‘Contracts are being won or lost on the basis of sustainability performance’

4 Jul 2019

Image: © robert/Stock.adobe.com

EY’s Lorraine McCann explains why businesses without a sustainability strategy could get left behind in the move towards climate action.

Has your business got a sustainability strategy? If the answer is no, the time has come to start seriously considering one or run the risk of falling behind.

This is according to Lorraine McCann, a senior manager at EY Ireland and leader of its climate change and sustainability services team in Dublin. She believes that sustainability is much more than just a business trend.

“Sustainability has come from a place where it was previously seen to be a ‘nice to have’ and a ‘differentiator’, to a point now where it provides a social licence to operate, and is a requirement to do business,” she said.

“Those companies that don’t focus on sustainability have been proven to have lower market value. We see contracts being won or lost solely on the basis of sustainability performance.”

Greenwashing is no good

Sustainability and successful business models aren’t always seen as compatible. And, as big businesses seek to talk the talk in the face of difficult global questions on environmental impact, some are sceptical that corporate efforts are merely paying lip service. But McCann warns that this approach will crumble under scrutiny.

“Those companies that are ‘greenwashing’ are delivering little value to their stakeholders and, in today’s operating environment, a lack of transparency creates distrust and credibility issues amongst stakeholders. Rather than calling out those companies that are doing something about sustainability, we should be turning our attention to those that are not and asking why this is the case,” she said.

Why buy in?

Companies that do put sustainability at the core of their business will be better able to manage risks and create opportunities in a low-carbon, sustainability-focused economy. “Companies that ignore this shift risk being left behind,” McCann warned.

McCann explained that a significant peak in interest in sustainability over the last six to 12 months has been driven by three key factors: investment, regulation and stakeholder interest.

In a recent EY survey, 97pc of investors say they conduct an evaluation of target companies’ non-financial disclosures when making an investment decision,” she said.

“Investors are requesting broader and higher-quality non-financial information from public companies, and they are seeking consistent, investment-grade information to support their decision-making.”

In terms of regulation, the EU Non-Financial Reporting Directive, in effect since August 2017, requires that large public interest entities publicly disclose non-financial performance information for matters relating to the environment, among other things. Then there’s Ireland’s own Climate Action Plan, outlining the country’s ambition to reduce emissions towards a net-zero goal by 2050.

McCann also noted the ‘green wave’ of political support in recent elections and student-led climate strikes as indicative of the public’s demand for leadership on sustainability and climate change. The Irish Government responded swiftly, declaring a climate and biodiversity emergency in Ireland. The focus now will turn to how the Government and private sector can lead a just transition to a low-carbon economy,” she said.

Getting started on sustainability

For those getting started on a sustainability strategy, McCann advised that it must be integrated with the business strategy, working towards a singular vision or purpose.

“An effective sustainability strategy should reflect those economic, environmental, social and governance aspects that are material to a company and its key stakeholders. These should be prioritised according to potential impacts on business, and the importance of these factors to various stakeholder groups. Those factors that are highest in priority to both the company and its stakeholders should be the focus of the sustainability strategy,” she said.

In EY’s case, at least, McCann believes its sustainability strategy has led to a happier and healthier workforce overall.

Under the guideline that what gets measured gets done, McCann relayed the importance of key performance indicators in a sustainability strategy. “Future targets and commitments should be established to improve performance, and outcomes should be communicated honestly and transparently to stakeholders on an annual basis at least.”

Elaine Burke is the host of For Tech’s Sake, a co-production from Silicon Republic and The HeadStuff Podcast Network. She was previously the editor of Silicon Republic.