If governance decides who is accountable for sustainability, strategy decides whether it actually changes anything. This is the pillar where sustainability either becomes part of how the business makes money, or stays beside it.
IFRS S1 and S2 ask companies to explain how sustainability-related risks and opportunities affect their business model, value chain, financial position and cash flows, now and over time. That is a question about the business itself, not about the report.
This article looks at what wasn't working, what the strategy pillar is designed to fix, three questions to test where you stand, and five practical steps to embed sustainability in your strategy.
What wasn't working: sustainability on one side, the financials on the other
In many organisations, sustainability sat next to the strategy, not inside it, with little link to revenue, costs or capital. Commitments were made, but often they didn’t reach the plans and numbers that run the business.
Five common patterns
Financial effects unknown. Nobody could say what the main sustainability risks or opportunities meant for revenue, costs or the cost of capital.
Scenario analysis not anchored in business planning. Scenarios were run, but they never fed into investment, product or market decisions.
Transition plans that ignored business growth and lacked budget. Plans assumed the business stood still, and the money to deliver them was never allocated.
Long-term net zero goals with no short-term milestones. A 2050 ambition was set, but it was never broken down into targets and actions for the next few years.
Opportunities left unexplored. The focus stayed on risk and cost, while new markets, products and efficiencies went unexamined.
What the strategy pillar is designed to fix
The strategy pillar asks you to connect sustainability to your business model and financial position. Which risks and opportunities could move your cash flows, where in the value chain do they sit, and how is the business responding?
You don't need perfect models from day one. It's a journey:
Start: identify the few risks and opportunities that matter most.
Build: run scenario analysis, qualitative first, quantitative as your data matures.
Embed: put a transition plan into the budget and the financial plan.
Each step makes the next one more useful, and each is worth explaining honestly along the way.
Three questions to test your strategy
How do you know whether sustainability shapes your strategy or just sits beside it? These three questions are a quick, honest check.
Q1. Can you name the three sustainability risks or opportunities most likely to move your cash flows, and put a number on them?
If you can't size it, you can't prioritise it. A range is better than silence: an estimate with clear assumptions is far more useful than no figure at all.
Q2. Has scenario analysis changed anything, such as capex plans, product mix, sourcing or market entry?
Scenario analysis that changes nothing is an exercise, not a strategy. In practice, it should shape real choices: which assets you invest in, where you build, when you replace equipment, or which markets you grow into.
Q3. Is your transition plan funded in the budget and the financial plan?
A plan without funding is an aspiration, not a strategy. If the actions aren't costed and resourced, the plan won't survive the next budget round.
Three honest "yes" answers suggest sustainability is shaping your strategy. One or two means you are on the way. None means it is time to start, and that is a starting point, not a failure.
Five steps to embed sustainability in your strategy
These steps follow what IFRS S1 and S2 ask companies to explain about strategy, and turn them into action:
Identify what matters. Pinpoint the risks and opportunities that could affect your prospects, over the short, medium and long term.
Map your business model and value chain. Show where those risks and opportunities are concentrated.
Estimate the financial effects. On your position, performance and cash flows. Use ranges or a qualitative view where figures aren't reliable yet.
Test resilience. Run climate scenario analysis proportionate to your size and exposure.
Respond and fund it. Set out how strategy and decisions respond, including a transition plan backed by budget.
The standards are firm on what matters and flexible on how you get there. Estimates are expected, as long as your assumptions and methods are clear.
Where to go from here
Strategy is where sustainability stops being a side project and starts shaping how the business invests, sells and grows. Get it right, and the numbers in your report reflect real decisions. Leave it beside the strategy, and the report will struggle to convince anyone.
Next in this series: Risk Management, and whether sustainability risks sit in your enterprise risk framework or in a separate register.
Futuro Advisory helps companies move from compliance to embedded, decision-useful sustainability. Get in touch to discuss where your strategy stands.Governance comes first in IFRS S1 and S2 for a reason. It decides whether sustainability shapes the business or simply sits in a report.
Thanks for your time and attention!