"You will be sustainable or you will not be"
Interview with Jerusalem Hernández Velasco, Partner of Sustainability and Good Governance at KPMG in Spain
“It is important to reflect on the value of sustainability within each company to effectively transition towards a sustainable business.”
What are the main challenges faced by companies in Spain in terms of sustainability and climate change?
One of the biggest challenges that companies must face is maintaining a competitive position. Ensuring that the actions taken in terms of sustainability make their organizations better and more successful requires strategic reflection, which is not always easy to address. In a global context where dynamics are threatening the understanding of sustainability as it has been comprehended in recent years, it is a great time to rethink what sustainability means and what it brings to each company. The easiest answer would be to believe that the main challenge is adapting to regulation, measuring Scope 3 emissions, or adapting sustainability practices to the supply chain… But there is a prior analysis that is key: identifying the value of sustainability for companies.
Additionally, collaboration between organizations to generate synergies is also one of the points we have pending, especially in Spain, where we still have a long way to go to improve our collaboration.
What are the tangible benefits that companies can obtain by adopting more sustainable business practices, beyond regulatory compliance?
The value that sustainability has for each organization can vary depending on the nature of the company, and we cannot generalize. As I mentioned earlier, it is important to reflect on the value of sustainability in each company to effectively face the transition to a sustainable company.
But clearly, sustainable practices not only allow us to comply with laws and regulations in various areas, such as reporting, environmental impacts, human rights, etc., but also enable companies to be more creative and address innovation more effectively.
When evaluating the value of sustainability, the impacts that the organization must minimize are also taken into account because the cost of not doing so will be greater in the future, and this objective must permeate the culture of innovation at all levels of the company. We must think sustainably, from purchasing to production, sales…
What emerging trends in business sustainability should companies consider?
The new European regulation on sustainability reporting and identifying appropriate methodologies to measure indicators is a challenge that many companies are already facing. It does not matter whether or not we have a lot of data; what is important is identifying which data are truly important, the ones we need to manage, and ensuring that they are of high quality, robust, rigorous, and traceable to help us make decisions.
Another challenge that will require effort and attention is expanding the focus beyond direct activities. It is difficult to evaluate the total footprint of a product or company when we do not have visibility over our supply chains. Organizations will have to make an effort to learn more about the sustainability of those who are part of their business, at all levels, to ensure a true sustainable transformation in organizations.
What are the main challenges for the agri-food sector?
When we talk about a sustainable product, it has to do with how it has been produced (soil, pesticide application, water management, etc.), but it also has to do with the availability of resources in the medium and long term, which is why climate change is putting great pressure on the sector. But we cannot forget that there are also great opportunities such as innovation, technology, circularity, which give us access to new customers, the possibility of making differentiated products, and other ways of producing. Regenerative agriculture is being proposed as a solution to achieve the balance we need, as well as the evolution in new species thanks to genetic improvement and, above all, new technologies such as AI that allow us to implement plans to anticipate risks, pest prevention, irrigation, temperature increases… and that also facilitate the work of the farmer.
Generational renewal is another of the major social challenges facing the sector, and due to its nature, it is increasingly difficult to find people willing to work in the field and take agricultural operations to the next level. We need to create role models, take advantage of new technologies to develop productive models that allow balancing work with the aspirations and lifestyles of young people.
Finally, I do not want to fail to mention that there is still work to be done to ensure that the governance of companies in the sector is on the right track, aligned with what the sector needs.
How can companies evaluate their positioning in this regard and the application of sustainable practices?
Each company should reflect on what needs to be included in its “control tower” to evaluate its sustainable transformation, that repertoire of key indicators that allow monitoring the evolution, risk, and value of sustainability. We must also consider what reporting standards are required and the information requirements of third parties. Once this is defined, we will be more efficient if we use those same indicators for the management and real monitoring of business activity.
ENVIRONMENTAL:
- Scope 1, 2, and 3 footprint. Transition plans and reduction targets in each of the production processes.
- Impact on ecosystems and nature.
- Footprint: water, corporate, product (life cycle assessment), etc.
- Circular economy: increasingly occupies more space in corporate reports, parameterizing resource consumption, and waste management.
SOCIAL:
- Relationship with collaborators and employees. Indicators such as diversity, digital disconnection, work-life balance, safety and health, well-being…
- Human rights are also very relevant and will be even more so, as well as the social contribution that the company can generate in its environment
- The relationship that the company has with its consumers.There are very important European directives to avoid greenwashing and to address sustainability communication actions by companies more rigorously. Spain is also going to start working on a new law to accompany the information provided in terms of sustainability to consumers and enable better decisions (product information, labeling, corporate sustainability…). All issues related to consumer transparency are gaining relevance.
- Ethics, integrity, conflicts of interest, compliance…
- Models associated with internal information control and risk measurement.
- Indicators on the company’s governing bodies if it is listed
How can technology help companies improve their sustainability management?
Sustainability without technology is not viable. Technology 360º, not only in reporting or production but also in design, for productive models, traceability, and decision-making, using all available technologies, artificial intelligence, blockchain, digital twins, to guarantee traceability or calculate the cost/benefit in terms of sustainability. Decision-making will be much easier with these technologies and will also reduce costs.
It is evident that without adopting digitalization, we will not achieve the necessary sustainability goals. A productive, competitive, and innovative agricultural sector, without technology, will have difficulties advancing towards sustainability. Although it is essential to have the skills of farmers to manage and understand their businesses, the use of technology along with these skills could maximize results.
What social ecosystem are we moving in, and how would you define "the era of indignation"?
The mood and social sensitivity have a significant impact on how we relate to organizations. Society is hopeless and has great doubts that the future can be better. If you add polarization (the “us against them”) and the conviction that the game is rigged with organizations, this directly impacts organizations’ ability to generate trust… and this reality determines how people live and consume. We are “tourists” in everything… we rotate and have stopped being loyal.
We need to make society aware that companies have an essential role in development, in generating economic and social movement. But to achieve this, companies must do and make known. Both equally. What is not known cannot be recognized and does not generate trust.
Organizations know that reputation and trust generation are essential for their success and depend on stakeholder loyalty to continue innovating. Companies that are not aware of these realities will manage poorly because they will not be able to adapt to these dynamics in which we live, starting from a negative position in trust and having to build from there.
What do consumers expect from sustainable practices in companies?
Some studies tell us that consumers would be willing to pay more for products made with sustainable practices. But we must consider that, for example, in economic contraction environments, it is not so much what is wanted but what is possible… and in those circumstances, consumers do not always prioritize, but they do penalize those who are not sustainable. The consumer wants to make better decisions but feels they do not have all the necessary information. They even doubt the veracity and evidence accompanying the sustainable claims of some products and are confused by the information on labels.
There is a clear conflict with this avalanche of information that the consumer does not understand, and it needs to be addressed. I welcome the regulatory initiatives of the European Commission that aim to provide clarity to the consumer.
What is the impact of sustainability on the valuation of companies by consumers and investors?
At a certain point, markets and investors generated a dynamic of accompanying sustainable transformation projects through very interesting capital, even overvaluing sustainable projects because they were limited… Recently, however, we have seen movements in the United States that criticize and penalize making investments with a sustainability perspective and not just a profitability perspective. This makes companies reconsider sustainable investment. There are two distinct dynamics:
- Companies that decide to incorporate sustainability as one more criterion in the evaluation of risks and opportunities. A tremendously healthy activity that protects the value of assets more broadly.
- Prioritizing investments in sustainable activities. Here is where, sometimes, aspiration could collide with profitability.
But definitely, and according to studies, investors still want sustainability information to make investment decisions and will continue to increase assets under management with sustainability criteria. We believe and trust that sustainable investment will continue to grow.
