Over the years, outsourcing has become a strategy for complex industry functions that involve multiple disciplines rather than for repetitive peripheral functions. Outsourcing was a novelty, used primarily for activities that could be characterised as transactional, like accounting and payroll, IT infrastructure, tax compliance, legal support, and procurement.

Today, most businesses depend on outsourced services to process payroll, handle bookkeeping and accounting tasks, and prepare tax returns. Even advanced financial operations are now performed through a combination of external and internal resources. The same outsourcing trend has occurred in IT, legal, human resources, and procurement functions.

Businesses now engage third party expertise and functions at large. Sustainability might now be at that tipping point, as well. It is gradually shifting from task-specific outsourcing to an increasingly externalised function. The issue that needs to be addressed is which sustainability operating models work best and for whom.

Why is Sustainability an Operating-Capacity Challenge?

Related Read: Why Supplier ESG Is Becoming a Business Imperative

Sustainability reporting is a company-wide activity. Issues around effective reporting includes tackling a huge volume of disclosures and information spread throughout the organisation. Methodologies are getting more sophisticated and deeper in content.

A survey of 900+ sustainability professionals conducted by ACCA and the Institute of Internal Auditors1 revealed that poor data quality and disjointed data sources are among the leading obstacles to successful implementation of reporting.

The research revealed that while 25% of respondent businesses were ‘ready’ to collect sustainability data, 57% were either partially ready or not ready. It also pointed to barriers stemming from unclear data ownership, lack of skills and resources, and immature processes in the context of sustainability data and disclosure.

Only a quarter considered existing internal controls over sustainability data to be adequate, while 63% viewed the need for such controls as high or very high.

Sustainability operations capacity planning for ESG compliance and reporting.

This chart represents a generic compliance cadence for a company. Specialist requirements are concentrated in different parts of the year, but they could occur at any time. As is clear, this is not a lack of people it is a mismatch between a demand curve that fluctuates over the year and the organisation’s operating capacity.

These observations raise the larger question of organisational capacity and sustainability management within companies. As the level of ESG maturity increases, companies may require access to the next level of skills in Scope 3 modeling, target setting, emissions reduction, energy management, LCA, climate risk, reporting, ESG ratings, and ESG value chain assessment, but the need for each capability may not be enough to warrant the development of each specialist role internally. While the cost-efficiency of establishing a permanent role for each specialist position may be limited, ensuring access to such expertise remains essential.

Structuring the ESG Function

There is no one-size-fits-all approach to structuring a company’s sustainability team. The model will vary based on the company’s sustainability maturity, strategic priorities, regulatory exposure, and other factors. It will also vary by company size and the scale of operations.

Completely In-House ESG team

The company has a dedicated internal sustainability team that builds a knowledge base and collaborates closely with business strategy, planning and operations. This is applicable to large organisations where sustainability remains a key strategic issue. But having all capabilities can be a heavy investment in people and skills.

In-House with Specialist Consultant Support

Related Read: Environmental Product Declarations: Significance for Businesses

This approach involves an in-house sustainability team managing sustainability work but bringing external experts on board for specific needs. This will provide greater flexibility in achieving proficiency without having to develop all the skills in-house.

Exploring a Hybrid/Managed ESG office

A small internal team owns the charter, while an external team provides the operational capacity and specialist skills needed for the process to run. It offers better integration and continuity than project-based (virtual) consulting, and the company retains full control of the sustainability charter.

Sustainability as a Service

Organisations that don’t have the size (or the need) for a multidisciplinary sustainability group can rely on an external team as their virtual sustainability office, subject to a defined governance structure. The virtual CSO and team can handle important ESG activities, and the company takes on strategic decisions, governance, and accountability.

Sustainability as a Service operating model for ESG governance and execution.

Build, Buy, or Borrow: Your Actionable Corporate Sustainability Roadmap

To determine what portion of the sustainability office should be integrated into the organisation, the Build-Buy-Borrow approach can be useful.

Build includes skills supported by full internal ownership and closely tied to the company’s strategy, governance, and decision-making.

Buy includes capabilities delivered through software, AI, or plug-and-play technology.

Borrow involves engaging a specialist’s skills as needed.

An example of the application of the framework is depicted below.

Build, Buy, or Borrow framework for ESG and sustainability capabilities.

The Build-Buy-Borrow operating model suggests that the future sustainability model will not be either all-in-house or fully outsourced. The goal is to identify the most effective deployment location for each ESG capability.

When is Sustainability as a Service applicable?

The decision to have a virtual sustainability office should be based on the company’s requirements. The following lean questions can help assess if sustainability skills need to be developed internally, via an external resource or in an integrated approach.

Does sustainability make a difference for the business?

Example: A renewable energy company developing low-carbon technologies requires strong internal ESG leadership, as sustainability is linked to product and market positioning.

Does the workload have to be continuous to use dedicated specialist roles?

Related Read: Climate Risk Management in Hong Kong’s Financial Sector

Example: A manufacturing business might require an LCA specialist for a handful of product evaluations yearly.

Is there one or more regulatory geographies?

Example: A company that has 100+ project sites and minimal ESG capability at any one site. Centralised external help may be needed for data coordination and to supervise initiatives between sites.

Do the skills needed by specialists keep changing at a faster rate than the skills currently available within the organization?

Example: A precious metals or chemicals producer under pressure from customers for ratings improvement and regulatory compliance for export, prior to their in-house capability development.

Is the organisation in need of ESG outcomes but not a big team?

Example: An expanding electronic retail chain with rising needs from its customers, investors and regulators that require support with sustainability on an ongoing basis but does not need to hire additional staff.

The solution could be a completely in-house team, or a mix of in-house resources and outsourcing services. The true value is in applying the sustainability operating model to align with the company’s sustainability vision, needs and capacity.

Limitations and Conclusion

Outsourcing the sustainability function might not be suitable in cases where ESG is a key part of the product strategy and informs ongoing operational decisions. In these situations, it is advisable that organisations develop their own expertise.

Effective data ownership, decision rights, knowledge transfer and governance are required even if external expertise is involved. Defining the RACI and establishing documented pathways can help mitigate risks such as vendor dependency or loss of institutional knowledge.

The focus for sustainability is not and should not be on outsourcing, but rather on what capabilities should be developed internally, what can be supported by technology platforms, and what can be achieved flexibly using external experts.

Most importantly, accountability will remain within the business, with the skills and competencies required to fulfil this accountability spread across teams, technology and/or external expertise.

Source:

1. Internal control over sustainability data: summary report.
https://www.accaglobal.com/content/dam/ACCA_Global/professional-insights/Internal_control/PI-INTERNAL-CONTROL-SUMMARY.pdf

Why Choose Ascentium India? 

Building an effective sustainability operating model isn’t just about adding more activities or increasing headcount. It requires clear ownership, the right mix of internal capabilities, technology and external expertise, supported by a structured approach to managing evolving ESG requirements. At Ascentium, we help organisations strengthen their sustainability functions through integrated ESG strategy, reporting, climate action, value chain, data and capability-building support. Whether you need to complement an established sustainability team or build a more flexible operating model, we help organizations access the expertise and capacity needed to advance their ESG priorities. To learn more about our services, please email us at in-info@ascentium.com or reach out to us via WhatsApp at (+91) 77380 66622.

Authored by:
Aparna Arunachalam | Sustainability & ESG

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