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Blog | Wednesday August 2, 2023

Partnering with Procurement to Deliver on Net Zero

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Companies are increasingly active and ambitious in their journeys to reduce detrimental impacts on the environment. Led in part by stakeholder demand, legislative pressure, and a clearer understanding of declining available natural resources, a paradigm shift has taken place. Many organizations now have in place not only large sustainability teams but supply chain teams that are well-versed in issues like deforestation and water scarcity and are finding that ESG has made its way consistently into boardroom discussions. However, if companies are truly going to achieve their net zero visions, one critical partner that needs to be engaged is the Procurement Team.

When it comes to engaging with suppliers, there is a real focus on managing existing suppliers who are currently contracted to provide key services and materials across a company’s value chain. Supply Chain teams are integrating with more traditional sustainability teams, assigned Key Performance Indicators (KPIs), exposing employees to new ways of thinking, and producing integrated reporting with the sustainability team.

The same has yet to occur with procurement teams. While managing the existing supplier base is of course integral in the path toward net zero–it is not the sole area of focus. And in fact, influencing change with a current supplier base, many of whom have long-term, multi-year contracts already in place, can be much more challenging than integrating stricter ESG requirements at the procurement phase.

Currently, most companies’ procurement sits separately from the sustainability initiatives—this is a missed opportunity. Not only does procurement control a large amount of budget, but they also sit at the critical juncture where an organization has the most leverage: the phase before a contract is awarded. Setting a high bar on environmental topics before suppliers are either brought on, or re-upping contracts for new engagement, allows companies to get more aggressive on their requirements.

Many procurement teams are energized by the prospect of helping to achieve a more stainable future for their organization but lack the critical resources to do so.  

Businesses can engage procurement on net zero transformation via the following steps:

Set the Stage.

• Get buy- in from Leadership that sustainability will be a key element embedded into business decisions. Executives can communicate that remit directly to procurement and explain how additional criteria are being added to the traditional Time, Cost, Quality trifecta. 

• Help them understand how sustainability will serve as a risk mitigation tool and be a value add to their department. 

Train and Communicate.

• Understanding that this has not been a traditional subject covered in their role, provide access to training via internal meetings, webinars and direct them to publicly available resources on ESG topics. 

• Recognize that embedding sustainability into the procurement function is a long process, and institute regular check-ins between procurement and sustainability teams. 

Assign Proper Governance and KPIs.

• Ensure that there is at least one sustainability expert on the procurement team to serve as the point person and liaison between the Procurement, Business, and Sustainability teams.

• Give the procurement team clear targets and objectives to work toward, thus incentivizing them to push for further integration of sustainability into sourcing decisions.

Codify Policies & Procedures.

• Create sustainable procurement policies (including deciding what certifications to use) and an accompanying rollout procedure. It may be best to pilot this policy in a smaller region/department to see how it works in practice and adjust accordingly.

• Integrate sustainability into the onboarding process for new suppliers, ensuring that suppliers fully understand the requirements being asked of them.

Amend the Supplier Scorecard.

• Embed sustainability topics into the supplier scorecard and increase weighting, thus incentivizing suppliers to integrate sustainability more quickly into their operations. With the new legislative push (mainly from Europe at this juncture) toward due diligence, Procurement teams have a clear mandate to request much more information during the RFP process as suppliers are trying to win business.

Source from zero-emissions suppliers.

• In conjunction with reducing the impacts of current suppliers, there is a unique opportunity to select suppliers who have already achieved carbon neutrality in their own operations. 

Integrate with Design Teams.

• Suppliers are selected many times, based on design specifications. This means that it is essential for Procurement and Design to work together to understand what opportunities exist, barriers that are non-negotiable, and where the biggest opportunity for change exists.

Remember that this is not a one-off session with Procurement. This should be the beginning of a deep connection and integration of sustainability into sourcing decisions. Acknowledge that there is a reason that Procurement will need time to shift their traditional ways of selection and onboarding and provide the necessary support and guidance to help them on their journey.

For more information on engaging procurement on key sustainability topics contact BSR’s Supply Chain Sustainability team.

People

Orissa Erwin-Rose

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Orissa helps companies identify, address, and report on the human and child rights impacts of their technology products and services. She also works with governmental and civil society partners to develop tools and best practices for industry. ​

As a core member of our child rights team, Orissa led BSR’s collaboration with UNICEF to develop a Child Rights Impact Assessment (CRIA) methodology for companies developing or deploying technology products. She also worked with UNICEF to design a first-of-its-kind set of disclosures on child rights impacts that companies can incorporate into public reporting. ​

Orissa conducts CRIAs for large platforms and AI products and supports companies with integrating child rights considerations into systemic risk assessments. She also leads child engagement activities and advises companies on how to design reporting mechanisms that are accessible to children and aligned with human rights principles and relevant technology regulations. When not working on child rights, Orissa assesses systemic risks per the EU DSA, the human rights impacts of Generative AI and cloud technologies, and helps member companies implement their human rights priorities. ​

Orissa earned an MS in Information Management and Systems from UC Berkeley and a BA in History with honors from Scripps College.

Blog | Thursday July 27, 2023

Scaling Anti-Trafficking Efforts Across Sectors Through Collaboration

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Human trafficking is on the rise around the world. Every year, conflicts, humanitarian crises, climate change, and socioeconomic challenges leave millions of people vulnerable to exploitation by traffickers.

On July 30, the United Nations marks World Day Against Trafficking by calling on the global community to reinforce commitments to eliminate human trafficking. We are proud to answer that call and to announce that the Tech Against Trafficking (TAT) coalition has merged with the Global Business Coalition Against Trafficking (GBCAT) in an effort to enable a more comprehensive business approach to scale anti-human trafficking efforts through collaboration between leading multinational business, civil society, survivors and academia. 

Established in 2012, GBCAT aims to harness the power of business across all sectors to prevent and reduce human trafficking, and expand survivors’ access to resources. TAT launched in 2018 as a coalition of technology companies collaborating with global experts to help eradicate human trafficking using technology, including job skills training. With this merger, TAT is now one of three core workstreams of GBCAT, and the unique focus on the use of technology to prevent, disrupt, and reduce human trafficking will become part of GBCAT’s efforts. Together, we aim to create a one-stop hub for businesses to work together across sectors and from different angles to eliminate human trafficking.

GBCAT’s work is focused on three workstreams: 1) Corporate Supplier Capacity-building, 2) Survivor Empowerment and Employment, and 3) Tech Against Trafficking (TAT).

Corporate Supplier Capacity-building:

GBCAT supports capacity building among small and medium sized enterprises to prevent and eradicate human trafficking. Its Toolkit on Addressing Forced Labor and Modern Slavery Risks aims to help companies that work in corporate supply chains identify areas of their business that carry the highest risk of modern slavery and develop a simple plan to prevent and address those risks.

GBCAT has also published a compendium specifically for procurement functions to help ensure that business partners are conducting business free of modern slavery. Most recently, GBCAT published free, downloadable template policies to help corporate suppliers establish standalone, comprehensive corporate policies on modern slavery and child labor. GBCAT plans to build on these efforts by directly engaging corporate suppliers and updating GBCAT’s Supplier Portal with new resources. 

Survivor Empowerment and Employment:

Safe and sustainable employment is one of the most effective ways to prevent the exploitation of vulnerable individuals and the re-exploitation of survivors of human trafficking and other forms of slavery. As a key focus area, GBCAT published a guide that describes actions business can take to empower and employ survivors. Additionally, GBCAT and Futures Without Violence developed a free virtual training for managers on how to implement a trauma-informed workplace that supports both employees and survivors of human trafficking. Looking ahead, the coalition plans to build on this work, including efforts to pilot a survivor employment program in the U.S. 

Tech Against Trafficking (TAT):

Digital information and communication technologies can serve as a powerful tool to disrupt and reduce modern slavery. Tech Against Trafficking aims to advance the use of technology solutions to fight human trafficking, while addressing the misuse of technology to facilitate crime.​ 

​TAT works with civil society, academia, technologists, and survivors to identify promising uses of technology in the anti-trafficking field, and to advance and scale the use of these solutions through its Accelerator Program. As more businesses are using technology and data to address forced labor risks in their supply chains, TAT is exploring how to strengthen the labor data and technology ecosystem. TAT is also focused on facilitating cross-industry sharing and collaboration to prevent technology-facilitated trafficking. 

Current GBCAT members include Amazon, Boost Engagement, Carlson, The Coca-Cola Company, Google, Marriott International, Meta, and Microsoft. BSR provides executive leadership and secretariat support for GBCAT. GBCAT welcomes inquires from any company that wishes to actively contribute to our mission to harness the power of business across sectors to prevent and reduce the incidence of human trafficking, and support survivors.

Sustainability FAQs | Friday July 21, 2023

Laws and Regulations for Just and Sustainable Business

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This FAQ sets out the BSR perspective on new laws and regulations relevant for our work. The field of just and sustainable business is entering a new era where actions that have previously been voluntary are becoming mandatory. We believe it is essential that the spirit of the law is achieved as well as its letter, that compliance supports ambitious human rights policies and sustainability goals, and that regulatory requirements are used to help create a world in which all people can thrive on a healthy planet. 

This FAQ does not set out the detailed requirements of laws and regulations since many of them are evolving at the time of writing. 

Recent Developments

What new laws and regulations are impacting the field of just and sustainable business? 

Many of the most significant laws and regulations originate from the EU and do or will apply to all qualifying companies doing business in the EU, not just European companies. However, relevant laws and regulations exist in other jurisdictions too. The following non-exhaustive examples illustrate the range and breadth of these regulations: 

• US SEC Climate Disclosure Rule will require public companies to disclose climate-related information, such as Scope 1, 2, and 3 emissions, climate-related risks and opportunities, and governance practices. 

• EU Corporate Sustainability Due Diligence Directive (CSDDD) will require large companies to conduct due diligence to identify, prevent, or mitigate adverse impacts on the environment and human rights. 

• EU Corporate Sustainability Reporting Directive (CSRD) requires companies to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment. 

• EU Digital Service Act (DSA) is a form of mandatory human rights due diligence for social media companies and other large online platforms. 

• EU AI Act will require due diligence by companies providing and deploying artificial intelligence. 

• EU Sustainable Finance Disclosure Regulation (SFDR) requires financial market participants to disclose environmental and social risks, including how they impact people and the planet.  

• EU Taxonomy Regulation sets out a framework to classify economic activities carried out in the EU as “green” or “sustainable”, including both environmental objectives and human rights safeguards. 

• The German Supply Chain Due Diligence Act, Norwegian Transparency Act, and French Corporate Duty of Vigilance Law all require forms of human rights due diligence. 

• The UK Climate-related Financial Disclosure Regulations (CFDR) requires large companies to disclose climate-related financial information. 

• Japan Exchange Group is introducing new listing rules that will require companies to disclose information about their ESG performance, including their policies, targets, and progress in addressing ESG issues. 

• Financial Market Commission of Chile requires companies to disclose a range of ESG issues, including on human rights and climate change. 

A key theme underpinning these changes is the expectation that companies identify, address, and report their “impacts outwards” on society and the environment, not simply the “impacts inwards” of society and the environment on the company. 

Are these new “hard laws” consistent with existing “soft laws”? 

Most new laws and regulations do a good job of adopting existing well accepted “soft law” standards and converting them into “hard law” requirements. For example: 

• Concepts core to the UN Guiding Principles on Business and Human Rights (UNGPs)—such as how to assess, address, and report on adverse impacts on people—provide the foundation for due diligence requirements in the CSDDD and the DSA. 

• The four-part framework of governance, strategy, risk management, and metrics used by the Taskforce on Climate Related Financial Disclosures (TCFD) has been adopted by the European Sustainability Reporting Standards (ESRS) that implement the CSRD. 

• The reporting standards previously developed by the Global Reporting Initiative (GRI) and the International Sustainability Standards Board (ISSB) are the starting point for most disclosure requirements. 

This means that companies already implementing approaches founded upon the UNGPs, TCFD, GRI, and ISSB are best placed to achieve compliance with new laws and regulations. 

Are the new laws and regulations consistent with each other? 

Some of the new laws and regulations have adapted standards created for one field (such as human rights or climate change) and applied them to other parts of the field. This has significantly enhanced consistency between them. For example, the CSRD adopts prioritization severity criteria drawn from the UNGPs (i.e., scope1, scale2, and remediability3) and applies them to its materiality assessment requirement across all sustainability issues (thereby enhancing consistency with the CSDDD), while the TCFD framework has been adopted by the CSRD for all issues, not just climate change.  

While the new laws and regulations are not perfectly harmonized (e.g., they don’t use precisely the same terminology and definitions) they are very well aligned (e.g., they do not contradict each other) and are very complementary (e.g., companies can achieve more by complying with them in combination). 

Impact on Sustainability Strategies

Will compliance with these laws and regulations mean accepting the “lowest common denominator” of responsible business conduct? 

No. By requiring business practices based upon existing “soft law” standards, we believe these new laws and regulations do or will significantly raise the bar for responsible business conduct and bring changes that advance the overall field of just and sustainable business. Companies who already follow the “soft law” standards are in a strong position to comply, and the long tail of companies who don’t will need to improve.  

Will compliance with these laws and regulations lead to a “check box approach”? 

If a “check box approach” means taking a disciplined and methodological approach to the deployment of just and sustainable business practices then yes, we do believe that elements of a “check box approach” will emerge, and this disciplined and methodological approach will bring some benefits. However, we believe that it will be important for companies to seek compliance with both “the spirit of the law” and “the letter of the law”.  

What is the difference between “the spirit of the law” and “the letter of the law”? 

The “spirit of the law” is the intent or purpose behind the law, while the “letter of the law” is the actual wording of the law. In other words, the spirit of the law is what the law is trying to achieve, while the letter of the law is what the law actually says. 

While the “letter of the law” provides certainty and predictability, we believe that the “spirit of the law”—focusing on the outcomes the law is seeking to achieve—is more important in the case of regulations impacting just and sustainable business. We welcome the fact that many of the new laws and regulations are articulated as outcomes-oriented, which encourages such an approach.  

How can compliance with laws and regulations be combined with ambitious approaches to just and sustainable business? 

There is a risk that the growth of new laws and regulations will result in a narrow focus on compliance, risk-averse actions, and overly cautious public communications. 

However, we believe that companies should seek to connect compliance with the law (e.g., mandatory due diligence; regulated disclosure) with broader commitments that the company has already made (e.g., human rights policy, transparency commitments, climate goals). These objectives are mutually re-enforcing. 

For example, we believe that companies should implement an approach to human rights due diligence that (1) achieves the aspirations of their human rights policy and the responsibility to respect human rights under the UNGPs and then (2) extracts the subset of information, data, and actions needed to demonstrate compliance with mandatory human rights due diligence and reporting requirements.  

In other words, the steps and evidence needed to achieve compliance with the letter of the law should be built into the company’s human rights due diligence as a design requirement, but they should not serve as its final objective, which should instead be to meet the company’s responsibility to respect human rights. 

We frame it this way because the “spirit of the law” means respecting human rights, while the “letter of the law” means demonstrating that certain process steps have been taken. 

Impact on the Field of Just and Sustainable Business

Will the focus on compliance reduce the relevance and impact of the just and sustainable business profession? 

No, we believe the focus on compliance will increase the impact and significance of those working in just and sustainable business functions.  

There is an understandable concern that laws and regulations will make important global priorities (e.g., achieving climate goals, respecting human rights) the mandate of finance, legal, and compliance teams, taking influence away from the sustainability, human rights, and social impact teams whose ambitions may be more transformational. 

However, those in the just and sustainable business profession have an essential role to play in understanding how regulations should be interpreted and working alongside finance, legal, and compliance teams to shape how regulatory requirements are met in practice. We should not be “passive actors” watching from the sidelines. 

The impact of the just and sustainable business profession will be enhanced for three main reasons: (1) our subject matter expertise and practical experience is essential for achieving compliance; (2) the greater level of attention, review, and scrutiny of compliance (e.g., from senior executive and board review) will significantly increase the visibility of our work; (3) there will be even more opportunity for collaboration across professions (e.g., risk management, compliance, strategy, sustainable business working together) to improve the quality of all our work. 

Will the focus on compliance reduce the quality of human rights and other forms of due diligence? 

There are two scenarios that could emerge for company approaches to due diligence—one pessimistic, and one optimistic: 

• Pessimistic scenario: “The emphasis on regulated transparency and discoverability means we need to be careful about anything we record. It is in our best interests to only know and show risks where we have a good history of addressing them.” 

• Optimistic scenario: “We need to demonstrate to regulators that our due diligence processes are thorough, credible, and defensible. It is in our best interests to know and show all our risks and what we are doing to address them.” 

It is our job in the just and sustainable business field to pursue the optimistic scenario. This means applying the same approach to due diligence globally (e.g., not one version for the EU and one for the rest of the world) and undertaking meaningful due diligence in good faith, not as narrowly as possible. 

What might influence the outcome? 

A key variable will be company culture, where we should seek a company culture of achieving both compliance with the “spirit of the law” and ambitious policy commitments over time. The new wave of regulation raises the profile and importance of just and sustainable business which requires an all-company approach.  

For example, if a company’s Board and management must verify its actions and results on climate and human rights in the supply chain, then product design, procurement, transport and logistics, and other functions must be fully bought in, and results measured. It will be important to promote and enable culture change to ensure that performance matches requirements and that both compliance and ambition are sustained over the long term. 

What will the impact be on company participation in multi-stakeholder efforts that seek transformative change? Is there a risk that companies will pull back on participation? 

We believe that the underlying reason for the growth in multi-company and multi-stakeholder efforts that existed in the voluntary era also apply in the regulated era—specifically, that major challenges can only by successfully addressed by companies and stakeholders working together, rather than alone.  

Further, there is a distinction between the “subject matter agnostic” nature of many emerging laws and regulations and the largely “subject matter specific” nature of today’s multi-company and multi-stakeholder efforts. 

Finally, it is worth nothing that participation in multi-stakeholder efforts is one way that companies can demonstrate requirements for meaningful stakeholder engagement that are included in several upcoming laws and regulations (e.g., EU DSA, EU CSDDD). 

Will strategy become constrained by compliance? 

Business strategies are never driven by legal requirements, and the same should be true of just and sustainable business strategies. Senior management and Boards are now mandated by law to focus on multiple aspects of sustainability-related compliance, but this mandate should be considered necessary rather than sufficient for effective leadership.  

It is more important to develop innovative strategies for just and sustainable business (e.g., that address climate risks and opportunities and both respect and promote human rights and social justice) from which compliance with laws and regulations can be demonstrated. Legal requirements as the baseline, and not constrain innovation and ambition. 

Will these changes require higher standards for data? 

Yes. Data verification, as well as the processes that generate data, will become more important. This raises the stakes for everyone: teams need to be more confident in their data; auditors need to have the right skills for assurance; Directors need to sign off with confidence.  

One specific characteristic of note is the distinction between quantitative and qualitative data. For quantitative information (such as pay equity, water use, and climate information) there are well recognized methods for assurance, but for qualitative information (e.g., prioritization of human rights risk or approach to climate justice) there are fewer guideposts available. 

There is an assumption that the laws and regulations listed above are largely “good”. What if “bad” laws and regulations emerge? 

The laws and regulations listed above are generally positive for the growth of just and sustainable business practices.  

However, we do see three important risks. First, there is a risk that the governments also introduce laws that conflict with international human rights law or widely accepted standards of business conduct. Second, there is a risk that governments introduce laws and regulations that “look and feel” like this positive examples above, but in reality, are “cover” for laws with nefarious purpose, such as imposing surveillance requirements or limits on company collaboration with civil society. Third, there is also a risk that laws and regulations will be vaguely worded with ample room for interpretation. 

In these scenarios business has a responsibility to use its leverage, alone and in collaboration with others, to either oppose or improve such laws. 

Reports | Thursday July 20, 2023

AI and Human Rights in Extractives

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Artificial intelligence (AI) is driving change within the extractives sector, transforming companies’ value chains, from geologic risk analysis to workplace management, and potentially leading to major human rights impacts. This report identifies human rights issues associated with increased use of AI technology in the extractives sector and provides recommendations to companies on addressing these impacts.

Reports | Thursday July 20, 2023

AI and Human Rights in Financial Services

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Financial institutions are increasingly using AI technologies, from reducing operational costs to delivering customer service. Yet this evolution may bring human rights risks—as well as opportunities—that companies can’t ignore.

This report identifies human rights issues associated with the growing importance of AI technology to financial services and provides recommendations to companies on addressing these impacts.

Blog | Tuesday July 18, 2023

ESG Scenarios: Leading Sustainability in a New Context

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The past few years have seen sustainable business on a rollercoaster ride—ascending one moment, plunging the next, twisting and turning, and yet racing along all the while. The role of the Chief Sustainability Officer (CSO) has required a steady hand and a cast-iron stomach. 

As part of ongoing engagement with members, BSR convened 25 US-based Chief Sustainability Officers or their equivalents from leading companies in financial services, technology, retail, healthcare, energy, food, travel, manufacturing, and industrial sectors.

The workshops centered around four potential scenarios and examined the short- and medium-term future of corporate sustainability in the context of increased regulatory activity, the polarization of ESG, the macroeconomic context, state/national/ global shifts on ESG, and stakeholder expectations. Key issues included “greenhushing” with continued corporate action on sustainability but a pullback in communications; a scenario with a resurgent “sustainable growth” economy putting Chief Sustainability Officers in business leadership positions; and an “ESG winter” where a weak economy is blamed on ESG and companies withdraw entirely. Each scenario included an imagined “CSO Inbox” to bring the day-to-day concerns to life. The convening aimed to identify actions each individual and company could take to help them steer through different possible futures. 

Despite differences in sector, geography, and even changes in current events across the two-month duration, three distinct themes emerged consistently across all the workshops: 

 

The role of the CSO is more fraught and fragile than ever.

From increased mandatory ESG reporting requirements to scrutiny over "greenwashing," partisanship over "ESG", and economic uncertainty, it’s a challenging time to lead sustainability at a company. Participants were open about the obstacles they face, the pressure of mounting expectations, and the urgency of the problems they are aiming to solve. Some of the common challenges cited include: 

• Maintaining ambition: In light of increased scrutiny and new regulations, setting ambitious targets that will be considered credible, not merely compliant.

• Navigating Upcoming Regulations: Tracking and responding to a myriad of fragmented, and sometimes conflicting new regulations and requirements. 

• Data and Verification: Gathering audit-ready ESG data. 

• Finding Signal in the Noise: Tuning out hype to focus on priorities and action, and helping internal stakeholders do the same. 

• Scrutiny over language: With partisan concerns over ESG on the one hand, and heightened sensitivity to greenwashing on the other, corporate communications and language is subject to intense review and debate. 

 

Every scenario requires robust action on sustainability. 

It was helpful for participants to recognize that—regardless of economic volatility and the anti-ESG landscape in the U.S. —the underlying factors that have been driving increased sustainability action remain strong and undeterred.

Sustainability leaders said that they would need to continue to focus on progress on their most material ESG issues for several reasons: 

• They have been focused on long-term business value, so their strategies will continue to be relevant regardless of the political or economic context.

• Direct business risks related to ESG (e.g. health and safety, climate impacts) are climbing the corporate risk register. While “ESG” terminology can be controversial, the fiduciary responsibility to address those risks is widely recognized. 

• Nearly all of the companies will be subject to European regulation and mandatory reporting requirements. 

• Stakeholder expectations for corporate action and disclosure remain high—especially among investors, employees and customers. 

• The business-to-business relationship remains critical and drives much of the strategic imperative. This was true for traditional B2B companies, as well as consumer-facing that still have value chain expectations from retailers or business partners.

Participants expressed ambivalence around so-called “greenhushing” (the phenomenon of companies quieting their sustainability communications, even as they continue to take action). Some emphasized the importance of companies speaking up for sustainability and pushing back on politicization; others were content for the role of CSO to focus less on communications and more on substance; most agreed the work itself would continue even if the communications strategy may change. 

 

Sustainability leads can adapt tactics and increase resiliency.

Participants were united in the need to maintain ambition: it’s a moment for leaders to be rigorous in their approach, vocal about what matters, focused on how their work affects people and business, and creative in solutions. Some tactics included: 

• Focus on material risks and opportunities, not jargon.

• Participants recognized they need to better understand and articulate how salient and material issues impact long-term business value, and how short-term actions link to the long-term. 

• The term “ESG” may feel controversial in some US political corners, but the substance is not. Rather than arguing for the importance of “ESG”, most companies plan to focus on using direct language to emphasize the importance of the underlying issues. 

• Build integrity of ESG efforts, and anticipate global requirements.

• There’s value in integrating ESG into core systems and policies such as enterprise risk management, various compliance and data systems and controls, and financial filings. 

• Drive purposeful leadership in policy and business.

• Companies may need to consider ESG regulations and attitudes as part of market and geopolitical risk analysis, including at the state level in the U.S. Many non-US based companies are beginning to carry out risk assessments for the United States.  

• Participants also highlighted the increased need to align policy and sustainability priorities (e.g., in political spending, donations, policy agendas) and disclose activities. 

• Build internal alignment and support from the Board.

• Most participants had noticed an increase in Board engagement on ESG, and a clear understanding of its direct relevance to strategic advantage and increased resilience. 

• Participants were also trying to build bridges with other parts of the organization, notably legal, data science, and investor relations teams, along with P&L owners. 

•  Get comfortable with uncertainty.

• Finally, participants enjoyed using the scenarios exercise to identify potential risks/opportunities and potential steps for resilience and see value in customizing it to their particular industry. 

Throughout all three events not a single company expected to backtrack or reduce their commitments. Instead, CSOs came together with a palpable desire for comradery, a mutual aspiration to maintain and grow their commitments, and an eagerness to share and explore best practices. 

BSR member companies can contact their relationship leads for more information about upcoming events for sustainability leaders.

Case Studies | Thursday July 13, 2023

Conducting a Climate Risk Assessment through Scenario Analysis

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Introduction

BSR worked with Mercer International Inc., a Nasdaq-listed global producer of market pulp and solid wood products, to conduct a climate scenario analysis. With a tailored set of three climate scenarios, BSR helped Mercer explore key climate-related risks and opportunities facing the company and identify strategic interventions to improve the overall resilience of the company’s strategy. With strong engagement from senior leaders throughout the process, this effort was not a “check-the-box” disclosure exercise—instead, it was a strong analysis of climate impacts to Mercer’s business strategy.

Background

Mercer is a global producer of market pulp and solid wood products. With mills and manufacturing facilities in North America and Germany, Mercer is strategically located next to strong softwood and hardwood suppliers. Softwood and hardwood pulp are utilized for tissue, specialty paper, packaging, and more. In addition to pulp, Mercer also produces dimensional lumber for construction as well as cross-laminated timber (CLT). CLT is an alternative building product used to replace steel and concrete, driving greenhouse gas (GHG) emissions reductions in building construction.  

The Challenge

Given Mercer’s dependence on sustainable forests for pulp and timber production, the company must have a clear understanding of climate impacts. At the current level of warming, forests from which Mercer sources have already experienced climate-related events like disease, insect infestation, and increased wildfires. These, in turn, impacted the company’s operations, supply, and logistics. In 2021, an atmospheric river event in Canada affected Mercer’s transport and logistics of supply and delivery of its products to key markets. With these existing impacts on supply and logistics, as well as forecasted rise in demand for pulp and timber products, focusing on resilience and strategic interventions to key climate impacts is critical for Mercer's business.

Our climate scenario analysis approach helped facilitate that strategic thinking. After conducting Mercer’s first climate scenario analysis in 2020, Mercer was familiar with BSR's deep expertise in futures thinking and engaged BSR to help refresh and assess climate-related impacts on various business units across the globe. Mercer also understands the need to periodically reevaluate ever-changing climate risks, and it considers climate scenario analysis based on the latest science to be a crucial solution for companies and sectors highly exposed to climate change.

BSR’s Response

Our first step for this work was to understand Mercer's business strategy and market positioning in order to augment and tailor our off-the-shelf climate scenario narratives, originally developed in partnership with Bloomberg Philanthropies. The scenario set was built using the Network for Greening the Financial System (NGFS) base scenarios and projections.

BSR built out three in-depth scenario narratives: Current Policies, Net Zero 2050, and Delayed Transitions. This involved researching emerging trends and signals of change as well as integrating data projections from the NGFS climate scenario dataset. To tailor the scenarios, in collaboration with the Mercer team, BSR identified four critical themes of uncertainty for the company and conducted desktop research and analysis to learn how these themes could plausibly play out in each scenario. We also identified six critical transition data projections from the NGFS database and three key physical climate impact projections from the Climate Analytics portal that were relevant for Mercer’s main regions of supply and operation in Canada and Germany. With the full set of tailored scenarios, we began the internal stakeholder engagement process.

Our initial engagement consisted of small workshop sessions across critical business functions to identify a long list of climate-related risks and opportunities that Mercer might face in each future scenario. Through these working sessions, we engaged with 16 senior leaders across six functional areas, including operations, finance, forest management, sales, and logistics.

BSR collated the key risks and opportunities by scenario and identified thematic hotspots and overarching future trends that may present significant risks or opportunities to Mercer's business across the entire set of scenarios.

Our final workshop, the last step in our approach, brought back the senior leaders from the initial interviews. During the workshop, we started by validating the identified key risks and opportunities and then shifted quickly into exploring the hotspots in more detail. For each hotspot, BSR facilitated small group discussions to explore clear actions and strategic interventions that Mercer can perform across the organization to mitigate risks and seize the opportunities related to each hotspot. This final session encompassed actions to increase and enhance strategic resilience to these climate impacts.

Impact

BSR conducted a robust scenarios-based climate risk assessment to prepare Mercer for a TCFD-aligned climate risk disclosure. More importantly, BSR helped facilitate critical strategic conversations on the resilience of the overall business and growth strategy to key climate risks, and we equipped Mercer with a near-term roadmap that outlined key next steps and governance-related responsibilities to ensure successful management and mitigation of these risks.

"This in-depth assessment of Mercer's future resilience under all three climate change scenarios has enabled our senior leadership, across all key functional areas, to better understand the risk and opportunities of climate change and develop a more robust strategy that will incorporate these key learnings."

Bill Adams, VP, Sustainability and Innovation

After our work with Mercer, the company was able to produce a robust TCFD report and integrate resilience into its business strategy and planning processes.

Conclusion

As part of a wider set of activities in the business toolkit, climate scenario analysis is a powerful method for uncovering and assessing a company’s strategy against uncertain climate risks and emerging opportunities. By testing how to best respond to these uncertainties using actions that build resilience, companies can explore pathways for delivering successful business outcomes in the face of climate change.

"Undertaking a climate scenarios analysis was a strategic necessity for Mercer to ensure resilient operations and achieve sustainable growth. Proactively assessing and preparing for the potential effects of climate change helps businesses navigate the uncertain future. Specifically, it enables informed decision-making, fosters innovation, and helps build operations that can adapt, thrive, and contribute to a more sustainable world.”

Shahed Tootoonian, Director, Finance and Sustainability

Get in Touch

Interested in enhancing your company’s strategic resilience to climate impacts through climate scenario analysis? Please contact BSR’s Climate Team.

This case study was written by Nina Hatch and Ameer Azim. 

Blog | Wednesday July 12, 2023

How Diversity, Equity, & Inclusion is Gaining Momentum in Asia-Pacific

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In recent years, companies have been facing the evolving challenges of responding to structural and social inequities. As a result, Diversity, Equity, and Inclusion (DEI) approaches are increasingly used as a strategic tool to improve competitive advantage, enhance employee engagement, and create a more supportive and inclusive workplace that values differences. While much of the spotlight has been on the multitude of DEI initiatives in North America and Europe, there is a significant uptick in interest in what DEI means in Asia-Pacific (APAC).

Given the different levels of maturity and ambition of companies and the varying perspectives on DEI across regions, there is no global framework or a “one-size fits all” approach. Since COVID-19 and recent protests around structural racism in North America and Europe, the discourse around DEI has also gained more traction in APAC and has moved the needle to some extent on business awareness, action, and approaches.

Although DEI is becoming a priority for some companies in APAC, the majority is still moving at a relatively slower pace than their North American and European counterparts. This may be primarily due to different cultural and organizational dynamics as well as fewer compliance-related expectations.

At the BSR Asia offices, we have been proactively engaging with our member companies in APAC on understanding DEI priorities. Throughout our engagement, stakeholders often ask: Is DEI in APAC behind, or is it just different? Given our experience, we are leaning towards the latter question. Here are our top three reflections from our engagement with APAC companies on DEI so far:

1. DEI is a relatively nascent topic in APAC but is growing in momentum

The business case for companies demonstrating a clear and actionable commitment to DEI has been discussed at length—whether as a competitive advantage in attracting talent, or that diverse companies are more profitable, innovative, and more likely to exceed financial targets.

For APAC companies, DEI initiatives in APAC have focused on diverse representation and gender-related issues, such as increasing female leadership roles in the workplace. Efforts are often centered on “Diversity and Inclusion” but are now slowly including the concept of ‘Equity’—a pillar that is often overlooked. However, it is evident that the slower pace of change does not necessarily imply a lack of interest or willingness to ramp up efforts to address other dimensions of DEI.

2. Social Norms and Cultural Nuances Shape DEI Priorities

APAC is one of the most ethnically, culturally, and linguistically diverse regions in the world. Against this backdrop, it requires a more nuanced understanding of culturally appropriate DEI approaches. The current landscape varies by country, making the practice of DEI more complex. In contrast, DEI themes and issues of interest in North America and Europe more generally relate to historical and social dynamics, for example, around race, ethnicity, ability, and class.

The fundamental definitions and principles of DEI hold significance and relevance, albeit with a different lens. In APAC, there is an emphasis on collective rights and identities rather than individual rights which can influence how DEI is approached.

Gender inequality in the workplace also remains a key issue in many APAC countries, with women being underrepresented in leadership positions. For example, Japan and South Korea consistently rank lowest in terms of gender equity among leading economies and this gender gap is often a DEI priority in the region. On the topic of LGBTQIA+ rights, recent surveys show that there is more public acceptance of same sex relationships in Singapore and Thailand compared to a few years ago. As of July 2023, Nepal is also on track to be the second country in Asia to legalize same-sex marriage. On the other end of the spectrum, homosexual activity is criminalized by harsh penalties in Brunei.

Public attitudes around other DEI themes are also shifting. For example, in the aftermath of the COVID-19 pandemic, mental health and wellness has emerged as a crucial topic that was once considered taboo. As a result, an increasing number of companies throughout the region are now prioritizing this issue and engaging in more widespread discussions about it.

3. Legal and Regulatory Frameworks in APAC are Still Evolving 

From a legal and regulatory perspective, recent developments have signaled marked progress for inclusion. Even in the absence of robust legislation on DEI disclosures, the business case and stakeholder expectations are still main drivers of DEI in APAC. Australia and New Zealand are at the forefront of gender equity in the region, especially following the introduction of new legislation regarding gender pay gap disclosure.  

The DEI related legislative process may be facing a relatively slower uptake than usual in more conservative societies, and this could potentially be a barrier to progress. However, there have been recent developments which have signalled positive changes in the region. From a corporate governance perspective, Japan revised and added a clause of promoting diversity within its Corporate Governance Code in 2021, requiring companies to establish and disclose policies and goals on diversity. Japan has also recently introduced gender pay gap disclosures for companies. The Hong Kong Stock Exchange and Singapore Stock Exchange have also updated board diversity disclosure requirements for listed companies.  

There seems to be a global shift in the understanding of DEI, however, there is no “one size fits all approach” for APAC and the conversations are always evolving. Though some companies have already taken steps forward by formalizing commitments to DEI, inquiry into how it may be adjusted to suit different contexts is ongoing. To determine appropriate approaches, engagement with our member companies and careful consideration of cultural and social norms will be necessary on a case-by-case basis, though certain challenges, opportunities, and principles may remain constant across the board. 

For more information on how BSR works with companies in Asia Pacific on DEI, please get in touch. 

Blog | Tuesday July 11, 2023

China’s New Drive for Sustainable Consumption

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A comprehensive drive to foster sustainable lifestyles is underway in Chinese markets, propelled by a range of policy incentives, targets, and environmental protection measures. This transformative shift has been catalyzed by the pandemic which heightened awareness of the crucial importance of sustainable choices in the face of disruption experienced by fast fashion and retail giants.

As global brands experience some challenges in the Chinese market, businesses looking to make their mark are compelled to go beyond the fast retail model, reconsidering everything from their supply chain to their core offering. At the same time, the market for second-hand goods is growing, alongside the use of recycled materials in products, bringing new opportunities as well as disruptive potential.

This shift is not merely a temporary trend: it is driven by a strong foundation of policy measures and infrastructure development. Alongside climate goals and emission reduction targets, the Circular Economy was promoted to a national priority for 2021-25 to support well-regulated growth in the secondhand market and develop recycling systems for waste materials across manufacturing, forestry, and agriculture. Comprehensive urban recycling systems are also delivering returns (literally): in Shanghai, recycling of domestic waste has reached 40%, with 98% of communities served.

At the same time, we are witnessing significant transformation in consumer behavior in China. This is fueled by a growing awareness of the environmental impact of our choices and facilitated by improved access to sustainable products and services, thanks in particular to the rapid growth of e-commerce platforms since the pandemic. For instance, consumers seeking closer connections with producers are now buying fruit and vegetables directly from thousands of farmers on their WeChat stores. Online resale and reuse platforms are also proliferating: popular ones include Xianyu, swap platform Ewu, recycling platform Aihuishou, and donation platform Ant Love—alongside the expansion of high street secondhand stores like Duozhuayu. This coincides with a growing preference for reusable products such as cups and bags.

It’s of little surprise that China is experiencing a flourishing ecosystem of sustainable start-ups. One driver is a strong preference for local and small-scale brands that provides unique and sustainable offerings, reflecting shifting consumer preferences away from mainstream fast retail models. Another is the Dual Circulation Strategy: a plan launched by the Chinese government in 2020 as the basis for its 14th Five-Year Plan to strengthen its economic power and domestic stability through balanced global and domestic markets with focus of increasing economic self-reliance across production, technology, rural development and consumer markets. Other recent government policies foster an environment conducive to entrepreneurship through regulatory and financial support for innovation, such as preferential tax policies for venture capital and special bonds for innovation in science and tech.

How Global Businesses Can Respond 

Global businesses sourcing from and operating in China need to align their strategy and practices with rising consumer demand for innovative products and marketing approaches to match, which is emerging as a force for economic development against an uncertain backdrop. China is still recovering from intense zero-Covid measures, coupled with political leadership reforms. Geopolitical tensions continue to pose challenges, resulting in a fragile market characterized by reduced consumer confidence and production stability. However, international businesses and top personalities are beginning to revisit the Chinese market, emphasizing the importance of maintaining ties with China.

To stay the course, Chinese businesses are showing their capacity to integrate sustainable product solutions, from alternative materials to production techniques, to embrace shifting consumer preferences. EV battery company CATL has opened the world’s first zero-carbon factory in Yibin, while Longyuan Power is blending waste wind turbine blades into building materials. Businesses operating in China, including those exporting to global markets, need to match their pace in adapting and anticipate the broader implications of this new status quo that will reshape China’s consumer market over the next three to five years.

Failure to respond to the changing landscape exposes companies that stick to traditional models to loss of market share, missed opportunities for sustainable business, penalties for regulatory non-compliance and even reputational damage. Successful strategies will take a long-term view aligned with consumer aspirations to contribute to a sustainable future.

Actions for business:

• Enhance collaboration to steer the market toward more sustainable offerings that meet consumer expectations, both throughout your supply chain and beyond it, through cross-sector initiatives, research partnerships and innovation accelerators.

• Invest in innovations and initiatives that foster circularity, from textiles recycling to closed loops for nitrogen in agriculture. Look for opportunities to reintegrate all waste streams, including water and energy. 

• Integrate sustainable offerings across the product journey, from design and choice of materials through to retail channels. Design for longevity and respect consumers’ right to repair.

• Increase supply chain transparency to meet the rising scrutiny of Chinese consumers and align with international standards. 

• Given the growing preference for local brands, work with local partners to better understand the dynamics of a rapidly changing and diverse market.

To understand more about how these trends in consumer preferences, regulation and innovation towards sustainable lifestyles are reshaping your sector and review your strategy to take advantage of emerging opportunities, contact BSR’s Director in Shanghai, Lin Wang.