Responsible Investor

Beyond philanthropy

How big corporations deal with the issue of sustainability

Philanthropy has a role of its own to play, but this should not be a substitute for sustainable practices. For a company the main risk of not being sustainable is erosion of trust and damage to the brand.


Georg Kell is the founder and former Executive Director of the UN Global Compact. He retired in 2015 after over 25 years of service to the United Nations. In this interview he explains how big corporations deal with the issue of sustainability and why “it has become a necessary precondition for survival and growth”.

The word "sustainability" is the new mantra. Corporate Social Responsibility programs are now integrated into the strategies of big corporations. Is there still a long way to go?

On the one hand, we have seen enormous progress. Twenty years ago, corporations did not bother much about workplace issues in the supply chain, greenhouse gas emissions, or anti-corruption. Today most corporations have policies for these issues in place and they disclose corresponding relevant information. On the other hand, too many corporations are still operating on the exclusive premise of short-term returns, irrespective of the environmental or social impact. And given the imperative to decarbonize economies, clearly progress so far has not been sufficient and much more needs to be done.


Did large companies understand that sustainability has become convenient for business?

Sustainability has become a necessary precondition for survival and growth. Many corporations had to learn this the hard way, for example in a crisis situation that's threatened their brand. Others discovered it step by step: good environmental and social stewardship based on values and sound ethics go hand-in-hand with financial success. The business case for sustainability has emerged gradually as the framework conditions for market success have changed over time and continue to do so.


How did these framework conditions changed?

First, technology and the rise of transparency mean that there is a premium on proactive behaviour and disclosure. Second, natural assets of any kind are bound to appreciate in value over time, thus putting a premium on early and good stewardship. Third, governance changes imply, among others, that responsive behaviour towards stakeholders and people is a winning approach to build trust.


Nowadays what are the main costs of not being sustainable?

Besides punitive fines which have significantly increased over the past years in many countries, the main risk is erosion of trust and damage to the brand. Just remember the story of Nike and the crisis they faced in the late 90s due to their bad labour practices in the supply chain, BP's deepwater oil spill, the Siemens corruption scandal, and more recently, VW's cheating devices. The interesting point is that crises often offer unique opportunities for corporations to reinvent themselves and to learn from mistakes. Learning the right lessons ultimately means emerging stronger and more future-fit. In all successful learning experiences that emerged out of crises situations, as far as I know, sustainability has been a key factor.


We can say that big corporations already are beyond philanthropy?

Not quite yet. There are still some corporations who believe they meet societal expectations through philanthropy, irrespective of how and what they produce. But this kind of thinking is rapidly disappearing and philanthropy itself is increasingly being redefined in alignment with core business activities. And of course, philanthropy has a role of its own to play, but this should not be a substitute for sustainable practices. Regarding ethics, I do believe that questions of "right" and "wrong" will always be at the core of sustainability. As framework conditions change, questions about right and wrong will always be central to decision-making and solution-finding to dilemma situations.


Reputation is the new polar star?

Reputation and purpose, yes. We are moving into a post-industrial era where intangibles increasingly influence evaluation. Much of the metrics we are using today are based on industrial-era scale-and-scope thinking where environmental, social, and governance (ESG) issues were considered externalities and simply didn't show up in accounting records. But today we know that these issues increasingly have material relevance. Indeed, there is now strong empirical evidence that shows an overwhelming correlation between ESG factors and financial success. Since these factors have a direct relationship with reputation and are connected to the purpose of the company, there is now a renewed interest in this new polar star.


The 17 SDGs of the UN represent a world reference point for big corporations. But being the SDGs so many and so different the risk is that every company can tailor some of them to their needs, each company chooses the most convenient one.

That risk exists when choosing à-la-carte, while ignoring fundamental issues such as human rights and the supply chain, workplace conditions, or reduction of greenhouse gas emissions. But corporations who understand that sustainability is more than public advocacy will use the SDGs not as a substitute for their own sustainability performance but rather as a complement to connect with wider societal and developmental goals. As such, the SDGs are an opportunity to align corporate purpose with broader goals to form partnerships with peers and civil society organizations.


Small and medium-sized enterprises (SMEs) have made their own the 17 SDGS or is there still a long way to go?

Many SMEs have stellar sustainability performance, even if they do not communicate this or report on it. Many owners of SMEs think long-term and act in the best interest of their employees and are conscientious about their role in communities. True, SMEs often lack organizational capacities to codify relevant actions and to communicate them and they often complain that they lack the resources to do so. But in reality, it is not difficult for CEOs of SMEs to reflect on sustainability issues, discuss them with their employees on a regular basis and set ambitious goals. With a bit of pragmatism and good intentions, SMEs can easily find a way to support the SDGs.


As the founder of the Global Compact, are you optimistic about achieving the objectives of the Agenda 2030?

There is of course always the risk that policy makers will cause misery and it is certainly true that there is a lack of policy leadership in many parts of the world. But there are market-led changes. Entrepreneurship and technology have already brought unprecedented improvements to large number of people on all continents. Never before did we have the means at our disposal to solve almost any challenge, to end poverty, to decarbonize economies, and to create an exciting forms of human creativity. Individual business leaders increasingly stand up and try to move the needle. For example the CEO of Alcantara, Mr. Andrea Boragno, in cooperation with Venice International University, dedicates time and efforts to spread best practices on climate action. What really excites me these days is that finance is at last integrating ESG issues into their analysis and decision-making with new tools based on big data and machine learning, such as Arabesque S-Ray. The alignment of the corporate sustainability movement with sustainable investment promises to greatly accelerate market transformation towards cleaner, smarter, and people-centric solutions and thereby to advance the SDGs.