Strategies to Incorporate Sustainability in Business Succession Planning

Combining succession planning with sustainability has been gaining prominence as organizations look to demonstrate their commitment to responsible business practices.

Though succession planning is not new, including succession planning as part of a sustainability framework is a growing trend. It may incorporate elements of environmental, social, and governance (ESG) principles so that organizations can consider how their business decisions impact these areas.

Demonstrating your commitment to these important aspects can help drive value in the organization —many employees, customers, and potential investors use sustainability as a key factor when evaluating businesses. Consider what it could mean for your organization.


What is sustainable succession?

Sustainable succession is a comprehensive approach to planning for your organization’s future while demonstrating your commitment to sustainability and responsible business practices. It helps uphold the organization’s core values and governing principles to be passed down to future leaders, bringing continuity and consistency over time.

The plan can also address a variety of areas that can include people, positions, resources, projects, core values, and governing principles. To begin, identify which aspects are relevant to your organization. Then develop a sustainable succession plan that is clear, precise, and directionally aligned with your other business objectives to help your organization function effectively and responsibly.

The key ingredient for a succession plan is clarity on the principles, strategy, and values that would be the center piece of the business for the next generation. Assess those succession attributes based on the current and future situation and their relevance in the ever-changing world of technology, customer behavior, and global outlook. Remember that succession-based strategy should also provide the flexibility to alter the course when needed.

For example, when COVID-19 hit, winemakers in Florence, Italy started selling wines through a hole in a wall originally built during a 17th century epidemic. The winemakers anticipated the business disruption from COVID and used a strategy from 400 years ago to avoid physical contact. (Interestingly, the wine hole continues to draw people even though the COVID pandemic has ended.)

Another example is Microsoft systematically moving away from the hardware computer business that made them a household name by anticipating the changing technology landscape. The company has diversified into various products and services —not just staying relevant but also continuing to be a major innovative company. Anticipating the change allows companies to benefit from the first mover advantage and also drives the leader narrative.


Incorporating sustainable succession with ESG

Sustainable succession can be developed for all areas of ESG. Here are some examples:

  • Environmental — Natural resources planning
  • Social — Planning for people, positions, and core values
  • Governance — Governing principles planning

Sustainable succession and ESG planning can be combined with existing initiatives such as diversity, equity, and inclusion; corporate social responsibility; Committee of Sponsoring Organizations components and principles; and renewable energy initiatives, becoming a bridge between past, present, and future.

A well-integrated sustainable succession plan can seamlessly blend into other long-term sustainability initiatives. Sustainable succession is imperative for succession planning to be holistic and long lasting, enabling overall growth of the organization.


Consider ESG reporting requirements

ESG reporting involves measuring and disclosing information about your organization’s performance in these three areas. How your organization measures up can impact potential investments, business relationships, and business activities.

Combining succession planning with sustainability has been gaining prominence as part of global as well as proposed U.S. reporting. In the United States, organizations subject to SEC reporting have already been addressing ESG ratings and disclosures for a few years, this may be required of privately held businesses in the future.

California and New York also have climate-related regulations that will trigger compliance and reporting soon.


Foster a sustainability and ESG framework

As your organization navigates sustainability and ESG efforts, consider additional areas that can support this framework:

  • Transparency reports can communicate where your organization is on its ESG and sustainability journey.
  • Consider how sustainability integrates into your tax strategy.
  • Leverage the sustainability framework to identify disruptive technologies or consumer behavior and develop appropriate response.
  • Focus on being the change agent on sustainability initiatives and lead by example among competitors.


For further information

Srikanth Iyengar
DIRECTOR
https://www.claconnect.com/en/directory/i/iyengar-srikanth

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CLA) to the reader. For more information, visit CLAconnect.com.

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