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Corporate sustainability: No more a charity initiative

Companies are realising that businesses grow only if all the stake holders around it grow; be it employees, customers, stockholders or the environment Jaya Smitha Menon December 24,2014: For Barclays, the business of banking goes beyond the profit and loss statements they generate every quarter. They want to play a broader role in the community in which they live and do business. Their goal is...

Companies are realising that businesses grow only if all the stake holders around it grow; be it employees, customers, stockholders or the environment

Jaya Smitha Menon

December 24,2014: For Barclays, the business of banking goes beyond the profit and loss statements they generate every quarter. They want to play a broader role in the community in which they live and do business. Their goal is to help change 5 million young futures by 2015.

In UK, Barclays is supporting the growth of Street League, a UK football charity. Street League uses the power of football to help unemployed 16 to 25-year-olds get into work and training across the UK. It provides an eight-week football and education programme, which develops key employability skills such as communication and teamwork, and offers several nationally-recognised qualifications. At the end of Street League ‘Academy’ programmes across the UK, 81% of graduates move into work, training or education.

In addition to the financial support Barclays provides to Street League, the employees help by running mock interviews, CV-writing and financial literacy sessions for participants. Paulette Cohen, Head of Global Programmes, said: “For 10 years, Barclays has been investing in sports facilities and programmes in the UK communities where they are most needed — creating sustainable resources and helping young people achieve their ambitions.”

Corporates like Barclays believe that businesses grow only if all the stake holders around it grow; be it the employees, customers, stockholders, environment or the society around. Corporate sustainability stems from this belief of enterprises. ‘Giving back to the community’, is a mantra the corporates have already chanted. But what differentiates corporate sustainability from corporate social responsibility is doing responsible business and a belief that sustainable business is the one which carries every stakeholder together in the organisation’s growth. Sustainability means looking inside and outside the organisation to understand the social and environmental impact it creates.

Today, over 72% of S&P500 companies are reporting on sustainability. These companies measure their sustainability efforts and bring out detailed report at regular intervals similar to the financial reports public companies publish every quarter. The role of a chief sustainability officer has also expanded in the last few years.

Adding value to the balance sheet

However, sustainability is not just about growing together. A recent study by the Smith School of Enterprise and the Environment (SSEE) at the University of Oxford and Arabesque Asset Management provides clear academic evidence of the financial rewards of corporate sustainability. The report reveals a strong correlation between corporate sustainability and stock price performance, with 80 per cent of research sources showing that stock prices are positively influenced by good sustainability practices.

The report titled ‘From the Stockholder to the Stakeholder’ also reveals that 88 per cent of studies link strong environmental, social and governance (ESG) practices with better operational performance in a company, ultimately translating into cash flows. Factors ranging from good workforce relations, environmental management and executive compensation are cited as amongst the most impactful on improved operational performance. Ninety per cent of analysed studies reveal that high ESG standards will lower the cost of capital for companies, with superior sustainability standards improving a corporation’s access to capital.

Doing responsible business

For every organisation, sustainability efforts are based on three pillars; compliance, efficiency and innovation. Understanding where the organisation stands in terms of compliance with environmental, social and cultural standards; improving the operational efficiency to achieve these standards and innovating to do responsible business based on ESG standards form the foundation of all sustainability efforts.

London Stock Exchange recently announced that it will partner with the United Nations Sustainable Stock Exchanges (SSE) initiative, joining nine other exchanges in the US, Europe, Africa and Asia to promote sustainable business practices among publicly listed companies worldwide.

“Stock exchanges have a crucial role to play in enhancing both the quality and quantity of environmental, social and corporate governance reporting by companies listed on their exchanges,” said Fiona Reynolds, Managing Director, Principles for Responsible Investment. “Only 3 percent of the world’s largest companies currently disclose information about their ESG performance. Better disclosure will improve the usefulness and comparability of information being reported in each market, enabling institutional investors to better manage risk and make more informed investment decisions.”

Food and beverages giant Nestle’s sustainability efforts include doing responsible sourcing. With consumers becoming increasingly inquisitive about the raw material used in the products they buy, Nestle felt the need to make their supply chain transparent and traceable. Nestle insists that its suppliers across the globe adopt internationally recognised good agricultural practices (GAP) that address environmental, social and economic sustainability for on-farm processes and result in the production of safe and quality food and non-food agricultural products. Such initiatives by organisations increase their credibility and brand loyalty, which has a long lasting impact on their balance sheets. “Profitability and sustainability are not mutually exclusive; quite the opposite in fact. It is almost a given that being more sustainable also improves the robustness and longevity of a company, but the other consideration is how it improves reputation. With growing consumer interest in sustainability, the reputational benefits that integrating sustainability brings are invaluable,” says Rebecca Pritchard, head of business banking, Triodos Bank.

A pioneer in the field of ethical and sustainable banking, Triodos Bank does business only with companies with good sustainability practices. Pritchard says, “Ethical investing is the only kind of investing we do. Every investment decision we make follows a rigorous research and selection process to ensure that the money our customers entrust to us is invested only in companies with the best sustainability performance. Our SRI funds invest only in companies that achieve a best-in-class combination of social, environmental and economic performance”.

Triodos Bank selects companies on the basis of strict social, environmental and governance criteria, and after a rigorous research and selection process that provides a firm foundation for every investment decision. “We also have an active engagement programme with the aim of raising awareness of sustainability, stimulating action and creating lasting change,” adds Pritchard.

In the last decade, companies hiring chief sustainability officers (CSO) have increased considerably. CSOs are the champions of the sustainability efforts of the organisation. One of the major challenges for a CSO is to convince the chief financial officer (CFO) to fund these sustainability efforts. But with growing evidence of sustainability adding value to business and balance sheets, the role of a CSO has become more strategic and evolved. But CSOs insist that an oversight and insistence from a board will go a long way in ensuring a sustainable organisation.

Sustainability is not the priority of corporate giants alone. It is a virtue in which every business should invest in.

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