How ESG models change the relationships of companies with stakeholders
The Environmental Social and Governance – ESG approach implies for companies an increasing use of company management systems with a view to maximum transparency and guarantee for customers and suppliers and, in general, for all interested parties (stakeholders). The quality of the relationship can be of a mandatory and voluntary type: for example, regarding the mandatory approach we have the legislative decrees 231 (criminal liability of organizations) and 254 (obligation of non-financial reporting), while the voluntary approach passes instead for compliance with a series of international norms or standards which the organization voluntarily undertakes to adhere to. What are the initiatives that can start an SME that wants to voluntarily adhere to an ESG model of social responsibility?
The term “sustainability” has now entered the common jargon of companies. Until a few years ago, the acronym ESG (Environmental, Social and Governance), which was obscure until a few years ago, is the hallmark of every corporate relaunch operation.
It is not just about marketing or, worse, greenwashing, but a much deeper approach that starts from a rethinking of the principles that underlie any solid and lasting development of any company regardless of the sector to which it belongs and the size.
Larger companies must also comply with legal obligations that certify guarantees for stakeholders, think of the regulatory provisions of Legislative Decree no. 231/2001 or of Legislative Decree no. 254/2016.
2030 Agenda
In September 2015, the 2030 Agenda for Sustainable Development was signed at the United Nations General Assembly, signing 17 Goals (SDGs) and defining a significant “To-do list for people and the planet”. The 17 development goals are divided into 4 blocks:
- the social pillar
- the economic pillar
- the environmental pillar
- system governance
Of all the objectives, those that are certainly the newest and most impactful on the labor market are those linked to social sustainability. The 2030 agenda defined “universal, ambitious, global, indivisible and interconnected goals, aimed at eradicating poverty, fighting growing inequalities and discrimination, promoting prosperity, sustainability, environmental responsibility, social inclusion, gender equality and respect for human rights, guaranteeing economic, social and territorial cohesion and strengthening peace and security “.
Interested parties (stakeholders)
In the post-pandemic world economy, the issue of the impact that each organization has on its stakeholders plays a prominent role. The question starts from the definition of “interested party”. The term stakeholders means all subjects, individuals or organizations, actively involved in an economic initiative (project, company), whose interest is negatively or positively influenced by the result of the execution, or by the performance, of the initiative and whose action or reaction in turn influences the stages or completion of a project or the fate of an organization.
In an interconnected world, any entrepreneurial activity that promotes business development in respect of interested parties will certainly have greater consensus in the market and consequently facilitate access to credit services, public concessions and incentives and privileged paths in tenders, tenders or selections. In short, today more than ever, the search is for progress that allows stability and guarantees for the future.
The world of finance looks at these approaches with interest precisely because they guarantee solid business fundamentals and a long-term vision.
Investors not only seek the achievement of financial return objectives with an optimization of risk factors, but also seek to achieve objectives related to the social and environmental impact of companies with their products and services. Impact investing is defined as that approach that starts from the consideration that companies must have more complex objectives than just generating economic value. The announcement with which Larry Fink, CEO of BlackRock, the largest private fund manager in the world, has now gone down in history, who in 2020 communicated the fund’s willingness to direct its investments towards companies that inspire policies and activities ESG. The line now appears definitively drawn.
ESG approach (Environmental, Social and Governance)
In concrete terms, the approach to ESG issues should be divided into mandatory and voluntary.
With regard to the mandatory approach, we recalled, for example, the legislative decrees 231 (criminal liability of organizations) and 254 (non-financial reporting obligation).
The management and control systems defined by the companies under the obligation of decree 231 have over time been filled with observation areas precisely to prevent events that have proved particularly harmful in recent years (from work safety to environmental crimes).
Decree 254 then provided for the obligation for larger companies to submit an individual declaration of a non-financial nature (DNF). In particular, the rule requires that the information contained in the NFS also concerns the business model of management and organization of the company’s activities, also with reference to the management of the aforementioned issues. The link between the two rules has therefore been reiterated and the aim is to make company management systems increasingly connected with a view to maximum transparency and guarantee for customers and suppliers.
The voluntary approach, on the other hand, involves compliance with a series of international norms or standards which the organization voluntarily undertakes to adhere to. Think of environmental and social certifications, legality ratings or transparent reporting and sustainability reports.
Whatever the approach, the favor of the market, as already highlighted, is important. Proof of this is represented by the analysis of the issues that finalize the PNRR funds. The Italian budget provides for loans for 221.1 billion euros, of which 191.5 billion from the Recovery Fund (including subsidies and low-interest loans) and 30.6 billion of internal resources, to be used by 2026. In percentage terms, 27 per cent of the funds will be dedicated to digitization, 40 per cent to investments to combat climate change and over 10 per cent to social cohesion. In detail, the six investment lines on which the restart investments will focus are as follows:
- green transition
- digital transformation
- smart, sustainable and inclusive growth
- social and territorial cohesion
- health and economic, social and institutional resilience
- policies for the new generations, children and young people
This is the most important junction for companies that want to hook the recovery and the expected support funds. Companies that aim to enter, in addition to economic support, also in the numerous contracted activities, in large construction sites, in the many small and large projects that will be launched will have to be ready precisely on the ESG requirements. The issue of compliance and sustainability therefore become real elements of value creation for companies.
The company that approaches ESG models must move from a system in which it “consumes matter, energy, time and skills in terms of human resources” to another in which it manages a responsible relationship with
matter, with energy, with the values that come from people. This is a significant transition, especially when it comes to SMEs. Top management must be convinced of this, but there must be the indispensable consent of the property. It will be necessary to identify a path and a transition time that will see the involvement of the entire structure of the people employed by the company and, where possible, of the workers’ representatives.
Social responsibility in SMEs
If we restrict the ESG field to social responsibility (S) and the business segment to SMEs, the entrepreneur can approach the issue in practice by starting to implement a series of measures:
- corporate welfare systems, harmonization of private and working times and smartworking
- social reporting and impact assessment
- evaluation of the SB – benefit company model
- approaching social certification systems: Asseco, SA8000 and legality rating.
It will be important that the ecosystem in which the company operates supports this new approach. Great responsibility, again speaking of SMEs, lies with the consultancy and advisory services called upon to guide the entrepreneur’s choices in order to achieve concrete and measurable results without which any model, even if innovative and enlightened, is doomed to fail.
