Jesús González Arellano
Partner, Risk Advisory Services

Warning Against Becoming Sustainable Too Quickly

Wed, 02/19/2014 - 11:36

Few enterprises have the breadth of strategic vision that KPMG enjoys. Where many seek to praise Mexico’s drive toward sustainability or list how many companies are adopting environmentally friendly practices, KPMG pours cold water on Mexico’s ambitions. Jesús González Arellano, Partner, Risk Advisory Services of KPMG, says that any discussion about sustainability in Mexico has to take the different realities into account. “There are approximately 5 million companies in the country but those companies are very different. A tiny fraction of them are large organizations and those are the ones that have been talking about sustainability for years. The 4.9 million small or medium-sized companies in Mexico do not realize what sustainability is as it does not concern them. They are focused on paying their next salaries instead of thinking about the long term,” says González Arellano. “However, he adds that even among those few companies that talk about sustainability, a significant percentage do not completely understand what sustainability is. This leaves Mexico with a long way to go before becoming truly sustainable,” he concludes.

González Arellano is perfectly placed to comment on KPMG’s sustainability practices, both in Mexico and globally. He is part of the firm’s international sustainability group, in which representatives from 35 countries meet annually to discuss the latest trends and regulations. However, this experience has taught him that international knowledge and practices cannot directly be put in place in Mexico. “The economy, the structure of the organizations, the willingness to invest, and the capacity to work globally is different, so the knowledge cannot be put to work in the same way,” he explains. This has influenced the ways in which KPMG advises its clients in Mexico on how to best become sustainable. Rather than rushing into things, González Arellano advises the crafting of a clear strategy through time that is realistic for each individual organization. “Going green in three months cannot be done, as any sense of balance between economic and social factors would be lost. The transition must take into account a realistic idea of a company’s expectations and capabilities,” says González Arellano.

So what precise advice does he provide to clients who are seeking help on sustainability? The main point is that the the strategy should be enshrined in a company’s core mission. “One person in one department preparing a sustainability report on a yearly basis is not being sustainable,” states González Arellano. “The whole organization has to understand that sustainability is good and a requirement for the company.” One argument that has proved effective is making companies understand that the initial investment required will translate into savings down the road and increase the value of a company’s stock. “The trick is to ensure companies understand that being sustainable is part and parcel of any business, not just some sideline about giving back to society,” says González Arellano.

Part of KPMG’s job is to help clients avoid such pitfalls. As such, the first step is to build a tailor-made corporate governance framework that respects a company’s organizational structure and identifies its exact needs. González Arellano has seen many company owners complain that sustainability provides no value, but he counters that this is because they often fail to understand the core of what corporate governance means. He states that a company that takes this position risks not evolving with the world and losing out to competitors that are reducing operational costs while implementing environmentally friendly programs. “Big companies in Mexico are investing in wind and solar energy, and are thinking about complicated sustainability issues. This is not because they are just nice and care about minimizing pollution, they know that this cost reduction is key to maintaining the privileged position they have,” he explains.

 For KPMG to keep leading its clients toward effective sustainable solutions in the future, it must lead by example. To do so, the firm has reduced its CO2 emissions by 50% over the last five years. The company knows that future sustainability moves will be more complicated, but its commitment is anchored in the knowledge that the sustainable actions that it takes, together with those taken by its clients, will significantly benefit the economy, the broader development of Mexico, and the success of the firm.