• Innovation, Business

With the right kind of regulation, sustainability becomes a competitive edge

Sustainability and potential for innovation are Finnish companies’ strengths, points out Minna Halme, professor of Sustainability Management at Aalto University. Accordingly, it would make sense for them to lobby for tighter regulation.

“Sustainable business means accountability towards all stakeholders and taking responsibility of the social, environmental and long-term economic impact of a company’s operations. It means doing business in line with the UN’s Sustainable Development Goals – and the limitations they set – in order to maintain a healthy planet for future generations. At best, companies make use of their huge potential for innovation to develop business that will help humanity towards sustainable development goals,” says Minna Halme, professor of Sustainability Management at Aalto University School of Business.

According to Halme, most companies have already acknowledged the need to fight climate change. She predicts that protecting biodiversity will be up next in the spotlight. The COVID-19 pandemic has highlighted the vulnerability of global supply chains, and industrial companies may be considering bringing manufacturing closer to where the products are consumed.

Technological innovations must be paired with business knowledge

Halme says Finland is fertile ground for tech innovations because of the country’s high level of education, government support for RDI (Research, Development and Innovation) activities, and the relatively low cost of hiring engineers. This strength has its downside:

“There’s a certain tendency to look for solutions in technology even when a new kind of business model or a social innovation would make a more profound impact. Increasing efficiency in processes and recycling materials are only partial solutions to the problems related to ecological sustainability.”

“There is no society where the market alone would lead companies to operate sustainably.”

What’s more, Finnish companies still need to work on their business knowledge and marketing to help customers see the value in an innovation and to keep more of the added value in Finland.

“To put it bluntly, Finland is like a product development unit, and the results of its labor are taken abroad to bear fruit. Big investments are made in innovation – even taxpayer money – but innovations are often sold abroad at an early stage. Sweden, for example, has invested in business knowledge, and thanks to a cultural legacy of commercialization, Swedes know how to market and sell.”

Regulation can help make sustainability a competitive edge

According to Halme, the average Finnish company operates responsibly – like Nordic companies in general. This is a result of a long Nordic tradition of legislative and regulatory frameworks and strong civil societies, which have guided companies to operate responsibly.

“There is no society where the market alone would lead companies to operate sustainably. A company can certainly benefit from sustainability in the market: for example, material and energy efficiency bring direct cost savings. However, in the big picture, regulation is absolutely necessary. If the negative externalities of business bear no cost to the company, it doesn’t pay to change their ways.”

“Sustainable businesses should lobby for tighter regulation to weed out unfair competition.”

Therefore, thinks Halme, Finnish companies with a sustainable business should lobby for tighter regulation to weed out unfair competition.

“Smart legislation considers the know-how that companies have and spurs innovation by giving them targets without restricting the means too much. On the other hand, countries with great economic power should agree on certain levels of regulation so global giant corporations, for example, wouldn’t be able to find loopholes and avoid paying taxes.”

Collaboration is the key to systemic change

Halme says Finnish society’s culture of trust can be an important asset to Finnish companies aiming for sustainable impact.

“Companies collaborate a lot. Research shows that multi-stakeholder collaborative innovation yields many benefits. A multi-stakeholder approach means inviting in public sector players and end users. Systemic impact is created, when non-profits and civil society players are also involved, because the problems that need solving are often too complex for companies to tackle alone.”

Multi-stakeholder collaboration could be relatively easy in Finland and the rest of the Nordics, Halme suggests.

“Consumers, companies, NGOs and public sector players trust each other and are able to cooperate with each other. Collaboration offers many possibilities, but it requires a willingness to talk to people and organizations outside your comfort zone.”

This article is part of a series where different stakeholders discuss how Global Finland can be future-proofed and what role Finnish companies play in creating sustainable societies globally. The articles are published ahead of our virtual roundtable.

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