The competitive advantage of creating a strong culture of ethics
June 20, 2023
on
on
As we can see increased regulatory requirements in all sectors, including electronics, with respect to ethics and sustainability, this article aims at exploring the actual impact of behaving ethically and sustainably, on your employees, stakeholders, shareholders and customers.
The EU Corporate Sustainability Reporting Directive entered into force on 5 January 2023. Approximately 50,000 companies will soon need to report on Sustainability, and this means on the following:
On 6 June 2023 the EU Commission opened a four-week public feedback period on a first set of sustainability reporting standards that will need to be used by companies to effectively report.
So, many companies will soon need to report on what they actually do, but is it actually worth it from a business standpoint to do something or even, to be best in class? And is this worth it, irrespective of your size as a company?
If you are still doubtful that being an ethical company with a strong Ethics & Sustainability program is also good for business, you should have a read at this research paper: “the first [research] to provide empirically sound, direct evidence that corporate compliance can create positive revenue enhancing value for companies.” (Haugh, Todd and Bedi, Suneal, Valuing Corporate Compliance (March 7, 2023). Kelley School of Business Research Paper)
And this applies irrespective of whether you are a big enterprise or a smaller business: creating and nurturing a strong culture of ethics does provide a competitive advantage.
Investing in ethics and sustainability matches the expectations of these new consumers, the adults of tomorrow, the ones who by 73% report that the climate crisis is terrifying them, impacting their mental state.
These consumers are also the ones who absolutely will not buy from companies who do not care: according to a First Insight report, The State of Consumer Spending, 62% of Gen Z prefers to buy from sustainable brands, and this number is very likely to grow.
A McKinsey study showed that 70% of Gen Z respondents “try to purchase from companies they consider ethical”, and they do remember scandals or controversies involving a company. In fact, 80% of them refuse to buy goods from companies involved in scandals.
And we can see here that culture is a key element. Creating a culture of ethics is not about having rules and enforcing them, it is rather about enabling our team members to do the right thing, even when no one is watching. To do so, we need to trigger and speak to their deep core values and sense of what is right. That’s where values are particularly important for any organization, irrespective of its size. We need to be clear on our core values, articulate them clearly working with all employees, and then recruit team members which whom our values resonate with, in order to create a strong culture of ethics in our organization.
Even if you have a small company, you can and should invest in ethics. Remember that more than 40% of Gen Z prefer to shop at small brands and businesses, so there is the potential to become a bigger business thanks to the support of this new generation! And it does not need to be a giant project with 1000 stakeholders. Building a culture of ethics starts by being clear on your core values and then leading by example. The most important thing is to walk the talk inside and outside your organization. Better to take a reasonable stance that you can really be serious on and back-up with consistent behavior from your management team, your suppliers and partners, than be overly broad with wishful statements.
According to this previously mentioned McKinsey study, “in a transparent world, younger consumers don’t distinguish between the ethics of a brand, the company that owns it, and its network of partners and suppliers. A company’s actions must match its ideals, and those ideals must permeate the entire stakeholder system.”
And the truth is, companies need to get better and bridge the gap between statements and reality. As one example, we can see so many companies who are extremely vocal on social media for diversity month and how greatly diverse they are, while it takes 2 minutes to take a look at their executive teams or boards and be drowned in a uniform sea of (old) white cisgender males. Again, be consistent between what is communicated and what you do.
Companies need to walk the talk. If you advertise diversity and inclusion but actually lack this diversity in your own organization, rest assured that this will be noticed. If you advertise a clean supply chain, but your supplier 3 levels down the line actually uses forced labor, you have a big problem.
Beware of broad claims about being “eco-friendly” if you are not backing it up by facts, have not examined all your supply chain impact upstream and downstream. Partnering up with good causes can also backfire if you are not doing much good yourself (“green sheen”).
NGOs are also watching to alert consumers, for a delightful example, one can read the 2022 report of the New Climate Institute that identified large gaps between what companies say they do for the climate versus what they actually do.
The impact and backlash of greenwashing range from loss of customers and reputation to negative media attention, without of course mentioning legal consequences.
In summary, to avoid this risk: in communicating, be transparent and precise, better too specific than overly broad. Walk the talk to make sure your practices align with what you actually say.
I hope this article gave you inspiration and insight on how to benefit from a strong culture of Ethics while avoiding the backlash of greenwashing. Please do not hesitate to follow my blog on upright.co for more inspiration on Ethics & Compliance.
Pauline Blondet is passionate about Ethics & Compliance and co-owner of Upright Solutions, a software which solves a problem that she has faced consistently herself as a Compliance Officer.
Attorney qualified in both New York and Paris, Pauline started her career in private practice, defending and advising european customers in transnational investigations involving the US government, with respect to trade sanctions, corruption and other Ethics & Compliance related matters. Pauline then moved in house in the wines & spirit industry where she could create, define and deploy a robust Ethics & Compliance strategy and program. Before joining the Upright adventure, Pauline was overseeing the Customer Success Team at an Ethics & Compliance software company, working with various enterprise E&C Teams to enable their programs leveraging technology.
Pauline has spoken at various conferences, and regularly writes blog posts on various E&C Topics. She is passionate about how we can communicate and help transform organizations and behaviors.
Increased requirements for ethics & sustainability in all sectors
The term “sustainability” has been expanding its remit as a broad umbrella, which now covers every field of ethics, from environment to social & human rights to requiring organizations to implement proper governance frameworks.The EU Corporate Sustainability Reporting Directive entered into force on 5 January 2023. Approximately 50,000 companies will soon need to report on Sustainability, and this means on the following:
- Environmental factors: climate change mitigation, including greenhouse gas emissions, climate change adaptation, water and marine resources, resource use and the circular economy, pollution, biodiversity and ecosystems.
- Social & Human rights factors: equal treatment and opportunity for all, working conditions, respect for human rights, fundamental freedoms and democratic principles.
- Governance factors: the role of your broad management regarding sustainability matters, internal control and risk management systems, business ethics & corporate culture (including anti-corruption and bribery), political influence and lobbying activities, and the management and quality of relationships with customers, suppliers and communities affected by the company’s activities (Article 29 (b) Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022).
On 6 June 2023 the EU Commission opened a four-week public feedback period on a first set of sustainability reporting standards that will need to be used by companies to effectively report.
So, many companies will soon need to report on what they actually do, but is it actually worth it from a business standpoint to do something or even, to be best in class? And is this worth it, irrespective of your size as a company?
Is it a good idea to invest in business integrity and sustainability?
Can high integrity standards actually improve the bottom line of businesses? What is the return on investment? Well, the research is quite clear, investing in ethics and sustainability is just good for business.Ethics: Good for business performance
Ethisphere, which elects every year the world’s most ethical companies, has been tracking the connection between good ethical practices and financial performance for 17 years: “the World’s Most Ethical Companies historically outperforms their peers and competitors financially, demonstrating a tangible ROI for doing the right thing.”If you are still doubtful that being an ethical company with a strong Ethics & Sustainability program is also good for business, you should have a read at this research paper: “the first [research] to provide empirically sound, direct evidence that corporate compliance can create positive revenue enhancing value for companies.” (Haugh, Todd and Bedi, Suneal, Valuing Corporate Compliance (March 7, 2023). Kelley School of Business Research Paper)
And this applies irrespective of whether you are a big enterprise or a smaller business: creating and nurturing a strong culture of ethics does provide a competitive advantage.
Ethics: Good to attract the buyers of the future
Generation Z encompasses 32% of the world's population and is the largest generation ever. Born between 1996 and 2010, Gen Z is 13 to 27 years old.Investing in ethics and sustainability matches the expectations of these new consumers, the adults of tomorrow, the ones who by 73% report that the climate crisis is terrifying them, impacting their mental state.
These consumers are also the ones who absolutely will not buy from companies who do not care: according to a First Insight report, The State of Consumer Spending, 62% of Gen Z prefers to buy from sustainable brands, and this number is very likely to grow.
A McKinsey study showed that 70% of Gen Z respondents “try to purchase from companies they consider ethical”, and they do remember scandals or controversies involving a company. In fact, 80% of them refuse to buy goods from companies involved in scandals.
Ethics: Good to attract the hires of the future
The ethics & sustainability message is actually extremely inspiring to attract talents. In my career, I have had so many interviews with potential employees who were driven and attracted by the purpose of enabling organizations to fight corruption and make the world a better place. We need to convey this higher purpose in the right way in order to attract the best talent, who will no longer satisfy themselves with a high paycheck, but are rather looking for matching values and purpose.So, what do the most ethical companies do?
According to Ethisphere, which elects the world’s most ethical companies every year, what builds ethics is a mix of strong leadership, good governance, culture, environment and social impact as well as a strong ethics & compliance program:
And we can see here that culture is a key element. Creating a culture of ethics is not about having rules and enforcing them, it is rather about enabling our team members to do the right thing, even when no one is watching. To do so, we need to trigger and speak to their deep core values and sense of what is right. That’s where values are particularly important for any organization, irrespective of its size. We need to be clear on our core values, articulate them clearly working with all employees, and then recruit team members which whom our values resonate with, in order to create a strong culture of ethics in our organization.
Even if you have a small company, you can and should invest in ethics. Remember that more than 40% of Gen Z prefer to shop at small brands and businesses, so there is the potential to become a bigger business thanks to the support of this new generation! And it does not need to be a giant project with 1000 stakeholders. Building a culture of ethics starts by being clear on your core values and then leading by example. The most important thing is to walk the talk inside and outside your organization. Better to take a reasonable stance that you can really be serious on and back-up with consistent behavior from your management team, your suppliers and partners, than be overly broad with wishful statements.
According to this previously mentioned McKinsey study, “in a transparent world, younger consumers don’t distinguish between the ethics of a brand, the company that owns it, and its network of partners and suppliers. A company’s actions must match its ideals, and those ideals must permeate the entire stakeholder system.”
And the truth is, companies need to get better and bridge the gap between statements and reality. As one example, we can see so many companies who are extremely vocal on social media for diversity month and how greatly diverse they are, while it takes 2 minutes to take a look at their executive teams or boards and be drowned in a uniform sea of (old) white cisgender males. Again, be consistent between what is communicated and what you do.
Beware of greenwashing
Greenwashing appears when you really want to communicate about being ethical or sustainable towards consumers because it is good for business and enables you to sell more, but do not really want to actually invest in this as a company. This is a recipe for disaster.Companies need to walk the talk. If you advertise diversity and inclusion but actually lack this diversity in your own organization, rest assured that this will be noticed. If you advertise a clean supply chain, but your supplier 3 levels down the line actually uses forced labor, you have a big problem.
Beware of broad claims about being “eco-friendly” if you are not backing it up by facts, have not examined all your supply chain impact upstream and downstream. Partnering up with good causes can also backfire if you are not doing much good yourself (“green sheen”).
NGOs are also watching to alert consumers, for a delightful example, one can read the 2022 report of the New Climate Institute that identified large gaps between what companies say they do for the climate versus what they actually do.
The impact and backlash of greenwashing range from loss of customers and reputation to negative media attention, without of course mentioning legal consequences.
In summary, to avoid this risk: in communicating, be transparent and precise, better too specific than overly broad. Walk the talk to make sure your practices align with what you actually say.
I hope this article gave you inspiration and insight on how to benefit from a strong culture of Ethics while avoiding the backlash of greenwashing. Please do not hesitate to follow my blog on upright.co for more inspiration on Ethics & Compliance.
About the Author
Pauline Blondet is passionate about Ethics & Compliance and co-owner of Upright Solutions, a software which solves a problem that she has faced consistently herself as a Compliance Officer.Attorney qualified in both New York and Paris, Pauline started her career in private practice, defending and advising european customers in transnational investigations involving the US government, with respect to trade sanctions, corruption and other Ethics & Compliance related matters. Pauline then moved in house in the wines & spirit industry where she could create, define and deploy a robust Ethics & Compliance strategy and program. Before joining the Upright adventure, Pauline was overseeing the Customer Success Team at an Ethics & Compliance software company, working with various enterprise E&C Teams to enable their programs leveraging technology.
Pauline has spoken at various conferences, and regularly writes blog posts on various E&C Topics. She is passionate about how we can communicate and help transform organizations and behaviors.
Read full article
Hide full article
Discussion (0 comments)