With more and more companies embedding sustainability in their business strategies, Romania has made some significant steps in this direction. Today, more organizations are managing sustainability to improve processes, pursue growth, and add value to their companies, rather than focusing on reputation alone. They are actively integrating sustainability principles into their businesses, and they are doing so by pursuing goals that go far beyond earlier concern for reputation management – for example, saving energy, developing green products, and retaining and motivating employees, all of which help companies capture value through growth and return on capital.
By Anda Sebesi
Sustainability aims to optimize the environmental, health, safety, and social impacts of enterprise activities while realizing operational efficiencies, cost savings, risk mitigation, increased cash flow, and other benefits. For most executive teams and boards, the drivers of these programs and practices have advanced from those rooted solely in good corporate citizenship to include significantly more emphasis on operational, financial, legal, and regulatory concerns. These concerns include resource availability and costs, compliance requirements, and potential risks (including reputational risk) and revenue impacts, in addition to environmental, health, safety, and social factors. Increasingly, they also extend to the concerns of shareholders and other stakeholders, which include optimizing growth and enterprise value.
In the not-too-distant past, a CFO’s attention rarely diverted from hard numbers around revenue, earnings, budget, and the like. Today, these executives may look back nostalgically on those times, as they take on increasing responsibility for impacts well beyond financial performance. Among the notable areas within this broadened mandate is sustainability – the environmental, health, safety, and social impacts of the enterprise. It’s a challenge that CFOs – and the organizations they serve – will continue to grapple with.
In addressing sustainability issues many organizations tend to be reactive, susceptible to shifting priorities, and insufficiently aligned with strategic business considerations. Reactive approaches lead to start-and-stop initiatives, which waste resources and undermine organizational commitment. Lack of alignment with strategy leaves sustainability out of sync with business objectives, which can place programs in continual jeopardy or at cross purposes with business goals.
CFOs are uniquely positioned to correct these deficiencies and help set their organizations on a steady course. With greater involvement in sustainability, CFOs can provide a broad viewpoint informed by deep financial expertise while further shaping their executive roles. In the traditional roles of steward and operator, the CFO preserves assets, minimizes risks, and manages an effective, efficient finance function. In expanding to the complementary roles of strategist and catalyst, CFOs can assist in setting strategy and direction and instill a financial approach in all organizational activities – including sustainability. This calls for the CFO to play a role in making and reviewing the business case, and in most other financial aspects of sustainability.
Back on the local market, Dragos Tuta, founder and managing partner at The CSR Agency, says that the responsibility of an organization has now started to be perceived correctly in Romania, with companies asking how they influence the external environment through their activities and decisions. “In a perfect world we shouldn’t talk about two different strategies: a business strategy and a sustainability one. It is natural to talk about a management strategy of an organization that includes the ethical responsibilities of its business too,” says Tuta.
Theories about corporate responsibilities say a company’s main responsibilities are economic (meaning to be profitable), followed by legal (to respect the rules imposed by law), ethical (to do what is right and to avoid a negative impact) and philanthropic (to contribute to the life of the local communities where it operates). “If economic and legal responsibilities are mandatory, ethical ones represent an expectation of the stakeholders while philanthropy is a wish of the community,” adds Tuta.
But the local market has made significant steps towards sustainability, with an increasing number of companies starting to implement an internal audit of their sustainability indicators and publically communicating the results. “It is about those companies that published their sustainability reports. No team management can progress without knowing the current status of their business. Thus, when we talk about the integration of ethical responsibilities and sustainability within the business strategy, an audit of these non-financial indicators (which highlight what and how big is the general negative impact from the economic, social and environmental perspective) is needed,” says Tuta.
According to him, in Romania there are companies that have already passed this stage and plan or implement within their management team projects with the aim of reducing the impact or footprint of their economic activity. “In Western economies, the audit and the projects for improving non-financial performance are as important as the projects meant to increase economic performance. Sustainability is the new paradigm in the management of any business,” says the representative of The CSR Agency.
Last year, he decided to launch the Embassy of Sustainability, a platform dedicated exclusively to the promotion of sustainability in the Romanian economic and social environment. It aims to spread the culture of sustainability in Romania by promoting this concept at the political, economic and social level. “We intend to encourage, inspire and motivate companies to develop investments in sustainability in Romania and to offer many more responsible products and services – including the idea to encourage demand from final consumers for sustainability,” says Tuta. According to him, in the first stage of the initiative, the main objective is to create a community and encourage collaboration. The Embassy includes seven dedicated areas: multimedia gallery, the first library with specialized books in the world, conference room, training room, interview studio, a dedicated area for informal events and a garden. “All the projects and activities of the Embassy of Sustainability aim to contribute to meeting all the United Nations’ 17 objectives of sustainable development,” concludes Tuta.
However, according to a recent McKinsey global survey, capturing sustainability’s full value potential is complicated. In essence, a company must first determine its baseline performance on sustainability issues and then decide on a portfolio of initiatives to create value in those areas. But while many firms understand the impact of their own operations on issues from carbon emissions to human rights, they often have little or no understanding of the impact of the entire value chain. Moreover, most companies do not actively seek opportunities to invest in any area of sustainability and therefore miss potential growth opportunities.
The same study shows that opportunities to create or preserve the most value vary greatly among industries. An extractive-services company, for example, could significantly reduce its costs through better management of energy and water. A retail company could reduce its resource intensity and costs by revamping its supply chain, since the biggest environmental impact within that sector can often be traced to raw materials, such as the agricultural products used in food or apparel. An energy company may have more opportunities than companies in other industries to create value through new products – for example, by commercializing investments in smart grids.
Retailers fight for a healthier environment
At the beginning of July, Kaufland started a 360 degree strategy on plastics that will be implemented worldwide, within the entire group. It includes principles on avoiding the consumption of plastic, improving recycling and supporting the adoption of eco packaging. As a result, Kaufland will reduce its plastic consumption in all the countries in which it is present by at least 20 percent by 2025 and will ensure 100 percent recycling of the plastic packaging used for its private labels, while it will eliminate some plastic items by the end of 2019. “At present we are in the process of reducing the plastic packaging. For example, our K-Bio private label bananas are bunched with a piece of cardboard instead of plastic bags. We have eliminated about 32 tons of plastic packaging per year by adopting this measure alone. Ensuring the total recycling of the rest of the plastic packaging of our private labels, we will manage to re-introduce the raw materials within the circuit of resources and reduce significantly the impact on the environment,” says Valer Hancas, communication and corporate affairs director at Kaufland Romania.
Elsewhere Carrefour Romania has recently introduced 100 percent biodegradable bags, a product that is made of natural polymers by Biodeck. In addition, the implementation of an LED lighting system has allowed the retailer to reduce its energy consumption by 35 percent, while the adoption of the full refrigeration system reduces carbon emissions by up to 900 tons/year.