Sustainability at the heart of the business model

April 3, 2023
minute read

Responsibility is no longer only in heads of state, political institutions or legislators. Responsibility is also on companies and organisations, especially on their boards, where decisions will increasingly be taken with a real impact on combating climate change.

Achieving carbon neutrality will be impossible without companies putting sustainability at the heart of their business models. The companies extract, transform, produce, transport and distribute products, after all. And all these processes imply direct or indirect consumption of resources, always with an associated environmental cost. But the change and adaptation of business models, often highly profitable and consolidated, presents a considerable challenge to companies, bringing complexity, and requiring time and investment.

When a company is carbon neutral, it is saying it intends to offset its carbon footprint, i.e. the greenhouse gas emissions generated by its activity. Typically, the plan to achieve this goal involves reducing emissions and investing in carbon offsets, or in nature conservation and regeneration projects, such as reforestation. More companies are committed to carbon neutrality strategies, and even organisations like IKEA go further and commit to being “climate positive”, aiming to offset emissions beyond those they produce.

Although we still see the phenomenon of greenwashing in too many brands and sectors, recently, sustainability issues have finally gained centrality in corporate culture; it has been the big multinationals that have raised the bar. The main example may be that of Google, which since 2007 has been carbon neutral. But it didn’t stop there. In 2017, American technology offset all its annual electricity consumption with the purchase of renewable energy, a feat that has been repeated every year since then. By 2020, it had already neutralised all of its carbon legacy since the company’s foundation in 1998 by Larry Page and Sergey Brin.

While most companies are taking their first steps in terms of sustainability, Google is going into its third decade of climate action and already has a new goal — becoming the first company in the world by 2030 to use exclusively renewable energy to operate all its activities. Given the history and centrality of environmental sustainability in the company’s culture, it is likely that it can anticipate this objective.

Google’s proposed efforts don’t stay here. Huge investments are planned for this decade in reforestation projects, renewable energies, carbon removal projects and sustainability bonds. This pioneering has shaken the business ecosystem and helped define good practices and trends, followed by more companies that actively and publicly commit to goals and strategies to achieve carbon neutrality. Apple and Facebook promise to achieve carbon neutrality in 2030, Coca-Cola and Nestlé by 2050, Amazon in 2040 and Netflix as early as 2022. Microsoft will also achieve carbon neutrality before the end of the decade and is committed to offsetting its entire emissions record from 1975 to 2050. These are a few examples of brands we all know well.

In Portugal, sustainability issues are also increasingly present in the day-to-day life of companies. Our country has a great responsibility in terms of carbon neutrality, as it was the first country in the world to take a deadline to achieve it — 2050. However, regarding the Portuguese business fabric, there is still a way to go. This makes ESG (Environmental, Social and Governance) strategies not only common but also priorities in the life of organisations. The latest edition of KPMG’s “CEO Outlook” seems to confirm this reality, with 60% of Portuguese CEOs considering that the impact of ESG strategies reduces the financial performance of companies. In comparison, this figure is only 23% for international CEOs.

Portuguese companies that have taken on carbon neutrality targets have been guided by the target set by the European Union and incorporated by Portugal through the Roadmap for Carbon Neutrality (RNC). The goal here is to achieve carbon neutrality by 2050 and try to reduce emissions considerably by 2030. A good example is the SONAE group, which anticipated this target for 2040, also planning to reduce 54% of its own emissions later this decade. Also, the business ecosystem proved very collaborative, with the creation of associations of companies and institutions, such as BCSD Portugal (Business Council for Sustainable Development) or SmartWaste, which seek to enhance synergies for the development of more sustainable corporate policies.

To effectively move sustainability to the center of business models without harming the positioning, competitiveness and growth of companies, it is necessary to continue to develop efforts on several fronts of action. I consider it important to take some factors into account:

· Reporting and transparency: the presentation of non-financial results through so-called ESG reports are not yet the norm. These reports should transparently and rigorously mirror the organisation’s sustainability and social responsibility strategies. Presenting terms such as “fair trade”, “ethical made” or “sustainable product”, without clearly demonstrating the actions that prove it can even have the opposite effect and be considered greenwashing. Also, in the governance of companies, it is necessary that the ESG strategy is based on middle management and that it is present and established at the highest levels of decision-making of the organisation.

· Responsibility along the value chain: a company is not an isolated actor and interacts with many others, suppliers or customers. Today, a company is only encouraged to voluntarily take responsibility for its supply chain, but everything indicates that it will cease to do so. The EU is expected to require companies to establish ongoing due diligence strategies for evaluating their operations and suppliers to identify whether they comply with good sustainability, human rights and governance practices. In practice, it will not be enough for a company in isolation to comply; it must require it from its partners and suppliers.

· Harmonisation of regulations and indicators: an international legislative effort is still needed to consolidate and standardise regulations, metrics and indicators, making the information presented by companies more reliable, comparable, auditable and credible for customers, investors and partners.

· Financing: making companies and their operations greener requires funding. Reducing emissions implies, in most cases, changing processes. Obviously, this change has a cost, as does investing in carbon offsets. The KPMG study mentioned (“CEO Outlook 2021”) points out that over 30% of Portuguese CEOs intend to invest between 6% and 10% of revenues over the next three years in sustainability measures and programs, which seems to indicate that business leaders perceive the need to make investments in these areas. In addition, the Recovery and Resilience Programme (PRR) and the new Portugal 2030 Community framework will prioritise decarbonisation, the circular economy and the energy transition. These tools must reach companies effectively.

Ricardo Morgado, Chief Sustainability Officer at The Loop co.
in 101 Voices for Sustainability

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