In the past few years, we have seen an increased appetite for corporate transparency, for companies to disclose their environmental and social impacts. There are more and more organizations (civil society, investors, companies) pleading for governments to take a stand, set regulations and bring more clarity on ESG reporting. Whilst the demand is loud and clear, there is still a lot of ambiguity out there as to how exactly businesses can contribute towards a more sustainable, transparent future. We are keen to find out as well.
Today’s guest in our Sustainable Stories series is Stephanie Cárdenas. Steph is a woman with so many hats that I’m not even sure where to start, apart from saying that she’s one true wonder woman!
On one hand, she is a manager at CDP where she helps companies work on halting deforestation by increasing corporate transparency, providing thought leadership and building strategies. On the other hand, using her rich experience in business consulting, her educational background in Green Management, Energy and Corporate Social Responsibility, she also helps SMEs work on their sustainability strategies and how they can drive informed decisions and achieve efficiencies through these efforts.
With the little time that she has left, she puts her energy into being in the forefront of grassroot organizations that work to create a more sustainable and equitable world.
The reason why Steph wears so many hats is because her motto in life is to walk the talk. She believes that whilst you can contribute to a better world in your work, you are not living life to the fullest if you do not immerse yourself in your beliefs in every waking moment.
Through an informal interview, Stephanie shared her personal views and experience with us. We are honored to be connected with such a passionate woman that relentlessly is working towards our common goal for a more sustainable future.
Hi Steph, can you walk us through your work with SMEs in helping them set strategies towards sustainability?
I have worked in various projects guiding SMEs that want to export their agricultural goods to Europe with the Dutch and German governments, helping companies strengthen their understanding and implementation of sustainability.
What is interesting about working with these companies is that they have a very different level of understanding on what sustainability is and how they can strategically adopt new concepts into their company’s business model. Some of them have been operating for over 50 years as a family business for decades, whilst others are start-ups that already have sustainability at their core.
I help them understand that sustainability is not charity. It’s about managing the risk and opportunities in their markets.
To do that, you need to have a clear purpose or mission and know what the market is looking for. For example, companies that want to export their goods into the EU, they need to know that in Germany, the government has a Supply Chain Due Diligence Act, that looks into corporate supply chains and their compliance of human rights and environmental aspects of their operations. So, if you’re aligned with these concepts, you have an open door to access this market.
The same goes to the EU Deforestation-free Commodity law. The EU is looking for companies that can provide supply chain transparency. This regulation introduces mandatory due diligence systems to ensure that products that enter the EU are not associated with deforestation and forest degradation.
At the end of the day, this will require companies to establish robust management systems that can track company activities, including technological investment to prevent the loss of markets.
If SMEs can demonstrate to their investors and clients that they are aware of these regulations, and that they intend to invest in operational and governance changes to ensure that they are mitigating the risk of losing their market this will really help them in three ways, first to maintain their clients, access to funding and open new markets (or maintain the ones they have).
What is the biggest challenge here and how can SMEs overcome it?
By far, it is the investment in human and financial capital. For small and medium sized companies, you either do not have time to dedicate to these initiatives, or you do not have the money to do so. Another important factor is that these companies usually do not have a person with the technical background needed.
The key to overcoming resource constraints is to understand what sustainability is, how this impacts your company and decide what activities will bring competitive sustainable advantage to your company. Once you know this, prioritize, and focus on these activities.
As an example, companies that for the production of their goods and services need to dispose of big quantities of waste will always have an operational cost involved. If you carefully evaluate the cost, you may find that separating waste like sending organic waste to compost is probably cheaper than sending it to the landfill. Or instead of generating waste you can reuse certain materials like wooden pallets. All in all, you can save money whilst doing good.
In the end it’s all about helping companies see that there is a return on investment when doing these types of changes.
Do you see any difficulties in companies keeping up with their commitments after implementation?
The truth is, yes. 90% of the SMEs I worked with take two steps forward and one step back. I help plant the seed, but what is important is that someone within the company continues watering it. This needs to start at the top, with leadership.
Going back to the projects I was talking about earlier, the German and Dutch governments care about the long-term outlook when assessing companies on their import products. So once the company decides to start on this journey, they need to follow through because their clients (buyers) start asking more thorough questions, now regulations are coming to play, and they need to make sure they are really walking the talk.
The success factor here is to have internal accountability, usually leadership (owner) following up on these topics.
Help us understand more about non-financial reporting and disclosure. Is this something only for big corporates, or will every company be able to benefit from it?
If you ask me whether SMEs and start-ups need to start full-on reporting from year 1, I will say no. After seeing what SME’s went through the pandemic I’m sure they must have other burning priorities to deal with, such as trying to keep the shop open.
However, I would recommend trying to identify a few specific metrics that could bring competitive advantages and measure them from the get-go. Metrics are important, because if you don’t measure it, you can’t manage it. This helps companies in so many ways, and one of them is the company’s marketing and communication. To have facts and progress that you can talk about to your stakeholders (buyers, clients, consumers, investors, communities, employees), shows the added value you bring to them when doing business.
Imagine that you work with artisans to create sustainable clothing. If you simply say you help artisans and you cannot show the progress, the change your company is generating for your stakeholders and all the work you do is invisible.
However, let’s say you started working with one artisan, giving dignity to one woman, and giving her the means to provide for her family. When you start working with two, then three women, you are multiplying your impact. If each family is made up of four members, then your impact goes to improving the quality of life for 12 people already. As you can see, measuring what is important for your company can send a really positive message and allows you to show progress.
At the end of the day, ESG reporting is important for every company. SMEs can make a huge impact because they are large players in climate change. Today, most SMEs do not have any metrics nor systems in place, but most companies in the world are SMEs.
In Latin America 90% of companies are SMEs and they provide up to 62% of the total employment in the region. So how they treat their employees, what they do to ensure efficient use of natural resources such as water, energy, land are all important topics to focus on for SMEs, especially if we want to build a sustainable future.
How can we get started?
To get started, companies need to understand what their purpose is, what do they want to achieve? Where do they want to get? What impact do they want to create and why? Then you need to connect the dots, to do things that make sense and add value. What gives you that advantage of doing something not everyone is doing, or doing it better than everyone else?
Then, think about how you can present this information to the people that are interested (your stakeholders). Answer the question about who is interested? Customers? Banks? Investors? What information are they after? If you know that you will be better off than your competitor. An important aspect that usually SMEs undermine is the power of communication.
There are some reporting standards that help guide companies on general ESG disclosure. These are industry accepted metrics that companies can use to measure and compare their performance in these topics. SMEs can look at these standard metrics to help them benchmark themselves against their competitors within their country or region and in global markets. As an example companies can report, by disclosing with CDP, GRI standards, ISO 2600 series. Many of these standards are already working or have started working on guidance for SME reporting.
These standards can help you look at sustainability in a broader sense, guiding what is really material (or important) for your company and what makes sense for you to measure and report on. As an example, the four pillars of sustainability (economic, social, environmental and governance) one of the key areas to think about is your company’s governance process – think about compliance, are all your papers in place? Are you putting your company at risk as you start growing by not having a robust governance structure?
Finally, can you tell us more about the movements you’re seeing in shifting business dialogues towards a more holistic ESG approach? What are people talking about?
What is interesting now is that the dialogue has finally shifted from “we need to do something”, to how we will do it.
Governments are talking about legislation changes, looking for more accountability from companies to catalyze change. It’s very refreshing to hear about the EU and German legislations that are trying to push towards deforestation-free products, putting human rights and nature in the front of their agenda.
Consumers are more demanding with businesses and think twice before purchasing products. They want to know more about the products they consume.
People care more about where their food comes from and are eager to make informed decisions when exposed to the right information. This is why traceability down to the farm level is so important for the food sector.
This drives companies to talk about technology and metrics that will help them achieve transparency in their production processes. Businesses are seeing that it finally makes sense to invest in this area, to invest in sustainability, because now doing good and doing right has value to the business.
Finally, the decentralization of finance models helps connect investors that are willing to finance startups and companies with a voice and mission to scale their solutions. Everyone is starting to focus more on the solution than just the mere product itself.