performance indicators. For example, Unilever has committed to adopting eco-friendly packaging across its product lines as part of its “Sustainable Living Plan.” The company has pledged to halve its use of virgin plastic and make all plastic packaging fully recyclable, reusable, or compostable by 2025.

Impact: At this stage, companies often see measurable benefits like cost savings and improved operational efficiency. The introduction of Impact Materiality emphasizes the importance of evaluating how the organization’s operations affect the environment and society. Sustainability integration enhances brand reputation as customers, employees, and partners recognize the company’s proactive stance on environmental and social issues. This level reflects a maturing commitment, where sustainability drives efficiencies, aligns with financial goals, and becomes part of the business's operational fabric.

3 - Sustainability Transformation: Comprehensive Business Model Evolution

Definition: Sustainability transformation is the final and most ambitious level, where sustainable practices reshape the company’s entire value chain and business model. At this stage, sustainability isn’t just an initiative—it’s a cultural and strategic cornerstone that drives innovation, stakeholder engagement, and long-term growth. This level requires companies to reimagine their role within a broader ecosystem, contributing positively to environmental, social, and economic sustainability.

Examples: Some companies are shifting to a circular economy model, designing products with their entire lifecycle in mind—built for reuse, recycling, or safe disposal to minimize waste and pollution. In consumer goods, this might mean using biodegradable materials and offering product take-back programs. A technology company might design devices that are modular and repairable to reduce e-waste, while a manufacturing company might use closed-loop systems that recapture and reuse materials. This is also where ESG (Environmental, Social, and Governance) frameworks are deeply embedded across the board, influencing decision-making, corporate governance, and stakeholder engagement. For example, Apple has taken significant steps toward a circular economy model, particularly in designing modular and repairable products. "Liam" and "Daisy" robots disassemble iPhones, allowing the company to recover valuable materials like cobalt, tungsten, and rare earth elements for reuse.

Impact: Sustainability transformation redefines an organization’s value proposition, creating resilience and securing a competitive advantage in a rapidly changing world. By integrating sustainability into their DNA, these companies can attract top talent, enhance investor trust, and foster deeper relationships with customers who increasingly prioritize sustainability. A true sustainability transformation positions the business not only as a leader in its industry but as a contributor to global sustainability efforts. By embracing the principles of Double Materiality, organizations can evaluate both the financial implications of their sustainability practices and the broader impact on society and the environment, ensuring a holistic approach to sustainability that drives long-term value.

Assessing Where Your Company Is

Before embarking on a sustainability journey, the sustainability team and executive leaders must understand where the organization currently stands. Attempting to pitch the next level—or even a lower level if it’s inappropriate for the current state—can be counterproductive, creating confusion and slowing momentum.

Conducting a thorough assessment can reveal gaps in processes, capabilities, and mindsets, helping leaders map a practical, step-by-step sustainability agenda that aligns with the company’s current level. For companies just beginning with sustainability, foundational actions may make sense, whereas organizations with advanced practices may need to reframe their entire business model to reach the highest level.

For example, Environmental Resources Management (ERM) specializes in sustainability consulting and offers assessments to help organizations evaluate their environmental, social, and governance (ESG) performance. Their sustainability assessments focus on identifying gaps, risks, and opportunities across various business functions, helping organizations design actionable sustainability strategies aligned with their current state and future aspirations. Many others companies are doing similar assessment.

Tailor Your Sustainability Agenda to the Right Company Level

Each level of sustainability requires distinct tactics, key performance indicators (KPIs), and objectives. A company focused on Sustainability Adoption will need different skills, partnerships, and teams than one aiming for full-scale Sustainability Transformation. For instance, the skills needed at the foundational level may include regulatory knowledge and basic environmental management, whereas transformation demands expertise in circular economies, innovation strategies, and ESG governance.

Furthermore, the size of the management team and the partners chosen must align with the agenda. Sustainability requires buy-in from various parts of the business—HR, supply chain, marketing, and more. A clear structure with defined roles and responsibilities ensures that sustainability targets are met with accountability and efficiency.

Why Boards Should Prioritize Sustainability Transformation

Sustainability transformation (SX) is no longer an optional pursuit; it’s a strategic imperative. As companies navigate a landscape increasingly shaped by environmental, social, and governance (ESG) factors, board oversight of sustainability has become essential. Here’s why boards should prioritize SX—addressing the business, environmental, and regulatory imperatives—with examples that demonstrate the real-world impact.

a. Because It’s Good for the Company

A commitment to sustainability isn’t just ethical; it also creates value and boosts long-term resilience. Studies indicate that companies actively pursuing sustainability enjoy greater stability in stock performance and tend to attract more patient, long-term investors. ESG initiatives help companies reduce costs, mitigate risks, and enhance brand loyalty, which collectively build resilience in volatile markets.

A compelling example is Ørsted, once a coal-heavy Danish energy giant, which transitioned almost entirely to renewable energy sources. Through its shift to sustainability, Ørsted saw its stock soar, and it became one of the world’s most sustainable energy companies. This transformation not only elevated its market valuation but also significantly increased investor confidence, demonstrating that sustainability investments are a powerful driver of both reputation and profitability. For boards, this is a critical takeaway: sustainability efforts can yield competitive advantage and greater financial stability in an unpredictable economic landscape.

b. Because It’s Good for the Planet

At its core, sustainability transformation is about preserving the planet for future generations. Companies like IKEA have taken bold steps in this direction, committing to using only renewable and recycled materials by 2030 and promoting circularity in product design. IKEA’s approach shows that sustainable practices can coexist with a successful business model, benefiting both the planet and the bottom line. This commitment to the environment doesn’t just help the company meet its own sustainability goals—it aligns with the growing consumer demand for responsible brands, thus fostering loyalty.

Patagonia is another standout example. As a company dedicated to environmental activism, it has not only invested heavily in sustainable practices but has also pioneered initiatives like donating a portion of sales to environmental causes. This business model resonates deeply with consumers who want to support businesses that genuinely care for the planet. Patagonia demonstrates that a commitment to the environment can reinforce brand loyalty and open up new markets among consumers who prioritize sustainability.

c. Because It’s Mandatory by the Regulator

Regulatory bodies are increasingly enforcing sustainability requirements, and companies that delay could face penalties, lost market access, or reputational damage. The European Union’s Corporate Sustainability Reporting Directive (CSRD), for example, mandates that companies disclose how their operations impact people and the environment, with extensive reporting obligations for companies doing business in the EU. This level of regulatory rigor demands that companies not only meet compliance standards but actively demonstrate their contribution to global sustainability goals.

Another example comes from the Task Force on Climate-related Financial Disclosures (TCFD), which has set a global precedent for transparent climate reporting. These guidelines are becoming a standard requirement for companies in regions such as Japan, Australia, and Canada, where regulatory pressure is intensifying. The SEC in the U.S. is also signaling more climate-related disclosure requirements. Boards that proactively align with these regulations can protect the company’s reputation, avoid financial penalties, and position their organization as a forward-looking entity that responsibly adapts to regulatory shifts.

Conclusion: Boards Must Drive Sustainability Transformation

In a world where sustainability is non-negotiable, the responsibility for SX lies firmly with the board. While management teams drive daily operations, only the board has the perspective and influence to make sustainability a core agenda item, balancing shareholder returns with long-term planetary health.

However, companies may face challenges in implementing sustainability practices, such as resistance to change, lack of expertise, and financial constraints. Overcoming these obstacles requires a clear strategy, strong leadership, and a commitment to fostering a culture of sustainability throughout the organization.

The urgency is clear: the sooner companies embed sustainability into their DNA, the more they stand to gain in terms of resilience, compliance, and reputation. Early adoption not only positions the company ahead of regulatory trends but also allows it to contribute positively to the global ecosystem, enhancing both economic and social value. Ultimately, like digital transformation, sustainability transformation is inevitable, but the stakes are higher.

While a lack of DX might lead a company to fall behind its competitors, the failure to embrace SX threatens not just the company but society at large. For boards, the directive is clear: prioritize sustainability transformation now, or risk far-reaching consequences—not only for the business but for the very future of human life style on our planet.