The Stars Are Aligning

October 8, 2021
Authors

When I first entered the field of just and sustainable business in the mid-1990s, it was based on a vague notion that big business should “do the right thing” by addressing social and environmental concerns. We had few normative goals, and we certainly had no standards to which we could hold business accountable.

This void was filled over the following quarter century.

The Sustainable Development Goals (SDGs), the Paris Agreement, and continued evolution in international human rights instruments provided a clear destination—“the what” of just and sustainable business.

New global norms, such as the UN Guiding Principles on Business and Human Rights (UNGPs), the OECD Guidelines for Multinational Enterprises, and the plethora of multi-stakeholder initiative codes and principles provided clear guidance for the role of business in reaching the destination—“the how” of just and sustainable business.

New global standards, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and Science-Based Targets (SBTs) all improved our methods for holding companies accountable—“the show and tell” of just and sustainable business.

And then suddenly, amid a global pandemic, the concept of “Environmental, Social, and Governance” (ESG) criteria came to dominate the discourse.

However, this quarter century of entrepreneurship also sowed the seeds of confusion. Questions such as “what is material,” “material to whom,” and “which standard shall we use” became mainstream. Our jobs in the just and sustainable business field became easier because we had norms and standards to work from. However, our jobs also became more difficult, because confusion, complexity, and inconsistency became a strike against them all.

But the stars are now aligning. We are entering the next era of just and sustainable business with a much clearer pathway, and we should take a moment as a field to reflect on this milestone. BSR has written extensively elsewhere about the details of standards alignment; here, our intention is to sketch out the framework around which the field seems to be coalescing.

  • Double materiality: As the EU Corporate Sustainability Reporting Directive makes clear, business is accountable in two ways—to investors, for the creation of enterprise value, and to society at large, for impacts on people and the environment. We need, and now have, standards (e.g., SASB, GRI) for both.
  • Dynamic materiality: The two dimensions of materiality are distinct and exist entirely on their own merits, but they are also connected—impacts on people and the environment interact with the creation of enterprise value creation and may become more material to business over time. The two dimensions of materiality are dynamic, and the trick is figuring out how and where they interact and how that should inform business action.
  • Performance and reporting: The refrain that reporting alone is insufficient has always rankled because those creating reporting standards never claimed that disclosure alone would solve all ills. Today, we have a collective appreciation of the synergy between performance and reporting, as reflected in the deliberate integration of impacts and outcomes (such as the SDGs and SBTs) and normative process standards (such as the UNGPs) into disclosure standards (such as GRI and TCFD). While more progress is undoubtedly needed on measuring impacts and outcomes, performance and reporting are becoming more connected than ever before.
  • The company and the system: Twenty-five years ago, it seemed obvious that by transforming big business, good things would happen in society; however, too often the just and sustainable business field lacked a complete grasp of how business interacted with the broader political, financial, social, environmental, and economic systems. Today, the field better appreciates that institutions, structures, and organizations are impacted by deep-rooted racial, gender, and political discrimination and that climate action is a collective endeavor. Systems need to be reformed if we are to sustain performance over the long term, and companies should understand their connection to the wider context if meaningful and positive change is to be achieved.
  • The company and the government: I recall a heated debate, around fifteen years ago, about whether “corporate responsibility” should be defined as all the voluntary actions companies took beyond regulatory requirements. This felt unnecessarily constraining to me and not why I entered the field. Today, there is a stronger consensus that government regulation of business is critical to the achievement of social justice and sustainability goals, that business should challenge governments when they violate human rights, and that a company’s government affairs, social justice, and sustainability commitments must be aligned.

When asked about the state of just and sustainable business, I like to use a framing that our President and CEO Aron Cramer introduced a few years back, that “everything’s changed, and nothing’s changed”—in other words, that by one set of benchmarks, the business community has come a long way, but by another set of metrics, impacts of climate change are becoming all the more real and urgent, democracies are in decline, and economies are becoming less equitable.

We’ve created the infrastructure, but we still need to prove we can deploy it in ways that truly address the climate crisis, place equity at the center of our social, economic, and environmental systems, and ensure the universal fulfillment of human rights. These urgent priorities must dominate the next era of just and sustainable business.

It has taken a quarter of a century for the role of business to become as clearly defined as it is today. It had better have been worth it, because we now only have a decade left to finish the job.

I would like to thank Paloma Muñoz Quick for feedback and dialogue on this blog.

Let’s talk about how BSR can help you to transform your business and achieve your sustainability goals.

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