Be EFFECTIVE on your Corporate Sustainability

Sustainability: from value strategy to compliance

In the not-too-distant past, corporate sustainability was a practice reserved mainly for large companies, a responsibility taken on by a few visionaries motivated by moral belief or the desire to generate long-term value. Pioneers such as IKEA, DuPont or Toyota understood that there was a business opportunity in meeting the unmet demand of a society that wanted more than just a positive bottom line. And others followed.

However, the current landscape has undergone a significant transformation. Corporate sustainability is no longer exclusive to corporate giants; it has become a mass process. The motivation behind this shift? It is not so much moral belief as material obligation. Companies are now facing increasing pressure from society and regulations to adopt sustainable practices.

The regulatory context, led by the European Green Deal initiatives, demands more and more from private business actors, mainly in terms of transparency and reporting. And with this, Corporate Sustainability has moved from value strategy to compliance.

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The cost of Corporate Sustainability

Different estimations place the direct annual cost of complying with the new regulatory requirements at more than one million euros for medium and large businesses. One million euros of permanent and annual cost due to staff resources (internal and external) and tools for strategy development, calculation, monitoring, and communication of information linked to these compliance requirements.

Well, but thanks to the benefits of Corporate Sustainability we will be able to get some return on all this, won't we?

At best, my answer is maybe. It is quite difficult to get a return on investment if the main reason the business has embarked on this journey is to meet compliance criteria.

There are two main motives:

• Most of the legal requirements are geared towards transparency. The only thing that ensures that these criteria are met is that anyone who wants to know how the business is performing in terms of sustainability can do so. Being transparent does not mean that you have something valuable to share and may even work against you.
• Complying with legislation rarely generates an added value above the market, because everyone must do it. And in a competitive world, being the same as everyone else means getting little or no return for your effort.

?So, is this all there is to it? Is corporate sustainability reduced to simply ticking boxes and complying with regulations, with no more ambition or real impact?

The true value of Corporate Sustainability

There is a reason why the business giants we were talking about earlier implemented powerful Corporate Sustainability models, when there was no real obligation. Yes, it is true that in the early days of sustainability, in the seventies, there were already some environmental regulations and some social demand (short preludes to today's symphony). But it was certainly not necessary to develop the complex management models that began to germinate in these organizations to deal with these issues.

?So, what was their motivation? Why invest millions in a paradigm, culture, and operational change? The answer is obvious. Business value generation.

A multitude of studies have been conducted on the benefits of Corporate Sustainability, with varying results. All these studies, in one way or another, highlight the following benefits:

• Reputation: The obvious component. In a world where reputation is an invaluable asset, corporate sustainability acts as the architect that lays a solid foundation on which lasting relationships and trust are built. This emotional connection with customers and stakeholders goes beyond price and can tip the balance in their decisions.
• Engagement: Stakeholder participation is a vital ingredient of the "rulebook of corporate sustainability". This process of dialogue builds interest by involving the groups that matter to the organization’s future, its strategy and objectives, and creates opportunities to better understand and meet their needs.
• Resilience: corporate sustainability acts as a shield, strengthening resilience to the challenges of today's world. Companies reduce their vulnerability to corporate risks by broadening their view of the long term by including ESG factors in their analysis processes. The sometimes-short-sighted view of financial return is enriched with other variables that prepare organizations to withstand a changing environment and persist over time.

Having clarified what potential benefits we can achieve; it is natural to ask: what differentiates compliance companies from value-generating ones? Or put another way, how can I ensure that I am making an investment rather than generating a liability?

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Effective Corporate Sustainability

Effective, the golden word in corporate management. In general terms, effectivity it is understood as the conjunction of efficacy and efficiency, where efficacy is achieving the desired result and efficiency is using exactly the necessary resources.

Translated to the topic at hand, the effectiveness of your Corporate Sustainability model happens when you build an optimal (or efficient) model that allows you to benefit from the potential of Sustainability (efficacy). At similar costs, value-generating companies are effective in employing Corporate Sustainability, while compliance companies are not.

Because ambitions and resources are different for each business, there are seemingly hundreds of different management models. However, if you pay attention, you will appreciate the key elements that are common to all of them. As with any machinery, you need to know the parts that constitute the model in order to be able to modify it.

• Leadership and Governance: The roles and processes that guide how an organization integrates sustainability into its core strategy and executes the defined actions.
• Strategy: The deliberate plan and approach that aligns a company's business goals with sustainable practices.
• Implementation: The execution phase where the organization puts its sustainability strategy into action.
• Monitoring and Reporting: The ongoing assessment of sustainability performance and the communication of progress.
• Engagement: The active involvement of internal and external stakeholders in sustainability initiatives.

The next step in the search for the desired effectiveness is to diagnose the effectiveness and efficiency of these parts, comparing the current state with the ideal state. The current state is different in each case, and therefore requires individual treatment. But the ideal state, the destination to be reached, is common to all organizations. Going back to the previous pieces, this is the effective state of each one of them:

• Governance and Leadership: a leadership that understands the context, requirements and benefits of Corporate Sustainability and takes responsibility for the transformation process.
• Strategy: Having a clear purpose and objectives that reflect ambition and realism and are perfectly aligned with the vision for the future of the business.
• Implementation: A smooth and flexible execution process that ensures minimal divergence between business vision and reality.
• Reporting and monitoring: To develop a flow of information that responds to complex legal requirements, the demands of key stakeholders and the internal needs of the organization.
• Engagement: A relationship model that brings the business closer to its key stakeholders and establishes a relationship of trust and collaboration.

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Now that you know the cogs in the wheel and their optimal state, you can begin your diagnosis of effectiveness.

Ultimately, the decision is in your hands:

Is your approach to corporate sustainability simply a checklist that ticks the required boxes, or is it an active generator of value?

Is it a million-euro liability on your balance sheet or an investment that pays off in the long run?

The choice is yours.