Is it possible to be a sustainable yet profitable company? What are the greatest challenges faced by companies on the path to sustainability? Why do companies, sometimes unintentionally, fall into the trap of greenwashing. The sustainability experts who met in the discussion "How can businesses avoid greenwashing and move from sustainability declarations to real actions?" organized by the ISM University of Management and Economics, answered the most pressing questions that companies around the world are currently facing.
Challenges that companies are addressing
Embarking on the path of sustainability is a huge challenge for every company. The big question is: how to achieve sustainability without reducing profitability? Start-ups can incorporate sustainability into their business model right from the start. When focused on sustainability, they may be particularly attractive to customers and investors. However, companies that have been operating for a while may face significant challenges in becoming sustainable. As Ana Nicholls, head of industrial sector research at the research and analysis think tank The Economist Intelligence Unit, notes, for long-established companies, a shift to sustainability can mean, for example, redesigning supply chains or product manufacturing. The question is: should companies be ready to fundamentally transform the business, or is it enough to make their business as sustainable as possible? This issue is particularly sensitive today for oil companies or, for example, the aviation sector.
"In my mind, the three most important things for a sustainable company are goal, assessment, and feedback,” explained Nicholls. The goal is essentially the reason the company exists. What are you presenting to the world? For instance, an oil company might want to answer the question of whether there might be more sustainable ways to supply energy to customers. “Basically, in order to become a more sustainable business, you need to set a goal," explained Nicholls.
According to the expert, the next question is how the company assesses its sustainability: what are its goals and what is it going to do to achieve them? Finally, in order to develop a sustainable business, it is important to receive feedback from investors, shareholders, employees, customers and other stakeholders who are indirectly affected by the business. Feedback allows you to see what else can help you become more sustainable, as well as what is missing and what the company has not taken into account in its efforts to be more sustainable.
On her part, Ugnė Vaitiekūnaitė, an expert at “ClimatePartner”, a consulting firm that provides solutions to companies in the field of climate change, is convinced that business may not become sustainable overnight. Companies hoping for instant success while still at the beginning of their sustainability journey are more likely to fall into the trap of greenwashing.
"It’s like when a company hurries to declare its activities first, and only later looks at the real work it has done and how it could support its claims," said Vaitiekūnaitė.
According to her, companies must look at profitability from different angles. Sustainability is not necessarily about improving brand image or outperforming competitors. Benefits can also come from optimized processes or the fact that the company will be able to attract the best talent. All of this can pay off in the long run, making it worth investing in sustainability now.
"And when we think about the legislation coming into force soon, if you start preparing now, your efforts will pay off in the future." If we look at sustainability from a long-term perspective, profit will come one way or another," added Vaitiekūnaitė.
What is behind the data provided by companies?
Recently, we have been hearing declarations by various companies about their environmentally friendly or sustainable activities. For example, a study by the EU Consumer Association found that in some industries, more than 50 percent of corporate statements contain greenwashing. Such figures make us wonder what the sustainability claims made by companies mean and whether the data and information we are presented are real. "Sometimes we do research with students to see if there is enough data to support companies' sustainability claims, or if companies provide enough evidence of their sustainability initiatives. We’ve noticed that this is not always the case. Probably, it would be more honest to ourselves and to all interested parties, to declare less and to provide only reliable information regarding sustainable activities, the kind that the company can defend," says Dr. Virginija Poškutė.
According to the scholar, it is important for every company and every business to identify the main stakeholders and the organization's impact on them (environmental, social, and management-level) and then assess the impact of one or another change on sustainability. Some of these indicators are not easy to measure, but according to Poškute, companies can provide evidence related to the mentioned aspects. "My advice to companies is to always be honest first with yourself and then with your environment," said the ISM University lecturer.
However, more and more often, it is not companies themselves that decide how to present sustainability reports. An increasing number of international rating agencies, consultancies, and regulatory bodies are emerging to determine how sustainable performance should be measured or what kind of ESG (environmental, social, governance) indicators should be reported. One example is that the European Parliament recently approved the Corporate Sustainability Reporting Directive, according to which large public interest companies, and later small as well as medium-sized companies, will be required to submit sustainability reports from 2024. The measurement of ESG indicators is currently not standardized, but once this directive enters into force, companies will be told how they will have to prepare sustainability reports. According to Nicholls, it's important to keep track of the information and rules that will soon need to be followed.
"Obviously, most of the measurements and adjustments currently take place in the company itself, it's called first-volume emissions, if we're talking about emissions data. However, it is likely that companies will be asked to measure the entire supply chain as well, making this increasingly complex, as this will obviously require data collection. Therefore, on the one hand, the entire process of data collection will become simpler, as it will be more regulated and more standardized; on the other hand, it will be more complex in terms of ambition, as the ultimately required measurements will become wider," said Poškutė.
How much will the coming sustainability requirements cost companies?
The experts who participated in the event unanimously assert that companies will have to pay more attention and devote more resources to data collection and sustainability reporting only if they look at these measurements as indirect tasks. If a company is able to make sustainability aspirations part of its business model, it will not require excessive resources in the long run.
"The essence of the new legal regulation that is being prepared is not to have a new person in the company who will run around trying to collect all the data. The point is to embed corporate accountability into the work of every department. By working together, departments will know what the impact of a particular department is. I believe that well-implemented regulation will not require companies to redistribute resources, but will actually help make the business model more sustainable," said Nicholls from The Economist Intelligence Unit.
In addition, Vaitiekūnaitė from "ClimatePartner" revealed that a new company is often shocked to find out how much data they will have to collect to support the sustainability of their activities. However, according to her, in approximately a year it becomes easier, because certain processes are started that facilitate collecting the necessary information.
"This does not mean that if you invest a lot of time, effort and resources in collecting data and evidence of sustainability the first time, you will have to repeat the same process year after year. As soon as you introduce processes, it becomes easier", assured Vaitiekūnaitė.
The recording of the discussion can be viewed HERE.
More information about the ISM study programme "Business Sustainability Management" is available HERE.