Standardization will be key to spreading corporate sustainability

Professor Paolo Taticchi answers ESG Clarity reader questions on how business attitudes need to change so corporations can become more sustainable.

Professor Paolo Taticchi, a deputy director at the UCL School of Management who focuses on sustainable business strategies, said standardization of disclosure requirements for companies will encourage businesses to plan and grow with a focus on sustainabilty. He answered questions via Twitter from @ESGClarity readers on May 14.

Professor Taticchi recommends sustainability be treated as an integral part of business rather than a secondary cost. He teaches modules on sustainability and competitive advantage, strategy, consulting, and the future of cities and is described as the foremost academic studying corporate sustainability in the United Kingdom.

He has also written the book, Corporate Sustainability in Practice, in which he proposes a new definition of corporate sustainability for the modern age. Taticchi asserts that a fully integrated corporate sustainability strategy can help firms better manage risks, win business opportunities and to ultimately strengthen reputation.

Q: What effect will the EU’s Sustainable Finance Disclosure Regulations have on sustainable investing? Will it be a game changer?

PT: “Game changer” is a big word :-), but I think it will contribute massively to push transparency and the growth of sustainable finance. Definitely a good step in the right direction.

Q: : What is the biggest lever of change? ie regulation, consumers?

PT: It varies from industry to industry (ie. In fashion I would argue it is customers; in the automotive sector, it’s regulation). Today companies have a plurality of stakeholders pushing for sustainability, with some of them being more vocal and influential than others.

Q: There are some single use items that we cannot do without (PPE is a prime example). Do strict ESG screens not risk robbing investments from these manufacturers?

PT: That could happen, but in my opinion the most sustainable organizations of every industrial sector will be rewarded for their efforts. Best-in-class screening should be used in these circumstances, not negative screening.

Q: It can be difficult to get industries to agree on standardization and ensure supply chain transparency. What does you think could be the next steps?

PT: Supply chain transparency is a hot topic today. Many companies limit their focus to their tier one and two suppliers, but often real issues are further in the supply chain. I think we need to come up with better frameworks to disclose the sustainability performance of supply chains.

Standardization is key for creating a common language and benchmarks, and therefore key for transparency (ie. see the great impact of frameworks like the GRI that were not perfect, but helped tremendously to spread sustainability reporting).

Q: Should companies be tying sustainability goals to executive compensation?

PT: Absolutely yes! This is key to push sustainability in industry. Many companies are today looking into this (not easy, but time to do it!).

Q: Which sectors are furthest behind and which are leading in creating sustainable businesses?

PT: I see all sectors engaged. It’s more about individual firms. In every sector today you can (often easily!) identify a number of sustainability leaders, practitioners and laggards. In the next 10 years, I think sustainability leaders will be recognized more and more for their efforts.  I carried out this research which lists criteria to identify sustainability leaders: Corporate sustainability approaches and governance mechanisms in sustainable supply chain management.

Q: ESG dominates the investment agenda. Do you feel there is sufficient focus on human rights? Is there merit in asset managers adopting a Clean Trade approach, in the same way they look to align their investments with the UN SDGs?

PT: The challenges is that certain sustainability issues are easier to analyze/measure. This partially explains the focus of several asset managers/investors. At present I see a lot of research focused on social impact, and more tolls will become available in the years coming.

Q: How can progress in sustainability be tracked and measured? Should there be a blueprint that can be applied and tailored to specific sectors/businesses or should specific goals be set industry-wide for everyone to achieve according to size/capability?

PT: Sustainability is company-, industry- and country-specific. Companies need to measure their positive and negative impacts, identify baselines, and monitor progress constantly, and disclose in a transparent way.

Q: Should corporate sustainability be primarily focused on a company’s impact on the environment and climate change, or are other factors (SC management, worker rights, diversity, remuneration) equally important?

PT: The E,S and G are equally important and sustainability strategies should reflect that. For a new/modern definition of corporate sustainability, check out my book: Corporate Sustainability in Practice – A Guide for Strategy Development and Implementation.

Q: Is there enough knowledge about ESG for companies to make strategic decisions that can impact it for decades?

PT: Love your Q. I think the answer is YES! Knowledge is available, but very often not in-house. That is why sustainability consulting is growing, and partnerships are key for sustainability.

Q: The ESG sector has attracted a lot of younger and female managers. Do you think this could be a potential barrier to some more “traditional” investors parting with their cash?

PT: I recognize that as a fantastic change in the context of a sector that tends to be male dominated. I don’t think this creates any barriers (and genuinely hope so!).

Q: Asset managers took a very public stance against Deliveroo’s IPO over its employment practices. How important is the investment industry in setting the corporate sustainability agenda? Do you expect to see more attention paid to workers’ rights?

PT: I think the investment industry plays a huge role, and things like the PRI and Larry Fink’s letters have pushed significantly the sustainability agenda. Employment practices will be more and more subject of scrutiny.

Q: You are teaching the next generation of corporate leaders, what will be their legacy in terms of sustainability?

PT: We train them to build and lead better organizations and explain to them that profit and sustainability can co-exist. I like to think all our graduates are sustainability change makers!

[Editor’s Note: Follow @ESGClarity on Twitter to participate in our next Twitter Q&A]