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Blog | Thursday February 10, 2022

New York’s Trendsetting Legislation Unveiled: Fashion Sustainability and Social Accountability Act

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In early January 2022, in what looked like a groundbreaking move, the Fashion Sustainability and Social Accountability Act (Fashion Act) was unveiled in New York State. The Fashion Act, if passed, would make New York the first US state to pass a law that would hold fashion companies accountable for their role in climate change and other human rights impacts. Given the international nature of fashion companies, growing consumer demand for transparency and sustainability from fashion companies, and increasing legislation surrounding human rights and sustainability, it is likely that New York’s Fashion Act will be setting a trend rather than standing alone. 

Though legislation related to mandatory human rights due diligence is currently being discussed in the European Union, and countries including France, the United Kingdom, Germany and Australia have laws in place related to human rights and modern slavery, this would be one of  the first laws specifically targeting the social and environmental actions of the fashion industry—which has been called “one of the least regulated industries”—and requiring changes. It would also go beyond California’s Garment Worker Protection Act by including the manufacturing portion of the value chain. 

The Act also stands out in terms of the sheer number of companies that would be impacted—meaning that companies that have only started considering ESG issues will be held to the same standard as industry leaders and will need to seriously enhance their performance related to human rights and environmental impacts. 

At a high level, the Fashion Act requires global apparel and footwear companies doing business in New York with more than $100 million in revenues to disclose their environmental and social due diligence policies. 

Specifically, companies are asked to map at least 50% of their supply chain, disclose their material production volumes, share where in their supply chain they have the greatest social and environmental risk or impact when it comes to fair wages, energy, greenhouse gas emissions, water and chemical management, and share concrete plans to reduce those impacts—and disclose this information online. The Act references standards including the Paris Climate Accords and the UN Guiding Principles on Business and Human Rights (among others) when describing how the plans and disclosures should be made. 

Companies would be given one year to comply with the mapping requirements and 18 months to comply with the disclosure requirements. The Act would be enforced by the New York State Attorney General and noncompliant companies that don’t remedy the issue within three months of notice may be fined up to 2% of their annual revenue—meaning that the lowest earning companies would be fined a minimum of $2 million.  

While the Fashion Act is a New York law, it is expected that, if passed, the implications will be global, due to the number of fashion companies doing business in New York with revenue over $100 million, and their supply chains spanning both the country and the globe.  

Fashion companies should therefore pay close attention to the progression of the Fashion Act, as well as their sustainability and human rights risks and impacts. We have previously advised on why and how to assess human rights impacts and have provided a deep dive into climate change and human rights, steps to setting net-zero greenhouse gas emissions, and guidance on sustainability reporting. 

Given the Fashion Act’s consistency with existing environmental and human rights standards, fashion companies leading on sustainability and human rights will be well-positioned to comply. For example, setting public targets in-line with a 1.5C pathway, reporting on key material issues and human rights risks, as well as maintaining supply chain transparency are all consistent with the new mapping and disclosure requirements.

So far, the Act has been both praised and criticized—and two letters, written by a group of 20 labor and advocacy groups, as well as reuse advocates, have suggested revisions. Regardless of its passage, the emergence of the Fashion Act reinforces BSR’s position that the role of business in addressing sustainability challenges has never been more important than today—and the size and scale of the Fashion Act indicates a global trend towards sustainability and human rights.  

The Fashion Act is currently being considered in Senate and Assembly committees, and the sponsors hope to bring it to a vote in late spring. It would need to be passed by both houses of the New York state legislature and signed by the Governor before it becomes law.

Blog | Tuesday February 8, 2022

Inside BSR: Q&A with Anna Iles

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Inside BSR is our monthly series featuring BSR team members from around the world. This month, we connected with Anna Iles, a Futures Associate Director based in Hong Kong.

Anna chatted with us about her sustainability journey around the world and her work at BSR on futures thinking.

Tell us a bit about your background. Where are you from, and where are you based? What is your favorite hobby?

I’m from the north of England, and I have now lived in Hong Kong for five years after three in Singapore. We live on Lantau Island, which is mostly a national park rich in wildlife, beaches, and peaks—a far cry but only a short ferry ride from the city. I love getting out and about: my favorite sort of escape is touring with a bike and a tent—and I’m hoping we can find some way to do that with three kids (one toddler, twins on the way).

How did you first get involved in sustainable business?

My first internship was as a journalist with the environmental magazine Down To Earth in Delhi. This was a formative experience where I learned how intricately social justice is bound up with environmental challenges. Back in London, I worked for women’s health and social care nonprofits and edited the Women’s Environmental Network newsletter before becoming editor of the sustainable solutions magazine Green Futures, published by Forum for the Future.

I developed a passion for futures thinking as a way to support business and society in navigating complex and emerging challenges. In 2014, I relocated to Forum’s Singapore office to set up the Futures Centre, a collaborative platform for tracking change and thinking about its implications. Then, I moved to Hong Kong to run my own futures and innovation agency, working with UNICEF, UNDP, schools, and youth organizations, as well as businesses.

What are some interesting projects that you get to work on as part of your role at BSR? What do you enjoy about them?

I joined BSR’s Sustainable Futures Lab last year, leading our work on emerging issues and our publication The Fast Forward, as well as working with businesses to explore the implications of today’s changes and their capacity to address current challenges and work toward a more sustainable and equitable future.

I appreciate the wide range of topics we work on (recently nature’s rights, carbon capture and storage, the impacts of climate change on mental health) and the access to business leaders with both the power to influence their sectors and the ambition to do so.

It’s also terrific, particularly after four years as a solo ship, to have so many colleagues with diverse backgrounds, interests, and expertise to share ideas with about how critical changes today could play out and what they might mean for different sectors.

What issues are you passionate about and why? How does your work at BSR reflect that?

I’m interested in how we think and the life of ideas: How can we expand our perspectives and embrace new ways of understanding ourselves and the world? Before joining BSR, I published a book The Innovation-Friendly Organization, exploring how organizational culture can enable ideas to thrive (or not). The importance of diversity stands out, as well as the potential to indulge in curiosity.

More recently, I’ve been exploring how we can apply futures thinking to conflict situations, as a way to reframe perspectives and create new starting points for dialogue.

At BSR, my colleagues and our members are very open to trying out new ways of thinking. For instance, we’ve used fictional personas to explore the potential impact of emerging trends for stakeholders in the fashion and luxury industries, and we found this useful in cultivating an empathetic and human-centric approach to strategy and planning.

Adjusting to life during a pandemic can be complicated. What were the things that brought you joy amid the uncertainty and challenges of the past year? What are you looking forward to in 2022?

My son was born at the start of the pandemic, and the rise of flexible remote working has made it easier for me to juggle parenting and professional life. His cheeky, affectionate spirit is a huge joy: It’s the little things like him picking up a plum at the market the other day and biting into it, then lobbing it straight at the saleswoman when I explained we had to pay for it…

The sad thing is that our families and friends “back home” haven’t been able to meet him yet (a common story), given Hong Kong’s three-week quarantine period and intermittent bans on incoming flights. We’re expecting twins very soon, and so I’m most looking forward to welcoming them and then hopefully taking all three back to the UK.

Blog | Thursday February 3, 2022

Impact-Based Materiality

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This is the third in a four-part blog series dedicated to enhancing the value of materiality assessments. In the previous blogs, we discussed why companies should assess double materiality and explored how companies can monitor dynamic materiality. Here, we discuss why companies should focus their materiality assessments on impacts rather than perception.  

The concept of double materiality provides clarity that companies should report on matters that influence enterprise value (“financial materiality”) and matters that affect the economy, environment, and people (“impact materiality”).

This shift also brings a change in how companies should understand the materiality of matters that affect the economy, environment, and people. In short, the field is moving away from methods that are often assessed based on perception and toward methods based on impacts. 

While impact materiality covers both positive and negative impacts across economic, environmental, and people dimensions, the UN Guiding Principles on Business and Human Rights (UNGPs) provide an essential methodological foundation for how impacts across all these dimensions should be assessed. 

The key to this shift is a change in how stakeholders are defined and how matters of importance are identified and prioritized. 

In the past, materiality assessments often defined stakeholders as those whose judgments, decisions, and actions may be influenced by the company’s sustainability disclosures; material matters were those that were “of interest” and “decision-useful” for report readers.  

Impact materiality, by contrast, defines stakeholder as an individual or group that has an interest that is (or could be) affected by the company’s activities and decisions. This includes rightsholders—stakeholders whose rights are (or could be) affected by the company’s activities, even if they are not users of a company’s sustainability reporting. 

As the EFRAG European Lab Project Taskforce (the entity tasked with creating the new EU sustainability reporting standard) described in their report to the European Commission: 

The interests of the stakeholders that are users of sustainability reporting are not necessarily proxies for the potential and actual impacts of the company on people and the environment. In practice, if reporting entities determine impact materiality based on what all users of sustainability reporting find decision-useful, then it is quite likely that everything comes out as ‘material.’ (…) [This] approach has dominated most companies’ practices with regard to impact materiality, inviting certain experts, NGOs, and others to express their interests in what the company should report through ‘materiality’ meetings or online questionnaires. This has not led to sufficiently relevant information being disclosed from a double materiality perspective.

Impact materiality determines material issues based not on whether they are “of interest to stakeholders,” but whether they have “an impact on the economy, environment, and people.” 

For example, when incorporating the UNGPs into the Global Reporting Initiative’s (GRI) new Universal Standards, the GRI revised its definition of materiality to reference “topics that reflect its most significant impacts on the economy, environment and people, including impacts on human rights.”  

In the past, materiality assessments often relied on assessing internal and external stakeholder perceptions to help determine material issues for disclosure. Internal stakeholders were asked which sustainability topics are most significant to the business, while external stakeholders were asked about their expectations of the company and which issues might influence their judgments and decisions. While prioritization methods varied, quantitative methods via interviews and surveys were often used to rank issues according to their importance.  

By contrast, the impact materiality approach stresses that not all stakeholder interests are of equal importance because human rights are an entitlement of all people under international law, and everyone has a right to a healthy environment. For this reason, companies are expected to assess the significance of an impact based on the severity and likelihood of impact, using an approach to assessing issues that is standard in the human rights field. This approach reflects the expectations set out by the UNGPs and in the GRI’s Universal Standards, and EFRAG is proposing a similar approach for the upcoming EU sustainability reporting standards. 

To be clear, impact-based materiality does not ignore company-based internal stakeholders and other experts, especially when their insight is essential to uncover impacts that might otherwise be missed—for example, experts inside and outside the company can provide unique insights into the impacts of new technologies. 

To meet these expectations, BSR is drawing upon two decades of experience in both materiality and human rights assessments to create a double materiality methodology that combines the best of both. In this methodology, we identify and prioritize a company’s positive and negative impacts on the economy, the environment, and people based on: 

• The scale of the positive or negative impact: How grave is the negative impact on the victim, the economy, or the environment? How beneficial is the positive impact? 
• The scope of the positive or negative impact: How widespread would the impacts be on the population and economies of ecosystems impacted? 
• In the case of a negative impact, its remediable character: Is it possible to counteract or make good of the resulting harm? 
• The likelihood of the positive or negative impact: What is the chance of the impact happening? 

Our approach uses all internationally recognized human rights as a reference point, since companies may potentially impact any of these rights. It also recognizes that human rights are indivisible, interdependent, and interrelated, rather than a collection of separate topics. 

The impact materiality approach is being created as we write, and we are seeking opportunities to partner with member companies to refine it based on real-life experience. Several questions require further exploration, such as the relationship between a materiality assessment and a human rights “salience” assessment, as well as the precise prioritization criteria to use, what to include on an initial list of potentially material issues, and how to combine qualitative and quantitative inputs. If you want to learn more about our approach, please contact us.  

Blog | Thursday January 20, 2022

Inside BSR: Q&A with Céline da Graça Pires

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Inside BSR is our monthly series featuring BSR team members from around the world. This month, we connected with Céline da Graça Pires, a Human Rights Manager based in Paris.

Céline talked with us about how her family’s migration experiences generated her passion for human rights, her work on current and upcoming legislation in business and human rights, and how working at BSR supports her commitment to protecting the rights of vulnerable groups.
 

Tell us a bit about your background. Where are you from, and where are you based? What does a day in your life look like? What is your favorite hobby?

I am originally from a tiny village in northern Portugal, and I grew up in a Parisian suburb. I have also lived in Porto, Madrid, Rio de Janeiro, and Santiago, with stints across Brazil, Mexico, and Argentina for project work. I am now based in Paris.

My favorite hobby is laughing! As Chaplin once said: “A day without laughter is a day wasted.” In my spare time, I love swimming, hiking, and cooking. I am also an avid reader and enjoy discovering new places!

How did you first get involved in sustainable business? How long have you been at BSR? What is your current role, and what does that entail?

My family immigrated to France to escape the Portuguese dictatorship and find a better life. I grew up listening to fascinating yet terrible stories of migration, arbitrary arrests, and the fight for freedom, democracy, and inclusion in a new country. These stories sparked an interest that ultimately led to my passion for human rights.

During my internship as a junior legal advisor at Electricité de France, I helped to implement a hydroelectric dam project in Brazil. This experience opened my eyes to many sustainability topics, from social and environmental risk assessments and stakeholder engagement to human rights issues related to renewable energies.

I started my career in Brazil, passed the French bar exam, and practiced at several law firms before working on CSR, human rights, community engagement, free prior and informed consent, and land rights as an independent consultant.

I have been part of BSR’s human rights team for almost three years, and I work with companies on implementing the UN Guiding Principles on Business and Human Rights. Additionally, I support BSR members in implementing recent business and human rights legislation, including the French Corporate Duty of Vigilance Law, and preparing for the upcoming EU mandatory legislation on human rights and environmental due diligence (HREDD).

I also work on specific topics, like community engagement and Indigenous Peoples' rights and emerging issues, such as the rights of nature. Business and human rights are fields that are constantly evolving—this is what makes it so interesting to me.

What are some interesting projects that you get to work on as part of your role at BSR? What do you enjoy about them? 

I focus on helping companies address their human rights risks, identifying opportunities for positive impact, and interacting with various stakeholders.

I’ve enjoyed conducting human rights assessments with local communities in Chile in the mining sector, even remotely during the pandemic! One of my favorite projects currently is supporting a member through human rights crisis management in conflict-affected areas on the southeast coast of Africa.

What I really enjoy about my work at BSR is that I learn new things about my field every day, but also about myself!

What issues are you passionate about and why? How does your work at BSR reflect that?

My friends and family would say that I am a tireless advocate for fundamental rights; especially for the most vulnerable, equal protection of law, and democracy. These debates are particularly relevant today during the COVID-19 crisis and considering the effects of climate change on future generations. I feel thankful to contribute to protecting the rights of vulnerable groups at BSR.

To dive deeper into this topic, I have also started a PhD in Law at NOVA School of Law and am a Research Associate at the NOVA Centre on Business, Human Rights and the Environment.

BSR is a unique place to work due to the diversity and complexity of business and human rights topics, which we work on while applying a vulnerable groups’ lens.

Adjusting to life during a pandemic can be complicated. What were the things that brought you joy amid the uncertainty and challenges of the past year? What are you looking forward to in 2022?

I am grateful to be in good health and that my family and loved ones are too.

The pandemic was disruptive, but it helped me reprioritize the important (and crazy) things in life. I decided to get married mid-pandemic, and twice! It was certainly a challenge but brought hope and joy amid uncertainty.

I look forward to traveling for field work and reconnecting with local stakeholders again. And dancing again in a crowded bar or dance floor! I’ve missed it!

I hope 2022 will be a year in which citizens strengthen their unity and that we will not see more local division and segregation. Hope and resilience are my two key words for 2022!

Blog | Wednesday January 19, 2022

What If All Garment Workers in Bangladesh Were Financially Included?

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Wage digitization of low-income populations has the potential to be a win-win opportunity that can deliver both social and economic progress. For workers, especially women, it can mean the chance to open a financial account, potentially leading to greater economic empowerment. For global buyers, it can mean efficiency savings and increased transparency in global supply chains, and for financial service providers, a new active market segment. 

At HERproject, we believe a financial inclusion transformation is underway in Bangladesh due to digitizing payroll accounts. We are very optimistic about this because in partnership with the Bill & Melinda Gates Foundation, we've supported 70 garment factories with a workforce of around 170,000 people (majority women) in digitizing their wages and have seen the impact for businesses and workers, especially women.

• Wage digitization has led to administration time spent on payroll being cut by more than half.
• One in two female workers opened mobile money accounts and became active account users, conducting an average of eight transactions a month, including sending remittances to their families and buying time for mobile phone calls.
• One in five workers started saving on a monthly basis, a habit that helps them both plan for the future and cope better with unexpected financial crises.

It is much safer to use [mobile money]. It’s convenient and it saves time. I used to be worried about walking with cash, especially on payday, and when sending money. Now I can save some of my wages in my mobile money account and can earn interest.

-Moshrefa, Garment Worker, Bangladesh

There are 4 million garment workers in Bangladesh, more than 58 percent of whom are women. This raises the question, “What if all garment workers became financially included?” This has led to the striking projections—if all 4 million garment workers received their pay in their financial accounts as well as financial capability training to build their skills and confidence to use financial services, we can expect:

• A total of 4 million new active customers for financial service providers. This would also contribute to closing the financial gender gap in Bangladesh. The 2017 Global Findex found that in Bangladesh, 36 percent of women have a bank account, compared with 65 percent of men.   
• Up to US$199 million sent in remittances through financial services to their families. On average, following participation in HERfinance, women send US$54 and men US$43 in remittances each month. Across a workforce of 4 million, this is the equivalent of US$199 million. Sending money to their families is crucial to workers, especially women, since it means they can support their parents in their home villages and invest in children’s education and land for their futures.  
• 400,000 hours of production time saved each month on payday. HERfinance factories reported saving 6 minutes of production time per worker following the transition from cash to digital wages. Time is money—so this represents huge savings for employers, always under production pressure.

We believe this scenario is within reach and will benefit workers, especially women, and businesses. Achieving this scenario requires action across three interrelated areas: increasing inclusive access to financial services; building the labor force’s digital financial capability, especially for women; and increasing digital payment opportunities in the financial ecosystem. All global brands and buyers sourcing from Bangladesh need to encourage, reward, and support their suppliers in switching to digital wages, in a way that considers the needs of workers, especially women. The financial ecosystem needs to promote and incentivize digital payments and acceptance for key payments otherwise made in cash, such as groceries, health care, school fees, bills, and rent. Workers, especially women, need support to build their financial capability, knowledge, and confidence to use their payroll accounts and benefit from digital payments. 

“Digital payments are an important step in achieving global financial inclusion. This fully aligns with our ethical and responsible sourcing strategies and our holistic sustainability plan, especially in respect to human rights in our business and supply chains. Providing the opportunity for workers to be paid digitally, creates economic opportunities for them and their families, advancing the Sustainable Development Goals on women’s equality and decent work.”

-Fiona Sadler, Global Head of Ethical Trading and Responsible Sourcing, Marks & Spencer  

It’s also important to consider and address the barriers that women face in adopting digital wages. Women are less likely than men to have the resources and confidence needed to open and use accounts. They are more likely to feel obliged to share their account details and become victims of fraud. Traditional gender role expectations for women restricts their ability to access and take control of their finances.

“I didn’t know how to use mobile money until we had the training. Through this, we learned about the interest on savings and fees. Now on payday, I send money to my parents and my mother-in-law. I have opened a savings account in a private bank and deposit money each month.”

-Pushpa, Garment Worker, Bangladesh

Key stakeholders, including financial service providers, global brands, and employers, can deliver and scale wage digitization that empowers workers, especially women, by working collaboratively. Find out how to get started with our practical guides for financial service providers, global brands, and buyers and our open source financial capability materials, including posters, videos, and tech learning tools. By working together, scaling responsible wage digitization is possible, and financial inclusion for 4 million garment workers in Bangladesh is within reach.   

Reports | Monday January 17, 2022

Corporate Action to End Gun Violence

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BSR’s Toolkit for Corporate Action to End Gun Violence was developed in collaboration with Everytown for Gun Safety. Gun violence is a national issue in the US. Due to the pervasiveness of gun violence, businesses, their employees, business partners, and customers are all likely to have been impacted by the issue at some point. While many companies see the issue of gun violence as falling outside their sphere of responsibility and influence, companies can and should take action to protect their employees, consumers, and the communities they operate in. This toolkit puts forward a framework for corporate action to end gun violence. The framework features a business case on the importance of ending gun violence, industry deep dives for retail, financial services, media and social media, and tech sectors, and includes many case studies and examples from companies across industries and sectors that have taken action to end gun violence.

What You Will Find in the Toolkit

This Toolkit for Corporate Action on Gun Violence was developed to guide companies as they work to address gun violence, both internally in their own operations and externally in the communities they are linked to. The Toolkit is split into three sections: the business case, framework, and industry deep dives.

1. Business Case: Demonstrate how business is interconnected with gun violence and show the importance of company action on gun violence.
2. Framework: Provide examples of potential actions for companies and connect with useful resources on advancing strategies against gun violence.
3. Industry Deep Dives: Demonstrate for specific sectors detailed case studies, actions, and key learnings for business action on gun violence.

How Companies Can Use the Toolkit

Companies can use the toolkit in three ways: to make the business case for action, to assess where their company intersects with gun violence, and to identify opportunities to integrate actions to prevent gun violence in with existing strategies.

Blog | Wednesday January 12, 2022

2022: Purposeful Sustainability Leadership for Turbulent Times

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The last two years have made predictions seem to be exercises in futility. In fact, the dynamics reshaping our world are largely the product of underlying changes we already were fully aware of; none of this was entirely unexpected.  

Looking ahead to 2022 then, we need not only to have a healthy dose of humility, but we need to also keep in mind what we know to be true and focus on the important ways those things will shape the year ahead, no matter what surprises might happen.  

• Net zero needs to get real. The rise of net-zero commitments is one of the good news stories of the past two years. Every company that is remotely realistic knows that getting there requires some hard work, and tradeoffs. Progress on Scope 3, including logistics, represents one of the best opportunities for achieving the needed. Every company also should know that the risk of greenwashing claims is growing. A world increasingly disrupted by extreme weather, economic loss, and unequal impact today is impatient and on edge, and it will not accept net-zero commitments that don’t pay off until tomorrow.  
• Climate action without social justice simply won’t work. It was clear at COP26 in Glasgow that climate action without climate justice is no longer credible—or strategic. Whether it is about a just transition, addressing loss and damage, or ensuring that the clean energy economy offers economic opportunities to all and protects human rights, companies cannot claim to have a comprehensive climate strategy without a climate justice strategy. In the year ahead, we will be working with more companies to help them develop climate action strategies that reduce emissions while enabling social progress. 
• ESG has the attention of investors and regulators: let’s make the best use of that. 2020 saw the rise of ESG investing, 2021 saw signs of a backlash and claims of greenwashing. But the shift is real, and it is making an impact: any CFO would confirm this. And the rules of the game are changing, with both the EU Taxonomy and SEC climate disclosure rules, along with the ISSB Framework, to emerge with greater clarity in 2022. These mechanisms are of signal importance, but their credibility and ambition are not yet secure. Whether they advance is not in question; how they advance is crucial. In 2022, BSR will continue to advocate for comprehensive models that address a full range of issues material both to investors and wider society.   
• Boards are redefining their roles. Survey after survey show that directors understand the business relevance of ESG and the need to steward companies in a socially useful way. Unfortunately, these surveys also typically reveal that many directors don’t feel equipped to make good on this aspect of their mandate. 2022 should be the year when this changes in a decisive manner. This involves three main points: diversifying boards, reorienting their mandates, and bolstering their knowledge base. BSR will be launching a new offering for boards and directors in the year ahead to enable faster progress. 
• Business will continue to use its voice amidst “the great fragmentation” pulling our world apart. Any CEO wishing for times when the business voice on social issues is not needed will be sorely disappointed by what is to come. All signs point to continuing debates over contentious issues that are driving society apart: generational differences in mindset and priorities, tensions between China and the West, populist movements on the left and the right, and socially divisive information bubbles. All this is leading to “the great fragmentation,” which leaves business in a bind when other elements of society cannot function effectively. Business has a strong stake in social cohesion based on democratic values for shared human progress. 

There are many more examples of this roiling turbulence, including many tech solutions, innovation, changing consumer preferences, democratic decline, and catalytic philanthropy. We will no doubt have more to say about this over the next 12 months.  

We enter 2022 with more uncertainty than any of us would like to see. Omicron, let alone other variants to come, are bedeviling us. The perilous state of the Thwaites Glacier in the Antarctic threatens to accelerate sea level rise and reminds us that climate change has unleashed unprecedented volatility and risk. The drive for social justice remains very much unfinished, at a time when local and global divisions are plain to see. And there can be no doubt that this year also will produce its share of unexpected shocks and surprises. 

BSR is celebrating our 30th anniversary in 2022. We are proud to be growing in many ways. First and foremost, we are here to advance the efforts of our member companies—now numbering more than 300 for the first time—who are seeking to transform their business models, operations, products, and global supply chains in truly innovative ways, working also with funders and civil society actors. Our team is also growing, and we will surpass 200 staff for the first time in 2022. And building on a more flexible staffing model, we now have “hubs” in Singapore, the UK, and Washington, DC, adding to the eight locations where we maintain offices. We are also expanding our expertise, with new offerings on Social Justice, Nature, and Governance, amongst others. 

We are both excited by what lies ahead and aware that we are on the clock, with the need to act urgently, with purpose, clarity, and precision, to make this decisive decade one in which real achievements are delivered. 

Blog | Thursday December 16, 2021

China’s Carbon Emission Trading Scheme and its Implications for Businesses

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Since its inauguration in July 2021, China’s national Emission Trading Scheme (ETS) has become the world’s largest emission trading system, its accumulated trading volume exceeding 800 million Yuan. What exactly is the national ETS? What will likely be the key trends for the sustainability world to watch, and what will be its impact on companies?

What is China’s National Carbon Emission Trading Scheme?

The ETS, a critical part of China's plans to use market mechanisms to reach peak emissions before 2030 and net zero by 2060, puts a price on emitting carbon. It provides financial incentives to companies which reduce emissions by allotting credits to those who pollute below their allowances, while requiring those who go beyond their limit to purchase additional credits.

The scheme currently covers only one sector: power and electricity. With more than 2,000 power plants, the sector is responsible for over 4 billion tons of CO2 emissions per year, about 30-40 percent of the national total. This alone amounts to around 10-15 percent of global CO2 emissions.

The expanded scheme will cover a total of eight sectors (power generation, petrochemical, chemical, building materials including cement, steel, non-ferrous metals, pulp and paper, and aviation) in the coming years. Institutional and individual investors will also be covered. However, the government has not yet unveiled an official roadmap or timetable for expansion.

The national ETS market is still at an early stage, the overall trading volume is limited compared to the size of China’s economy, and trading prices are showing fluctuations. However, key enterprises have been pushed to start their journey toward carbon management, from carbon accounting and reporting to carbon reduction target- and goal-setting. The Ministry of Ecology and Environment (MEE) has also revealed that it plans to publish the Interim Regulations on the Management of Carbon Emissions Trading in the near future.

From Regional Pilots to a National ETS

Since 2011, China has piloted ETS in eight different cities and provinces (Beijing, Shenzhen, Shanghai, Guangdong, Tianjin, Hubei, Chongqing, and Fujian) to see if China can use market mechanisms to regulate carbon emissions and to prepare for the national ETS.

These pilot ETS have some features in common but vary considerably in their approach on some issues, such as the coverage of sectors, allocation of allowances, local policies, and management of noncompliance. For example, while the Beijing and Shenzhen markets cover business giants in the public transport and service sectors, the Shanghai market covers the hospitality, textiles, and financial sectors, and the Hubei market covers the automotive, healthcare, and ceramics sectors. These markets are all highly customized to regional industrial characteristics and conditions. These pilot markets were also given considerable leeway to design their own schemes.

Although their impacts on carbon emissions reduction and cost savings might be very limited so far, the regional pilots provided rich references and lessons for the national ETS.

What Can We Expect from the National ETS, and What are Its Potential Impacts on Business?

The national ETS will take several years to ramp up to full sectoral coverage. Current coverage of the power and electricity sector will have a limited impact on electricity costs since the market is mostly dominated by government-owned or operated companies. It will take years to generate real financial impact on companies and drive significant emissions reduction. But experts at the Shanghai Environment and Energy Exchange (SEEE) and the Climate Bonds Initiative see it as a signal to boost China’s overall climate action efforts. The process will also provide the foundation for developing and improving many other carbon policies.

In the coming years, the legislative basis of the ETS will be further strengthened, both to establish a legally binding commitment as a cornerstone of the scheme and to turn the current ETS, which is more of a governmental administrative intervention to control CO2 emissions, into a market-based approach.

Actual business impacts will also need to be weighted together with the provincial and sectoral dual carbon plans and roadmaps (to be released at the end of 2021) and other carbon-related policy developments. 

In this regard, it will be hard to predict the price impact of ETS on a final product that will include multiple layers of materials, components, industries, and production inputs. That will be further challenged by different regional policies with regards to the readiness and implementation road map; e.g., a lighting product with glass, aluminum, wood etc., coming from different regions. Thus, it will be hard to predict price impacts clearly and simply. 

Nevertheless, China’s ultimate carbon emissions goal will not change, and the ETS will eventually take effect, and have a large impact on businesses over time. Therefore, businesses should prepare in advance through understanding and mapping relevant risks and opportunities as a first step.

This blog is part of a series examining the business impacts of China’s 14th Five-Year Plan, which has drawn great interest in the international community, from policymakers to business. To learn more, read our previous posts on what business can expect, China’s climate goals, and impacts for investors.

BSR’s China team continues to track and analyze the plan’s potential business impacts.  If you are interested in learning more about how BSR can help shape your China strategy, please reach out to speak with someone on our team.

Blog | Wednesday December 15, 2021

Inside BSR: Q&A with Erin Leitheiser

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Inside BSR is our monthly series featuring BSR team members from around the world. This month, we connected with Erin Leitheiser, who recently joined BSR’s Climate team as a Manager.

Erin chatted with us about how her educational experiences abroad brought her to sustainability work and about her passion for climate issues.

Tell us a bit about your background. Where are you from, and where are you based? How did you get where you are today?

I’m an American living in Denmark, and it has been quite the journey to get here. I grew up in Nebraska and left the US for the first time at age 18 for an educational program in Egypt. The differences between rural America and the busy streets of Cairo were drastic but enlightening. Beyond the rich history, the cross-cultural experience fascinated me and gave me a completely different vantage point for viewing and understanding my culture. From there, I was hooked on exploring the wonderfully diverse world around me. 

While in Nicaragua on a study program, I met a garment factory worker who told me about the difficult working conditions and low pay, which showed me how consumer demands for cheap goods in the Global North impact the lives and livelihoods of those in the Global South producing those goods, piquing my interest in corporate sustainability. These experiences were crucial in developing my worldview and understanding of the interconnectedness between people, economies, businesses, and cultures. 

I lived my adult years in Minneapolis, but my family and I moved to Denmark when I received an amazing offer to pursue my PhD at Copenhagen Business School. Scandinavia has long embodied and led in sustainability, so it has been an amazing place to learn, live, and work. 

How did you first get involved in sustainable business? What issues are you passionate about and why? How does your work at BSR reflect that?

My passion for sustainability began at a young age. I still remember being shown a sustainability documentary in elementary school that showed me humanity’s impact on the planet and our ability to rectify it. I became a thorn in my family’s side, demanding that we be more sustainable by recycling everything, a tall order when the only option was hauling our recycling to a far-off center and sorting it ourselves. 

It was probably unsurprising that I pursued a career in sustainability. Over the years, I’ve had the opportunity to work on social and environmental issues and across sectors. One of the things I love about BSR is the opportunity to work on classic consulting engagements directly with companies and grant-funded projects bringing together multiple partners to work on big, thorny issues and drive progress across the board. It’s a fantastic hybrid. 

I’m passionate about how research and knowledge can drive better insights and about exploring the intersectionality between issues, like how a net-zero transition might affect jobs and local economies. 

How long have you been at BSR? What is your current role, and what does that entail? What are some interesting projects that you get to work on as part of your role at BSR? What do you enjoy about them? 

I joined BSR in spring 2021. I am a Manager on our Climate team, where I drive several grant-funded projects and serve as an advisor on member company engagements. My work is focused on sustainable procurement and Scope 3, so supply chain sustainability. 

I’ve gotten to work on many projects, from developing tools and guides to help companies engage their suppliers on net-zero action to exploring new and innovative ways that companies can collaborate together on their climate goals. Many of my projects had large deliverables for COP26, including the 1.5°C Supplier Engagement Guide, which provides practical guidance on buyer-supplier engagement for decarbonization, and Climate Fit, a free course for SMEs on making progress on their net-zero journeys. 

Adjusting to life during a pandemic can be complicated. What were the things that brought you joy amid the uncertainty and challenges of the past year? As 2021 ends, what are you looking forward to in 2022?

Aside from not seeing family for nearly two years, I was thankful to be in Denmark during the pandemic, where lockdowns and restrictions were managed well. While it was a challenge juggling a full-time job while homeschooling two kids, I am grateful for the time I got to have with my children. 

My family loves traveling, so this has been one of the biggest changes in our lives during the pandemic. As a family of four, we’ve made it to 17 countries so far (and buy high-quality carbon offsets to help mitigate the negative climate impacts of our travels). Probably like everyone, I’m eager for a semblance of pre-pandemic normalcy! 

Blog | Tuesday December 14, 2021

Race and Ethnicity: Civil Society Expectations for Business and Recommendations for Company Action

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More than a year ago, the Black Lives Matter movement spurred companies into addressing long-standing race and ethnicity issues and developing or stretching their diversity, equity, and inclusion (DEI) goals.

However, most of these initiatives have focused on the US, and companies are struggling to address these issues in other countries. Nevertheless, racism and ethnic discrimination are global problems, from racist abuse of England’s Black football players to sexual violence against Indigenous women in Argentina—and addressing these issues benefits everyone. Increasingly, there is a growing societal expectation for businesses to look globally at their internal DEI programs, including those that address race and ethnicity, and as part of their product portfolio, supply chain, and presence in local communities. 

Multinational companies are seeking effective practices for addressing race and ethnicity issues globally. We conducted interviews among BSR’s 300 member companies to identify common challenges companies face when addressing these issues and the potential opportunities this can represent for businesses. We also interviewed civil society organizations around the world to understand their expectations for corporate action.

How Are Companies Addressing Race and Ethnicity Issues outside of the US?

Leading companies are setting global policies with executive support and are creating frameworks for local and regional action plans and initiatives to be developed. Global efforts have been framed around “multi-culturalism,” “full spectrum diversity,” and “culture and heritage.” However, companies’ global commitments do not always come through at the local level. Success in this area depends on support from headquarters and local ownership.

Internally, companies are creating safe spaces for employees to reflect, share, and learn from each other’s experiences related to race and ethnicity and providing opportunities to learn about racism and discrimination through trainings, roundtables, town halls, etc. Although a necessary first step, these practices alone will not achieve lasting impact for employees or the company.

Until recently, most company efforts have used “band-aid” solutions for a specific issue, like quotas for representation or philanthropic contributions. Few companies have designed the necessary structural changes required to address the root causes of racism and inequality inside and outside their operations, and industry collaboration remains limited.

What Do Civil Society Organizations Expect of Companies?

Civil society organizations stressed the need to address discriminatory structures and systems instead of trying to change individuals. The organizations we spoke to noted that currently most internal efforts are top down and focus on behavior change or solely on diversity, with less attention paid to inclusion and equity. For example, setting quotas for leadership positions can ensure accountability, but it can also make certain groups feel that there is no longer a place for them or reinforce the idea that someone was promoted because of their diversity characteristics and not their skills and experience.

Reviewing practices that may perpetuate racism and discrimination, such as recruitment or pay policies, allows for a discussion on how employees and stakeholders can work together to create a more equitable system that benefits everyone.

Based on this research, we have developed a set of global DEI recommendations to address race and ethnicity issues that enables localization and long-term flexible investments. Companies can act on issues related to race and ethnicity in their countries of operations and learn from civil society organizations in the following ways:

• Commit to a global, long-term DEI policy with highest-level buy-in from senior leadership and frameworks for local and regional action plans and initiatives. For example, Cisco developed a set of Social Justice Beliefs that inform how it acts as a business for its employees, customers, and communities. As part of those principles, it has developed specific actions to address racism against the Black Community in the US, and it plans to explore expanding these actions to make them applicable to a global context. ID_Brazil works with global companies with footprints in Brazil and other Latin American countries to review policies and practices across operations and identify racism-related challenges and gaps through its Yes to Racial Equality Seal. 
• Focus on dialogue and learning as a first step: Foster safe dialogue for employees to share experiences, connect leaders with underrepresented staff at the local level, and implement training and toolkits for leaders and employees to identify and speak on racism and discrimination (e.g., this toolkit from Berkeley Haas). Accenture has created a training program that supports employees in identifying and speaking on racism (currently available in the US, the UK, and Ireland, and it will soon be available in Canada and South Africa). 
• Co-create through partnerships: Companies cannot and should not aim to address racism and discrimination alone. They can establish community engagement board(s), leverage and support employee resource groups (ERGs), focus on creating an effective reporting and ethics hotline, and join collaborations tackling racial justice to work with other companies committed to addressing these issues, like the WEF’s Coalition on Racial Justice in Business or the European Network Against Racism. Companies will need to commit financial and human resources to support these partnerships and ensure they are not adding additional work to groups that are already under-resourced.
• Advocate for systems change: Using an equity lens, examine your company’s business operations and product development processes to identify if and how it has enabled and benefited from systemic racism. Some examples: Starbucks, Airbnb, and Facebook completed civil rights audits. Companies should also explore how they can use their voice to advocate externally for wider systems change. For example, Ben & Jerry’s call to dismantle white supremacy provided actionable steps, and Dr. Bronner’s pledged funding to four organizations fighting racial justice and called out systemic racism in the criminal justice system.

Meeting today’s societal expectations for social justice and robust DEI programs requires long-term planning and readjusting business strategy. By joining the handful of leaders already committing to address race and ethnicity issues throughout their global operations, companies can strengthen existing commitments to human rights and non-discrimination and become a leader in their industry, especially as DEI becomes less about counting employees and more central to meeting growing stakeholder expectations to embed equity across company value chains. For more information, please reach out to our Equity, Inclusion, and Justice team.