Key findings
Integrating sustainability into corporate strategy involves extending efforts to the entire value chain, with a special focus on key stakeholders such as customers and suppliers. Among the most effective practices are responsible supply management, sustainable product design, digital innovation, the creation of new business models, consumer education and awareness, corporate transparency and the formation of partnerships with sustainability advocates. These strategies not only generate long-term value for all stakeholders, but also drive organizational success.
However, the role of corporations in the 21st century faces not only a changing and extraordinarily complex scenario in the regulatory and legal aspects, but also the impact this entails on the so called ‘corporate governance paradigm’. The European CSDDD directive brings more food for thought to the discussion as it imposes specific duties in the control of the value chain in terms of environmental issues and human rights obligations. It is important to note that this challenge also brings a significant opportunity for value creation strategies in the companies.
Abstract
The growing role and priorities of investors are emerging as critical milestones. Pre-investment interactions are critical to assess the potential risks associated with the organization’s value chain, as well as the opportunities and value that could be realized with the right engagement. Investors bring not only capital, but also guidance and vision, ensuring that sustainability strategies are aligned with the core pillars of the business and operations, while complying with increasingly demanding and evolving global sustainability regulations.
Companies are nowadays facing significant changes in the scope of their responsibilities, well beyond managing risks related to commercial and administrative legislation.
Key Words
Integration of Sustainability / Sustainable Value chain / Supply chain strategies / Double materiality / Successful engagements / Sustainable value/ Corporate governance/ Corporate liabilities/ Leadership
Contents
The integration of sustainability into corporate strategy can no longer be limited only to the internal operations of the organization but must increasingly extend to its entire value chain. There are various stakeholders that play a key role in the success or failure of a sustainability strategy, the most common being customers/consumers and suppliers. Both represent the fundamental pillars of an organization: when they are aligned, the company moves towards achieving its sustainability vision and objectives; otherwise, it stagnates, moves slowly or may even fail.
To address this challenge, organizations must understand and integrate their value chain into their strategy, focusing on the issues and stakeholders most relevant to their business and markets. Through a dual impact or dual materiality assessment, companies can identify and evaluate the environmental, social and economic impacts generated and received along the value chain (from sourcing to disposal), and define the strategies needed to protect or maximize value.
In this context, the role of investors has become crucial to ensure the organization’s priorities and its long-term vision in relation to its value chain. The complex interactions between upstream and downstream actors in value chains can generate large losses for companies and investors if risks are not properly identified or if poor mitigation plans are implemented. Thus, the pre-investment phase is critical to the future success of investments.
Value protection should be at the core of all engagement strategies but having a clear set of priorities (which may vary among investors) and a long-term view of investments can overcome the short-term approach of simply meeting investor requirements. The same applies to the success of sustainability strategies in collaboration with customers and suppliers: there is no fast track without a cost to pay. Following some of the examples of engagements with value chains that have proven to be effective in different sectors:
- Responsible supply strategies, establishing sustainability criteria for the evaluation and selection of suppliers, implementing a continuous improvement mentality and integration of best practices, fostering the improvement of the practices of the supply chain with standardized and certified management systems, sustainability policies and objectives, sustainability audits or transferring sustainability criteria to their own supply chain. There is no absolute guarantee that the complete supply chain will be capable of becoming sustainable, however tier 1 suppliers are the place to start and from there move further down along with the organization’s capacity of influence. The better the practices promoted towards the supply chain, the higher are the probabilities that the standards will be copied and translated further down.
- Sustainability-focussed Product and Service design, applying a life cycle approach to reduce environmental impacts and improve resource efficiency or encourage innovation in the design of products to become recyclable, reusable or generate less waste.
- Digitalization and Technology Innovation, improving the efficiency and traceability in the value chain, adopting new technologies such as artificial intelligence or blockchain to optimise the sustainability performance and access to product/service information. Product transparency is a must for consumers, but with the lack of standardized sources, organizations could promote sector standards and benefit from being early adopters.
- Business Model Innovation: adopting circular business models, such as leasing, reuse and recycling, can attract consumers interested in reducing their environmental impact. Either if it is a new business or the transformation of an old one, the progress towards a service-based rather than product-based offerings, such as leasing or subscription, reduce resource consumption and align economic interests with sustainability objectives.
- Customer Loyalty and Engagement Programmes, creating green incentives that reward consumers for making sustainable choices, such as discounts or points programmes, along with Community Engagement initiatives, such as recycling programmes, carbon footprint reduction challenges, or community volunteering.
- Foster Consumer Education and Awareness, developing campaigns that educate consumers about the benefits of making sustainable choices, or providing informational valuable content through blogs, social media, and other channels, helping consumers understand the importance of sustainability and how their choices can make a difference.
- Communication and Transparency, sharing the organizations sustainability performance and strategy, using international standards for comparability and open dialogues with all stakeholders to engage in value creating initiatives. The construction of a positive reputation and brand based on sustainability can attract clients/consumers with sustainability preferences.
- Alliances with Sustainable prescribers or certifications, like NGOs, sustainability professionals, recognized certifications, and other organizations to advance towards common goals and strengthen the organizations credibility on sustainability and make it visible to consumers.
- Regulatory Compliance, ensuring the continuous assessment and compliance with the local and international regulations on sustainability on traceability, reporting or the sustainability characteristics of products can bring opportunities of synergies and efficiencies across geographies and business lines. Supply chains have been put at the centre of the target in an unprecedented shift towards evidencing and measuring their impact through their procurement and client strategies.
Also, we must not forget another angle in the fulfillment of the sustainability related legal duties of the companies. In Europe, the CSDDD directive establishes new obligations embodied in surveillance measures for the entire value chain. This new paradigm implies that not only large companies are directly subject to this new regulation, but SMEs also face indirect challenges in carrying out their own organization to enable it to create value and remain competitive. In addition to this complex scenario, many European and LATAM legislations incorporate criminal liability of legal persons (precedents: OECD Anticorruption Convention 1997, FCPA 1977, UN Anticorruption Convention 2005, UK Bribery Act 2010, Europe’s Criminal Codes: France, Spain, Italy, etc.)
Conclusions and proposals
The strategies that organizations can implement to succeed in their corporate sustainability strategy across the value chain are diverse but are directly related to the impact of the core business and its stakeholders. Whether they are consumers or suppliers, what is critical is the engagement and alignment of strategies with the core business and sustainability objectives of the organization. Today, organizations have a great opportunity to engage with investors who seek both financial and sustainable returns, with a long-term view and the ability to influence strategy towards a more stakeholder-centric approach.
Investors on the other hand, have a responsibility to foster more sustainable value chains, increasing the resilience of the companies in which they invest and boosting the future valuation of those companies with strong and committed value chains.
Participants
Marc Miralles, Head of Sustainability, Suma Capital
Silvina Bacigalupo, Full Professor of Criminal Law, Universidad Autónoma de Madrid. Chair Transparency International-Spain. Member of Fide ‘s Academic Council.
Moderator: Ana Rivero Fernández, Operating Partner ESG, Alantra. Member of the Scientific Committee Oxford 2024
Oxford/24 Final Report:
This paper is part of the Fide Foundation’s GET-2 ESG Think-Tank final report from the 2024 Oxford Congress, titled “Driving Change: Exploring Opportunities and Challenges in Accelerating Sustainable Finance.” Held at Jesus College, Oxford on September 18th, 19th, and 20th, 2024, the Congress brought together world leaders in finance, regulation, and sustainability. This comprehensive report consolidates key insights from the event, offering strategic recommendations to financial institutions and regulators on transitioning to a low-carbon economy and reaching net-zero greenhouse gas emissions by 2050.
The full report can be found at: https://bit.ly/oxf24-report
