Are you an entrepreneur working to develop a sustainability strategy for your business? Recently, we had the opportunity to speak with sustainability expert Paolo Taticchi on B2BeeMatch’s podcast, “It’s a Small Business World.” He had some very useful and inspiring thoughts on the topic! So we decided to share some highlights from the conversation. (You can listen to the full podcast here!)
First, a little bit about Paolo. He’s a Professor in Strategy and Sustainability and is the School Deputy Director (MBA, Global Engagement, Executive Education) at the UCL School of Management. He’s also highly active in executive education for Fortune Global 500 companies, and has done internationally recognized research on corporate sustainability and performance measurement. Paolo’s latest book, Corporate Sustainability in Practice, was published in 2021.
That same year, Paolo was indicated by Italian’s leading business daily, Sole 24 Ore, as the most influential Italian under the age of 40.
What is the definition of sustainability for businesses?
The definition has changed and keeps changing. That is something I’ve definitely identified as a problem through my research. It’s something that I try to address and fix in my book, Corporate Sustainability in Practice, where I offered a new definition of modern corporate sustainability.
To understand the new definition I will share with you, it’s important to understand where we’re coming from. In the ’70s, ’80s and ’90s, the word “sustainability” in business was associated with the topic of CSR, or corporate social responsibility. The core of this idea was that companies can have negative impacts on the environment or society through their activities, and they should take responsibility for that.
CSR in the past was all about being a good corporate citizen and the idea of giving back. It was significantly philanthropic. Organizations were asked to give back part of their profit to initiatives that had positive impacts on the environment and society to compensate for their negative impacts.
In the ’90s, we saw several scandals that made it very clear that an approach based on philanthropy or giving back wasn’t enough. Sustainability had to become something different. It became very clear that there was a connection between sustainability and the reputation and financial performance of an organization. For companies, sustainability problems were very problematic situations from a marketing and financial perspective.
In the last 20 years, we have seen the definition of sustainability changing, and becoming closer to topics of compliance and risk management. Companies have realized that sustainability and sustainability positioning can help organizations to not only become more sustainable and more profitable over time, but can be a driver of competitive advantage in the industry. So the definition is more and more strategic.
More recently, we are moving away from definitions that are based on the idea of managing risk toward definitions that are based on the idea of exploring business opportunities and the idea to make an impact. It’s very clear today that companies need to play a role in the sustainable development of society. That they can have negative impacts or positive impacts with their activities. So today we aim to manage their negative impacts and aim to produce positive impacts.
Based on that history, what’s your definition of corporate sustainability?
Corporate sustainability is an integral approach to business where the objective is to enounce competitive positioning and profit through the sustained creation of shared value, co-creation practices with stakeholders and the integration of ESG factors—meaning environmental, social and governance factors—into decision-making.
More and more we see organizations that do understand this type of definition and are engaging more with sustainable transformation processes.
Can you explain how ESG fits into the larger sustainability conversation?
There is a lot of confusion. Many people and experts speak of sustainability and ESG in the same way. The reality is that there is a difference. I strongly prefer to refer to sustainability, and not ESG, when it comes to strategies and journeys of transformation. It refers to the factors that organizations need to take into account in decision-making processes in order to become more sustainable.
Sustainability is an objective and part of the purpose of an organization today. ESG and the topics within E, S, and G are the themes you need to address in a sustainability strategy.
How do you feel about people using sustainability to talk about the longevity of a business?
A sustainable organization is an organization that is better able to manage risks, such as those associated with climate change. Such an organization is also able to explore opportunities associated with sustainability problems.
The idea is that companies that have a good sustainability and ESG performance tend to perform better financially in the long term. So definitely, sustainability is linked to the longevity of a business. Today sustainability can be a topic of survival for a business. When you look at, for example, climate risks, when you look at the current energy crisis, when you look at topics like equity, diversity and inclusion, these types of topics are so important and so vital in business today that if you don’t get them right, your business will face a lot of risks.
I’m pretty sure that in this decade we’re going to see large organizations going bankrupt because they are not going to be able to address sustainability problems in the right way. And I’m pretty sure that we’re going to see more and more organizations in different sectors that are going to develop a competitive advantage because of their ability to develop faster as a sustainable organization.
How can small businesses be more sustainable?
Sustainability became a very hot topic for large companies in the last decade, and now sustainability is becoming a huge topic for SMEs for this decade ahead of us. Why? Large companies that have decided to become more sustainable now need to extend their efforts from the corporate level to the supply-chain level. And in supply chains, very often you have SMEs. So SMEs are more and more interested in sustainability because they feel the pressure coming from large clients. On one side, they are at risk of losing business, but they are also able to gain new clients by communicating their sustainability and ESG efforts. There are specific SME loans offered by banks that allow you to access cheaper capital if you have a robust ESG strategy in place.
Small companies need to be very strategic about sustainability and how they start to engage with these processes of change.
Here are some tips for SMEs:
Develop your ESG analysis and strategy
Before you start projects—before you perform a carbon assessment, for example—you need to have an ESG or sustainability strategy for the business. You need to understand where you are today, and where you want to be in three years’ time. You need to understand what is happening in your industry and what type of pressure you are receiving from specific stakeholders. Is the pressure coming from large clients? Or is the pressure coming from the government through new legislation that will affect your business activities?
You need to develop an in-depth analysis that allows you to define the business case for change. Once the case for business change is clear, then develop your strategy and initiatives that will focus on improving your environmental, social and economic performance. This will all reflect positively on your ESG profile and ESG score (if you decide to go through audits).
Only once you have a strategy can you start working on specific initiatives. Today, decarbonization is a must if you are in the manufacturing sector. SMEs should measure their carbon footprint and should develop strategies for decarbonization. These are complex and expensive projects that you need to start now.
Put sustainable HR policies in place
There are also easy wins—for example, the development of more robust HR policies to address equality, diversity and inclusion in the business. You can develop these relatively quickly and they can have a very positive impact on your ESG profile and score. They don’t call for the same type of investments as you would need to decarbonize a business.
Upskill and educate your team on sustainability
It’s equally important to upskill your organization. Because we know sustainability is important, more and more SMEs need to develop ESG strategies and agendas of change. SMEs need people within their organizations who understand what sustainable transformation is, who can drive change and work with external consulting firms on these types of projects. Developing these capabilities in house is quite important and should be a priority for SMEs.
To learn more about sustainability from Paolo, listen to the full episode here and be sure to check out his website: https://paolotaticchi.com. His newest book, Stories of Sustainable Transformation, is coming soon.
This interview has been edited for length and clarity.
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