In a new study, our colleagues at the Rome Business School, in collaboration with other experts, investigate a prescient topic: sustainability and corporate social responsibility. Though the focus is on Europe, such salient issues are also a top priority for Cyprus.
In the opening part of the post, we’ve highlighted the main findings of the report. These findings are analysed in more detail further below.
- Environmental, Social and Governance (ESG) services will grow to 100 trillion by 2025 with a cumulative annual growth rate of 32.3%;
- Italy is ahead of Germany, Poland, Spain and France in circularity trends;
- Among the Italian SMEs surveyed on the territory, only 8.83% of the sample said they had precise knowledge of the concept of circular economy;
- Climate change is a financially significant risk for publicly traded companies and ranks high on investors’ list of concerns;
- Only 37% of European companies surveyed currently conduct due diligence on environmental and human rights issues, and only 16% cover the entire supply chain;
- Quality schemes and standards can contribute to economic and climate resilience, the perfect example being Geographical Indication (GI) products;
- Italy holds the record for GI products at the European level (841) and these account for about 9.5 billion euros in revenue for Italian exports;
- The top five regions exceeding 1 billion in economic value of GI supply chains are: Veneto (€3.7 billion), Emilia-Romagna (€3.3 billion) and Lombardy (€2.1 billion);
- Protected designation certification increases product value by an average of twice as much, in agribusiness: + 185% for wines, + 50% for agricultural and food products;
- Blockchain can address consumer concerns about sustainability by tracking products and their origin.
Based on the study, it appears that, on a global scale, we are witnessing an increase in regulation and, in general, a strong expansion in compliance, corporate responsibility, and Environmental, Social and Governance (ESG) i.e., the evaluation criteria for measuring and controlling a company’s “sustainability” efforts. In fact, Deloitte (2022) estimates that ESG services will grow to 100 trillion in 2025 with a cumulative annual growth rate of 32.3 percent. This is a significant increase considering that in 2021, global investment funds with ESG clients totaled $46 trillion.
Further, by putting human rights and ecological transition at the centre, the new EU Corporate Social Responsibility Directive aims to influence and change the way companies operate, helping them transform their mission and governance so that they take into account the social and environmental impact of their operations. In this context, quality systems and standards such as Geographical Indications can play a key role in promoting corporate sustainability, the zero-emission economy, and the circular economy.
Environmental Social Governance and the PNRR
According to Katerina Serada, one of the authors of this RBS report, “The new EU ESG framework will require strategic and operational changes by companies globally, causing them to reorganize themselves and the way they do business”. But despite the significant growth of ESG initiatives globally, more and better data and evidence on the real positive effects of these, especially in relation to respect for human rights and the environment, still need to be produced to better demonstrate the correlation between regulation and real outcomes.
In the case of Italy, the authors state that new compliance mechanisms have been included for the public administration sector, with a series of reforms aimed at ensuring the proper adoption of the National Recovery and Resilience Plan (NRRP) with reporting and coordination tasks between the EU Commission and the national government, simplification of bureaucracy and strengthening of administrative capacity.
The NRRP can therefore represent for Italy not only a financially relevant opportunity but also a “unique appointment to metabolize in each administration a concept of substantive compliance based on an integrated vision of administrative action, grasping in corruption prevention, gender equality, privacy by default, and many other fields,” according to Valerio Mancini.
Zero-emission plans and climate change
Climate change is a financially significant risk for publicly traded companies and ranks high on the list of investor concerns (GIEC, 2021). It is therefore important to migrate to new consumption and production systems that have sustainability at their core.
For this reason, in 2022 the European Union established mandatory reporting criteria for large companies and SMEs that will be listed starting in 2024. These criteria will seek to promote sustainable business behaviour, which, for Manuel Espinoza, among the authors of the research, “is not just about reporting standards; it is about building a new society fit for a more sustainable future.”
The new ESG framework thus provides a more compelling argument for circular transition. Indeed, according to OSCE (2022), circular value chains can help companies meet the new standards of doing business, especially SMEs, which in Italy account for 99.9 percent of the total number of companies operating throughout the country. The adoption of sustainable and circular economy-related policies could thus respond to the growing environmental challenges and business risks related to price volatility in commodity markets, on which the European economy is highly dependent. Currently, Italy is a significant importer of all types of raw materials – with dependence on international trade higher than the G20 average – which translates into a major systemic and geo-economic risk to the competitiveness of Italian industry.
The circular economy in Italy
It is clear that we need to move to more sustainable business models as soon as possible, but it is not an easy transition. According to a 2020 European Commission study, only 37 percent of EU companies surveyed currently perform environmental and human rights due diligence, and only 16 percent cover the entire supply chain. Nevertheless, according to the 4th Report on the Circular Economy in Italy (Circular Economy Network, 2022), Italy leads the way in “circularity trends,” thus confirming itself as the country with the greatest increase in its circular economy performance over the past five years among the top five European economies. Indeed, the Bel Paese scores 20 points and pulls four points ahead of Germany and Poland, ranked second, while Spain and France scored only 14 points.
Moreover, as of June 2022, the self-assessment of circular economy knowledge among Italian SMEs in the territory showed that only 8.83 percent of the entire sample surveyed had “accurate” knowledge of the circular economy concept, while 42.22 percent rated it as “average”; however, the most common response was “modest” knowledge (48.96 percent).
Within the efforts to create a more sustainable society is waste management, which generates about 13 billion in revenue and employs 95,000 people in Italy. Along the peninsula, the regions lagging furthest behind regulations in this area are Sardinia, Abruzzo and Umbria; while Campania and Emilia-Romagna are taking important steps, and Tuscany and Trentino-Alto Adige are consolidating strongly.
The Power of Geographical Indications in Italy
The study mentions how quality systems and standards can play a key role in promoting corporate sustainability, the zero-emission economy, and the circular economy. If well addressed and adopted in a new technological context, they will be able to support the ecological transition and produce many positive socioeconomic and environmental effects.
At the European level, the Mediterranean area accounts for nearly 70 percent of all Geographical Indication (GI) products registered on the continent. Italy leads the ranking, followed by France, Spain, Portugal and Greece, but global warming and climate change are causing changes that will require a re-evaluation of products and how the raw materials available are processed.
According to an Ismea-Qualivita Report (2021), as of December 2021, there were 3,249 PDO PGI TSG products in the world, of which 3,043 were registered in European countries. Italy holds the record with 841 certified products. These products account for 19 percent of total agribusiness turnover in Italy and are a solid driver for the national economy and exports with about 9.5 billion euros in revenue, accounting for 20 percent of Italian exports in the sector in 2020. Currently, the top five regions exceeding 1 billion in economic value of GI supply chains are: Veneto (€3.7 billion), Emilia-Romagna (€3.3 billion) and Lombardy (€2.1 billion).
Thus, it is evident the power that top agri-food products assume for the Italian economy. It must be taken into account, however, that there are still many steps to be taken. For Manuel Espinoza, “Innovation, climate change and sustainability are the most significant challenges. In this context, the role played by the PNRR is indispensable, but still insufficient. The reduction of local production inputs due to climate change, combined with an increase in demand for certified products, may incentivize part of the value chains to use production inputs of different origin, compromising quality and undermining certification. However, blockchain, in addition to mitigating this risk, can address consumer concerns about sustainability by ensuring that additional standards are met for GI-protected products.”
Finally, the research stresses how building on the success of the GI system for agricultural products, in April 2022 the European Commission unveiled the first European framework for intellectual property protection for European craft and industrial products, such as Murano glass, Limoges porcelain and Boleslawiec ceramics. Granting European-level protection to non-agricultural products could allow the EU to include such products in future trade agreements, thereby increasing their international recognition, if we consider that the sales value of a product with a protected name is on average twice that of similar products without certification. In the case of agribusiness, + 185 percent for wines, + 152 percent for alcoholic beverages, + 50 percent for agricultural and food products.
According to Katerina Serada, “We need open dialogue with stakeholders at the regional and national levels. In addition, there is a need to increase the dialogue between certification authorities, producers, and leading climate change experts in order to synergistically address the future challenges of GI certifications in Italy in the context of the impacts of the climate crisis and thus form a solid basis for a strategy to develop a sustainable, resilient, and innovative Italian GI economy.”
You can find out more about the work conducted at the Rome Business School research centre here.
This report was published on 13 September 2022. Rome Business School, part of Planeta Formación y Universidades created in 2003 by De Agostini and the Planeta Group, published the study “Sustainability and Corporate Social Responsibility in Italy. Circular Economy and Compliance between PNRR and New European Directives” authored by Manuel Espinoza, partner of Worth Street Group, Katerina Serada, founder of SDGHub (Center for Sustainable Economies and Innovation), and Valerio Mancini, Director of the Rome Business School Research Center. The research highlights steps to improve Environmental Social Governance (ESG) implementation, Italy’s commitment to circular economy, and the role of Geographical Indications in boosting the economy.