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Blog | Monday February 12, 2018

The 5 Stages of Materiality Grief

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Ask a sustainability practitioner what happens after mentioning the word materiality to a colleague for the first time, and she may likely tell you, “wide-eyed bewilderment.” And once that same colleague begins the materiality process, his or her bewilderment often transforms into grief. It is important to understand that materiality—much like grief—is a journey.

It is a journey worth taking, since materiality analysis is an extremely valuable business tool, helping companies like Sanofi bring a diverse set of internal and external stakeholders together in dialogue, Unilever help drive consensus around what topics to prioritize and where to invest resources, Starbucks determine where to focus goal-setting, or Telenor set expectations and boundaries on what information to report. Perhaps even more importantly, materiality can also indicate where not to focus limited resources and attention.

So how to get from grief to value? Here are BSR’s tips to navigate the five stages of materiality grief.

• Denial—We don’t need this. When you begin a materiality process, the first reaction from your colleagues may be closed-fist denial. Materiality can be as much an awareness-raising tool as a change management process, and those new to it may initially resist change. It’s important in this phase to be as transparent as possible about what materiality entails, how individuals will be involved, and how the outcomes will be used.
• Anger—Don't add to my workload! Once you have broken through the initial denial, colleagues may react with anger to the very suggestion of adding to their workloads, claiming that materiality is not their job or is even a waste of time. The best tactic here may be patience, but it’s also worth sharing testimonials and case studies from other internal or external stakeholders to help your colleagues see the value in their participation.
• Bargaining—Fine, but let's do the minimum. At this stage, colleagues accept to be involved in a materiality process but under certain conditions. It helps to understand what colleagues are willing to commit in terms of time and resources, as well as their expectations of what they will receive in return.
• Depression—But I don’t see my function listed as a priority. Once materiality is underway and initial results have been produced, depression may set in. While that may be too strong a word, there are traces of this emotion as colleagues begin to see where their areas or functions appear on a materiality map. They may fear that their function is being de-prioritized or stands to lose resources. Here, it’s important to remind them that all issues, functions, and individuals consulted during materiality are already considered high priority; otherwise, they would not have been included.
• Acceptance—Alright, this actually makes sense. Finally, you reach the end goal of acceptance. After being informed, consulted, and in some cases involved in workshopping the results of the materiality process, colleagues have accepted the outcomes and recognize that the analysis describes a reality they may not have understood before. The real work to drive the results forward begins here.

Thankfully, leading companies are finding ways to avoid the grief altogether—by more closely linking materiality to business drivers from the outset. We see three distinct ways this is happening:

1. Integration of sustainability-oriented materiality assessments into enterprise risk management processes. Companies that have a well-developed enterprise risk management (ERM) process are far better at managing sustainability issues. There is an opportunity for ERM processes to utilize the outputs of sustainability-oriented materiality assessments, and for those two processes to be much more closely aligned. Risk is a key factor in defining priorities for companies like Lockheed Martin, which seeks to reduce the risk of negative impacts to the business, the planet, and society while cultivating long-term, responsible economic and social growth.
2. Prioritization and support for global agendas, such as the Sustainable Development Goals (SDGs). Companies recognize that succeeding in the long run today requires a well thought-through sustainability strategy that aligns with the global risks and opportunities related to business continuity. To that end, the SDGs, while not designed as a business framework, are increasingly applied to company strategy. The SDGs and materiality assessments in many ways complement each other. Conducting a rigorous materiality assessment linked to the SDGs can help companies identify and make the greatest impact on those goals that are most closely aligned with their business models and strategic priorities. Companies like Vattenfall are demonstrating what this looks like in practice.
3. Identifying new value creation opportunities for the organization, such as the allocation of capital. In many ways, materiality is an attempt to express where companies stand to create the most value for their internal and external stakeholders. Companies like Hitachi Chemical approach materiality as a method to maximize value for stakeholders and use it as a key element of their value creation stories.

Are you looking to leverage your materiality process to create a more resilient business strategy? Read our new report, Redefining Sustainable Business: Management for a Rapidly Changing World.

Blog | Monday February 5, 2018

Three Hot Debates in Sustainability Reporting Today

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In 2017, we spoke with more than 50 sustainability leaders from our member companies and other leading organizations to shape our thinking about the future of sustainable business.

These interviews informed our new report, Redefining Sustainable Business: Management for a Rapidly Changing World, which provides a blueprint for company strategy, governance, and management fit for our sustainable development challenge. Included in this blueprint is our point of view about how companies can report sustainability information in ways that enable improved sustainability performance and catalyze action beyond a company’s own boundaries.

Also during 2017, we had the opportunity to learn from the work of our Future of Reporting collaborative initiative. These discussions informed our Practitioner’s View of Sustainability Reporting, which shares insights about the future of sustainability reporting from those who are closest to it.

However, we were struck by three questions throughout these conversations where opinions were often sharply divided.

Does sustainability reporting distract attention from sustainability strategy?

One interviewee complained to us that, “Sustainability teams need to be story-makers, not storytellers, yet too often reporting reduces bandwidth for half the year and prevents us from doing our jobs.” Indeed, it often becomes too easy for the sustainability team to prioritize responding to external requests and producing an annual report at the expense of shaping the strategic direction of the company.

However, others argued that the discipline of publishing information in the public domain creates a powerful incentive for performance improvement, helps socialize sustainability across the organization, and helps focus strategy on the issues of greatest importance to company success. As one interviewee put it, “Reporting has an effect to solidify program management. There is a difference between high quality and low quality, and this pushes higher quality outputs.”

We believe that strategy and reporting are both essential and should not be viewed in competition. Both outcomes shouldn’t necessarily be pursued by the same team, though—just as the company strategy function doesn’t write the annual report, so the company sustainability function shouldn’t necessarily write the sustainability report.

Should we move toward more real-time sustainability reporting and disclosure?

Advocates of real-time reporting argue that it would bring the twin benefits of engaging a wider range of people in the sustainability agenda and enabling more timely decision-making on important sustainability issues. Opponents judge that sustainability is the ultimate long-term challenge; it is inconsistent to argue that short-term decision-making by investors is damaging to sustainability, while at the same time advocating for more real-time performance information and updates on sustainability.

We believe that the discipline of the annual reporting cycle is essential to maintain, as it allows analysts to make year-on-year comparisons and identify forward-looking trends. However, we think that companies should also communicate about sustainability using the full suite of today’s social media tools to engage relevant audiences. It makes sense for companies to look at new formats where real-time sustainability data can inform decision-making by external stakeholders—for example, sustainability information about products could be made available in real time to consumers—but this is not the same as sustainability reporting.

Should companies stop using the term “materiality” outside the investor relations context?

Some argue that using the term “materiality” outside of the investor relations context creates confusion for report users, who may be unclear about what definition of material is being used, and whether certain issues are of material concern to investors or not. One interviewee commented, “People get tired of hearing that all sustainability issues are material to the business.” Outside the investor relations context, companies could use other terms, such as “relevance.”

On the other hand, the concept of materiality is the threshold at which issues become sufficiently important that they should be reported to a target audience. In financial reporting, materiality is the threshold for influencing financial decisions made by investors; in sustainability reporting, materiality is the threshold for influencing a wider set of decisions, made on a wider range issues, by a wider range of stakeholders.

The financial reporting discipline does not have a monopoly on the term “material,” and applying such a proven concept in the sustainability reporting discipline substantially increases its value for report readers. Provided the company is clear about the definition of materiality being used and the process applied to define material issues, then using the term “materiality” should not, in theory, create problems.

Yet the fact remains that, in practice, the dual use of the term is confusing. Ultimately, the substance of the materiality principle in sustainability reporting matters more than the term that is used, and we believe that companies can use other terms—such as relevance or prioritization—in the context of sustainability reporting targeted at non-investor audiences.

Our Future of Reporting collaborative initiative is a group of companies that share reporting best practices with each other and use these insights to inform the future of sustainability reporting. If you are interested in participating in the group during 2018, please contact us.

Reports | Monday February 5, 2018

A Practitioner’s View of Sustainability Reporting: Challenges and Solutions

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Sustainability reporting practitioners possess excellent insights into the challenges faced when writing sustainability reports and other sustainability disclosures. They navigate the complex mix of reporting standards, meet the needs of a diverse range of report users, tell the company’s sustainability story, and use the power of reporting to help improve company performance. Along the way, they learn many lessons in how to do this effectively. 

This briefing document supplements our 2016 Triangles, Numbers, and Narratives report with insights gained from meetings of BSR’s Future of Reporting collaborative initiative during 2017. 

Blog | Thursday February 1, 2018

Four Sustainability Management Trends and Opportunities in the Banking Sector

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According to a 2016 study by the Brunswick Group, only 27 percent of Americans trust banks. It has been almost a decade since the financial crisis of 2008, and while the financial services sector has made progress, it is still in many ways working to earn back stakeholder trust. Sustainability efforts offer a major opportunity for banks to demonstrate their commitment to operating responsibly and making a positive impact.

Banks in particular play a major role in our economy, as they provide vast amounts of capital and have the ability to influence other companies and customers across sectors through their products and services. Yet the industry continues to be in the headlines for various environmental, social, and governance (ESG) issues, such as ethics violations or potential human rights implications of project finance decisions.

How has sustainability, or corporate responsibility, in banks changed since the crisis, especially in the context of the Paris Agreement, the Sustainable Development Goals (SDGs), and investor-focused and sustainability disclosure initiatives? What more could be done?

To explore these questions, BSR completed a short research study, assessing leading banks across the U.S. and Europe across a few key areas. Here are four of our key findings.

1. Materiality assessments are being conducted to prioritize corporate responsibility issues but could be leveraged to play a greater role in internal engagement and sustainability strategy development. Banks can also more closely align their efforts with the SDGs.
   
   While it is commonplace for banks to spend the time and resources to go through a formal materiality process and publish the results online, in many cases the process seems to be more of a ‘check-the-box’ exercise for reporting than a determinant of strategy and business activities.
   
   The materiality process can be a powerful mechanism to engage and educate senior leaders and get valuable input from external stakeholders. There is a risk that the feedback it provides will be lost if it is not integrated into company strategy.
   
   The SDGs haven’t yet played a major role in informing corporate responsibility priorities, although banks understand that the sector will play a critical role in achieving them. While all of the SDGs can be inspirational for organizations, focusing on those that align best with the business strategy and existing corporate responsibility priorities will likely be most impactful for the industry. As a first step, banks are mapping business activities to key SDGs. BNP Paribas has created a formal SDG metric, which measures the share of the bank’s loans to companies that contribute exclusively to the SDGs.
    
2. Increasingly, banks are communicating major long-term sustainable financing commitments, which provide an opportunity to link products and services to corporate responsibility; however, they will increasingly need to be transparent about these initiatives.
   
   Bank of America and Citigroup both have 10-year sustainable financing commitments of US$100 billion or more. While these big commitments create internal momentum and demonstrate both business and ESG value, the definitions of what qualifies for this type of funding and how impacts are measured likely varies across banks. Transparency about the methodology and criteria for funding and calculating impacts will help banks add credibility to these initiatives.
   
   Additionally, creating a corporate strategy and mission linked to sustainability, such as ING’s purpose-driven Think Forward corporate strategy and Bank of America’s Responsible Growth strategy, is key in integrating efforts across the business. Our recent report, Redefining Sustainable Business: Management for a Rapidly Changing World, explores this and many other aspects of how to create a resilient business strategy.
    
3. Banks can better establish and communicate focused ESG metrics and targets aligned to their identified material issues.
   
   While banks are providing detailed ESG information in multiple reports and using the GRI standard, the key strategic metric and associated target that is often integrated with company performance results so far has been sustainable financing performance. Hopefully we will continue to see more, new ESG metrics integrated in standard company results, internally and externally.
   
   Some banks, such as Barclays, have moved toward publishing an integrated annual report that includes ESG data. While doing this would seem to imply more streamlined reporting, these banks have still been producing supplemental reports to provide the additional detailed ESG disclosures that some stakeholders require.
    
4. Governance structures continue to play a key role in engaging employees and driving corporate responsibility and business integration—executive ownership and engagement with the environmental and social risk management teams remain critical.  
   
   It is now common for banks to have board oversight over ESG issues, i.e. via a committee. Additionally, cross-functional senior executive committees and other internal councils (for example on sustainable products, human rights, etc.) are critical in integrating ESG across the business and engaging subject matter experts. While it requires more internal coordination, core sustainability teams at banks are seeing positive outcomes from these internal working groups and networks of ‘ESG champions’ dedicated to achieving ESG goals.
   
   One area that needs more consideration is compensation tied to ESG performance. It is encouraging to see BNP Paribas link nine of its 13 corporate responsibility indicators to its variable incentive plan for its 5,000 top managers. More banks should embrace this type of approach.

While banks have clearly made progress in better integrating corporate responsibility, studies show that the industry reputation continues to suffer. There is an opportunity for the sector to do more to engage its leadership, employees, customers, and investors on the powerful role it can play in creating a more sustainable world. Doing so could go a long way toward rebuilding trust. 

Blog | Wednesday January 31, 2018

(Re)Making the Case for Sustainability: Effective Sustainability Management through a CEO Transition

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With an average of one in 10 S&P 500 companies experiencing a CEO transition each year, sustainability departments need to be prepared to effectively manage a change in company leadership.  

As we articulated in our recent report, Redefining Sustainable Business: Management for a Rapidly Changing World, the era of stand-alone sustainability strategies, with subsequent integration of sustainability into company strategy, needs to end; the creation of resilient business strategies that take sustainability as their foundation needs to begin. An important test of a company’s resilience is how it weathers a CEO transition.

In most cases there is sufficient time to adjust—S&P analysis also shows that nearly 80 percent of CEO transitions are the result of long-standing succession plans. But in the case of forced or pressured resignations and mergers, changes can be abrupt and messy and require departments to balance preparing for a new CEO while simultaneously putting out the fires of reputational and cultural crises. The increasing influence of activist investors is contributing to more frequent CEO transitions, and comparatively “poor performing companies” have a 60 percent greater likelihood of seeing a new CEO in any given year.

Even if planned, a CEO transition is disruptive, and being prepared for transition can help make the work of a sustainability department sustainable. There is little doubt that a change at the top can be a nerve-wracking time for sustainability teams: In our 2017 State of Sustainable Business Survey, more than 90 percent of sustainability practitioners identified CEOs as the key influence on their companies’ sustainability agendas—more than employees, investors, or even customers. Losing a senior advocate is a tremendous risk, especially for organizations losing vocal and influential leaders who’ve shaped their corporate sustainability programs.

Part of proactively managing for CEO transition is deeply embedding and integrating sustainability. Making your programs essential to your company’s value creation and standard risk management processes will ensure that efforts are maintained despite the inevitable changes that come with new leadership. Setting long-term public goals is not just good practice—it can help keep the company accountable to those objectives, even through leadership changes.

When a CEO transition happens, however, sustainability teams need to mobilize. With a new audience likely comes the need for a refreshed business case. And while this change could threaten long-standing programs that may be closely associated with a previous CEO’s legacy, a leadership change may also offer sustainability teams a new opportunity to better integrate sustainability into the core business strategy. The task of the sustainability department in these initial months is to begin to build a relationship with your new company leader and provide a succinct narrative for sustainability as value creation.

Boiling down years of efforts and programs is no easy task, but answering a few guiding questions should help you hone and sharpen your pitch for maintained or increased investment.

1. Why was there a transition? Understanding the nature of a CEO transition is critical. In cases where a CEO had long-planned retirement or was enticed by a “new opportunity,” this may be less significant. For more seismic transitions, however, sustainability departments need to pay attention: Was the change precipitated by poor market performance, activist investors, reputational impacts from unethical business practices, or a highly publicized toxic culture? These factors represent failures that a new CEO will be mandated to remediate, and your sustainability department would be wise to explore how you could help mitigate those specific risks in the future.
2. What is the new CEO’s view of sustainability? When a new CEO is selected, it is useful to review his or her past experience: How mature were the sustainability programs in their previous companies? Are there key themes in their previous CEO letters that can help anticipate how they view sustainability? A new leader’s perspective on sustainability may not be clear until your first meeting, but awareness of his or her interests and past efforts can help inform your presentation.
3. What’s the current sustainability strategy—and is it actually current? A change in leadership offers an opportune moment to take stock of your current sustainability strategy. A rapid but robust strategy discussion can be extremely helpful to prepare your team for your first CEO conversation. What are your company’s material issues, and does the CEO change signal a shift in priorities? What has the company’s ambition level on these material issues been to date, and is there a corresponding need to advance your programs on these issues? The CEO transition should offer a moment to evaluate, refresh, and align your company strategy and your sustainability strategy.
4. What has sustainability achieved, where has it failed, and what’s on the horizon? All departments will, to some extent, be required to justify their programs and resources. While an exaggerated litany of achievements may be impressive, a clear-eyed account of achievements and shortcomings may be more effective at creating a strong advocate in the CEO’s office. Highlighting key milestones and demonstrating cross-functional support will show the sustainability department as an effective force for integration within the organization. An honest account of challenges and constraints creates trust that is integral to a strong working relationship. Positioning sustainability as a way to anticipate and respond to emerging trends shows how the team can be a critical partner in driving the company’s new strategic, resilient direction.

Ultimately, answering these questions will arm you and your team to answer the big question: How does sustainability add value to your company? To use a CEO transition to your advantage, you must be able to show that sustainability is not a remnant of an old regime, but a vital part of a company that is forging ahead. Showing how sustainability fits into the new order—whether in reaching new markets, driving innovation, or mitigating new risks—will be critical to gaining the buy-in of your new leadership.

Blog | Monday January 29, 2018

Managing Sustainable Business in a Rapidly Changing World

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At our 25th anniversary Conference in October 2017, BSR launched an effort to collaborate with our member companies to redefine sustainable business. Our new report launched today, Redefining Sustainable Business: Management for a Rapidly Changing World, provides a new framework for how leaders can reimagine sustainable business inside their own organizations.

When we looked in detail at the state of sustainable business in companies today, we saw that disruptive new trends and drivers—in particular, climate change, new technology, and structural economic shifts—are reshaping the business landscape. Companies are highly aware of these dynamics in the external environment, but there is also a sense that rhetoric has not yet caught up with reality. Our survey and interviews revealed misalignment between the external stakeholders who most influence companies’ sustainability agendas and the people and internal departments that are most frequently engaged on sustainability issues.

We believe that the best response to this situation is not to continue advocating for further integration of sustainability into business strategy, but to change the very way that companies design strategy and create value. The era of stand-alone sustainability strategies, with subsequent integration of sustainability into company strategy needs to end; the creation of resilient business strategies that take sustainability as their foundation needs to begin. New types of leadership and a reimagined sustainability function can address these challenges and build company capacity to design and deliver resilient business.

What, exactly, do we mean by this?

First, companies need to act to transform strategy, governance, and management within their boundaries. This involves creating strategies that account for disruptive change and use strategic foresight and futures thinking to embrace uncertainty and build resilience. This approach will naturally place sustainable business issues front and center—because sustainability issues can no longer be separated from core business issues. Boards and senior executives need to develop the expertise and insights to plan for the longer term and build on the momentum from investors we see today to explain and demonstrate social purpose. The sustainability function also needs to be reimagined as a driver of influence and innovation. Change leadership will become the single most important skill a sustainability practitioner can develop.

Companies also need to proactively enable their external environments to understand and provide input to their sustainability efforts through new approaches to transparency and engagement with all stakeholders, not just shareholders. Technology tools like Polecat provide enormous new opportunities for companies to understand the social and environmental systems they operate in and gain deep insight into stakeholder perceptions. Too many companies have yet to take advantage of this; they have resisted increased transparency and interactive engagement with new stakeholders. There is a need for business to proactively shape the company narrative by reconsidering both reporting and engagement in the context of wider societal needs and debates.

Finally, companies should influence the policy and legal environment via vocal support for sustainable business. Silence on key policy issues is no longer an acceptable stance: The public—and your employees—wants to see more concrete evidence of business values and want business to take a more active role in shaping policy for the long term.

Our report sets out a framework for action that is also a vision for the future. We have no doubt that the perspectives shared in this paper will evolve as the world changes, ever more rapidly, around us. However, we believe the fundamental tenets of the “act, enable, influence” blueprint will remain a constant, and we are eager to further refine this approach in partnership with our member companies.

We invite our member companies and other interested stakeholders to engage with us to continue to shape the future of sustainable business. To that end, we will host a series of dialogues, events, and debates throughout 2018 to shape a future for business that meets the needs of all stakeholders. We look forward to continuing this conversation.

Reports | Monday January 29, 2018

Redefining Sustainable Business: Management for a Rapidly Changing World

Preview

Drawing on BSR’s 25 years of experience working with companies and their stakeholders, from corporate headquarters to remote operations and sourcing locations, this report presents our view of how companies can transform their strategies, governance, and management so that they are fit for a disruptive world. It builds on interviews with 50 senior sustainability leaders at member companies and our 2017 survey with GlobeScan on the State of Sustainable Business.

Why read this?

The role of business in addressing sustainability challenges has never been more important than it is today. Progress has been made on a wide range of issues, including climate change, human rights, and transparency, since 1992, the year that BSR was founded.

However, many companies continue to struggle to incorporate sustainability into their strategies, governance, and management structures. This report provides a blueprint for putting sustainability at the center of business to enable companies to play their full part in the creation of a just and sustainable world. It focuses on how sustainability is implemented inside companies.

BSR has developed a new framework to help guide companies looking to adopt resilient business strategies.

Blog | Thursday January 25, 2018

France’s Due Diligence Law: Is Your Company Ready to Disclose Its Vigilance Plan?

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2018 marks the celebration of the 70th anniversary of the Universal Declaration of Human Rights. It is also the year that large companies falling within the scope of the French Due Diligence Law are expected to develop, implement, and publish their due diligence plans to identify risks and prevent infringements on human rights, fundamental freedoms, health and safety, and the environment.

This law, which represents a significant step toward better regulating large companies’ due diligence on human rights, was adopted in an overall context of increasing references to human rights in regulatory and business frameworks. The obligation covers impacts resulting from companies’ own activities, as well as the impacts of both the companies under their control and their suppliers and subcontractors.

Are you seeking to better understand what this means for your company? Here are some common questions I have heard from businesses hoping to do the same.

What should be disclosed in the vigilance plan?

There is little doubt about what should be included in the plan. Although it is not very detailed nor prescriptive, the law is clear on this aspect. Annual public vigilance plans should include the following:

• A mapping of the risk (risk identification and prioritization)
• Procedures to regularly assess how subsidiaries, suppliers, and subcontractors are performing against this risk mapping
• Measures to prevent and mitigate serious violations
• A functioning alert mechanism that collects reporting of existing or actual risks, developed in partnership with trade union organizations
• Monitoring mechanisms to evaluate implementation and effectiveness of measures implemented

... and should be developed in coordination with the company’s stakeholders.

Each component of the plan could be debated at length, but there are a couple of points to keep in mind.

• The scope of disclosure is not limited to forced labor and human trafficking in the supply chain. It also covers human rights and the environment. Companies should disclose the systems they have in place to identify, prioritize, prevent, and mitigate infringements that might happen in their supply chains, but also in their direct operations and in their interactions with clients and customers.
• This is about disclosure, not reporting. Companies should be able to explain the rationale behind their measures. While there aren’t specific procedures or mechanisms that should be put in place to comply with this law, companies should be able to make the case that the systems they are including in their Vigilance Plans are adequate and efficient.

What should companies expect from civil society organizations as a result of this law?

Civil society organizations in France have advocated for the adoption of this law and generally welcome the emergence of legal vigilance obligations for companies. As with the U.K. Modern Slavery Act, we can expect that Vigilance Plans will be scrutinized and benchmarked, and companies will likely be ranked accordingly. Many civil society organizations may also use the law to give companies official notice (mise en demeure) not only to publish, but also to implement, their Vigilance Plans. This is likely to give civil society organizations a lot of visibility, as well as provide opportunities for them to engage companies on these issues.

To avoid having to defend their Vigilance Plans in court, companies should, as suggested by the law itself, develop them in coordination with their stakeholders. To this end, companies should reach out to the organizations with expertise both in their countries of operations and pertinent to the risks they face; they should then collect and address the comments, feedback, and expectations received in their Vigilance Plans.

What does BSR recommend for companies looking to develop due diligence consistent with the law?

After a busy year helping French companies get ready for the law to come into effect, we’d like to share a few of our observations with those of you who may just be getting started: 

1. Risk mapping can be conducted with more or less depth. It is important for companies to have a global vision of the risks they face in all their countries of operations. For some countries, you should also consider finely-tuned risk maps, including identification and detailed review of the risks specific to your operations and identification of vulnerable and marginalized groups, who experience different risks, severity, and impacts of human rights violations than others. 
2. Companies generally struggle with the questions of how far down their supply chains they are required to go and what tools to use to assess suppliers. Site audits are not necessarily the only option to consider for this.
3. To prevent serious violations, companies should be proactive, raise the capacity of their own staff, and collaborate with and train their business partners on human rights and environmental risk management.
4. Engagement with unions is still in early days, and both companies and trade unions themselves are struggling with how to talk effectively about global human rights and environmental issues in companies’ operations and supply chains.
5. Engaging stakeholders and increasing transparency allows companies to make progress in understanding some of the most difficult human rights and environmental issues they face. While this does not shield companies from negative attention, it can help balance it and identify solutions if it arises. 

Do you still have questions about how to comply with this new legislation? Contact us to continue the conversation.

Blog | Tuesday January 23, 2018

A New Year’s Resolution for CEOs: Give Every Worker a Good Job

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Last month, JUST Capital released its annual rankings of America's Most Just Companies and its Roadmap for Corporate America. Rather than relying solely on technical analysis of materiality and reputation risks to develop corporate performance criteria, JUST Capital asked the American public. What makes a corporation just?

For the last three years, one issue has ranked first: worker treatment, or providing employees with good jobs. This includes issues like whether the company pays a living wage, pays a wage that is fair for a specific industry and job role, provides a safe workplace, and guards against all forms of discrimination. Improving worker treatment is Americans' top priority for corporate America, across all genders, ages, income levels, and political affiliations. 

Several trends have led to the public's prioritization of this issue, including almost four decades of flat wages, the slow whittling away of jobs through offshoring and automation, and a shift toward the gig economy and independent work in the last decade. While business has made bold commitments, including in support of the Paris Climate Agreement and the UN Guiding Principles on Business and Human Rights, the issue of creating good jobs for direct frontline workers and contractors in the U.S. and other advanced economies has received short shrift on the sustainable business agenda. Anxieties around economic security have fueled the Brexit vote, the outcome of the recent U.S. presidential election, and nationalist movements across the world. It should come as no surprise that good jobs top this referendum on corporate behavior. 

Here are three steps your company can take in 2018 to treat your workers well and provide good jobs:

1.  Align company values, commitments, and actions across functions

One of the central challenges to advancing better worker treatment is breaking down the silos where pertinent decisions are made and ensuring consistent application of company values and commitments across worker types.

In the 2017 BSR Globe Scan State of Sustainable Business survey, when asked which functions the sustainability team needed to work with most closely to make "substantial progress" on sustainability in their companies, more than 50 percent of respondents cited procurement/supply chains, while only 12 percent identified engaging human resources, the department that develops the corporate employment and contractor policies that most directly affect how workers are treated. Clearly this suggests there is opportunity for increased internal collaboration on this issue.

It's also important to align your company policy agenda with your values. In 2017, the U.S. government rolled back protections to U.S. workers on overtime, workplace safety, and joint-liability protection to contractors and franchise workers. Many of these regulatory initiatives were supported by corporate-backed industry associations. Good jobs can become a norm across the economy if companies ensure that the public policy issues being promoted by their industry associations are aligned with their values.  Companies also can communicate directly with policymakers, such as by participating in the High Road Workplace Campaign to support federal, state, and local initiatives to improve workforce standards.

2. Factor job quality into company strategy and financial valuations

In sustainable investing circles, it is well known that good jobs are the one of clearest 'win-wins' for shareholders and society. A study by Alex Edmans at London Business School found that firms with high employee satisfaction outperformed their peers by 2.3 percent to 3.8 percent per year in long-run stock returns over a 28-year period.  

Many on Wall Street have not heard this message. As an example, when American Airlines announced they were raising frontline worker pay to be competitive with industry standards, Wall Street downgraded the stock, and the company lost about US$1.9 billion in market value in 48 hours, with one industry analyst lamenting: "Labor is being paid first again. Shareholders get leftovers."

You can integrate good jobs into your strategy through a new toolkit developed by the Good Jobs Institute at MIT Sloan, which offers a diagnostic and scorecard that can be used identify actions that will both improve worker treatment and business performance. 

You can communicate with investors on the importance of good jobs by framing them as long-term investments. As an example, when Walmart invested approximately US$2.7 billion into higher levels of pay, benefits, training and store operating improvements, U.S. CEO Greg Foran explained: "We went to Wall Street and said, 'If you give us a breather on the bottom line, we'll deliver an improved top line. But it won't happen in a year; it's going to take three years.'"

3. Be transparent about and report on workforce issues

The greatest barrier for integration of job quality into investor valuations and decisions is the lack of reliable and comparable data. Data are currently available only through employee-reported websites like Glassdoor. In 2017, a coalition of investors, ratings agencies, and civil society began the Workforce Disclosure Initiative to improve transparency and data comparability on workforce issues in direct operations and supply chain. Your company can sign up to the initiative and commit to transparency of your workforce data. 

Through integrating good jobs into company values, strategy, policy agendas, and investor communications, you can help make 2018 the year that everyone has a good job. 

Blog | Monday January 22, 2018

Davos 2018: Advancing the SDGs in a Fractured World

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As the World Economic Forum Annual Meeting in Davos gets underway later today, I am looking forward to a few days of tackling some serious topics—and some interesting paradoxes. The theme for this year’s event is both ambitious and timely: Creating a Shared Future in a Fractured World. Whether its healing aspirations are realized depends not just on what happens at Davos, but on whether the event catalyzes a commitment to action the other 51 weeks of the year.

The shared future that the Forum’s theme calls for has already been defined. Most of the world has aligned around a clear set of global goals, reflected in the Sustainable Development Goals (SDGs) and the Paris Agreement.

It is equally true, however, that there are significant fractures interfering with progress: Nationalism in particular will be a common theme and threat debated by we globalists attending Davos. The Forum’s Global Risks Report, released late last week, cites geopolitical turmoil as a major risk for the world this year, complicating efforts to align around shared goals.

The impact of technology, which features ever more prominently at Davos, reflects both the great promise of shared prosperity and the risk of deep societal fracture. The triumphal techno-optimism that has been celebrated at Davos since I first attended in 2005 has in some ways darkened. We still have many reasons to cheer on the connectedness, human agency, productivity, and base of the pyramid opportunities tech has delivered. However, concerns about cyber-threats, privacy, artificial intelligence (AI) run amok, job-killing robots, and interference with democracy will also be top of mind.

In times of turmoil, it is particularly crucial to stay focused on a north star, which is exactly what the 17 SDGs represent. Amidst all the panels on fake news, cyber-security, and a certain plenary speaker coming to trumpet his America First agenda, there will be considerable effort to advance collaborative work on sustainable development.

Climate will again be center stage, and women’s empowerment is having its (long overdue) moment at Davos. For the first time, the meeting will be overseen by an all-women set of co-chairs, an impressive group that includes Sharan Burrow, Isabelle Kocher, Christine Lagarde, and Erna Solberg.

Interestingly, there will be more and more attention to the very economic model that has benefitted so many of its participants. The circular economy, once on the far fringes of Davos, has now come to the very center of the agenda—something we will explore in the Future of Consumption Systems initiative, which I am co-chairing.

Many of us will also discuss what a just transition—ensuring that the rise of technologies, fundamental changes in our energy systems, new forms of commerce, and new business models are designed, implemented, and governed in a manner that ensures that economic opportunities are generated for those who need them—should look like, and what it means for the 21st-century social contract.

In this context, there are four things that the business leaders gathering this week can do to advance our shared future:

• Commit to business strategies that are dedicated to social purpose in addition to value creation. Larry Fink of BlackRock made the case for this powerfully in his annual letter last week.
• Strengthen corporate governance systems to ensure that goals and incentives are aligned with this vision.
• At a time of deep and wide business disruption, design consideration of social and environmental outcomes into new business models and technologies. The Forum’s call for maximizing the broad benefits of the Fourth Industrial Revolution and mitigating its negative impacts is of urgent importance.
• Use the voice of business to advocate for systems change. Business leaders can—and should—use their voices to ensure that the global community, indeed all of us, resist the xenophobia, nationalism, and authoritarianism that threatens to slow or reverse human progress.

The question hanging over Davos this year, as it has to varying degrees since the financial crisis hit, is the lack of faith so much of the public has in the kinds of institutions that are represented there. Doubling down on the SDGs, and more importantly, the powerful vision of a shared destiny for all the world’s peoples, can help us make progress this week. Failing to make good on that vision will only widen the cracks we see in local communities, nations, and the world at large.

My hope for Davos is that we will all walk away recommitted not only to this shared goal, but also to a shared action plan to achieve it.