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Blog | Tuesday April 2, 2024

So, You’ve Completed a Materiality Assessment. Now What?

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Materiality assessments have long been an integral part of leading companies’ sustainability management. With the transposition of CSRD into law and the proliferation of other mandatory reporting requirements, more and more companies are taking on this important exercise.

At the same time, regulators and standard-setters continue to converge on a unified perspective of what good looks like, which has led to a rise in expectations around assessment depth and rigor. As a result, both established and newly formed sustainability teams, in partnership with colleagues across the organization, are putting a tremendous amount of effort into identifying material sustainability topics and documenting relevant impacts, risks, and opportunities (or “IROs” for short).

It is only natural that once the exercise is complete, topics have crossed the materiality threshold, and new IROs have emerged for management team consideration, teams are left wondering: “So now what?”

There are several immediate next steps that most companies should undertake for the purposes of disclosure:

1. Review Documentation.

Companies can ensure the assessment has been well documented for assurance purposes, including records of all key decisions made, scoring rationale, and supporting evidence. It is prudent for the team executing the assessment to meet with the audit and compliance functions as needed to answer any remaining questions and ensure you are well-prepared for the assurance process. If you haven’t already, consider using this moment to develop a standard operating procedure for future assessments.

2. Understand positioning. 

It is important to undertake a management review to understand current positioning vis-à-vis relevant voluntary and mandatory reporting requirements. This includes understanding the governance, policies, management systems, targets, and metrics current and planned related to each material topic.

3. Engage executive leadership and relevant board members and committees. 

Mandatory reporting requirements have clarified expectations of how sustainability is governed within an organization, including responsibilities at the board level. Boards should be prepared to sign off on assessment results and oversee sustainability performance and related disclosures. Ideally, a board champion kept relevant committees apprised of progress (e.g., dedicated ESG committee, Audit or Risk Committee) during the materiality process. If not, the board will need to be briefed on both the process and results and in some cases, training may be required to ensure sufficient understanding for effective long-term oversight.

4. Develop or clarify your reporting and communications strategy. 

The plethora of mandatory disclosure across different jurisdictions makes it even more important to understand the audience and clarify boundaries for each type of sustainability communication. Topics that are not “material” under a given law but are important to communicate for other reasons (e.g., to support employee engagement) may need to be separated from mandatory disclosures and conveyed through other communications channels. Carefully choosing where and how to communicate can help to enhance clarity, consistency, and comparability of reporting, as well as manage regulatory compliance and litigation risks. It also is important to review and align your communication internally and externally to ensure a consistent, authentic narrative that covers both alignment with your business strategy and a strong understanding of stakeholder needs and expectations.

In addition, even for companies with well-established sustainability programs, the completion of a materiality assessment offers an opportunity for strategic reflection. Companies can take this moment to explore where gaps in knowledge remain, how governance supports objectives, and whether current investments are sufficient for both the company and its stakeholders to thrive now and in the future.

At BSR we recommend companies consider these five additional activities:

1. Reflect on stakeholder engagement strategy: A materiality assessment relies on a strong understanding of both the company’s impacts on its stakeholders and stakeholder information needs. While it can be useful to engage stakeholders during this point-in-time exercise, it is equally, if not more, important to promote the kind of meaningful, ongoing engagement that ensures a real-time understanding of stakeholder perspectives. Now is a moment to reflect on how well you know your stakeholders, the effectiveness of the engagement mechanisms you currently have in place, and the way that information gained through stakeholder engagement flows throughout the organization and into the hands of decision-makers. Consider setting up a stakeholder advisory council or making an investment to map and track ongoing stakeholder interaction. Continuously surfacing, addressing, and documenting stakeholder concerns throughout the organization will make for both better management and better reporting.

2. Assess current management and residual risks: In many cases, materiality assessments focus more on inherent risks and potential impacts prior to mitigation to determine which topics are relevant for reporting. If you haven’t looked at residual risks, considering the controls you already have in place, now is the time to do so. Reflect on whether you’re comfortable with the remaining risks to people, the environment, and the business post mitigation and where you have leverage to address remaining gaps.

3. Update policies and review cross-functional governance: Did the materiality assessment surface an impact or risk that is not yet covered by your existing policies? Now is a good time for a refresh. It’s also a good moment to ensure that all topics have clear ownership and accountability for performance is well defined from day-to-day operations up through the board. Ensure risks are appropriately documented in the risk register. Reflect on whether team members have the skills required to manage and oversee the topics in question and work to fill gaps with training and/or investments in new staff.

4. Refresh targets and reconfirm roadmaps for long-term impact: The materiality assessment often leads to a better understanding of a company’s performance relative to both internal and external stakeholder expectations. The CSRD’s focus on short-, medium-, and long-term impacts requires companies to consider how performance will be managed now and in the future. This is therefore a moment to reflect on where your long-term goals and supporting targets hit the mark and where it would be helpful to refresh or establish new commitments. Have you surfaced trends or emerging issues that might merit an adjustment to your level of ambition? What are the important cross-connections between your activities (e.g., climate mitigation and equity), and how can your activities in these areas reinforce each other? Do you have targets in place that no longer seem relevant? Would it be beneficial to use a strategic foresight tool like futures scenarios to further stress test your approach?

5. Identify areas where you need to go deeper: Understanding all actual and potential impacts, risks, and opportunities across the full value chain in the short, medium, and long term is a tall order. You will inevitably discover areas where you feel you need additional data to have a clearer view of how a topic shows up for your organization. Whether you need a site-level human rights impact assessment or a better understanding of your nature impacts and dependencies, now is the time to think about filling priority gaps. The goal here is not a complete inventory of every possible risk, but rather to sharpen our focus where it matters—more deeply understanding a priority topic or gaining a greater understanding of topics that could be material depending on more information.

This is of course only a subset of the possibilities a company could choose to pursue, and there is no one-size-fits-all approach. If you still aren’t sure how to move forward or would like to discuss what’s right for your organization, please don’t hesitate to reach out to us at BSR. Wherever you are in your sustainability journey, we’d love to help!

Case Studies | Thursday March 28, 2024

Supporting Business Implementation of the UNGC Women’s Empowerment Principles

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Introduction

The United Nations Global Compact (UNGC) Network USA supports companies in doing business responsibly by aligning their strategies and operations with the Ten Principles on human rights, labor, environment, and anti-corruption. As part of this work, the UNGC Women’s Empowerment Principles (WEPs) launched the Target Gender Equality Program (TGE), a gender equality accelerator program for companies. BSR worked with the UNGC to engage TGE participants on developing a global approach to gender equality that aligns efforts to promote company-specific strategies for improving women’s empowerment across countries, brands, and teams with wider sustainability targets and strategies in mind.

Background

The UN estimates that it will take close to 300 years to achieve full gender equality at the current rate of progress. While many companies are making top-level commitments to women’s empowerment and gender equality, few have matched commitments with concrete plans integrated throughout the business.

To guide businesses on empowering women and advancing gender equality in the workplace, marketplace, and community, the UNGC and UN Women developed the WEPs in 2010. In the same year, the UNGC and UN Women worked with the Multilateral Investment Fund of the Inter-American Development Bank (IDB), and IDB Invest to develop the Women’s Empowerment Principles Gender Gap Analysis Tool (WEPs Tool).

Used by companies committed to advancing gender equality, the Tool offers a structured framework to assess practices against the seven Women’s Empowerment Principles. Each principle is accompanied by indicators and scoring criteria, with higher scores reflecting stronger commitments to gender equality. With these scores, companies can track progress, set targets, and demonstrate their dedication to stakeholders. The tool also provides resources for implementing best practices.

The Challenge

The UNGC launched the Target Gender Equality Program to assist companies in “developing and implementing corporate sustainability strategies, operations, and management practices” in line with the Ten Principles. The program consists of six modules, aiming to empower TGE cohort companies to be able to draft targets and action plans for gender equality. Companies range from small- and medium-sized enterprises to multi-national corporations.  

BSR, whose work focuses on implementing many of the Ten Principles, partnered with the UNGC in 2010 and has supported its activities in multiple ways over the last decade. Consequently, the UNGC enlisted the expertise of BSR in engaging with TGE cohort companies on gender equality.

BSR’s Response

BSR provided support for the first two TGE program modules, 1) Foundations and Frameworks and 2) Performance Analysis. These focused on defining the business case for gender equality, raising awareness of the WEPs Analysis Tool, identifying the current gaps and opportunities for companies, and how best to identify priority areas and support implementation.   

BSR’s Equity, Inclusion, and Justice (EIJ) team delivered:

• Workshops entitled Introduction to WEPs and Transition to WEPs Strategy, as well as Strategy Toolkit materials, including guidance on design, position, and roadmap strategy
• BSR’s Benchmarking Toolkit, including a template and criteria for selecting benchmark companies
• One-on-one company support sessions with TGE cohort companies, including review of WEPs results and benchmark assessments

BSR supported the 2023 TGE cohort companies in the following ways:

• Evaluation of each company’s maturity by understanding:
  • Relevant standards and frameworks for WEPs;
  • Current business strategy and management approach to WEPs; and
  • Relevant trends and potential disruptors within “peer” landscape. 
• Review of the scope of each company’s WEPs strategy to determine WEPs priorities and potential impact.
• Provision of guidance and key insights on building a robust WEPs strategy, position of company in benchmarking exercise, and how to build a strategy roadmap.  

Lessons

“The accelerator helped our team learn the skills we needed to implement this work into our own company. By meeting regularly as a group in the accelerator, it gave us the time and opportunity to learn from other outside businesses and BSR how we compare.”

-Christa Svensson, Global Sustainability Program Manager, and Monika Pabon, North America HR Manager, Tri-Marine International Pte. Ltd.

BSR observed the following learnings after engaging with TGE cohort companies:

• Joining a global community of like-minded business and expert stakeholders committed to women's empowerment helps companies take action. ​
• Having a global standard defining “what good looks like” for WEPs can help align industries and individual company commitments across leadership, workforces, marketplaces, and communities. ​
• Tools such as the Benchmark Assessments and WEPs Tool are key in understanding company performance and determining what leadership looks like. ​
• The majority of TGE companies are classified as “improvers” in the WEPs Tool results, meaning that companies are setting ambitions and applying key learnings and insights to build their own WEPs strategy.

"The workshops conducted by BSR have been instrumental in equipping our participating companies with comprehensive insights into the Women's Empowerment Principles (WEPs) and other essential gender equality concepts. The workshops on introducing the WEPs and the Transition to WEPs have played a pivotal role in equipping our companies with fundamental knowledge.

This foundational understanding has served as a cornerstone in the development of comprehensive and resilient corporate gender strategies. The implementation of the WEPs Benchmarking Tool and Guidance has been a cornerstone in solidifying our representatives' commitment to gender equality. Particularly noteworthy are the one-to-one company support sessions offered by BSR, which provided a structured platform for representatives from participating companies to seek personalized guidance on pertinent questions.

BSR's unwavering dedication to fostering gender equality is evident throughout our collaboration. Their professionalism and commitment have been manifested in every facet of the program, and the support provided thus far is deeply appreciated."

-Claudia Herbert Colfer, Head of Programming, UN Global Compact Network USA

Conclusion

More than 6,000 CEOs have signed the WEPs CEO Statement of Support. However, companies still need to take the necessary next steps to meet those commitments by implementing, monitoring, and reporting on progress toward gender equality.

Among the companies that participate in the TGE accelerator program, there are signs of progress. Globally, companies’ average score from using the tool increased to 32 percent from 28 percent, indicating increased efforts by businesses to promote gender equality. However, much of that progress is limited to company commitments. While 78 percent of companies using the tool have made a commitment to gender equality, up from 68 percent in 2020, levels of implementation, measurement, and transparency remain severely low (between 1 and 2 percent on average). This shows the need for more accelerated, urgent, and impactful change.

Companies committed to setting more ambitious targets at an accelerated pace can join the ForwardFaster Initiative of the UNGC. This initiative focuses on five key areas—including gender equality—where the private sector can collectively make the biggest, fastest impact by 2030. For companies seeking to advance gender equity within their operations and beyond, BSR offers support in strategy development based on UNGC WEPs scores, benchmarking against other peers, and bespoke services to close the gender gap.

“BSR is proud to have been a partner of the UN Global Compact from the very day it was launched. In a world where we see good but insufficient progress toward achieving the objectives in the Paris Agreement and the Sustainable Development Goals, UNGC is an important rallying point for businesses in all corners of the world.”

Aron Cramer, CEO and President of BSR

Get in Touch

This case study was written by Felicity Butler and Welela Makonnen. If your team is also interested in better understanding the human rights landscape and gender equality as well as defining target gender equity goals and strategy, please reach out to learn more.

Insights+ | Wednesday March 27, 2024

A Business Guide to Responsible and Sustainable AI

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Blog | Tuesday March 26, 2024

Why 2024 Could Be a Pivotal Year for Sustainability in the UK

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2024 is going to be a pivotal year for sustainability in the UK. After a turbulent few years in British politics, dominated by Brexit and Covid-19, the general election, which must take place by the end of the year, provides an opportunity for the incoming government to reassert UK leadership in sustainability.

With economic growth likely to be a key issue in the election—and the parties still considering their policies on new sustainability regulation—leaders based in or with operations in the UK can play a role in making the business case for sustainability, calling for all political parties to ensure that the UK does not slip behind other jurisdictions but, instead, takes a world-leading position.

In the years since the last general election in the UK, there has been an exponential growth of regulation for sustainable business in many parts of the world (see BSR’s recent FAQ on Laws and Regulations for Just and Sustainable Business). At the forefront of this trend is the European Union (EU), where a plethora of new regulations—including mandatory human rights and environmental due diligence, new reporting and disclosure requirements, and technology-focused human rights risk assessments—is setting new global standards and expectations on companies.

Instead of adopting comparable regulations, the UK government, since 2019 (under all three Prime Ministers), has been explicit in its desire to diverge from EU regulations to maximize the “benefits of Brexit.” In many cases, that divergence has focused either on deregulation or declining to regulate in new areas where the EU has decided to do so. Worryingly, this includes sustainability issues where, for example, the government has said that it will not adopt mandatory human rights or environmental due diligence requirements.

Where the UK is Today

Prior to Brexit, the UK was often ahead of its EU counterparts in many aspects of sustainability-focused regulation, with the Companies Act 2006, the Modern Slavery Act 2015, and the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 setting out requirements for large companies concerning issues such as environmental and human rights reporting, tackling slavery and forced labor, and transparency around gender pay gaps.

Since then, there has been little in the way of further sustainability-focused regulation (save for new climate-related financial disclosure requirements, which came into force in 2022 for certain companies and limited liability partnerships and are based on the recommendations of the Task Force on Climate-Related Financial Disclosures).

When compared to other areas where the EU has led the way, the UK has been clear that it does not intend to follow suit. As noted above, the government is not following the EU’s lead in legislation to require mandatory human rights or environmental due diligence requirements, and nor does it intend to adopt new regulations of AI, a technology whose potential impacts on human rights are significant (instead, the UK is taking a “pro-innovation approach”). And while the Digital Services Act requires online platforms to undertake systemic risk assessments to determine their impacts on human rights, the UK’s Online Safety Act, which recently came into force, contains no equivalent measures.

In short, the UK is falling behind when it comes to sustainability-focused regulation. Not only could sustainability efforts among UK companies stall, but the ripple effect across the world that new types of regulation can generate (e.g., by incentivizing companies to ensure that their partners and suppliers across the value chain improve their efforts) could also be undermined. This could mean upstream adverse human rights impacts left unchallenged, UK consumers left more vulnerable to human rights-related risks, and efforts to tackle climate change (already far behind what they need to be) plateauing.

Why 2024 is a Critical Year

It is unlikely that the UK’s approach to sustainability-focused regulation will change under the current government before the next general election. However, the UK will see a general election before January 2025, providing an opportunity for a newly elected government to take a different approach.

There are certainly signs that the different political parties are, for the first time, thinking through this issue as they develop their manifestos and plans if elected. The Labour party (currently leading in the polls) has hinted at greater alignment with EU standards, with Keir Starmer recently saying that he did not want to see divergence on issues like environmental standards, food standards, and workers’ rights. The Liberal Democrats have said that they support mandatory due diligence for companies, while the Conservatives have not yet announced specific positions in this area, but remain publicly committed to achieving the UK’s net-zero targets, and introduced many of the previous sustainability-focused measures listed above.  

The outcome of the general election is likely to be critical for the future of sustainability regulation in the UK, with real potential to influence the new government’s agenda on the issue. Without clear leadership from the new government, the UK risks ending the decade falling further behind the rest of the world, with threats to human rights and the environment insufficiently addressed.

What Does This Mean for Business?

With the main parties in the UK currently considering their policy positions on sustainability regulation, businesses can call for all parties to ensure that the UK does not slip further behind other jurisdictions but should, once again, take the lead. With economic growth a key political issue, they can make the case as to why new regulations will be good for business. Many companies have been doing this already, with regular joint statements (such as this one from 2022) from leading UK companies and investors calling for mandatory human rights and environmental due diligence legislation. UK companies should continue to do so and use their relationships and leverage with political parties and politicians to ensure that commitments to regulate in this area are included in their manifestos.

At the same time, companies should not wait for regulation in the UK. Many of the UK’s largest companies already trade or have operations in the EU, meaning that they may fall within the scope of new EU regulations and be required to comply with them. But even where this is not the case, companies who are genuinely committed to respecting human rights and environmental protections should ensure that they keep up with their peers in the EU. Strong international standards in human rights, environmental protection, and other areas already exist, whether in the form of soft law, guidance, or best practices. Companies in the UK can look to these to ensure that, with or without regulation, they can lead the way in sustainability.

If you’d like to talk about your sustainability work in the UK, reach out to our UK-based team.

Blog | Thursday March 21, 2024

Twenty Years of Implementing Living Wage

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In 2000, Novartis, a multinational pharmaceutical company, made a public commitment to pay its employees a Living Wage. At that time, there were no Living Wage benchmarks covering the breadth of countries where Novartis had its operations. As a founding member of BSR, the company enlisted the organization’s support to launch a Living Wage program for its employees. Engaging with economists and multiple organizations, BSR developed its first global Living Wage benchmark dataset.

This initiative launched BSR into over 20 years of collaboration with more than 35 of the world’s largest companies to establish Living Wage programs for their owned operations. BSR became the behind-the-scenes driver of Living Wage implementation amongst multinationals, impacting tens of thousands of employees worldwide. Recently, BSR expanded its focus to extending Living Wage commitments to supply chains and working with companies to develop strategies and tools to support their direct suppliers.

Understanding Living Wage

The most commonly accepted definition of Living Wage is defined by the Global Living Wage Coalition as the “remuneration received for a standard work week by a worker in a particular [time and] place sufficient to afford a decent standard of living include food, water, housing, education, healthcare, transport.”

Traditionally, most employers have focused on paying a minimum wage to meet regulatory requirements, or paying an average wage, or paying market rates. While valuable, these frameworks do not address Living Wage.

Trends in Living Wage

There has been a surge of company engagement on Living Wage recently due to changing stakeholder expectations. This momentum is fueled further by commitments from major brands to take on Living Wages in their supply chains and new tools to alleviate the challenges that companies have faced in scaling their Living Wage programs.

• Living Wage is embedded within many international human rights conventions: The concept of Living Wage dates to the 1948 Universal Declaration of Human Rights, which asserts the right to a standard of living adequate for health and well-being. It is directly connected to three of the Sustainable Development Goals (SDGs), specifically: no poverty; decent work and economic growth; and reduced inequalities. To accelerate reaching these goals in 2023, the UN Global Compact launched its Forward Faster initiative, asking companies to commit to two Living Wage targets for owned operations and suppliers by 2030.
• Living Wage is increasingly included in mandatory human rights due diligence requirements and reporting. The primary regulations that name Living Wage are the Norwegian Transparency Act and the German Supply Chain Act. The recently passed Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to adopt strategies, such as their purchasing practices, to support their suppliers in paying Living Wages. While the mechanism for how Living Wage will be enforced is still unclear, it will likely continue to have prominence in future regulation.
• Living Wage is now used in reporting and evaluations. The EU Corporate Sustainability Reporting Directive requires companies to disclose their Living Wage gaps, and companies are working to comply as early as 2024. Increasingly, benchmarking organizations and rating agencies have also included Living Wage as part of their evaluation of companies. For example, the World Benchmarking Alliance uses its inaugural Social Transformation Baseline Assessment, which includes a core social indicator on “paying a Living Wage.”
• There is a push from stakeholders for data clarity and transparency: The lack of harmonization and the “best” Living Wage number for each location remains one of the most significant blockages to expanding Living Wages for all. A new consortium of Living Wage data and service providers, called WageMap, launched in 2023 to create a universal standard to determine consistent Living Wage benchmarks that are globally comparable yet locally tailored—for every location worldwide.
  
  This push for data harmonization is now reinforced by an ILO meeting, held in February 2024, which provided guidance on Living Wages for the first time. The outcome was a joint understanding of the concept of Living Wages, principles for the estimation and operationalization of Living Wages, as well as recommendations to strengthen wage-setting processes. This initial alignment is an important milestone that lays the foundation for WageMap to establish a Living Wage standard.  
• Today, there is clear evidence of the business case for paying a Living Wage: there is significant proof that paying a Living Wage enhances employee well-being, job satisfaction, and productivity, fostering a motivated workforce. It attracts and retains skilled talent, reducing turnover costs. Improved employee morale and engagement positively impact organizational reputation and customer relations, contributing to sustained profitability. Living Wage has also been found to be key to responsible sourcing, value chain stability, and a measurable pathway to improve supply chain transparency and social impact.

The BSR Approach to Living Wage

For many years, BSR used its own Living Wage methodology, which was widely appreciated because it employed a scalable approach and could be conducted regularly. The methodology allowed companies to dedicate more of their resources to closing identified Living Wage gaps rather than executing expensive market-basket studies to determine the Living Wage.

The ecosystem has evolved significantly, and there are now numerous organizations developing Living Wage benchmark data. To enable harmonization of methodologies and global adoption of Living Wages, BSR sunset its methodology in 2023 and has shifted to using an aggregated set of Typical Family Living Wage benchmarks from WageIndicator Foundation, Living Wage for Us, and Living Wage Foundation.

BSR continues to support companies in launching their Living Wage programs for direct employees and works with others to develop supply chain action plans and pilot programs. We use our decades of experience to enable Total Rewards and Compensation teams to build awareness of Living Wages across operations, conduct assessments of their total remuneration, establish management frameworks, develop communication strategies, and implement the appropriate remediation approach to close identified Living Wage gaps.

As employers navigate the evolving terrain of global wage-setting practices, BSR will remain a key resource to its corporate partners to offer guidance and foster collaboration toward a future where workers across global value chains are paid a Living Wage.

Contact us for more information on BSR’s work on the Living Wage.

Blog | Tuesday March 19, 2024

Five Ways Companies Can Help Smallholders and SMEs Prepare for Upcoming Regulations

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A host of incoming regulations, such as the EU Regulation on Deforestation-free Products (EUDR) and the Corporate Sustainability Reporting Directive (CSRD), as well as national laws such as the German Supply Chain Act, French Duty of Vigilance Law, US Uyghur Forced Labor Prevention Act (UFLPA), and China’s new ESG disclosure rules, are set to transform the global business landscape.

One concern leveled by critics of such regulations is the potential impact on smallholders and small- and medium-sized enterprises (SMEs). Smallholders may not currently comply with the EUDR regulation and therefore would not meet compliance requirements to trade with downstream businesses. Critics fear that supply chains might consolidate around compliant, larger companies, resulting in a business ecosystem where large companies predominantly work with each other. This could sideline smaller, less compliance-ready smallholders, resulting in reduced diversity and resilience in supply chains, as well as continued inequalities for smallholder farming households.

The first implementation of the EUDR will apply from December 2024 and is seen by some as an opportunity for downstream companies to develop programs and processes that will enable them to respond to the fast-approaching regulations. In particular, the companies will need solutions that address the potential implications for smallholders in value chains affected by the regulation, specifically cocoa, cattle, coffee, palm oil, rubber, soya, and wood. Due to the EUDR, Indonesia initially accused the EU of “regulatory imperialism.” Along with Malaysia, also a major palm oil producer, Indonesia later initiated dialogue with the EU to address concerns regarding the increased regulation requirements for smallholders.

Smallholders make up 84 percent (more than 450 million) of farms globally. Despite their importance to global supply chains, smallholders and SMEs often struggle with regulatory compliance due to their size and limited resources, and they rarely receive support to recognize and reap the benefits of complying. Informal workers, homeworkers, and vulnerable groups like women and migrants face similar challenges and are often excluded from many companies’ social policies and due diligence processes.

A Window of Opportunity

Timing to develop effective interventions is limited, but there is still a window of opportunity. To support diverse and resilient supply chains, downstream companies would be wise to invest in inclusive compliance approaches for smallholder farming households and SMEs.

Large businesses could spearhead initiatives to support smallholders and SME inclusion, such as pre-competitive company collaborations at jurisdictional scale, including public-private partnerships and open-source studies on the implementation and learnings from regulation implementation. Landscape approaches, or multi-stakeholder collaborations focused on a specific geographic area, can support alignment around common goals and actions to enhance sustainability performance. Such approaches can improve sustainability; mitigate risks in value chains; rebalance power, risk, and reward; promote digital inclusion, and focus on farmer-centric governance and data ownership.

Businesses that take a holistic, long-sighted approach to compliance will be supporting the development of new global standards and could reap first-mover benefits, particularly if other markets were to follow the EU’s lead. Contrary to the common perception of regulation as a business burden, it can facilitate and even strengthen business performance, driving companies to be more ambitious and creative, while promoting transparency and traceability.

Below are five recommendations for downstream businesses to support smallholders and SMEs in complying with incoming regulations.

1. Financial Compensation and Strategic Investments

• Ensure a living income or wage and consider fair pricing and revenue-sharing models to enable smallholders to invest in meeting new requirements.
• Use a downstream business’ finances to support smallholders to meet the reporting requirements and operational costs, such as infrastructure, certification, and documentation processes.
• Invest in more sustainable practices, such as regenerative agriculture, to enable smallholders to meet incoming standards.

2. Implement Capacity-Building Programs, Resources, and Training

• Invest in programs to strengthen the ability of smallholders and SMEs to comply with human rights and environmental standards. Downstream businesses could then encourage the suppliers to adopt self-assessment practices and enhance their due diligence processes. 
• Offer free training, webinars, documents, and other online resources or technical assistance to suppliers.
• Provide sample documentation on policies, ensuring suppliers understand and can implement necessary processes effectively.

3. Foster Long-Term Partnerships

• Invest in long-term partnerships with both suppliers and implementing partners. This will drive impacts through continuous evaluation of improvements at a farm or factory and redirect financial flows to help smallholders make the appropriate investments in long-term solutions.
• Foster consistent, credible, and equitable stakeholder engagement.

4. Adopt Systemic and Flexible Approaches

• Take systemic approaches and invest in landscape or jurisdictional programs. Conduct research, implement data systems, and promote digital inclusion. Support open-source databases.
• Be creative and flexible with suppliers, considering their specific contexts and challenges. This can include accepting a variety of certifications and verifications, including local versions; giving relative importance to priority local issues; and adapting the requirements for different types of suppliers so they reflect their different contexts.

5. Influence Policy to Ensure Inclusive Development of Standards

• Work with governments to ensure that regulations are functional and effective and that the choice of metrics being requested from suppliers is feasible.
• Join sector-wide collaborative initiatives, particularly in sourcing and production markets, to influence policy, support compliance, raise standards across the board, and play a crucial role in helping companies identify and address shared risks and opportunities.

In addition to these actions for downstream business, governments can create an operating environment conducive to compliance. For instance, cocoa producer Ivory Coast has provided over 700,000 electronic cards to nearly three-quarters of farmers to support the tracking and tracing of cocoa in response to the EUDR.

Regulators should make efforts to maximize the capacity of smaller businesses and independents to comply. The EU regulations, while stringent, offer funds and assistance to countries most impacted by them, including support tools for SMEs. However, there is a notable lack of financial and capacity-building support for suppliers, an issue highlighted by the limited examples of European buyers investing in their partners' development. This gap is often filled by local civil society organizations and EU development aid agencies.

There is also a pressing need for suppliers, especially those in the Global South, to be actively included in creating sustainability-related legislation, which is predominantly being developed in the Global North.

The evolving landscape of regulations presents both challenges and opportunities for SMEs and smallholders. A balanced approach that considers the unique needs of smaller businesses and fosters inclusive, sustainable growth will enable incoming regulation to achieve its intended impact.

Blog | Thursday March 14, 2024

Business Leadership Amidst 2024 Elections Around the Globe

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Election night is a big thing in every newsroom. Pizzas are ordered and journalists hunker down for a long night of watching the returns arrive. In 2024, at a global newsroom like the one I help run, we're going to have scores of election nights. All across the globe, voters will be heading to the polls in what is shaping up as one of the biggest years ever for elections. It's worth taking a pause, as a group of us did in Davos, to consider the many risks that those elections could face, and what the role of business ought to be in ensuring that the polling is free and fair.

Marc Lacey, Managing Editor of The New York Times

The stage is set for 2024 to be the biggest ever year for elections. This is the inescapable truth that was at the core of the dialogue we convened at the World Economic Forum Annual Meeting in January.

In Davos, geopolitics, AI, disinformation, citizen trust, and questions around leadership presented a perfect storm of risk this year when more than half the world’s people live in countries where elections are scheduled. Already, 20 companies have made specific commitments to deploy technology to combat the deceptive use of harmful AI content in the 2024 elections at the Munich Security Conference in February.

But, if the ability of global institutions to fulfill their duty is being questioned, as over half of the world’s voters go to the polls, then what are the stakes for businesses?

Do business leaders have a duty to ensure that democratic processes are protected, and if so, what is it? When employees, citizens as well as consumers demand businesses take a stand on the issues that matter, why might business leaders feel hesitant or ill-equipped to do so? BSR and Kite Insights hosted a discussion to explore that very subject: Business Leadership Amidst 2024 Elections Around the Globe. A discussion that one of our speakers, Sandrine Dixson-Declève, Co-President, Club of Rome, said was ‘one of the most important’ of 2024.

Rebuilding Trust amidst AI, Deepfakes and Misinformation

In a year with over 64 national elections (plus the EU) around the world, Sandrine’s reflection is well-founded. New York Times Managing Editor Marc Lacey, who moderated the roundtable, took it a step further, inviting the speakers to ponder if these ‘60+ elections’ should in fact constitute “one big election”. In today’s polarised societies, elections can feel like an emotional referendum on which national and political institutions voters trust most, if any.

The upcoming European Parliament election embodies this question of institutional trust in the context of the rise of far-right populism, noted Daniel Sachs, Founder and CEO, P Capital Partners, and Vice-Chair, Open Society Foundation. At the same time, he pointed out how “populism and polarisation are not necessarily an ideological battle. If you poll why people switch to the fringe, it’s because they want change from the status quo and they don’t see centrist parties as credible leaders of that change”. So, perhaps a valuable question for business leaders to ask themselves is how can they represent and facilitate inclusive systemic change while remaining politically central or even neutral?

One option might be how you show up publicly in the right way. But artificial intelligence has disrupted and destabilized how leaders are perceived publicly and whether the public information about them is authentic, pointed out Teresa Hutson, CVP of Tech for Fundamental Rights, Microsoft.

AI may be the next big business opportunity, but it also poses unique challenges to democracy and elections. Digital innovations, such as generative AI, are producing a seemingly infinite number of ‘deepfakes’, or digitally generated artificial content, ready to distract and deceive the public. Mistrust and populism are amplified by such misinformation and disinformation.

Teresa Hutson shared her concerns around how nation-state and non-state actors are already targeting democracies and sowing the seeds of disruption through online deepfakes. In India, for instance, where 945 million people are eligible to vote in what was called the “largest coordinated event in history”, the impact of audio deepfakes on voters is particularly worrying. “If you are on the internet, you can be faked”, Teresa said. And, in a world where deepfakes are so good that candidates themselves cannot always see the difference between their own voice and digitally generated copies, “how can you ensure voters are getting quality information while able to distinguish trusted speech from a deepfake?”.

It's an unnerving thought. That’s why Teresa and Aron Cramer, President and CEO, BSR, call on other tech companies and civil society to work together to enable online communities to respond in the face of misinformation and disinformation: “Businesses can use their voice to move regulation in a positive direction, they have the legitimacy to speak up”, said Aron, while acknowledging that this can be an uncomfortable space for business leaders to operate.

How businesses—and business leaders—can build trust in the context of 2024’s elections?

Nonetheless, in this perfect global risk storm, business has again emerged as the most trusted institution, according to the recently published Edelman Trust Barometer. On issues like climate change and inequality, over half of survey respondents want business to do more; and just a tenth of respondents feel business is overstepping on these issues.

Why might consumers and employees trust business? “People trust what they know”, commented Teresa Hutson. Workers might be inclined to trust their employers in the same way that people trust their family, neighbours, or university: because they are close to them and well-understood. At the very least then perhaps there is time for some kind of localized informal legitimacy and even duty for business leaders to engage in these topics on behalf of their employees.

Today, individuals have immeasurably more power than ever, meaning that people increasingly demand and expect what Aron Cramer calls “a DIY world: people want what they want, when they want it”. This consumer and people-led world marks a departure from the great political or civic institutions that traditionally drove change. “We are wrong if we think the battle of democracy is won at the ballot”, said Daniel Sachs. In a time when institutions are weak and businesses enjoy public trust, “it’s no longer enough for the private sector to support civil society to challenge institutions. We need to engage in non-partisan democratic systems change”. Facilitating and unlocking the latent potential in citizen and employee-led action can help them do that in a way that is a more comfortable space to business: through democratic innovation.

For some business leaders, the most obvious action is to influence change through politics. But ‘influence’ can be a dirty word in the murky world of public-to-private sector relationships, as Aron noted. In some democratic systems, business is seen as having too much influence, highlighted Sandrine Dixson-Decleve: through political capture of regulators by corporates; lobbying of lawmakers; and obstruction of intergovernmental processes like United Nations climate change meetings. If influencing regulation is uncomfortable ground for businesses, then business leaders should perhaps seek to steward systems change, helping inform and guide governments toward the level of change that societies need. This is the ethos behind Steve Waygood’s concept of macro stewardship, which could serve as a helpful framework for business leaders in a year of unavoidable political interdependency.

We get the political leaders we deserve. How do we get the political leaders we want?

So, how should business leaders go about engaging and inspiring the political leadership we want and need?

First, businesses can look at their own leadership to ensure that it is diverse, equitable, inclusive, and empathetic. To facilitate systemic change, businesses must themselves be the change they seek to influence by creating an environment where inclusive leadership is rewarded, not attacked.

When women public figures face gender-related abuse, observed Sandrine Dixson-Declève, that further reduces women's incentive to step up and lead in business and politics. Both Sandrine and Daniel Sachs reflected that the negative way we speak about political leaders in society and culture has made it an undesirable career and diminished society’s trust in leaders, a cultural narrative that businesses could help revert. “We should talk respectfully about it and encourage others” to enter politics, Daniel commented.

Business leaders can also take decisive action toward systemic change in areas they’re directly involved with. This means anticipating and proactively mitigating the potential harms of their products, suggests Teresa Hutson. For instance, AI-generated audio helps people who have lost their voice, but it can also be used to create audio deepfakes. Similarly, thoughtful engagement between private and public sector leaders around the challenges that businesses understand best can help strengthen the role democratic institutions can play in systemic change. “Business leaders need to engage in the dynamic of change of political systems”, as Daniel Sachs put it: less so in the individual issues of the day and more so in the practice of informing, incentivising, and stewarding systemic change, because healthy democratic systems and stable elections are good for business, for society and for the planet.

With over half of the world’s population voting in an election this year and the perfect storm of geopolitics, AI and misinformation, this year’s elections are facing broad, deep and new risks. Business leaders have the opportunity—and duty—to help re-establish trust that leads to outcomes that enable progress on crucial social, economic and environmental questions, and contribute to building social cohesion amidst polarization and fragmentation. But where might a business leader start? Three possible steps resonated throughout the discussion:

1. Promote citizen engagement and action, including your own employees.
2. Raise awareness of the risks in the digital information ecosystem, so that the citizens and employees have reliable information on which to base their judgements.
3. Use your voice as a leading business to reinforce the importance of democracy and rule of law.

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Sophie Lambin

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Marc Lacey

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Blog | Wednesday March 13, 2024

It’s Time for DEI to Evolve, Not Dissolve

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The backlash against DEI has resulted in many U.S. companies reducing their commitment to diversity. However, the debate about DEI in boardrooms, civil society, and media is not grounded in the right place. Diversity in and of itself is not a strategy, it’s an outcome that sustains livelihoods and saves lives.

Part of the challenge is the careless and imprecise way that language around DEI and diversity has been deployed. 

These terms first emerged as companies began reacting to the new challenges and opportunities created by the shift in workforce demographics, prompted by the rise of affirmative action policies in the 1960s. “Diversity” became a business euphemism to make up for the lack of it, using the term primarily as a branding exercise to imply “now we have it” rather than a bottom-line driven business development strategy. That resulting misuse and abuse of the term, has resulted in the misleading characterization of the “diverse” candidate as a reference to any candidate representing someone who is not a white male.

Too often with DEI, the focus has been on words and not on actions, connections, social justice, and impact. But, vastly more important is where and how businesses create cultural connections internally and externally, including how they build relationships in the community, and who is invited to participate in investment portfolios.

Inclusion is an action that builds trust. Building trust requires being treated fairly and with dignity and respect. It requires dismantling all forms of discrimination and subordination that are barriers to equal opportunities. It also involves reparative justice for those who have been victims of systemic inequities. 

Full inclusion in a competitive global marketplace is inclusive of a multi-generational, multi-racial, multi-ethnic, multi-abled population that empowers multicultural consumer engagement and product innovation. Effectively harnessing the skills, insights and power of a broad range of perspectives requires creating internal and external systems and operations strategies. These should align with the demographics and communities served, encompassing the workforce, products, service delivery, and community involvement. 

However, a renewed focus on diversity and inclusion is not enough. There must be a clear recognition from businesses that not all candidates have equal opportunities, and companies can ensure fairness and justice to rectify imbalances. This means there must be equity in wages as well as access to opportunities for growth, leadership, and investment. Equity helps build the foundation for resilience that can lead to a future-fit workforce and a sustainable supply chain for a global economy. 

It's also important to address another mischaracterization of DEI, which is that it is somehow antithetical to outstanding performance. Let’s be very clear about this: DEI and excellence are not mutually exclusive. Just ask Millennials, the most sought-after talent pool in a highly competitive global workforce market. Most will tell you that they value diversity and prefer to work for companies with a strong and credible commitment to DEI. According to data from Deloitte, 69% of millennial and Gen Z employees are more likely to stay for five or more years at a company with a diverse workforce—with Glassdoor research adding that 76% of employees cite DEI in strategy as “non-negotiable.” 

DEI is not merely a workforce strategy; it has evolved into a set of broader business policies centered around the principles of JEDI (justice, equity, diversity and inclusion). Companies committed to impact center the four focus areas of JEDI in their business strategies.

First, they address board diversity. Board members are uniquely qualified to help companies to act on their DEI commitments and to achieve or surpass their diversity goals to create more just and sustainable companies. They ensure a level of accountability that can undergird the kind of transformation that shifts systemic racism toward systemic equity.

Boards that can tap into the unique perspectives of diverse directors with lived experiences of discrimination, especially in industries that confront the worst disparities (i.e., healthcare, financial services, food, agriculture, etc..),are better equipped to develop solutions that help a company achieve impact across the four areas of JEDI, and create long-term business value. 

Second, being a future-fit organization requires a business strategy that includes historically marginalized groups such as indigenous peoples, immigrants, LGBTIQ+, and people with disabilities. Companies can start by recognizing who is not at the table. Concurrently, companies can create and leverage Employee Resource Groups (ERGs). Often organized based on common identities, interests, or backgrounds, ERG’s typically seek to support employees by providing opportunities to identify emerging leaders, to network, and create a more inclusive workplace. It’s estimated that about 90 percent of all Fortune 500 companies currently utilize ERGs in some form. Employees have a multicultural network that can be used to engage valued voices within the organization.  Externally, these same employee networks can support outreach to professional organizations, helping to develop relationships, and strategic partnerships that can enhance the talent pipeline and strengthen supply chains. 

Finally, companies can apply the same rigor to their global supply chains that they do for human resources. Corporate investment in a diverse supply chain helps to revitalize struggling communities by improving the local taxpayer base which in turn can help solve critical systems and infrastructure problems in areas including education, housing, and and healthcare, which in turn creates and incentivizes investment opportunities for new businesses. For example, companies can put their working capital or 401K funds in a black-owned bank, woman-owned pension fund, or LGBTIQ+-owned investment firm. 

Today’s business leadership requires courage to create powerful connections and deliver the necessary, meaningful impact to build trust. Focusing on the human value chain can make organizations more resilient to meet the challenges of changing demographics, societal divisions, and ever-shifting political and economic headwinds.

When it comes to DEI, some businesses play the game, some change it. Your company can be a player or a transformational change maker—which would you prefer to be?