Many companies have already realized the importance of sustainability. Especially those who are more proactive, have either wondered how to incorporate it into their strategy because they see the potential benefits. However, few have made significant progress, and many continue to face significant obstacles despite good intentions. Understanding how to overcome barriers and integrate sustainability into business strategy is an important step forward that can really create a competitive advantage in the years to come.
Integrating Environmental, Social and Governance (ESG) parameters into the day-to-day running of a business is no longer just "something nice to have" for many businesses. On the contrary, it has become a necessity, especially for those companies that have direct contact with the customer, or the citizen and society in general. It is now a social expectation, and this does not go unnoticed by companies. Especially for the younger generations, the new and future consumers, the expectations to a company's social and environmental performance are not just increased but often determine whether or not they will collaborate with the company. This concerns either their decision to work for such a company, or to purchase from such a company. This new reality has already affected the way many companies do business.
The Grant Thornton International Business Report (IBR) survey shows that sustainability is now a top priority, with more than six in 10 companies (62%) believing that sustainability is as important or more important than their financial success.
At the same time, research shows that the importance of sustainability is increasing for middle market companies from the beginning of the Covid-19 pandemic onwards. 41% of businesses say it has become "much more important", and another 30% "a little more important". "The pandemic has shown businesses that they must and can adapt quickly, and that stakeholders - such as employees, investors and customers - prioritize sustainability," explains Ivri Verbin, CEO of Good Vision, a subsidiary of Fahn Kanne Grant Thornton in Israel. "It makes sense to put sustainability at the heart of any new business model or plans for the future."
For many mid-sized businesses looking to adopt more sustainable business practices, the challenge is to figure out which actions to prioritize and how to more effectively incorporate challenges into their business models, such as reducing carbon and carbon footprint, diversity, social responsibility etc.
There are some key obstacles to this development, arising from the economic and operational impact of the pandemic, but also confusion about regulatory developments and reporting. However, medium-sized businesses can often use their flexibility, less sophisticated legacy structures, and more ingenious entrepreneurship to advance the sustainability agenda - and thus create a competitive advantage. Ivri adds: "Crossing the viability curve is a way to signal the strength of your business and consolidate your market leadership."
A fascinating business case for sustainability
Among those companies that place the greatest emphasis on sustainability, the most common motivation they cite is to improve efficiency and reduce costs, as reported by 42% in the IBR survey, highlighting the real business benefits they see in this area.
"This view that sustainability helps businesses become more efficient is linked to the megatrend towards the circular economy," said Mark Williams, a public services consultant at Grant Thornton UK. Mark shares an example of an exhibition company - an area that has traditionally been very wasteful. "The company's new approach involved turning used plastic - including beach cleaning materials - into kiosks that could be reused instead of thrown away when an exhibition is over," he explains. "They also turned to a service-based business model, so they now rent their products instead of offering them for sale, which makes it easier to reuse." The change in strategy not only meant that the business became more sustainable, but also that it was more efficient, providing better financial results.
The relationship between capital and sustainability
Along with operational efficiency, improving access to capital is another key reason why businesses emphasize sustainability. The importance of this factor has increased dramatically over the past year and is now cited by 37% of IBR respondents as an important reason why they prioritize it in this area - making it the third most important factor. The EU Green Deal and the new commitments in the financial sector to focus funding on more sustainable investments through the Taxonomy Regulation, act as a catalyst in this direction. At the same time, we are seeing phenomena such as "activist investors" taking ownership of businesses, demanding that they become more sustainable.
Scott Wilson, Director, ESG & Sustainability, Grant Thornton UK, explains: “A company's approach to sustainability can be used in proportion to the way they approach risk management: as banks or private equity firms will now examine how a business deals with environmental issues, for example, when deciding whether to lend or invest in it”.
Ivri adds, "The urgent need to conduct the transformation to sustainability can be likened to the digital transformation a few years ago: many companies were happy to talk about it but did not really do much until they had no choice”. There is no doubt that acting in the business sector by anticipating change rather than dragging yourself into it when it's gone, can make a difference and give the coveted long-term competitive advantage.
Grant Thornton Cyprus is a leader in this business transition in Cyprus as well. The company has set up its own ESG and sustainability team, led by Mr. Kyriakos Parpounas, an executive with extensive experience in environmental management, circular economics and sustainable business and social practices. The company is active in similar projects in more than 10 countries and has a specialized team of scientists, engineers, economists and communication specialists who are available to companies in Cyprus and beyond, to professionally and adequately support this transition.
Kyriakos Parpounas, Sustainability Leader, Grant Thornton Cyprus