Inspiration for a greener tanning industry from the Arzignano tanning district.

Leather industry supply chain and sustainability

Written by
CARLO LUISON

The advantages of sustainability are both operational and strategic, confirming that we are facing a model that permeates all business activities.

Interview with Carlo Luison, head of the Sustainable Innovations Division of BDO Italy.

There is no universally acquired and accepted definition of sustainability. In fact, there are different interpretations of what it is, as well as different ways of understanding how it can be achieved. The idea of sustainability is derived from the concept of sustainable development, which has become a common language since the first World Earth Summit at Rio in 1992. Accordingly, one of the first definitions of sustainable development, from the Brundtland Report for the World Commission on Environment and Development in 1992, defines it as, “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

From the big picture to the single company, we asked Carlo Luison, who is responsible for Italy in the Sustainable Innovation Division of the international consulting organisation BDO, for his opinion on what sustainability means in companies and the state-of-the-art leather sector. Luison immediately underlined that we need to talk about people and entrepreneurs rather than companies because sustainability in the company today is still, above all, a responsibility, an ethical choice, and an individual modus operandi that builds a business culture and responsible organisation. “In general”, he pointed out, “when there is an entrepreneur who is sensitive to this subject, then his/her company is also sustainable, but certainly he/her is not much helped in this by the current capitalist system or rewarded in any way”.

In fact, there isn’t any governance, common methodology, or broad adopted process and, even less, a rewarding system for a company committed to sustainability. “The award, if we can define it as this”, Luison underlined, “must be searched on the market and reputation sides”. Here, ‘on the market’ refers to more and more consumers being keen to pay more to adopt a sustainable lifestyle even in their purchases. Furthermore, ‘on the side of reputation’ is used because in times of social media, trust is the most important asset, and reputational crises are able to bury any brand within a few hours.

A further advantage related to operating in a sustainable way is to be sought from the side of talents and human resources. Consequently, it refers to being employed in a company that works with attention to people’s well-being, helps commitment and dedication to jobs, retains talents, and generates innovation. “From this point of view, the advantages are enormous,” said Luison, eventually also on the economic side.

Even if today, the direct economic advantages for a company are minimal and the only ones that can be referred to are the INAIL fees and some small tenders, nothing from a systemic point-of-view really would be able to aid a responsible company economically. “It must be said, however, that the sustainability factors often affect downstream operators: customers, especially fashion, furniture and automotive corporations who ask the tanning sector suppliers to respect very advanced sustainability protocols and carry out direct checks on the value chain.”

Furthermore, operating with attention to sustainability is a strategic factor if you are looking for external investors and intend to consider the entry of investment funds into your company. “I believe that the entrepreneurs in the tanning industry are very informed and aware of the importance of sustainability”, argued Luison, “they are perfectly aware that the first to arrive on these issues win, because they know the premium price that sectors such as fashion and automotive companies are willing to pay to secure a high sustainability supply chain”.

However, it does not seem to be easy because according to Luison, in addition to a missing and common system, sustainability would require a complete change in the way of doing business. Thus, “the business itself must become circular” and decisions and actions must be governed by this guiding principle. Sustainability is not a false label next to the company logo but must relate to their entire business model.

If the listed companies were obliged in Italy, with the entry into force of Legislative Decree 254/2016 to integrate environmental and social factors–the so-called ESG elements (environmental, social, and governance) in the analysis of the risks and future prospects of the business for companies that do not turn to the capital markets–there is no social reporting obligation. Therefore, speaking of the leather industry, given the characteristics of national companies, these obligations do not exist.

The reporting standard that BDO proposes to adopt is IR–Integrated Reporting. Accordingly, IR has a long-term perspective, where it will analyse business objectives and their sustainability over time. It is based on the analysis of value creation in the short, medium, and long terms. Consequently, it requires integrated thinking and awareness of the great responsibility of each choice. Moreover, it requires a lot of change in the company, which is also why its success is rather slow and, according to the professional–a pioneer in consultancy on corporate responsibility–there is little doubt that it will be the standard of future in financial and non-financial reporting. As a result, this applies not only to measuring the ability of a single company to create value but to enable stakeholders to assess its economic, ethical, social, and environmental impacts.

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