Sustainability is a business opportunity with no time for laggards

Sustainability is fundamental to preserving the beauty and balance our world needs. Segmento has spoken with Federico Donato who says financial markets see sustainability as a key factor in any business venture

By Stefano Riela

Sustainability is fundamental to preserving the beauty and balance our world needs.  Embedding sustainability into products, services, ways of moving about in the world and doing business generates opportunities that will outweigh costs. Financial markets have already started to demand sustainability be a key factor for any business venture.  

Segmento spoke with Federico Donato, Executive Director at Credit Suisse Private Banking and President of the European Chamber of Commerce in Singapore. He is also Vice President of Assocamerestero, Council Member of several local and global institutions including the UN Global Compact, Singapore Business Federation, ACCORD (Advisory Council on Community Relations in Defence) and MINDEF (Ministry of Defence) in Singapore.

Federico Donato with the President of the Italian Republic Sergio Mattarella

The adjective 'sustainable' became a mantra well before the wave of activism triggered by Greta Thunberg. What does sustainability actually mean?

To me, sustainability means innovation, growth, and jobs. But let me take a step back. The debate on sustainability has evolved significantly from when I grew up in Europe in the 1980sand ’90s. It is abundantly clear that the sustainability debate has in fact shifted dramatically from a more idealistic stance, to approaching the issue from a business-driven agenda. As a child I grew up listening to Green Party representatives and NGOs advocating for the environment. In some ways, this abstract concept encapsulated an expectation that society and corporations were expected to make investments for a better and more responsible way of living as part of a social justice agenda. Nowadays, there is a recognition that the business strength occurs when the two are considered together.

Earlier debates, driven primarily by idealism, influenced the foundations for what we today call Environmental, Social, and Governance (ESG, that is, a set of standards for a company’s operations that socially conscious investors use to screen potential investments).  With technological innovations, we have deeper understandings of environmental impact- as well as business opportunity. I firmly believe that businesses need to be financially sustainable so that they can also be instigators of environmental sustainability.

What are the most promising innovations in the field of sustainability?

Across the board we have revolutionary achievements. The role of SMEs is crucial. In Singapore, about 20percent of carbon emissions are generated by construction and real estate, but many SMEs provide solutions for energy efficient buildings. This is as important as companies like Airbus exploring advancements in hydrogen aircraft. Such an innovation would be monumental for travel. The contribution of SMEs in ensuring our buildings are more energy efficient is equally important, generating immediate environmental benefits. For people who think sustainability does not apply or can’t apply to their country or industry, be warned. Both consumers and investors, are key drivers of sustainability. Consumers, just like investors, private or institutional, have expectations around ESG practices. And the Covid-19 global pandemic has only increased the need for answers.

 

Federico Donato

Investment in sustainability is a short-term burden for company balance sheets. Should governments subsidize it?

I do not necessarily subscribe to the assertion that sustainability is dependent on subsidies. I also do not necessarily subscribe to the concept that sustainable solutions have to be government driven. Further, to dismiss responsibility in contributing to sustainability due to fears around making a loss before a break-even level is dubious. Certainly, there are areas in need of government intervention and supranational coordination -rising sea levels is one example where supranational coordination is needed and government intervention is paramount. However, government spending alone is not the solution for global sustainable transition, simply because it is not sufficient. Public markets have a major role inclosing the gap and supporting countries to achieve global environmental targets. Green finance can provide many resources to support financial growth and credible, sustainable investment plan. These resources can be green/ blue bonds, or in simply positioning a company to receive ESG compliant investment.

On this specific point all entrepreneurs and top managers in many companies already know that it will be increasingly more difficult for banks to extend credit lines to non-ESG compliant businesses. Investors will avoid any association with businesses that have proven recalcitrant to environmental issues, and consumers will reject products from sources which cannot prove their ability to comply with the prevailing ESG rating.

There is another oft-cited evasive mantra that is being steadily challenged —that is, that ESG practices generate costs and companies investing in these practices perform badly.  Not the case at all. A recent report by fund manager Morningstar showed that its ESG-screened indexes - including broad sustainability indexes and those tracking specific categories like renewable energy, largely outperformed others in 2020 and over the last five years.

 

What is the position of Italy in this race towards sustainable development?

Italy does not belong to the group of countries that managed to brand themselves early as sustainability champions. Nordic countries certainly succeeded in re-orienting their entire societies as ecosystems that advance sustainability at multiple levels. This ecosystem is made up of companies, their citizenry and government. Italy, probably due to a bottom-up business structure, has not deliberately branded itself as a green hub, but it does have companies and entire industries that are leaders in sustainability.

According to the Green Italy 2020 Report by Fondazione Symbola and Unioncamere, Italy is emerging as a powerhouse in the circular economy, a leader in Europe with over 79 percent of waste disposed, compared with France’s 55 percent and Germany’s49 percent. The study also shows that in 2018 the number of green jobs in Italy exceeded three million (13.4 percent of total employment, up from 13 percent in2017).

The green economy is also an age issue. In fact, the manufacturing sector has moved towards sustainability due to its young entrepreneurs. Among the companies led by under 35 year old, 47percent have made eco-investments, compared to 23 percent of the over 35 year-old's.

On the question of sustainable food and food security, Italy is fairly unique in having an extremely integrated supply chain: a company selling meat is often the owner of the whole chain—from the field to the food fed to the animals and finally to the production facility. Such a structure allows for both quality and safety of what is being produced and sold. Italy has few global competitors that draw on this model, if any at all.

If we look at Italy’s multinational corporations, there are examples of sustainable leaders, such as the Enel Group which has been recognized as a world leader in sustainability for the 17th consecutive year in the Dow Jones Sustainability Index. As of today, Enel is probably the greenest utility company in the world, due to a firm long-term strategy rolled out over the past 20 years.

I do not believe that sustainability can be segmented by industry or by size, nor that industries that will be spared and companies that will be insulated. But I do believe that it is probably wise to champion sustainability, rather risk being a laggard. Investors, if not consumers, are impatient – and will not wait too much longer.