Sustainable economy, sustainable entrepreneurship starts with administrators

Since December 2022, there is a new Corporate Governance Code. It states that directors are responsible for sustainable business practices and long-term value creation and that companies must draw up policies for diversity and inclusion. Tineke Lambooy is professor of Corporate Law at Nyenrode Business University and explains how directors can embed ESG (Environment, Social, Governance) values ​​in their strategy.

“We often talk about economic growth, but the question is what we mean by that,” says Lambooy. “Linear growth is at odds with ESG values, because we have to move towards a circular economy in which all raw materials and waste streams are reused and in which we use sustainable energy sources. Circularity should also be paramount in water and soil use. The transition from the linear to a circular economy starts with the directors of companies.”

Mapping the value chain

For many companies it is a challenge to find out what impact their business activities have on people, future generations and nature,” says Lambooy. She is therefore a strong supporter of one due diligenceresearch (due diligence) as part of international corporate social responsibility (ICSR). “To develop a sustainable business strategy, executives should start by mapping out the entire value chain,” explains Lambooy.

“This research starts with the origin and production of raw materials and ends with the processing of waste from companies and consumers. When the value chain is known, an analysis can be made of the ecological impact, but also of possible violations of labor rights and human rights.”

Conversely, it is also important to investigate how ESG factors, such as climate change, the loss of biodiversity and growing water shortages, (will) affect business operations. That is the dual materiality that needs to be explored from a risk perspective.”

Collaborate with stakeholders

Collaboration with stakeholders is essential to get a better picture of possible problems and solutions, according to Lambooy. Stakeholders can also be involved in the impact analysis. An example of this is the international CSR covenant for the metal sector, of which Lambooy is the independent chairman. Companies, trade associations, non-governmental organisations, trade unions and the government join forces to promote international corporate social responsibility.

Circularity and the prevention of violations of labor rights and human rights are central. “These groups used to be diametrically opposed to each other, but that has changed in recent years. You really come out better as a company if you work together with your stakeholders at every stage of the sustainability transition. I would advise the directors of every company to become a member of an ICSR sector covenant or to set up a new covenant for their sector,” says Lambooy.

“A company can go one step further and embed stakeholder engagement in the company’s governance model. There are already good examples of this, such as the clothing brand Patagonia and the cosmetics company Faith in Nature. Stakeholders also include representatives of future generations or nature conservation organisations.”

Learning from social enterprises

Studying a business model of a social enterprise (also referred to as a social enterprise or social enterprise) within one’s own sector can be helpful in developing a sustainable business strategy, according to Lambooy. “A big difference with an ‘ordinary’ company is that a social enterprise has already established itself when it was founded, the aim was to solve a social problem or to contribute to the solution thereof.

Consider, for example, the social enterprise Autitalent, which is committed to guiding people on the autistic spectrum to a good workplace.

Dopper is also a good example. With the ‘Dopper reusable bottle’, the company wants to prevent disposable plastic bottles from ending up in the oceans.

And so Tony’s Chocolonely wants all chocolate to be produced 100% slave-free. This company works together with permanent cocoa producers.

Another good example is that of Fairphone, the manufacturer of mobile phones that puts sustainability in the electronics industry and fair labor practices first.

The aim of this social enterprise is to challenge the major telephone manufacturers to make their production system circular. When you, as a director, compare your own company with a social enterprise, it is important to consider: what do they do differently and what can we learn from this?”

Personal values

In practice, there often appears to be a discrepancy between the personal values ​​of the directors and the extent to which the organization pursues and actually implements ESG values. “Most people don’t want their behavior to damage nature or violate human rights. Yet this does happen in many production and service chains. There are very few products and services that are developed and produced in a completely sustainable way. By that I mean: do not cause any damage.

Both directors and employees of companies feel that things in the production process need to change. Employees often do not have the power to do so, but that power is there in the boardroom. It is important that the directors learn to act on the basis of their own ethics and discuss this with each other in an open manner. Moreover, it is also the task of the directors to enter into that conversation with the employees and to involve them in devising innovative solutions.”

Dare to dream

“I sometimes do an empathy exercise with people from a certain sector or company to practice long-term thinking. We try to look two or three generations ahead. The participants then think of what the best possible version of a circular and fair production process could be. This often leads to fun and original ideas, such as a small recycling point on every corner of the street, after which all materials are processed separately via underground systems. Daring to dream is actually a condition for arriving at a sustainable business strategy.”

KPMG and Nyenrode have created the ESG Innovation Institute to help organizations make the transition to sustainability. Organizations can use the ESG themes to create added value in their business operations by striking a balance between financial economic results, transparency, social interests and the environment. It makes the latest ESG knowledge, skills and ecosystem accessible to anyone who wants to professionally and deliberately accelerate the path to sustainability.

prof. dr. Tineke Lambooy is professor of Corporate Law at Nyenrode Business University. She is part of the Nyenrode Faculty Expertise Center Entrepreneursip, Governance & Stewardship.