Sustainability should be high on the agenda for the boards and leadership teams of every company, according to Mazars consulting services partner Liam McKenna. “To some extent, everyone recognises that ESG [environment, social and governance] and sustainability are important topics,” he says. “We have been hearing a lot more about them and we are expecting more regulation in areas like non-financial disclosure. It makes real business sense to get on top of them.”
The reasons why organisations need to focus on these topics are explored in detail in the practical guide for boards and leadership teams on sustainability report published last month by Mazars and Ecoda – the European Confederation of Directors’ Associations. The report steers boards away from approaching sustainability as an add-on, tick-boxing compliance exercise or a mere marketing-driven initiative. It also includes a useful tool which companies can use to assess the stage at which the business is at on its journey across different dimensions towards sustainable success.
McKenna cites customer demands, staff, cost savings, and access to capital as the key drivers behind the shift towards sustainability. “If a company is operating in the B2B environment their customers will want their supply chains to be sustainable,” he notes. “Many large companies are already sending out questionnaires to their suppliers asking about their sustainability.”
Pressure is also building from employees. “Many people want to work for responsible businesses they can be proud of. They are interested in working for organisations with sound ESG policies. Sustainability will have a direct impact on staff turnover, recruitment, retention, and productivity.”
There are also cost benefits. “Generally speaking, running a business responsibly, being climate aware, and moving towards net zero will reduce cost. We did some work with a manufacturing company with a €3 million annually electricity bill and they were able to knock €700,000 off it pretty much straight away.”
Access to capital will increasingly be bound up with the sustainability agenda. McKenna points out that banks and the global financial services industry generally are already incorporating ESG criteria when assessing loan and investment decisions. “Everyone will be challenged to meet those criteria and those who do will be able to access to capital at competitive rates.”
Businesses which choose to wait for regulation to force the change will be at a disadvantage, he believes. “If they wait for regulation, they will miss the boat and the opportunities. They will also spend more money by doing it late. These are the reasons why clients are approaching us about ESG.”
According to McKenna, the first step for companies on the sustainability journey is to understand what is material for their business, and this differs from business to business and sector to sector. “For example, food and packaging waste is very important for a hospitality business. Transport costs could be more important in another business. That’s where the initial focus must be. Boards have an obligation to either take control or to be overtaken and become less relevant as a business. The Mazars Ecoda report goes through what boards need to do and identifies the seven critical success factors required to develop a sustainable business.”
Tone at the top
Those success factors include being purpose led, embracing a strong organisational culture of sustainability, becoming stakeholder oriented, greater openness in reporting, and providing the right tone at the top. The report also includes a tool to help organisations self-assess their effectiveness in reaching long-term sustainability.
“This will allow board members to think about where they are on the journey and the actions they need to focus on,” McKenna adds.
And those actions will have to extend beyond their own organisations. He explains that under the Greenhouse Gas Protocol companies will also be responsible for Scope 3 emissions that occur along its entire value chain.
“That means suppliers’ manufacturing operations’ emissions will be included in their customers’ carbon footprints,” he points out. “It is leading to companies becoming quite collaborative with their suppliers in efforts to reduce emissions. From a supplier perspective, if they don’t address their own carbon footprint their customers will soon not be able to deal with them anymore. Sustainability is absolutely a competitive differentiator.”
But companies must have a genuine story to tell. “We are working with a client whose packaging is nearly 100 per cent compostable at the moment. They have a real sustainability story to tell. At the moment, consumers may not fully understand the different terminologies relating to sustainability and have difficulty in distinguishing greenwashing from reality. That will change in future though and businesses will need to be ready for that.”