Blog | Tuesday November 12, 2019

The New Climate for Business

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We are at a hinge point in history.

The French refer to the 30 years after the end of World War II as “Les Trente Glorieuses,” or “The Glorious 30 Years,” when prosperity flowered, culture was dynamic, and peaceful conditions prevailed after two devastating wars.

For business, the three decades following the fall of the Berlin Wall in 1989 can be seen the same way. During that time, the market economy has been the world’s dominant organizing principle, business has largely thrived (notwithstanding the global financial crisis), innovation has flowered, and huge numbers of people have enjoyed improved living conditions, especially in the Global South.

As we enter the 2020s, we are at a new hinge point in history. Every business today is facing three strategic challenges:

• First, there is the need to redefine the role of business in society, in sync with changing expectations, and establish clear business purpose that goes beyond short-term profits.
• Second, we face the urgent objective to shift the economy to a path that delivers truly shared prosperity that respects the natural boundaries of our planet, not least the climate crisis.
• Third, every company must craft a strategy that navigates an unprecedented set of disruptions—and in some cases existential questions—that are rapidly reshaping the competitive environment.

These strategic challenges come as a result of major paradigm shifts that have taken place in recent years. Changes in policy, politics, public perception, and the natural world are creating profound impacts for business.

First and foremost, after decades when markets were seen as the ultimate, efficient vehicle to deliver broad societal benefits, the public today is increasingly skeptical about this model, and the light-touch regulation that has marked the past several decades is now distrusted by many.

Our natural resources are also under threat, with considerable impacts for public health and stable, thriving economies. Simply put, the commodities on which we rely for sustenance and enjoyment can no longer be taken for granted.

The rising tide of innovation has also had a fairly wide berth; today, there is more concern about the impacts of new technologies and business models, bringing about the “techlash.”

The accumulation of wealth in the hands of a few is being questioned at a time when the “precariat” is growing, with public anxiety about declining living standards leading to political and economic backlash. And for many interconnected reasons, the consumption-driven economy that has been an engine of growth can no longer be taken for granted as the dominant model. The “religion” of ever-increasing economic growth is losing adherents, and there are signs that many people are seeking satisfaction in new and different ways that do not involve consumption of products.

In this context, many are calling for more activist government. At the same time, nation-states are struggling to deal with global challenges, with many turning toward populism and nationalism and a crackdown on civil society. Political uncertainty and distrust have become endemic.

All of this adds up to a New Climate for Business. The framework conditions that have shaped our world, and the world of business, have changed.

The Decisive Decade Ahead

The fundamental changes reshaping our energy systems, our food supply, and water availability demand comprehensive systemic solutions. Sustainability disconnected from investors, policymakers, and communities will have no credibility.

These changes come as we enter the decisive decade of the 2020s. The next 10 years will be decisive for business, and for all of us. We will either deliver on the Sustainable Development Goals (SDGs) or we won’t. We will peak emissions in line with the Paris Agreement or we won’t. Business will regain public trust or it won’t. We will re-establish social mobility and reduce income inequality or we won’t.

Here is what we know for certain: The diverse and powerful assets of business are essential if we are to build a resilient, fair, and sustainable economy. It is impossible to imagine achieving the promise of the decade ahead without business. And it is equally impossible to imagine that outcome with business as usual. This is a time when the scale of change and challenge requires big vision, high levels of ambition, and a strong sense of urgency.

The inescapable implication of this is that sustainable business as we have known it is not enough. So, standalone sustainability projects will have their place, but incremental improvements won’t deliver the SDGs. The fundamental changes reshaping our energy systems, our food supply, and water availability demand comprehensive systemic solutions. Sustainability disconnected from investors, policymakers, and communities will have no credibility. Measurement and reporting that fails to embrace all forms of value misleads markets and leads to bad outcomes. And, in an era of profound change, risk averse leadership only creates more ... risk.

The New Climate for Business demands a radically new approach to business and markets. As Marc Benioff wrote recently in the New York Times, “Capitalism as we have known it is dead.” Business as we need it, however, is only getting started. As we enter the 2020s, businesses will be judged by their purpose, their ambition, their urgency, their openness, and their innovation. The only businesses that will thrive in the decade to come, and quite possibly the only businesses that will survive for the long-run, are the ones who will master these challenges.

The question then is how business will “meet the moment.”

How Will Business Meet the Moment?

At this critical time, when business leadership is so badly needed, how do we define it?

This starts with purpose. As the Financial Times wrote in September, “businesses that combine profit with a wider purpose will benefit from the reinforced commitment of employees and customers. Those that fail to do so will not survive to become the companies of the future.” For all the talk these days about purpose, this hits the right note: It is only those companies with a clear and motivating purpose that will make it through the fundamental changes reshaping our world and the world of business. And more and more, businesses are defining their purpose in terms that make important contributions to the achievement of the SDGs: through nutrition, clean transportation, financial independence, and healthcare, for example.

Business is traditionally reticent about expressing big goals without being sure that it can achieve them. This caution is as unsuited to today’s world as the rotary phone or an all-male board of directors.

The businesses that will thrive in the decade to come will be the ones with the most ambitious plans. Business is traditionally reticent about expressing big goals without being sure that it can achieve them. This caution is as unsuited to today’s world as the rotary phone or an all-male board of directors. Ambition is the best way to create truly resilient business strategies.

Ambition must start with climate, where the drive for net-zero carbon objectives has fast taken hold. What’s intriguing about this is that many of those embracing net zero—from nation-states like the United Kingdom to companies like Maersk—cannot be sure about the precise pathway to this achievement, but state the goal nonetheless. Big questions require big solutions, and it is exciting to see companies and business leaders shed their timidity about what is possible. There can be little doubt that this approach is not only the only way to achieve big goals, but also motivates and attracts staff and provides a north star during a time of change.

Business leadership will also be defined increasingly by a company’s commitment to and facility for collaboration. The vision of leadership as a solitary exercise by a singular visionary leader must be retired. The leaders we need today know the limits of what they can accomplish on their own, know how to partner effectively, and understand that achieving their goals with respect to sustainability can only happen through systemic change. We are facing systemic challenges: an economy that has exacerbated inequality, an energy system that must shift to net zero, food systems under threat, and a social contract that is failing to meet 21st-century realities. It is only with a commitment to large-scale collaboration that we can shift these systems in a more positive direction.

Today’s Priorities

And it is the Sustainable Development Goals that provide the north star for business and the world. To reach big long-term goals, we must act with urgency today. Here is an urgency agenda for 2020, built to deliver for 2030.

In Conclusion

Let us use every day to turn business to the task of innovating for social benefit, attacking climate change, and reversing inequality.

Les Trente Glorieuses (The Glorious 30 Years) is part of history—one of prosperous growth and peaceful society. So too is the period since 1989. Now we face another hinge point in history, and it is up to us to build the future, and to work toward a “Glorious 2030.”

Dean Acheson, the U.S. Secretary of State in the aftermath of World War II, was famously “present at the creation” of the postwar order that led to considerable human progress. We, who are present at the creation of our new era, would do well to remember his words: “Always remember that the future comes one day at a time.” As we grapple with this New Climate for Business, let us use every day to turn business to the task of innovating for social benefit, attacking climate change, and reversing inequality.

Blog | Tuesday November 12, 2019

The State of Sustainable Business 2019: Toward a Critical Decade

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When BSR launched its first State of Sustainable Business survey with GlobeScan in 2008, it would have been inconceivable for influential corporate leaders and major investors to engage in a very public, candid, and existential conversation questioning the future viability of capitalism, the foundation of our economic and social systems for the past three centuries.

Fast forward to 2019: We see influential CEOs declaring that “capitalism as we know it is dead” and calling for a new capitalism that values purpose alongside profit. The CEOs of the Business Roundtable have essentially called for a redefinition of the purpose of a corporation, embracing a form of “conscious capitalism” in which the need to deliver value to all stakeholders has surpassed the previously unchallenged primacy of shareholders. 

These are welcome and long-overdue conversations and developments and provide a particularly compelling backdrop for us to unveil the findings of our 11th annual State of Sustainable Business survey, which includes responses from business leaders representing 125 global companies—half of BSR’s global membership network. As it has been since its launch, the survey features the perspective of the business leaders who do sustainability work daily inside some of the largest and most influential companies in the world.

This survey is also our last before we move into the 2020s, and as many companies had sustainability strategies with a 2020 end date, we wanted to find out how our members think they fared. More than half of BSR companies surveyed reported having a sustainability strategy with a 2020 end date or milestone, but only 45 percent of those said they considered their company to have achieved a great deal of success in reaching their objectives—which suggests we are off track to achieve global sustainability targets. 

We need business to dramatically increase its sustainability ambitions over the coming decade. 

Given the urgency of bending the curve on emissions and lifting communities and people out of poverty while supporting fundamental human rights, the message here is clear: We need business to dramatically increase its sustainability ambitions over the coming decade. 

Furthermore, to truly achieve the sustainable change we need, significantly more effort must focus on a company’s value chain. Half of respondents say their efforts to address sustainability within supply chains have been ineffective—though they report being more effective in cases where they have been able to apply new technologies like blockchain.

One of the more interesting findings was that while a majority of companies plan on embedding sustainability more deeply into the business, less than half will be emphasizing long-term value creation, and fewer still are focused on trying to influence policy-making frameworks. 

While about half of companies report a “fair amount” of focus on public policy across all issues, with human rights and climate change drawing somewhat more attention than inclusive growth and women’s empowerment, we do see an opportunity for companies to make it more of a focal point. Given the significant business influence over policy frameworks and the urgency of achieving sustainability goals, we hope to see more companies speaking out strongly on these vital issues.

Another noteworthy insight is that investor interest has become a major driver of corporate sustainability efforts overall. While reputation risks and customer/consumer demand continue to be identified as the most important drivers of company sustainability efforts, professionals citing investor interest as one of key drivers of sustainability efforts has increased significantly over the past year, with 40 percent citing it as a top three driver, up from 25 percent in 2018.  

The integration of sustainability into the core of business strategy continues to be an opportunity for more ambitious company action. Despite continued CEO focus—more than half of companies say sustainability is among their CEOs’ top five priorities—and rising investor interest, little has changed in the past three years in the level of self-reported integration of sustainability into the core of the business.  

Overall, 66 percent of companies say that sustainability is at least fairly well integrated, exactly the same as it was in 2016. Integration of sustainability into strategic planning and into products and services is being pursued by only about half of the companies surveyed. 

Climate change, ethics and integrity, diversity and inclusion, and human rights remain the top sustainability priorities for companies. 

As we move into the 2020s, the survey also revealed that climate change, ethics and integrity, diversity and inclusion, and human rights remain the top sustainability priorities for companies. 

However, in 2019, climate change has emerged from the pack, making a significant jump with more than 50 percent of respondents citing it as a “very significant” priority over the coming year. Company leaders exploring how they can move toward net-zero carbon emissions, while also assessing their climate risk scenarios, are no doubt also well aware of the increased sense of urgency expressed by scientists and other experts and the surge of public demonstrations demanding urgent action to limit global temperature rise to 1.5°C.   

It is worth noting that despite its ranking as a top corporate priority, the survey reveals minimal movement in the number of companies setting an internal price on carbon.  Only 31 percent of companies either already have, or are moving to implement, an internal carbon price. In addition, only one-third of companies say they are focused on managing climate change through tier-2 suppliers and supply chains. Most businesses with science-based targets will need to address these emissions as part of the global effort to bend the curve on emissions and limit global temperature rise to 1.5°C.

Companies are becoming more interested in deepening their relationship with stakeholders. 

Finally, we were heartened to discover that companies are becoming more interested in deepening their relationship with stakeholders. As we noted in our report, Five Steps to Stakeholder Engagement, earlier this year, we are living in an era of increased investor interest, widely accepted international agreements, heightened public transparency, and a digital media environment in which information is shared at lightning speed. Stakeholder engagement is more important than ever, and the fact that companies are taking it seriously is good news indeed.

We will be looking forward to connecting with our own stakeholders, including our members and other partners from business, civil society, and the broader sustainability community, at the BSR Conference 2019 in San Jose this week, where The New Climate for Business will take center stage. We’ll discuss our common challenges, and the opportunities for stepped-up corporate action on sustainability as we prepare for the critical decade of the 2020s.

Reports | Tuesday November 12, 2019

The State of Sustainable Business in 2019

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Blog | Friday November 8, 2019

The New Climate for Corporate Political Accountability

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Corporate political accountability has become an increasingly important issue for stakeholders, particularly investors who often rate it as one of their top corporate sustainability issues. Over the past three years, investors have filed almost 300 environmental, social, and governance (ESG) corporate resolutions on this topic alone.

Specifically, investors and other stakeholders are focused on four key aspects of political accountability: corporate lobbying, political contributions, political/industry association support, and public positions on sustainability issues. According to the Center for Responsive Politics, through its website opensecrets.org, a record amount of over $3.4 billion was spent on lobbying in the U.S. at the federal level in 2018, with the majority coming from corporations and the industry associations they support. A significant amount was also contributed at the state level.

The ever-increasing involvement of corporate money in the political process can be traced in a large extent to the Supreme Court case of Citizens United almost 10 years ago. The ruling allowed for unlimited contributions by corporations and unions, the development of political action committees (PACs), and “dark money” contributions by non-disclosed donors.  

What can corporations do to demonstrate alignment between their political activity and corporate sustainability strategies and goals? 

A large concern for an organization such as BSR, as well as many other stakeholders, is that while corporations develop sustainability strategies on environmental and social issues, subsequent political activity is not aligned with those sustainability positions. For example, many leading auto companies have strategies and goals to reduce climate and environmental impacts. It is not always clear, however, if political activity and lobbying efforts by the same auto companies are aligned with those environmental goals, particularly in cases where they are not disclosed.  

This leads to the question: What can corporations do to demonstrate alignment between their political activity and corporate sustainability strategies and goals? We recommend the following three good practice approaches.

Transparency

Although there are some legally required disclosures for corporations on their political activity, good practice – and what is increasingly expected by stakeholders – is that corporations go further. The annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability, which was released in late October and is managed by the Center for Political Accountability and Zicklin Center for Business Ethics at Wharton Business School, is a well-respected and publicly available resource for companies to gauge how well they are disclosing their political activities against 24 scoring criteria.

A positive takeaway is that the Index shows there has been a “trend toward enhanced accountability, transparency, compliance, and oversight across all corporate sectors” since Citizens United. I recently spent a day with CPA-Zicklin team, as well as many leading experts on this topic, and the key takeaway from the discussion was that transparency alone is not enough – the intent of the political activity and public positions on issues are what is really important.   

Principles

A key attribute of a best practice approach is to have principles-based alignment on the topics which a corporation will advocate for/against to provide insight into the intent for political activity. A good example of leadership is Microsoft’s Public Policy Agenda which provides a framework for the sustainability issues on which they engage the political process. As a principles-based document, Microsoft provides a set of material sustainability issues – e.g. freedom of expression, immigration, privacy online, etc. – on which it plans to advocate and the general positions it will take. This Agenda allows for a clear and concise way for stakeholders to review Microsoft’s actual political activities against their own stated positions.

Partnerships  

A major form of corporate lobbying and political activity comes indirectly through political or industry associations. Many of these types of organizations have diverse supporters and take positions on a variety of public policy topics which makes it complex to determine how well aligned they are with a corporation’s sustainability interests. In addition, many corporations do not have clear criteria to decide which groups they should support and how to manage any conflicts of interest with these groups.

Shell is a good example of a company that has a publicly available report on its involvement and criteria for political/industry associations. As an proof point, Shell recently ended support for an industry association due to increasing misalignment. A lesson learned is that periodic review for alignment on material sustainability issues is needed.

Along with senior leaders from the Center for Responsive Politics, Trillium Asset Management, and BSR, I will be exploring this topic further next week during the session The New Climate for Corporate Political Accountability at the BSR Conference 2019 taking place November 12-14 in San Jose, California. I hope you can join us to participate in the discussion of how corporations can improve their efforts and adopt good practice with regards to political accountability. We look forward to seeing you there.

Blog | Thursday November 7, 2019

Sustainability at AT&T: Q&A with John Schulz, Director, External Affairs, Sustainability

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For years, the impact of a company’s sustainability strategy has been reported through footprints or isolated examples. In today’s new climate for business, the expectations are higher: stakeholders are looking to understand the sustainability impacts of the entire company—including the products and services that generate its revenue.

BSR member AT&T is an example of a company driving greater impact by making sustainability part of its revenue model. John Schulz, director of sustainability integration at AT&T, will be joining the BSR Conference 2019 next week in San Jose to speak on this topic further during the session Beyond Case Studies: Measuring and Communicating Total Impact.

We had a few minutes to catch up with John to discuss AT&T’s sustainability efforts thus far and what it’s focused on as we enter the 2020s.

As we approach 2020, what is one sustainability achievement that you are proud of at your company?
I’m very proud of AT&T’s 10x Carbon Reduction Goal to enable greenhouse gas emissions (GHG) savings for our customers 10 times the footprint of our operations by 2025. It’s ambitious at a time when we need that kind of spirit. It requires us to work two sides of the equation: reducing our own emissions and developing technology that helps our customers do the same. Our renewable energy purchases—which will surpass 1.5 gigawatts of clean energy—are also helping us advance our goal and accelerate the transition to the low-carbon economy.

I’m extremely proud that since launching our goal, we’ve reduced our scope 1 GHG emissions by just over 24 percent from our 2008 baseline. Even more, our customer solutions have enabled GHG savings just over two times the footprint of our operations. This is great progress, but we will continue to stay focused on our goal to help advance global climate goals and address climate change.

It’s been four years since AT&T launched its goal to enable carbon reductions for our customers ten times the size of its own footprint. What have you learned in that time?
It’s all about the customer. Every time we talk to customers, we’re finding new challenges that they’re facing and learning how AT&T technology can be part of their path forward. Urgency is critical— to meet the goal and to address climate change—so it’s more important than ever that we get to know our customers’ business and dig in with them to identify ways that new technologies like 5G and the Internet of Things (IoT) can transform their business and drive efficiency and sustainability.

How is the work towards the 10x goal related to the transformation of AT&T’s business and services? 
AT&T is focused on delivering services to several key verticals. We’re developing technology solutions across industries that present big opportunities to drive emissions reductions. Technologies like IoT, 5G, video analytics—all backed by AT&T’s highly secure network—have the potential to greatly reduce the environmental footprint of the key industries we serve.

What has been the response from colleagues in the business and AT&T’s customers?
Initially, our 10x goal was met with some surprise. It’s an audacious goal. And it’s not necessarily obvious how AT&T can play a role in greenhouse gas emissions reduction for our customers. But as soon as we started telling real-world stories via the 10x case study series, people started to understand it.

By transitioning from a concept to an actual implementation story, complete with calculated impacts, the light went on for customers and AT&T employees. Once that started to happen, surprise changed into excitement. The ability to collaborate with a company with the scale and expertise of AT&T can give a sense of optimism to a project. Climate change is daunting, so knowing that a company like AT&T is in the fight with our customers can help give a sense of hope that we’re going to be able to figure this thing out.

What is the biggest evolution you have seen in corporate sustainability in the last decade?
The businesspeople are becoming more and more engaged in environmental issues and solutions. They are doing this because business can play a role in helping to solve environmental challenges and because investors, employees and customers are looking to business for action and solutions. At AT&T, we’ve seen significant business engagement in our connectivity and IoT solutions that are helping our customers reduce emissions and meet their sustainability goals. In this case, it’s an example of how environmental stewardship and economic opportunity can go hand in hand. 

Blog | Wednesday November 6, 2019

The Case for Prioritizing Net Zero Carbon Emissions, Especially in Value Chains

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As we breathe smoky air from another devastating wildfire that is threatening Northern California communities, we are once again reminded of the need to aggressively address climate change locally and around the globe.

The fires follow catastrophic damage from Hurricane Dorian in the Bahamas and historic flooding in the Midwest. As the frequency and strength of extreme weather events increase, the effect of climate change on our planet and communities has become ever present—making it harder for citizens, governments, and businesses worldwide to ignore the impact.

Kaiser Permanente and BSR recently partnered with Newsweek for a survey of 300-plus multinational companies on progress toward carbon neutrality and found that 70 percent of corporations are experiencing disruptions in operations due to climate change. Now, these businesses’ efforts to reduce their carbon footprint and integrate sustainable practices into their operations have created new challenges—and opportunities—for global supply chains.

According to the 2018 National Climate Assessment, we must achieve net zero carbon emissions by 2050 or earlier to prevent irreversible harm to our planet’s health. Newsweek’s survey results indicate momentum is building across industries to embrace sustainable programs.

For example, we were encouraged to find that 76 percent of companies surveyed have set a goal to achieve net zero carbon emissions from organizations’ operations, with 90 percent aiming to reach this goal by 2030.

These findings reinforce the urgency of the situation at hand and spotlight the importance of developing adaptable policies and building resilience to stay afloat. To do so, companies must learn to prepare, plan, and adapt to changing environmental conditions to mitigate risk for the climate, customers, and bottom line.

Many businesses’ primary motivation to achieve carbon neutrality is insulation from future climate risks.

Disruptions in the Supply Chain

Globally, seven in 10 respondents reported that climate-related events had disrupted supply chains over the past year, with six in 10 experiencing direct impacts to their operations.

As seen in the aftermath of Hurricane Maria, climate-fueled events can rupture the global supply chain, leading to months of nationwide shortages for crucial supplies like saline bags at hospitals, including Kaiser Permanente’s.

Witnessing the sometimes devastating effects of climate change firsthand, it comes as no surprise that many businesses’ primary motivation to achieve carbon neutrality is insulation from future climate risks. For companies like Kaiser Permanente, this means embedding efforts to mitigate climate change into day-to-day operations—including how the company manages buildings; purchases food, medical supplies, and equipment; consumes energy; and processes waste. By reducing emissions through climate smart programs and advancing environmental stewardship across supply chains, organizations can catalyze decarbonization across the economy.

Reducing Upstream and Downstream Emissions

Focusing only on emissions that companies have under their direct ownership or operational control misses those which occur through the products and services businesses purchase and also in how their own products and services are used.

In fact, these so-called “Scope 3 emissions” account for the largest volume of emissions that companies can influence. Reducing emissions associated within a company’s value chain offers the potential for aggressively mitigating the worst impacts of climate change.

Examples of climate smart actions in the value chain include:

• Purchasing from suppliers with lower carbon emissions
• Increasing product lifespans and reducing waste
• Reducing vehicle trips by employees and customers
• Shifting investments away from fossil fuels

By addressing emissions and encouraging suppliers to follow suit, corporations targeting Scope 3 emissions are leading the charge toward net zero.

In addition to revising procurement standards, our survey results indicate leaders actively engage and support key suppliers to reduce emissions—with six in 10 executives recognizing the imperative for companies’ main suppliers to switch to renewables as part of the organization’s net zero goals.

BSR encourages its network of members to set results-driven goals and embrace an “act, enable, influence” framework to advance an effective climate strategy.

By first acting to address operational emissions, companies can then encourage and enable action by suppliers and partners to reduce downstream and upstream emissions at scale. However, Scope 3 emissions are often spread thinly across supply chains, so without an effective influence strategy, companies will not foster the policy environment needed to achieve these goals. By addressing emissions and encouraging suppliers to follow suit, corporations targeting Scope 3 emissions are leading the charge toward net zero.

A Shared Goal for All: Collaborating for a Healthier Planet

The path to achieving net zero by 2050 isn’t easy, but it’s achievable. No one organization, industry, or government can do it alone and it will take a collaborative, coordinated effort to succeed.

Leading organizations are setting themselves apart by embedding a core commitment to sustainability within their existing corporate mission. Enacting such a cohesive strategy will solidify partnerships, which is ultimately the driving force for change in the space. On average, survey respondents with net zero goals listed 10 partners from a list of 18 that they believe will have a material impact on achieving defined goals. By involving key leaders in the sustainability field, businesses can accelerate success in reaching these target numbers.

The road to net zero will require continued public-private and cross-industry collaboration from leaders.

Join Us

Partnerships with NGOs and involvement in coalitions like RE100, a network of companies committed to sourcing 100 percent renewable energy, form a critical part of Kaiser Permanente’s zero carbon strategy—Kaiser Permanente is proud to be well on its way to being carbon neutral in operations in 2020.

At Kaiser Permanente, we prioritize partnerships to develop policies and systems that strengthen community health and protect our environment. The impact of climate change on both our environment and human health is substantial and affects everyone, with the greatest impact falling on those who are most vulnerable.  

BSR continues to build its portfolio of collaborations and coalitions aimed at enabling companies to take effective climate action. Long-standing efforts, such as the Clean Cargo Working Group, Future of Fuels, and our work with the We Mean Business coalition, have been joined in the last year by our new Value Chain Risk to Resilience platform and the formal launch of the Renewable Energy Buyers Alliance, in partnership with WWF, World Resources Institute, and the Rocky Mountain Institute.

The road to net zero will require continued public-private and cross-industry collaboration from leaders. Next week, BSR will convene thought leaders to collaborate on the path forward for businesses to address the most pressing sustainability issues, including climate change, at the BSR Conference 2019: The New Climate for Business in San Jose, California.

We invite you to join us and collaborate with like-minded organizations. Together, we will pave the way for companies, people, and the planet to thrive in this era of rapid change.

Blog | Wednesday October 30, 2019

Google’s Human Rights by Design

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BSR has previously emphasized the importance of human rights by design in the technology industry. Today, Google announced the launch of a product that took this approach with its new celebrity recognition application program interface (API) for use in the media and entertainment industry. The API will enable Google enterprise customers to identify celebrities in their content at a frame-by-frame or scene-by-scene level using a database of celebrity images licensed by Google.

Google commissioned BSR to conduct a human rights assessment of the API while it was in development to identify, prevent, and mitigate potential human rights impacts. This deliberate integration of human rights into the product design process is best practice—and although it is never possible to eliminate all human rights risks, the result of this collaboration is an API with a significantly lower human rights risk profile.

Working collaboratively, BSR and Google identified a range of potential issues, challenges, and dilemmas relating to the field of celebrity recognition products. These were further analyzed by BSR for potential human rights impacts, such as privacy, freedom of expression, security, child rights, non-discrimination, and access to culture. BSR then developed recommendations to address these impacts, which Google integrated into key elements of the API’s development.

Among the BSR recommendations adopted by Google prior to the API’s launch were the following:

• Applying “Service Specific Terms” to limit the use of the celebrity recognition API to professionally filmed media content (e.g., not user generated content) that the customer owns or has adequate consent to use.
• Restricting inclusion in the celebrity database to individuals whose primary profession involves voluntarily being the subject of public media attention.
• Implementing an opt-out policy to allow celebrities to request removal from the Google-managed celebrity database.
• Establishing a customer “whitelisting” process whereby the customer must be within a qualifying industry (entertainment, media, sports), declare an allowable use case, and agree to only use professionally filmed media.

It is BSR’s view that, taken in combination, these measures serve to prevent, avoid, and mitigate potential adverse impacts and provide Google with a firm basis to reduce risks to human rights.

The result of this collaboration is an API with a significantly lower human rights risk profile.

In addition to actions that can be taken by Google, BSR’s recommendations also included action that can be taken by two other important constituencies: other providers of celebrity recognition tools and the media and entertainment industry.

Google is only one of several companies currently offering a celebrity recognition tool, and it is important that the entire industry deploy approaches that address human rights impacts. For this reason, BSR concluded that industry-wide approaches (such as industry principles or standards), public policy, and regulation may be needed to mitigate the potential human rights risks of these tools.

BSR’s assessment also emphasized the crucial role played by media and entertainment companies using the API responsibly. For this reason, BSR recommended that companies making use of celebrity recognition products and other facial recognition tools should undertake their own human rights due diligence. This builds upon BSR’s perspective that the users of artificial intelligence products need to be much more engaged in understanding their impacts.

Google’s deliberate integration of human rights into the product design and development process—prior to the launch of a product—provides an excellent case study, and we encourage other companies to adopt similar practices as they develop their own products.

Blog | Friday October 25, 2019

Human Rights in a Global Supply Chain: Challenges and Approaches

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Approaching global supply chains from a human rights management perspective can seem like a daunting challenge. Implementing a human rights program within the “four walls” of our own companies can be difficult enough, let alone extending such oversight programs beyond the first tier of suppliers—which may include tens of thousands of entities across the globe, affecting potentially hundreds of thousands of people and communities. While the UN Guiding Principles on Business and Human Rights (UNGPs) are clear that the duty to identify, prevent, mitigate, and account for adverse human rights impacts extends across a company’s value chains and business relationships (including suppliers), the UNGPs do not provide concrete guidance on how to apply such principles in practice. 

Like many challenges, the question of how business should address human rights in difficult and complex operating environments is one that benefits from a collaborative approach where companies can share best practices and learn from one another’s experiences—which is why BSR established the Human Rights Working Group (HRWG) in 2012. The collaborative initiative seeks to help companies implement the UNGPs by providing operational-level guidance and bringing together a global community of business and human rights professionals. The summer meetings of HRWG, held in St. Louis, Tokyo, and Stockholm, brought together representatives of 40 companies across sectors to connect on the field’s most pressing issues. 

Over the course of the summer meetings, HRWG’s discussion covered topics ranging from women’s empowerment in the business context to applying human rights considerations to artificial intelligence (AI) systems, as summarized in Human Rights Insights: Trends from the Human Rights Working Group’s Summer Meeting, which was published today. 

All companies, regardless of industry, should consider the human rights risks along their supply chains and take the steps above to ensure that their practices respect and protect the rights of workers and communities.

One topic that highlighted the challenge of implementing the UNGPs in complex operating environments is the question of supply chain oversight. Questions that are commonly raised when this topic is discussed include: How far down a supply chain must due diligence reach? How can a company have leverage over a supplier many tiers down the supply chain? How can a company possibly assess a supply chain that in many cases is comprised of tens of thousands of suppliers? 

The Working Group proposed the following approach to tackling these challenging questions:

• Map your key supply chains down to the commodity or raw material level where possible. Key supply chains are those that are important to the business and/or its product lines. For example, raw cocoa and dairy supply chains for a chocolate manufacturing company could be classified as key supply chains, whereas IT products for the company’s office workers would not. While the UNGPs expect companies to assess all potential risk and impacts eventually, including those in non-key supply chains, prioritization is essential, and beginning with key supply chains allows companies to capitalize on their leverage within these business relationships.
• Prioritize high-risk supply chains by analyzing factors such as country risk, commodity or product risk, supplier category risk, and more. Business considerations can also be included in this prioritization process, such as degree of spend or importance to the business; however, risk to the rightsholders in these supply chains is ultimately the most important determinant of risk. 
• Conduct a human rights impact assessment in those identified high-risk supply chains and provide remedy where there is sufficient connection via the UNGPs’ cause/contribute/directly linked framework. Given the complexity of supply chains, in many situations remedy may require a collaborative approach with other key stakeholders, such as peer companies, governments, non-governmental organizations, impacted communities, and more. 

All companies, regardless of industry, should consider the human rights risks along their supply chains and take the steps above to ensure that their practices respect and protect the rights of workers and communities. BSR has several tools that help companies work through the steps above—from mapping supply chains and gaining visibility and transparency to helping companies build leverage and improve remedy and mitigation. Many of these resources are shared in HRWG, along with lessons on implementation shared by member companies. 

BSR members interested in joining HRWG should not hesitate to reach out and connect with us.   

Reports | Friday October 25, 2019

Human Rights Insights: Trends from the Human Rights Working Group’s Summer Meeting

Preview

The second round of BSR’s Human Rights Working Group (HRWG) meetings for 2019 was held between July and September in St. Louis, Tokyo, and Stockholm. Established in 2012, HRWG is a collaborative initiative designed to help companies implement the UN Guiding Principles on Business and Human Rights (UNGPs), bringing together approximately 40 companies from across sectors. In addition to providing operational-level guidance and best practices in the business and human rights field, HRWG has established a global network of business and human rights professionals. The summer meetings covered a mix of substantive and methodological topics, including:

• Human rights methodologies, continued from the Spring round of meetings
• Human rights and supply chains
• Responsible use of technology and Artificial Intelligence (AI)
• Legal trends
• Human rights governance

BSR member companies interested in joining the Human Rights Working Group should connect with us to learn more.

Blog | Wednesday October 23, 2019

The Building Blocks of Integrating ESG into Private Infrastructure Investments

Preview

There is an estimated US$15 trillion global gap between current spending on infrastructure—energy, telecommunications, transportation, and water and sanitation—and what is needed between now and 2040. In many countries, including the United States, infrastructure has been aging and undermaintained for decades due to public funding constraints.

As a result, we have seen a surge of private equity (PE) firms investing in long-term infrastructure projects—often classified under alternative assets. In fact, private infrastructure funds raised over US$80 billion in 2018, double the amount raised just five years earlier. Major global PE firms, such as Ardian and EQT, recently closed multibillion-dollar funds. Some of the world’s largest infrastructure investors, such as Global Infrastructure Partners and Brookfield Infrastructure, are also working towards raising megafunds of US$20 billion or more in 2019.

Many PE firms have come to view environmental, social, and governance (ESG) issues as critical to understanding the long-term risks and unlocking value-creation opportunities with their portfolio companies. While PE firms have made significant progress in integrating ESG considerations into their company-focused equities investing models, infrastructure funds have not been as proactive in integrating ESG considerations into business decisions—and we think this is a missed opportunity.

With more and more PE firms formalizing approaches to responsible investment, we believe there are clear pathways to integrate ESG factors for private infrastructure investors and managers. For instance, the Equator Principles provides a recognized structure for banks to assess ESG risks with infrastructure financing. Given BSR’s experience working with both the world’s largest PE firms and the world’s largest infrastructure companies and our knowledge of ESG precedents and best practice, our recommendations for private infrastructure investment teams are:

1. Be Principled. Establish a corporate principle that ESG considerations for investing should apply to all asset classes. We often hear from private investors that “this fund is different from another.” While funds may be different in some ways, all types of funds should have ESG oversight.   
2. Be Consistent. Develop a separate or overarching responsible investment/ESG policy that addresses the diverse asset classes, including infrastructure, in which the firm invests. In March, BSR released a report with guidance and practical tips that firms can consider while developing an ESG policy. AMP Capital has issued an ESG Infrastructure policy and describes how it integrates these factors across the investment life cycle.
3. Be Aligned. Consider material ESG factors during diligence and align the processes with applicable standards such as the Equator Principles and the International Finance Corporation (IFC) ESG Performance Standards. BSR has been a leading part of the Equator Principles stakeholder engagement process and believes the guidance is applicable beyond just banks.
4. Be Long-term. Given the long-term nature of infrastructure investments, ESG diligence for infrastructure projects should cover the full lifecycle of projects, including monitoring, operating, and maintenance. Investment committees should identify and consider long-term (e.g. climate change) material ESG issues and potential impacts. Futures thinking and scenario analysis might be helpful tools in this regard. Lastly, use an ESG futures framework as an opportunity to highlight the long-term societal benefits that the infrastructure will bring.
5. Be Extensive. Infrastructure projects are often joint efforts, and ESG diligence should include joint-venture partners, third-party infrastructure operators, contractors, and suppliers. A good example of how this ESG partnership approach is being applied is BSR’s Building Responsibly collaboration on human rights and the construction industry.
6. Be Active. Private investors should also be active managers of infrastructure assets in the same way they manage private company investments (e.g. board participation, technical expertise, etc.). In particular, investment teams should be trained with the necessary expertise on ESG risks and opportunities. Partners Group, for example, has developed an ESG Dashboard to track relevant ESG metrics for its infrastructure assets over time, including highlighting the potential areas of improvement.
7. Be Engaged. Local communities, contractors, and other stakeholders are critical for project success. Investments often directly impact the communities in which they are located through employment, social services, and the environment. Engaged operators should be conducting internal and external stakeholder engagements with local stakeholders on a regular basis to broaden their knowledge and awareness of critical environmental and social issues over the life of the investment. GCM Grosvenor focuses its efforts on engagement in this way.
8. Be Transparent. All infrastructure has both positive and negative ESG impacts. Transparency in reporting activities and progress in a balanced way creates investor trust and accountability in the market. Some best practices include completing the annual PRI disclosures for Direct—Infrastructure, disclosing climate-related financial reporting in line with the TCFD recommendations, and engaging with GRESB’s infrastructure platform to improve performance across infrastructure and real assets.

ESG practices for infrastructure investing are still maturing, and many implementation challenges remain. These include: How can firms identify material risks and opportunities and integrate them into pre-investment decision making? How can firms ensure responsible investment principles are upheld across the multiple phases of project execution? How can firms demonstrate ESG business value to their investors and other stakeholders?

While the above guidance does not answer all of the implementation challenges, we believe that the basic building blocks we have recommended can provide the foundation for successful ESG integration and management for infrastructure investors. Our intention is to provide a good place to get started—and often getting started is the hardest part.