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Blog | Wednesday April 12, 2017

Better Energy Management Electrifies the Corporate Agenda

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Forward-looking businesses are realizing huge cost savings by investing in energy efficiency measures and switching to renewable energy—as well as being able to make and meet ever more ambitious greenhouse gas commitments. Recent trends, such as tumbling renewable energy prices and innovative energy technologies, are driving never-before-seen energy procurement options and tools for companies to decrease the direct cost of their energy use. As companies’ cost structures evolve to take advantage of these trends, energy sourcing and efficiency are being pushed to the forefront of corporate agendas. All industries are finding ways to cash in: This year, 2,000 suppliers reported to CDP that implementing emissions-reduction projects has saved a total of US$12.4 billion. The challenge for companies is to determine which of these capital investment opportunities present the best possible return on investment.

Cost Savings through Investing in Energy Efficiency

Even in the face of low energy prices, corporate leaders are also focused on returns on energy efficiency investments. More than US$200 billion is being invested annually in energy efficiency worldwide, an increase of 6 percent from 2014 to 2015. Examples of investments that have resulted in significant energy efficiency gains and cost savings include:

• Procter & Gamble saved more than US$500 million in 4 years through actions like reducing energy use at its facilities by 20 percent per unit of production.
• Walmart’s fuel efficiency initiatives, such as collaborating with manufacturers on new technologies from 2005-2015, resulted in savings of US$1 billion in 2015. In the process, the company avoided emitting almost 650,000 metric tons of carbon dioxide.
• Dow Chemical invested US$2 billion from 1990-2010 to streamline energy used in manufacturing. This vast capital investment significantly paid off: Dow netted US$7 billion in total savings, a 350 percent return on its initial investment. In the process, Dow has prevented more than 200 million metric tons of greenhouse gas emissions.
• Johnson & Johnson allocates US$40 million each year to energy efficiency projects, resulting in energy cost and emission reductions of 15 percent in the last 10 years. 

Cost Savings through Renewable Energy Sourcing

In addition to energy efficiency investments, companies have begun to make the move to renewable energy to support their climate commitments, hedge against future electricity market price fluctuations, and take advantage of plummeting renewable energy prices. Amazon, Apple, Google, and Microsoft have specifically cited the need to protect themselves against price swings and ensure long-term, stable electricity costs at their data centers as a reason to commit to renewable energy, as explained in their amicus brief in support of the U.S. Clean Power Plan. Companies like Facebook, LinkedIn, and Salesforce also recognize this opportunity and are collaborating through BSR’s Future of Internet Power initiative to enhance their ability to procure renewable energy to power data centers.

Procuring energy via renewables is the cheapest option in many places in the United States, and there are several options for companies to leverage the falling cost of renewables, including producing their own renewable energy or setting up long-term contracts and agreements. Power purchase agreements, which lock in renewable energy costs at a specific price, have exploded recently, growing 3,100 percent from 2012 to 2015.

Examples of corporate action around renewable energy procurement include:

• AB InBev recently committed to make the company’s US$400 million a year worth of purchased electricity 100 percent renewable by 2025. CEO Carlos Brito said this decision was rooted in business sense because in many markets, it is already cheaper to go renewable.
• The case to switch to renewable energy was so compelling that MGM Resorts and Wynn Resorts are paying fees in excess of US$150 million to their current electricity provider to exit their utility contract and control their own energy costs. Along with the lower cost of solar in Nevada and California, MGM and Wynn said the decision was influenced by clients’ increasing demands for the resorts to use responsible energy sources. The resorts project that the savings and value creation will exceed the exit fees.
• General Motors recently signed with EDP Renewables North America for a 14-year supply of wind energy. Through this project and others like it, General Motors estimates that it is saving US$5 million annually, and the company announced plans to increase investment to bring more projects online.

Leading companies are leveraging energy efficiency technologies and low-cost renewable sourcing options to make greenhouse gas commitments and support global climate goals, and in the process, are saving millions of dollars. These commitments have included pursuing 100-percent renewable energy through the RE100 initiative or working with the Science-Based Targets initiative to align with the Paris Agreement and contribute to the absolute emissions reductions needed for the planet to stay within 2°C warming above pre-industrial levels.

Companies that embrace these trends and move them to the forefront of their corporate agendas will improve their energy cost structures and position themselves to prosper in the new low-carbon economy.

Blog | Tuesday April 11, 2017

Automation: How Business Can Lead a Sustainable Transition

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Automation will profoundly alter the future of work and society, as a great deal of recent research and projections on its impacts have shown. Some have predicted automation will lead to a gloomy future of permanent high unemployment, while others have touted many potential benefits around health, safety, and the environment. Yet, automation also poses a practical challenge for today’s business leaders, who must tackle how to take advantage of the productivity and innovation opportunities presented by automation technologies while also ensuring a smooth workforce transition. These leaders will have to help their current employees adapt to new technologies or retrain for new occupations, and they will also have to build a future talent pipeline that is educated, trained, and capable of meeting the needs of an automated workplace.

In a new BSR issue brief, “Automation: A Framework for a Sustainable Transition,” we explore some of the ways that companies are beginning to address automation, including engaging with civil society partners and governments. The brief explores four practices companies can adopt to facilitate a smooth transition.

1. Forecast and Communicate Planned Changes Early

The rollout of automation will affect different industries, occupations, and communities at different points in time. Early notice is critical, so that workers and governments have time to plan for the transition, reskill and train for new occupations, and minimize time spent in unemployment. The European Union’s CEDEFOP has started an early warning system that forecasts needed skills and workforce changes. By contributing their projected future needs to these systems, companies can help current workers and students plan for the skills that will be in demand in a specific geographic area.

2. Commit to Training and Support Education Partnerships

Companies can commit to partnerships with local educational systems, as well as open-source and online education, to prepare new generations of workers and upskill their incumbent workforce. Examples include partnerships with secondary schools and colleges to teach technical skills and coding or participation in formal workplace training programs through the Global Apprenticeship Network. Companies can also directly fund upskilling of their workforce through onsite training and use of micro-credential programs like Udacity.

3. Provide Support to Displaced Workers

Companies can play an important role in improving the outcomes of workers who will lose their jobs to automation by giving them early notice and extensive support to retrain and/or relocate to pursue new opportunities. Companies can partner with nonprofits and governments to include additional benefits in severance and outplacement packages, such as training grants to reskill for a new role in the company or for a new occupation, relocation assistance, or technical support and funding to start a new business.

4. Support Public Policies to Modernize the Social Safety Net

Automation represents the type of global challenge that can’t be solved through government policies or through individual companies’ CSR programs alone. It requires a coordinated and collaborative approach. Business leaders can play an influential role by using their collective voice to encourage governments to adopt policy frameworks that support workers in the transition to automation. U.S. policies currently being explored include wage insurance programs, which would help workers who lost income during the process of their career transition. Some countries, including France, are developing ITAs, or individual training accounts, which allow workers to accumulate tuition funds and paid leave so that they have time and funding to reskill during their careers. And business leaders are participating in dialogues around transformative policies, such as Bill Gates’ proposal for a “robot tax” to help governments make up shortfalls in payroll taxes. Other longer-term ideas are also in pilot tests in various countries, such as the universal basic income, championed by Tesla CEO Elon Musk, Y Combinator, and union leader Andy Stern, among others.  

Whether adopting and sharing the lessons of their individual company programs, forming industry-wide partnerships, or advancing public policy solutions, business leaders can play a critical role in the global effort to redefine the future of good jobs in the age of automation in the 21st century and build an economy that works for all. 

Blog | Monday April 10, 2017

Beyond Today’s Conflict and Beyond Today’s Minerals

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Before joining BSR, I directed the Conflict-Free Sourcing Initiative (CFSI) at the Electronic Industry Citizenship Coalition (EICC). During that time, the CFSI helped make tremendous progress around ensuring a conflict-free mineral supply chain: CFSI membership more than tripled, the first tungsten smelters were validated as conflict-free, and the total volume of validated conflict-free tin, tantalum, tungsten, and gold (3TG) grew exponentially. We also saw the rise of a standardized reporting tool, called the Conflict Minerals Reporting Template (CMRT), which companies now share among one another to identify the smelters and refiners in their supply chains.

Since joining BSR—where we place significant emphasis on the role of collaboration to create systemic change—I’ve reflected on what we achieved with the CFSI and how to increase those impacts.

My conclusion is that too many companies focus on requesting reports from suppliers and sending reports to customers without addressing the real social and economic issues at stake. Today’s paper-only exercise strips resources away from companies actually investing in changes on the ground.

To get out of the request-and-report resource drain and into a position where their conflict minerals programs create real and positive social impacts, companies should broaden and deepen their conflict minerals work. This will help break the link between mineral extraction and serious human rights abuses.

Companies can do this by broadening their geographic focus and responsible procurement efforts and deepening their transparency efforts and partnerships to engage government. 

Geographic Expansion

To date, most programs have focused on the Democratic Republic of the Congo and its surrounding countries and only on 3TG. However, these challenges exist around the globe and exist regardless of the mineral. Numerous programs, organizations, and initiatives have emerged to address human rights in minerals and materials extraction more broadly, including the EICC’s Responsible Raw Materials Initiative, European Partnership on Responsible Minerals, the Initiative for Responsible Mining Assurance, the Responsible Cobalt Initiative, and others. Companies should look to see which of these target the right minerals, issues, and geographies for their risk profile.

Responsible Procurement

Companies should take a systemic approach to their procurement. As the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance) correctly contemplates, the link between minerals extraction and serious human rights abuses exists regardless of geology or geography. For companies to truly meet this expectation, as well as the UN Guiding Principles on Business and Human Rights, they need to take a system-wide approach. This means that companies should look at the full suite of minerals in their products and use the existing systems to determine the source of the minerals in their supply chain across that full suite. If those refiners have clear information on the mines from which they source via a set of agreed-upon metrics (more on that below), they can provide assurance to their downstream customers as to their products’ provenance and impact. While it sounds complex, the CFSI and others have created a strong foundation and shared tools to accomplish this.

Meaningful Transparency

To break the link between minerals and serious human rights abuses, companies need information about the conditions at the extraction sites, and simply exchanging CMRTs back and forth across the supply chain does not give companies the right kind of information to do this. Furthermore, investors are increasing the pressure on mining companies to provide more transparency as to the human rights conditions at extraction sites. The challenge requires a common set of metrics, KPIs, and criteria regarding the conditions at the mines that can be shared across the many tiers of the supply chain. Doing so would make it easier for smelters to have a clear sense of their suppliers’ sustainability practices and provide further assurance to downstream companies and investors. While that may sound daunting, many structures are already in place to efficiently share this information. For example, Apple’s recent Supplier Responsibility Report is the first to include cobalt in its conflict minerals disclosure using a similar model to its 3TG efforts. This shows that it is possible for companies to expand on the existing efforts to include minerals beyond 3TG.

Partnering on Government Engagement and Supporting Rule of Law

Companies should take what they learn from their responsible procurement practices to identify and collaborate with initiatives designed to support rule of law, good governance, and sustainable economic development where they obtain minerals. No single company can break the link between minerals extraction and human rights abuses, because that link is often the result of a lack of rule of law and government’s ability to protect human rights. However, companies can collaborate and speak with a unified voice to those governments. They can apply their business pressure to push for reforms and action on the part of those governments. With meaningful transparency from the mines to the brands, combined with system-wide responsible procurement, companies can collectively identify the geographies and minerals that are most critical and focus their government engagement efficiently.

Now is an important time for companies to act because the policy environment is growing more uncertain. The current U.S. administration has signaled an intent to roll back section 1502 of the Dodd-Frank Act and the SEC Final Rule that compels conflict minerals disclosure in the United States. Meanwhile, the European Parliament just approved regulation that will require importers of 3TG to undertake due diligence in line with the OECD Guidance. With these four principles in mind, companies should rally together behind the OECD Guidance and UN Guiding Principles frameworks, use the resources available from the emerging initiatives, and move forward to break the link between minerals trade and human rights abuses.

Blog | Thursday April 6, 2017

Made in Africa: How the Apparel Sector Can Build an Ethical Sourcing Destination

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When conducting field research in Ghana for our report, “Women’s Economic Empowerment in Sub-Saharan Africa: Recommendations for Business Action,” and accompanying apparel industry brief, we met with a woman factory owner who told us that when she got started, she was very strict with her employees and didn’t want to get involved in their personal lives. This resulted in several business challenges, including high turnover rates. She eventually rethought her approach and focused on the needs of her women workers. She told us: “I’ve come to realize it isn’t about handing out money; it is about listening and providing guidance [or] a word of advice. Help[ing] them with how to take care of their children. It has really worked. They feel like there is someone who listens and cares. [It] makes a huge difference.” She now runs a one of the leading fashion houses in the country and has attracted the attention of international brands.

Thanks to favorable trade policies, a large youth population, and convenient access to European and U.S. markets, sub-Saharan Africa is increasingly becoming an attractive apparel sourcing destination. This presents apparel brands with a unique opportunity to play offense and proactively build an apparel manufacturing sector that prioritizes women’s economic empowerment in their expectations of suppliers—right from the start.

Although sub-Saharan Africa accounts for less than 1 percent of global clothing exports at the moment, many companies are starting to source from the region. Capitalizing on the region’s potential could transform national economies and create millions of formal job opportunities, particularly for women. However, if safeguards and investments to protect and empower workers are not established, the industry could present significant risks to workers’ health, rights, and well-being.

In the aftermath of the Rana Plaza factory disaster in Bangladesh nearly four years ago, the apparel industry has been rethinking its own approach and has begun to implement reforms in sourcing policies and in engagement approaches with the factories and workers in supply chains. As apparel manufacturing expands in countries like Ethiopia, Kenya, Tanzania, and Uganda, it is important that brands, factories, and governments apply lessons learned—especially in Asia—to ensure that human rights, safe working conditions, and women’s empowerment are priorities. An approach that goes well beyond growth at all costs will have positive long-term impacts on workers, the environment, communities, and the wider economy.

Our research found that women face many of the same challenges in sub-Saharan Africa that they do in Asia, including poor working conditions, high turnover, and weak infrastructure. And like other women in the sector globally, women in sub-Saharan Africa—who make up the majority of garment factory workers in the region—face risks of sexual abuse and harassment, few career-growth opportunities, and limited access to basic services. These findings reinforce the need for brands to work with suppliers to prioritize labor rights, reduce workplace risks, provide clear career pathways, and strengthen access to quality childcare and healthcare.

Our report offers recommendations on how apparel brands can advance women’s economic empowerment, including the following actions:

• Build inclusive supply chains through responsible sourcing practices, promoting positive relationships with suppliers, and incentivizing suppliers to advance women’s economic empowerment. Brands can also participate in industrywide efforts that advocate for and share best practices on these responsible, inclusive approaches.
• Create gender-sensitive workplaces where women’s concerns are addressed and workers have access to feedback channels that create spaces for women’s voices to be heard by management and improve worker-management relations.
• Invest in education and training programs for workers that build basic literacy and education, as well as job and life skills. Brands can support factories’ involvement in Better Work, Ethical Apparel Africa, and BSR’s HERproject.
• Prevent sexual harassment and ensure proper remediation if it occurs by communicating and enforcing no-tolerance policies, helping factories establish anonymous reporting mechanisms, and working with factories and community partners to provide referrals to counseling services.
• Build inclusive communities by partnering with local and global organizations to improve women’s access to essential products and services, create an enabling environment for women, and address cultural barriers that hold women back.

There is an opportunity for brands to embed responsible business practices into their engagements from the beginning, which will help prevent challenges that have plagued other regions and establish sub-Saharan Africa as a responsible sourcing destination. This will not happen, however, without brands making a concerted effort not to repeat the mistakes of the past. 

Blog | Wednesday April 5, 2017

Business Risk, Reward, and Resilience in the Face of Extreme Weather

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Extreme weather can spark extreme business costs. It matters, therefore, that extreme weather is trending upward—by a factor of three over the past 35 years, according to an analyst with insurer Munich Re. It also matters that businesses can mitigate against these risks and buffer against attendant costs through actions focused on climate resilience.

A few corporate examples vividly underscore why businesspeople would be wise to carefully assess the potential corporate risks of extreme weather, as well as to identify proactive mitigation actions. The Center for Climate and Energy Solutions has reported on numerous examples, including, in 2011, automaker Honda lost more than US$250 million when unprecedented rains led to serious flooding in Thailand. In 2012, Energy company Dominion Resources was forced to shut down operations within a Connecticut-based nuclear plant because record-setting summer heat significantly elevated ocean temperatures, and cooling the facility with seawater was not feasible. And Munich Re had a 38 percent quarterly profit tumble when it had to pay out US$350 million in claims after flooding in Australia in 2010-2011.

Clearly, avoiding these extreme-weather financial losses are in all corporate decision-makers’ best interest, particularly as these events are occurring with greater frequency and intensity due to climate impacts. As corporate decision-makers begin to assess extreme-weather risks and opportunities, as well as consider investments in building resilience, they should keep the following in mind.

• Severe weather is on an upward trend in frequency and intensity, as National Oceanic and Atmospheric Administration data on U.S. billion-dollar disaster events has shown.
• Businesses can mitigate the impacts of extreme-weather-related risks by starting with assessments of specific risks and suites of appropriate responses—as outlined in a BSR report on Thailand, among a growing body of work on climate resilience. Both the upside and downside is significant enough now to warrant insurance companies, such as Zurich Insurance, to offer “resources and knowledge to help its customers build greater climate resilience.”
• The effectiveness of the corporate response will be contingent upon accurate assessments. Since extreme weather comes in many forms—floods, droughts, hurricanes, intense rainfall and snowfall, and high and low temperatures, among others—corporate responses must take into account how specific weather events will affect supply chains or operations (see recommended analytical approaches in a BSR blog on resilience). 

BSR has developed an approach to help companies properly diagnose climate risk throughout their operations, supply chains, and surrounding communities. The approach, which is part of BSR’s Resilience and Adaptation Initiative (READI), also helps companies respond through actionable methods to enhance corporate and societal resilience. READI builds collaboration among companies and leading adaptation experts on the issue of corporate risk and resilience.

Early corporate adopters—who are future-proofing supply chains and operations in light of extreme weather—are finding that actions exist to address vulnerabilities to extreme-weather-related business disruptions. It is becoming clear that businesses can afford to invest in resilience, when these investments consider risks and potential losses. In fact, key business stakeholders are asserting that the risk is big enough to warrant action today and are willing to advise on pathways forward to extreme weather resilience, as the Zurich Insurance example shows.

The pathway forward is clear and leads toward less risk and more reward in the form of avoiding or mitigating operational disruptions. It is now time for companies to roll up their sleeves and convene to assess and address extreme weather risk, resilience, and reward.

Blog | Friday March 31, 2017

Emptier Refrigerators as Social Capital: Redefining the Value of Food in the United States

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Today, I came home to a barren refrigerator—for many, the calling card of a bachelor living on takeout and dinner dates. But in my house, it’s the sign that we’re cutting food waste: I’ve challenged my family to eat everything in our refrigerator, and I mean everything. But that’s not the typical U.S. household … yet.

If you grew up in the United States during the middle of the 20th century, you very quickly learned the American social code around food—fresh cooked food every day meant mom (always mom) cared, a party of 15 meant you cooked for 30 for fear of running out, and an empty refrigerator was considered cause for embarrassment. While grandma or mom, who survived the Great Depression, took extra time getting her doggie bag after dinner at the local restaurant, the rest of us didn’t risk the faux pas.

Food abundance was, and still is, considered a sign of wealth, love, and social capital. But what’s the impact of all that abundance if it’s under-used?

U.S. consumers produce an estimated 27 million tons of food waste annually. Wasted food, left to sit and decompose in landfills, emits methane, which is a leading cause of climate change. That waste also presents a critical social problem, where food is thrown away instead of going to the 40 plus million people in the United States struggling to feed their households.

Of course, there’s even more food thrown away long before it gets to our homes. Another 25 million tons of food are wasted by consumer-facing businesses, 1 million by manufacturers, and another 10 million lost on farms—for a grand total of 63 million tons, equaling an estimated US$218 billion.

The good news is that the food waste landscape is improving. The past two years have seen an increased focus on food waste, ranging from individual business commitments to collaborative commitments, such as YieldWise by the Rockefeller Foundation to reduce global food loss and waste, the Consumer Goods Forum Food Waste Resolution, and the U.S. government pledging to cut food waste by half by 2030. Some commitments were inspired by the UN Sustainable Development Goals—Target 12.3 calls for a 50 percent reduction of global food waste by 2030.

However, most efforts exclude consumers, who in the United States are responsible for 43 percent of the food wasted per year. But there are some examples of successful attempts. For example, in April 2016, the National Resources Defense Council partnered with the Ad Council on a “Save the Food” campaign, which encourages consumers to alter their behavior. The campaign is a step toward raising public awareness—and there is a clear opportunity for companies and organizations to capitalize on the momentum and broaden the impact of these types of efforts.

This past February, BSR, with support from The Rockefeller Foundation, challenged 15 participants from companies and civil society organizations to consider what it would take to engage consumers on food waste prevention in the United States.

Throughout a day of case studies, new research on messaging to drive sustainable behaviors, and a group activity leveraging the BSR/Futerra Sustainable Lifestyles Frontier Group framework on developing the value proposition for sustainable behaviors, the group identified three areas where collaboration could help to create a movement around food waste reduction:

• Developing a business case for engaging the broader business and integrating sustainability and marketing efforts to address consumer food waste
• Testing and refining consumer messaging through creative media to drive food waste reduction
• Partnering on local/community-based events to highlight and encourage better practices around food purchasing and use, particularly with children and families

Individual organizations can execute against these tasks, but the real opportunities are in the shared investments, resources, and outcomes that can come through a collaborative effort. BSR will continue to address this complex issue by engaging companies and brands in a proposed collaborative initiative to address the three areas outlined above.

Influencing, and ultimately changing an individual’s perceptions of the value of food and his or her subsequent consumption behaviors is complex and challenging. We hope this important work will shift social norms around food waste in the United States—our vision is that emptier refrigerators and leftover consumption become a badge of social awareness, respect for the environment, and with hope, delicious meals.

If you are interested in joining a collaborative initiative to engage U.S. consumers on food waste, please contact jmarinez@bsr.org. 

Blog | Thursday March 30, 2017

A Guide to Stakeholder Engagement for Healthier Communities

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Social and economic factors, healthy behaviors, and physical environments account for 80 percent of our health outcomes. The contribution of clinical care to health is the modest remainder. As such, governments, healthcare professionals, and businesses cannot singlehandedly influence U.S. health outcomes without tackling the broad range of factors that determine our health. While the health policy debate in the United States is focused largely on the government’s role, the private sector must embrace its vital role in improving population health. Health is a shared social responsibility—and better health is everyone’s business.

Healthy business management practices recognize the need to improve the health of employees, customers, and communities. To develop strategies, innovate solutions, and provide the resources that will deliver social impact, there is no substitute for the wealth of insights offered by engaging with stakeholders. When it comes to healthy business, the most successful companies are those that connect with the people they seek to benefit.

The Healthy Business Coalition’s new Stakeholder Engagement Guide is designed to help companies engage key stakeholders on their healthy business goals, progress, and obstacles. By developing a robust engagement plan, companies can connect with key stakeholders and receive feedback that is essential to ensuring their healthy business programs are viable, actionable, and impactful.

To some degree, companies already practice stakeholder engagement—they share information with stakeholders by publishing sustainability reports or disclosing safety data. But stakeholder engagement must be a two-way street, and it requires companies to foster the relationships that will provide insights and influence needed to make healthy business programs succeed.

Our new guide is intended to help companies manage the stakeholder engagement process more effectively and outlines three steps for companies to consider.

1. Align on Objectives and Benefits

Knowing how stakeholders can help is an important first step in developing a stakeholder engagement strategy. Does the company need to align healthy business programs with community expectations? Does it need to engage stakeholders to earn the “social license” to deploy programs and validate their approach? Or does the company need guidance on the right metrics to track their programs?

Clarifying “why” to engage is fundamental—and not only to launch the process. To ensure internal alignment, which is required to move the process forward, companies must understand the purpose for engagement. And stakeholders will want to engage only when they know their feedback will be valued and influential. The Stakeholder Engagement Guide provides a framework to organize the benefits to each company and help articulate those benefits internally.

2. Determine Who and How to Engage

A strategic approach to stakeholder engagement requires that a company identify and prioritize its stakeholders. The Stakeholder Engagement Guide helps companies develop an identification tool (a fully developed version of this tool is available to all Healthy Business Coalition members) to prioritize stakeholders based on their ability to engage, degree of influence, and level of expertise. By identifying stakeholders and scoring them against these criteria, a company’s long list of stakeholders can be organized per the appropriate engagement approach.

BSR’s stakeholder engagement continuum informs the entire process. Depending on where a stakeholder lands, a company will approach that stakeholder differently. Stakeholders on the far right of the continuum, in “Collaborate,” are closely aligned with a company’s healthy business efforts and capable of bringing their expertise and influence to improve those programs. Conversely, some stakeholders may not necessarily be appropriate collaboration partners but deserve to be consulted on programming. Connecting with the right stakeholders in the appropriate format is essential to making stakeholder engagement strategic and efficient.  

Effective stakeholder engagement is about the quality of that engagement—and companies should ensure they invest time and resources to further relationships with the specific stakeholders that can improve healthy business programs. The list of tactics helps companies select the engagement formats that are best suited to each stakeholder’s role.

3. Integrate Learnings from Stakeholder Engagement

Successful stakeholder engagement doesn’t finish when the interview or roundtable ends. Companies must distill their stakeholder interactions into insights and actionable next steps. Getting value from engagement and deepening relationships depends on leveraging these insights to help refresh healthy business strategies, innovations, and partnerships. Importantly, this follow-up is not limited to external stakeholders. Internal stakeholders should be engaged to build on the momentum and help incorporate the insights gathered.

The Stakeholder Engagement Guide is the final tool in the Healthy Business toolkit—and rightly so. Stakeholder engagement is the method for refreshing the healthy business communications, strategy, and innovation processes featured in the other three tools. Engaging with communities and partners will fuel the revision and improvement of a company’s healthy business approach. By testing programs and products with the stakeholders who benefit from these solutions, a company can incorporate valuable feedback to make its solutions even better. Interaction creates a feedback loop that informs strategy, tests the efficacy of innovations, and refines how a company considers a topic internally and communicates its progress externally.

BSR invites all companies to apply the Health Business Toolkit, which is now fully available online, and we welcome any feedback on ways to improve these tools. We look forward to hearing about how companies have risen to the occasion to make healthy communities their business.

Blog | Wednesday March 29, 2017

The Growing Business Risks in Fossil Fuels

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According to a new report by the International Renewable Energy Agency (IRENA), the sweeping changes affecting the energy industry could leave more than US$10 trillion in coal, oil, gas, and related assets stranded. IRENA made these reports in preparation for a G20 meeting on climate and energy, but the news underscores a growing number of reports indicating that the fossil fuel industry is on precarious economic ground—posing new risks for companies that rely on oil, gas, and coal.

Even as the fossil fuel industry loses ground, investments in renewables are on the rise, and smart companies are placing their bets on clean energy. “The economic case for the energy transition has never been stronger,” IRENA Director-General Adnan Z. Amin said, following the launch of the organization’s new research. “Today, around the world, new renewable power plants are being built that will generate electricity for less cost than fossil fuel power plants. And through 2050, the decarbonization can fuel sustainable economic growth and create more new jobs in renewables.”

Dozens of leading companies from a wide range of industries—including Apple, GM, Goldman Sachs, Pearson, P&G, Walmart, Wells Fargo, and many more—have joined the RE100 commitment to go 100 percent renewable. As companies consider where to invest in power for their operations and supply chains, they should carefully weigh three main business risks that are pushing many companies away from fossil fuels and pulling them toward the promising opportunities presented by clean energy.

Oil Markets Are Becoming Riskier

A 2016 report by the Financial Times energy editor Ed Crooks painted a stark picture of the U.S. oil industry. Since oil prices began to decline in 2014, oil industry equipment was being sold off at auctions for bargain-basement prices. The founder of one auction agency said he felt like a funeral director telling sellers about the low-priced sales. “I’m the one that has to tell them the bad news,” he said.

The industry’s future outlook is similarly bleak: Over the next 25 years, oil company revenues could fall by at least US$22 trillion, which is equal to twice the GDP of China. Even as revenues fall, the oil industry’s debt is rising. Between 2006 and 2014, the industry’s debts grew from about US$1.1 trillion to US$3 trillion. Between 2015 and early 2016, 52 of the smaller U.S. oil and gas production companies that were participating in the shale gas boom had entered bankruptcy.

Given the combination of growing debts and declining revenues, 40 percent of U.S. oil and production field service companies have earned B- or below ratings by Standard & Poor’s. In 2015, Bank of England Governor Mark Carney predicted that up to 80 percent of fossil fuel reserves could be stranded. This substantiates IRENA’s aforementioned prediction that US$10 trillion in assets will be stranded, which is significantly higher than the US$320 forecast by the International Energy Agency.

For companies purchasing energy and fuel for their operations and supply chains, the volatile prices of oil and gas have increased their interest in renewables. In its friend-of-the-court brief in support of the U.S. Clean Power Plan—the centerpiece of the U.S. climate plan, which is being dismantled under the current presidential administration—leading tech companies pointed out that, “unlike fossil-fuel-powered generation, renewable energy technologies such as wind and solar have low and stable marginal costs, and so permit energy consumers to hedge fuel price volatility and future increases in electricity rates.”

Coal Is a Shrinking Industry and Will Not Rebound

Since the coal mining boom in the 1970s, the U.S. industry has been shrinking, with nearly 200,000 jobs lost since 1979, according to the U.S. Bureau of Labor Statistics. While some political leaders have been pushing a theory that these jobs are lost because of climate-related regulation, economists believe the demand for coal has been shrinking for years. Changes in technology, such as automation, have also contributed to the decline in jobs.

In addition to the drop in jobs, more coal-fired plants are closing. In 2015, 94 plants in the United States closed, and another 41 closed in 2016. For the existing plants, the majority of Americans support regulation. According to new data from the Yale Program on Climate Change Communication, 69 percent of Americans support setting strict carbon-dioxide limits on existing coal-fired power plants, and 75 percent support regulating carbon dioxide as a pollutant more generally.

As coal declines, companies are wise to look at renewable energy. In some parts of the United States, unsubsidized solar is about half the price of coal. Clean energy also holds the promise of jobs: IRENA predicts that the jobs created by the growth in renewable energy will more than make up for the jobs lost due to the transition away from fossil fuels. In 2016, solar industry employment in the United States grew by 25 percent (to 260,000 jobs), surpassing U.S. oil and gas extraction jobs (177,000), and U.S. coal mining jobs (50,000).

Investors and the Public Are Concerned about Climate Risks

The economic risks taking place in the oil and coal markets come at a time when there is increasing public and investor concern over the fossil fuel industry’s climate risks.

Earlier this month, BlackRock, the world’s largest asset manager, announced that it will be putting new pressure on companies to disclose how climate change could affect their business. Shareholders are also holding companies accountable. In 2016, shareholders filed 175 climate-related resolutions, up from 167 in 2016 and 148 in 2015, and resolutions are expected to exceed 200 this year.

Investor concern is matched by public concerns about climate change. According to the 2016 Yale survey, 70 percent of Americans believe climate change is happening, and more than half of all American adults are worried about climate change and believe it is already harming people in the United States. A Pew survey revealed that there is strong bipartisan support for expanding solar and wind energy production.

These developments all speak to a larger trend: As fossil fuels present an increasing number of economic and business risks, smart companies are investing in renewable energy to power their growth.

Blog | Tuesday March 28, 2017

BSR’s Statement on the U.S. Administration Executive Order on Climate Change

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BSR regrets today’s executive order from U.S. President Donald Trump to dismantle the Clean Power Plan, a set of U.S. Environmental Protection Agency (EPA) policies that are intended to reduce the United States’ greenhouse gas emissions by 32 percent from 2005 levels and cut carbon pollution from the power sector by 30 percent by 2030. In combination with the administration's dramatic cuts to climate programs at the EPA and U.S. State Department, this announcement undermines policies that have stimulated economic growth, consumer savings, job creation, infrastructure investment, private-sector competitiveness, and public health.

Business Supports Climate Ambition

In the past several years, many American companies have set ambitious energy efficiency and renewable energy targets. Business has taken action because it understands the economic and environmental benefits of these steps, as well as the opportunity for innovation that the shift to low-carbon prosperity represents. The Clean Power Plan (CPP) provides a platform for these companies with reliable and resilient sources of clean energy and, in turn, generates substantial economic and public health benefits. Just 18 months ago, the U.S. federal government estimated the net economic benefits of the CPP at US$26-45 billion, with consumers set to save US$155 billion from 2020 to 2030. In addition, the CPP provides regulatory support to the clean energy economy, which, according to the U.S. Department of Energy’s Energy and Employment Report, supported more than 3 million U.S. jobs in 2016. The public health benefits are also significant. Research suggests the Clean Power Plan could prevent 3,600 premature deaths and more than 300,000 missed work and school days by cutting pollutants that contribute to soot and smog.

Finally, this order comes at a time when U.S. public concern about climate change is at an eight-year high, with Gallup reporting that 64 percent of Americans are concerned a "great deal" or "fair amount" about the issue. 

Trump's executive order puts this substantial progress at risk, but two critical factors continue to suggest that the transition to a low-carbon economy remains inevitable.

1. Clean power is the energy of choice for resilient and successful businesses and investors.

During the past two years alone, more than 500 companies with US$8 trillion of revenue, and more than 180 investors with assets under management in excess of US$20 trillion have made more than 1,000 commitments to purchase renewable energy, reduce their emissions in line with the best available science, set carbon prices, and end deforestation. Walmart, the largest company by revenue and the largest private employer in the world, committed to reduce emissions by 18 percent. In making the announcement, CEO Doug McMillon said, “We want to make sure Walmart is a company that our associates and customers are proud of—and that we are always doing right by them and by the communities they live in.”

These companies are part of a growing movement in the private sector that sees profits, job creation, competitiveness, innovation, and stewardship of the environment as a virtuous circle—one that delivers for shareholders, workers, and communities across the globe.

Companies like these are committed to clean power because it makes business sense. Many of these companies are achieving an average internal rate of return of 27 percent on their low-carbon investments. And research conducted by CDP shows that decoupling growth from carbon leads on average to a 29 percent increase in revenue alongside a 26 percent drop in emissions.

These companies recognize that renewable energy technologies, such as wind and solar, have low and stable marginal costs that are generated or purchased at or below the cost of fossil-fuel-generated power sources. This allows companies to hedge fuel price volatility and future increases in electricity rates. An increasing number of these companies are using power purchase agreements to lock in electricity prices for 10-20 years, providing cost certainty. Global investment in renewable energy power capacity in 2015, worth US$265.8 billion, was more than double the dollar allocations for new coal and gas generation (estimated at US$130 billion in 2015).

Many leading businesses have stated their clear desire to see the CPP survive. In April 2016, Amazon, Apple, Google, and Microsoft jointly submitted a brief to the U.S. Court of Appeals for the District of Columbia Circuit in defense of the Clean Power Plan. By the third quarter of 2016, these companies were the top four most valuable publicly traded companies in the world by market capitalization, accounting for more than 7 percent of U.S. GDP. The four companies have all stated clearly that the Clean Power Plan incentivized renewable energy and enabled business to reconcile duty to shareholders with care for community and planet.

Business has set a course for a low-carbon economy fueled by clean power and intends to continue that journey, irrespective of changes to U.S. federal policy.

2. The political will to act is resolute across the globe and deep within the United States.

The historic Paris Agreement on climate change brought together 196 governments to commit to deep decarbonization well before the end of this century. This commitment is already being translated into national climate policies in the form of 189 national climate action plans. Collectively, these plans provide business with the direction, confidence, and certainty it needs to make long-term investments in innovation and infrastructure.

Importantly, the plans represent more than US$13 trillion in clean energy investments over the next 15 years. This global multistakeholder consensus remains intact, despite today’s announcement, and will survive policy volatility in Washington in the coming four years. Meeting in Marrakech, Morocco, days after the U.S. presidential election, nearly 200 nations adopted the Marrakech Action Proclamation, reaffirming their commitment to the full implementation of the Paris Agreement. They have been resolute in their belief that “momentum is irreversible,” as it is “driven not only by governments, but by science, business, and global action of all types at all levels.”

In addition, other countries are increasingly assuming a leadership role in the transition to a low-carbon economy. China issued a statement that U.S. political changes would not affect its commitment to realize the ambition of the Paris Agreement. More importantly, China is moving ahead with increasing its non-fossil-fuel share of energy use to around 20 percent by 2030, reducing the carbon intensity of its economy by 65 percent, and launching a national emissions-trading system. Each year, China adds roughly the total existing electricity capacity of a large U.S. state and is the largest investor in renewable energy, spending over US$54 billion in 2013 alone.

We encourage the president to rethink today’s decision. Retreating from the Clean Power Plan injects business uncertainty where it is not needed, turns away from an innovative approach to clean energy that will create valuable new business opportunities, and is out of step with the clearly stated objectives of the most dynamic businesses in the United States and the world. 

Blog | Monday March 27, 2017

The Five Levels of Building an Ethical Culture

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How to build and sustain an organization whose employees are happy, motivated, and ethical remains one of the most complex, elusive questions confronting business leaders. Organizational culture is determined by the interaction of systems, norms, and values, all of which influence behavior. 

Much discussion of organizational culture still focuses on structural changes to corporate governance and compliance systems, along with drives to identify “bad apples.” Alternatively, we find glossy brochures, chief happiness officers, bonding exercises, and free beer. Still, public trust in business keeps falling and corporate scandals persist.

In a new BSR working paper, “The Five Levels of an Ethical Culture,” we argue that companies seeking to understand and build an ethical culture should consider systems thinking and group dynamics theory. In the paper, we define what a successful approach looks like, drawing on our experience helping companies create cultures of sustainability, reviewing a broad range of academic theories, and interviewing 23 ethics experts.

Our findings suggest that companies often overlook relationships among and within groups in the organization. Organizations are open systems: Their properties are greater than the sum of their parts, and these properties nest within other systems, forming a network of relationships. Efforts to change culture must therefore focus on every level in the system. These efforts should target individual engagement and motivation, interpersonal interactions, group dynamics, relationships among groups, and interactions with external organizations, including suppliers, customers, competitors, and civil society. Without a comprehensive, multilevel approach, employees will notice any mismatches in the signals an organization gives, and this will undermine efforts to build an ethical culture.

The paper explores five levels at which companies should build an ethical culture.

1. Individual: How individual employees are measured and rewarded is a key factor that sustains or undermines ethical culture. In the face of pressure to meet growth targets by any means necessary—a belief that the ends justify the means—unethical behavior is to be expected. Therefore, the rewards system is an excellent place to start. And diversity and inclusion initiatives enable individual employees to bring their whole selves to work: Employees who feel it unnecessary to hide aspects of their social identity to fit into the dominant culture will experience less conflict between personal and organizational values and will express themselves more confidently—making them more inclined to raise concerns about ethics.
2. Interpersonal: Organizations can also focus on how employees interact across the hierarchy. Abuse of power and authority is a key factor that degrades organizational culture. When decisions around promotions and rewards seem unfair and political, employees disregard organizational statements about values and begin pursuing their own agendas. Building an ethical culture from an interpersonal perspective requires meaningful protections that empower all employees and stakeholders, even the least powerful, to raise concerns and express grievances. Meanwhile, leaders must recognize the outsized role they play in setting culture and driving adherence to ethics, and they must learn to exercise influence carefully.
3. Group: Socialization into group memberships and relationships is a core aspect of human culture. At work, the key determinant tends to be an employee’s group or team. As organizations become more geographically diffuse and loosely aligned, it becomes harder to set and define consistent organizational culture. Focusing on team conditions can empower middle managers to feel responsible for changing culture and group dynamics to foster more effective ways of working. While clarity in roles and tasks is key to a successful team, so is psychological safety. If employees feel secure in taking risks and expressing themselves, teams will be more creative, successful, and ethical.
4. Intergroup: The quality of relationships among groups is critical to consider in any attempt to build an ethical culture. Celebrating a team whose high performance may stem from questionable conduct gives it power and a mystique that is difficult to challenge, and this can undermine values across the organization. Teams working in sustainability or compliance often need to scrape for power and resources; when members are attached to matrixed working groups, accountability can get watered down.
5. Inter-organizational: Most discussions of organizational culture focus on internal relationships. Still, employees are keenly conscious of how a company treats suppliers, customers, competitors, and civil society stakeholders, so building and maintaining stakeholder trust will improve organizational culture. Moreover, companies need to ensure that their values and mission statements amount to more than words on a website. Business success and core values are not contradictory concepts. That said, building an ethical culture sometimes means walking away from lucrative opportunities. Companies can be sure their employees will notice.

However enormous the long-term rewards, there is no single, simple formula for building an ethical culture. We at BSR hope to gather ideas and continue this discussion. We’ll be grateful if you download this working paper and send us comments, criticisms, and real-world examples of approaches that you have found successful—or not.

Join BSR’s Alison Taylor at the OECD Integrity Forum, in Paris March 30-31, where she will speak on the plenary panel “Equality, Inclusion, Trust: The Real Value of Integrity.” Download BSR’s new working paper, “Five Levels of an Ethical Culture.”