Italy’s companies are slowly waking up to the benefits sustainability might offer them
Many Italian companies seem curiously oblivious to the pressure for corporate social responsibility. Italian products span the globe, and Italian brands from Alfa Romeo to Zanussi are household names. But despite their high profile, the sustainability performance of many Italian firms is distinctly low key.
Take designer fashion for example. Italy’s design houses are globally renowned and their products are considered highly desirable. But Italian names such as Emilio Pucci, Fendi and Gucci seem to do little or nothing on the ethical front. The Ethical Consumer organisation, in a 2011 survey, said there was a “vow of silence” among top-end designers over issues such as animal testing, labour standards and use of chemicals.
Other Italian companies also fall short. James Osborne, head of corporate responsibility at Lundquist, a Milan communications consultancy, says that even among the most prominent Italian companies, some have not even got round to identifying their position on corporate responsibility.
Lundquist has for the past four years published a survey of the corporate responsibility communications of the largest listed Italian firms. The 2011 survey notes that “30% of the largest Italian companies don’t present any CR information on their website or in a report. By comparison, there are none among Europe’s top 100 firms [that provide no information]”.
No change
In Italy, little seems to change. The average responsibility reporting score calculated by Lundquist has remained about the same since the survey started. Italian responsibility communication is “static and inadequate”, according to Lundquist.
There are some Italian companies that do excel, including Telecom Italia, Fiat, and oil and gas giant Eni. Other large Italian utilities – Hera (water and energy), Terna (power transmission), Enel (power generation) – also rank well, as do the major banks, such as UniCredit, Intesa Sanpaolo and Banca Monte dei Paschi di Siena.
High-profile companies that perform poorly according to Lunquist include Parmalat, pharmaceuticals group Recordati and a number of financial institutions, such as Mediobanca. At the bottom of the pile is Sias, a construction and infrastructure management firm.
The picture of mediocrity is confirmed by the performance of Italian companies in international rankings such as the Dow Jones Sustainability Indices (DJSI). About 5% of the companies listed in the Dow Jones Sustainability Europe Index are Italian, compared with about 30% British, 17% German and 12% French. Only 13 Italian companies, including Pirelli, Terna and UniCredit, make the overall DJSI.
There are many reasons for Italy’s lagging performance, Osborne says. There is little or no pressure from government. The Italian stock market is small, with many companies domestically focused and not exposed to the demands of international investors. Italian companies that operate internationally act on corporate responsibility because they do not want to look bad in comparison with their peers from other countries. “Sustainability reporting is very much concentrated in larger companies,” Osborne says.
Small and secretive
Corporate responsibility also tends to have a low profile in Italy because there is a high proportion of privately held, often family-owned, companies. These “don’t have a tradition of transparency”, Osborne says. Openness is “not culturally rooted in many Italian firms”.
Some of the private companies are large and well known, such as Barilla, Ducati, Ferrero and Illy. But most Italians work for small or very small companies. The proportion of Italians working for micro-businesses, with three or four employees, is about 47%, compared with a 30% European Union average, according to the European commission.
However, concentration of ownership in a few hands can have benefits, with company managers taking a longer-term view, Osborne says. They are less concerned with “life and death on the stock market”.
Francesco Perrini, professor of management and corporate responsibility at Milan’s Bocconi University, says the privately held Italian companies, even the real minnows, are engaged in an informal version of sustainable business. Broadly speaking, Italy’s small companies endeavour to look after their employees – especially in the current hard times – and to not pollute the local environment.
“Small and micro firms are embedded in their local communities,” Perrini says. “They have adopted many initiatives. These might not be called ‘corporate responsibility’, but this is part of their DNA.”
Italian small firms are often engaged in low-level manufacturing of the type that has been offshored from other European economies, such as ceramics or textiles, and are exposed to Asian competition based on low labour costs. This forces Italy’s entrepreneurs to sharpen up their thinking.
Perrini gives the example of fast fashion, pioneered by Italian companies such as Armani and Benetton. Fast fashion involves getting new designs into the stores as quickly as possible to capitalise on current trends. To succeed in fast fashion, companies must have “short, sustainable supply chains”, thus emphasising local production, Perrini says.
Luc Hendrickx of the Brussels-based European Association of Craft, Small and Medium-Sized Enterprises (known by the French acronym UEAPME) says that the Italian textiles sector has started to emphasise responsibility and sustainability in response to Chinese competition. Italian firms have become “sensitive to the issue of labour conditions in third markets” and are concerned that low labour and environmental standards can lead to poor quality, even dangerous, products.
However, the closeness of Italy’s small companies to their communities can have a dark side that is the very opposite of ethical behaviour. “We know that we have a problem with some mafias or companies outside the law,” says Perrini, who puts Italy’s underground economy at about 20% of the total economy. “But these are not at the centre of our attention.” The influence of the mafia is often overstated, he says. The traditional Italian sectors, such as food and clothing, which are close to consumers, do not get the attention they deserve for the product and system innovations they put in place.
Certification boost
Ruggero Bodo, a member of the council of Fondazione Sodalitas, a corporate social responsibility foundation backed by Italy’s leading companies, says Italy’s smaller companies are “an important factor in social cohesion”, but that it is difficult for them “for reasons of size and resources available, to provide continuity and structure to their commitment to corporate responsibility, to standardise their approaches and to communicate their impacts”. He adds: “The challenge for Italy is to help them do it.”
A common complaint is that Italian firms lack tools. Mariarosa Cutillo of Valore Sociale, a non-profit corporate responsibility organisation, says that for a long time, Italian firms had “very few incentives” to consider responsibility. Now that pressure to modernise is growing, because of the economic crisis and because of increasing consumer pressure, “they don’t know where to start”.
One region of Italy has actively taken measures to improve the social performance of companies. The government of Tuscany adopted a regulation in 2006 setting out grants and tax breaks for companies that want to achieve social responsibility certification, in particular by obtaining the SA8000 social accountability standard.
The law was adopted partly because the regional government saw corporate responsibility as a way for local companies to become more competitive. But it was also a response to a scandal in the city of Prato, near Florence, where Chinese immigrants, including children, were found working in sweatshop conditions.
The Tuscan certification push has been successful to the point that, of the 2,919 SA8000 certified facilities at the end of 2011, 912 or 31% were in Italy, mainly Tuscany, making Italy by far the largest adopter of the standard. That only illustrates an irony, according to Lundquist’s James Osborne, who says that despite its lagging performance on corporate responsibility, “Italy is one of the most certified countries in the world”.
Case study: Barilla
Italians wouldn’t last long if the pasta ran out. Fortunately they have Barilla to ensure the security of supply.
Barilla makes up to 45% of the pasta consumed in Italy. In the United States, meanwhile, it has a stunning 28% share, from a standing start a decade ago when the company entered the US market. Barilla’s impact on the agricultural environment and related issues such as water use is huge.
The company was founded in 1877 and is still in the hands of the Barilla family. It has a series of sustainability goals, and reports on them openly (the most up to date sustainability report on its website is the 2010 report, available in Italian only). Goals, set in 2008, cover nutrition, the supply chain, environmental protection and development of local economies.
Barilla spokesman Marco Magli says the objectives were to be met by 2014, but many have been achieved already. The company is thus reassessing its objectives and will publish, by mid-2012, tougher goals to be met by 2014.
Magli says the issue of sustainability is fundamentally linked to trust. “Italians are more likely to buy food from a company they trust and if they trust a company it’s because they feel it is committed towards sustainability.”
Trust in Barilla was tested at the end of 2011 in something of a first for Italy – critical comparative advertising. In a battle of the biscuits, Plasmon, a baby-food maker owned by Heinz, alleged that a Barilla cereal cookie brand was not suitable for young children because of excessive pesticide levels, unlike the Plasmon equivalent. Barilla’s reaction was defensive. It went to court and obtained a judgment against Plasmon on the basis that it “compared non-homogeneous products” (the Barilla biscuit was not specifically intended for children) and was “defamatory and deceptive”.
Barilla also published advertisements in response. These sidestepped the issue of pesticide residues, and emphasised instead Barilla’s long heritage and the alleged unfair comparison between the biscuits. “Italian mothers know what they are doing,” the advert concluded.
Case study: Illycaffè
Illycaffè, headquartered in Trieste, is the company behind the Illy brand of coffee. The company was founded in 1933 by Francesco Illy, and is now headed by siblings Andrea, Ricardo and Anna Illy, Francesco’s grandchildren. Illy is a premium brand, and the firm is unapologetic about its premium price: Illy’s emphasis is quality.
In 2011, Illy became the first company to receive responsible supply chain process certification from Det Norske Veritas, a Norwegian standards body. Andrea Illy said this was proof of the company’s quality focus, which “creates a virtuous cycle that creates value for everyone involved … in growing magnitude over time”.
A central plank in the Illy quality strategy is the use of only Arabica coffee beans grown by 4,000 selected farmers in Brazil, Central America, Africa and India, who work in long-term partnership with the firm. The company says it “rewards the growers for producing the best quality beans by paying a premium and a sustainable price”. Farmers thus want to work with Illy. “We do not have relationships with intermediaries; we just trust Illycaffè, as Illycaffè trusts us. Actually, ours is a cooperative relationship,” one Brazilian farmer says.