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Blog | Monday August 19, 2019

How Aligning Sustainability and Risk Can Overcome Organizational Blind Spots

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One of the most striking trends in sustainability over the last few years has been the demand from companies to help them align sustainability and enterprise risk management (ERM) frameworks. This work has proved to be highly effective in helping our BSR member companies integrate sustainability, address blind spots, and develop more robust strategies. As one of our member companies commented in a recent interview: “Companies that have a well-developed ERM process are far better at managing sustainability issues.”

While practitioners of risk and sustainability have reason to be skeptical of each other, the current approach fosters institutional blindness and narrow thinking. On reading a corporation’s annual report and then perusing its sustainability report, they might as well be different companies. Risk disclosures are biased toward the selection of only the issues on which the company can take direct action to mitigate; its sustainability disclosures risk coming off as marketing exercises that feature happy children and questionable data. The current divide is in no one’s interest, and changes in the world are forcing both parties and organizational management to rethink.

The Current Approach

Until recently, sustainability practitioners tended to dismiss risk-led approaches as regressive. Early corporate social responsibility efforts focused on philanthropism divorced from the core business; this evolved into compliance-driven risk-reduction work focused on the supply chain. Both approaches were eclipsed by concepts of “shared value,” which hold that companies should pursue sustainability initiatives that simultaneously create business value and address societal concerns. Growth and innovation, not risk reduction, is the goal of this approach to sustainability. Inspired by the chance to build a more just, equitable world, corporate sustainability leaders want to alert senior leaders to sustainability’s transformational opportunities, not focus exclusively on narrow risk-reduction efforts in energy use, recycling, and health and safety.  

For their part, risk management professionals tend to regard sustainability as vague and grandiose. ERM categorizes business risks and then measures their impact and likelihood before and after mitigation efforts. The focus in sustainability on “material priorities” does not slot easily into these frameworks. Materiality assessments consider the overall relevance of issues to a business and to society according to a variety of qualitative and quantitative approaches. While they do seek to determine an issue’s impact on the business—distinct from the issue’s impact on stakeholders—they do not translate these issues into plausible events or evaluate their likelihood. These limitations can make it difficult to differentiate between strategic sustainability opportunities and “table stakes” compliance issues. Indeed, assigning internal ownership of such issues as climate change or economic inequality lies somewhere between challenging and impossible. The effects of these risks are broad and unpredictable, with mitigation responsibilities crossing several departments. No company can address these risks solely through its own actions. It is far easier to leave them off the list.

If priority sustainability issues can be evaluated using risk management tools, goals, actions, and programs will become much more rigorous and robust.

A Path Forward

In the 2019 World Economic Forum list of global risks, the primary items are not economic or geopolitical. Mounting investor interest in climate change is driving broader consideration of the financial consequences attending systemic environmental and social risks, which have eclipsed governance issues as focal issues for activist investors in the past several years. The new chief executive officer of the Sustainability Accounting Standards Board recently declared that “sustainability isn’t new; it is the new face of risk.”

The World Business Council for Sustainable Development (WBCSD) and the Committee of Sponsoring Organizations of the Treadway Commission (COSO) have published a wealth of innovative thinking on how best to practically align sustainability and risk concepts. These approaches will help integrate sustainability into core business decisions, driving a more robust, differentiated understanding of risk. This will help focus proper consideration of a company’s impact on its environment and on potential consequences for the company’s reputation—itself an ever-tighter feedback loop.

If priority sustainability issues can be evaluated using risk management tools, goals, actions, and programs will become much more rigorous and robust. BSR has conducted gap analysis between the materiality “long list” and the risk taxonomy to ensure that there is a clear understanding of where there is overlap. We have also evaluated priority risk material issues using ERM criteria, notably analysis of likelihood and reputational risk. By using these tools, we have sparked hugely productive discussions between the risk and sustainability function that have driven clearer approaches to strategic priorities and supported traction with senior leadership. We have also brought risk, sustainability, and other functional teams together in scenario planning workshops to drive creative thinking about the longer term future.

As businesses prepare for the 2020s, they must prepare for the consequences of climate change, the onset of disruptive technologies and new business models, and huge demands for transparency from stakeholders—from investors to employees. 

These approaches do not mean reverting to a narrow concept of sustainability as risk reduction. It means that sustainability practitioners must become much clearer as to what constitutes a true business risk, as opposed to a reputational concern or strategic sustainability opportunity. Clarity will help ensure more robust implementation plans, goals, and issue accountability. As a BSR member puts it: “Sustainability needs to be part of the ERM process, and we need to clearly distinguish between what is a business risk and what is not. We need to act decisively on material sustainability risks, but people will get tired if we claim all sustainability issues are also business risks.”

For their part, risk teams will maintain a core focus on short-term, quantifiable risks. However, better alignment can provide language and concepts to evaluate emerging concerns and better anticipate large societal shifts that have too often been dismissed as unpredictable “black swans.”

As businesses prepare for the 2020s, they must prepare for the consequences of climate change, the onset of disruptive technologies and new business models, and huge demands for transparency from stakeholders—from investors to employees. A new collaborative approach between sustainability functions and ERM can help to drive stronger, more sustainable strategies to make business more resilient for the changes to come.

Blog | Wednesday August 7, 2019

Can We Create a ‘Future of Work’ that Works for Women?

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It wasn’t your typical business conference: youth from around the world danced in silent discos, Native women shared sacred words, and the Prime Minister of Canada made a 10-year commitment to women’s health.

For a week this past June, Vancouver’s population increased by nearly 8,000 as attendees of Women Deliver 2019, the world’s largest conference on gender equality, came together to celebrate the progress of women—and collaborate on solving current and future challenges. Amid this environment of women’s empowerment, BSR and Women Deliver convened a unique day-long event, bringing corporate leaders into the mix for a discussion on the role of business in building a ‘future of work’ that works for women.  

Automation, artificial intelligence, the gig economy, and demographic and social shifts are defining a 'future of work' that is already affecting companies, supply chains, and workers around the world. This changing nature of work has unique implications for women: disruptive technologies are affecting both the quantity and quality of women’s jobs while systemic constraints impact the ability of women to transition into new sectors; workplaces are increasingly requiring new skills and calling for experience in science, technology, engineering, and mathematics (STEM), but the lack of women in STEM fields and gaps in technical skills could hold women back; contingent work and new gig economy opportunities are disrupting traditional work models, which present new challenges for women due to violence and harassment, unpredictable hours, and unequal wages and benefits.

The question businesses must face then becomes: How can we navigate the broader changes taking place in the world of work in a way that accelerates women’s workplace participation?

This is the very question that BSR set out to answer in its latest report, How Business Can Build a ‘Future of Work’ that Works for Women, published today in partnership with Women Deliver. The report provides a framework for companies on how they can act, enable, and influence in order to ensure that women can not just participate, but lead in the workplaces of the future.

Companies need to design inclusive future of work strategies that address both systemic challenges faced by women at work as well as the new challenges presented by new work structures and gaps in social protections.

Business can ACT by updating their own policies and practices

Companies must take action to prepare for the ‘future of work’ with an eye towards addressing potential inequities that could result from the changing nature of work. By using a gender lens to prepare for job losses due to automation and AI, investing in employee reskilling and upskilling efforts with an emphasis on digital skills training for women, and assessing AI products and solutions for gender bias, companies can adopt new workplace models and technologies associated with the ‘future of work’ without contributing to further gender inequality.

Unfortunately, at the same time, issues such as stereotypes and biases, care burdens, unequal pay, and workplace harassment continue to plague working women around the world and prevent them from joining high-growth industries and high-powered roles.

Business can ENABLE progress for women

Beyond their own operations and supply chains, companies can contribute to addressing shifts that may further hinder women’s economic participation. By partnering with corporate peers, civil society organizations, and academic and government institutions, business can make an impact on areas critical for women’s future economic success.

In particular, the ‘future of work’ will require all workers to be fluent in technology. Women, who are currently underrepresented in STEM fields, will need to advance not just to achieve equity but to survive in the new era of work. Business can help to close these gaps by addressing the various ways in which women and girls are behind on the digital curve through STEM programs, accelerating women’s access to digital tools and mobile connectivity, and ensuring women are safe online.

Business can INFLUENCE gender equality

Companies, particularly multinational corporations with budgets dedicated to public relations and government relations, can affect the overall conversation on gender equality on a wider scale. Be it producing an ad on toxic masculinity or signing on to a public letter on issues like abortion, companies’ public relations and marketing efforts can jumpstart cultural conversations on women’s issues—and in the process, challenge gender norms related to what constitutes “women’s work.”

Business can also leverage its existing government relations efforts to influence policymakers to address discrimination against women through laws and policies. In many countries, existing laws prevent women from working or severely limit their freedom to reach their full economic potential. On the other hand, new legislation can be introduced to equalize care burdens and  close gaps in benefits presented by new work models.  

The report includes input gathered from over 125 representatives of corporations, civil society, and government at BSR’s private sector side event at Women Deliver 2019. Together, we concluded that companies need to design inclusive future of work strategies that address both systemic challenges faced by women at work as well as the new challenges presented by new work structures and gaps in social protections.

Taking action would benefit companies by ensuring they attract and retain the best talent and build a highly skilled and innovative workforce positioned for future success. Furthermore, gains women make in employment benefit societies and economies overall.

Businesses cannot wait for the future to arrive; rather, companies need to begin their efforts today. Decisions made now will bring significant consequences for women’s advancement long into the future. Without action, companies risk prolonging gender disparities in the workplace, but with intention and focus, companies can shape a radically different future for working women.

Reports | Wednesday August 7, 2019

How Business Can Build a ‘Future of Work’ That Works for Women

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Automation, artificial intelligence, the gig economy, and demographic and social shifts are changing the very nature of work. Women, who are still striving to achieve workplace gender equality, are particularly vulnerable in this time of rapid change.

As companies prepare for and respond to the changes brought about by the ‘future of work,’ we need business action to ensure that women can not only participate, but lead in the workplaces of the future. In turn, this will benefit companies by ensuring they attract and retain the best talent and build a highly skilled and innovative workforce positioned for future success.

Blog | Tuesday July 30, 2019

Three Ways Business Is Combating Modern Slavery

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It may come as a surprise to many people that slavery, forced labor, and human trafficking continue to be critical issues for business in the 21st century: there are over 40.3 million people globally that are victims of modern slavery today, and at least 16 million of them are being exploited in the private sector in conditions of forced labor. In fact, the U.S. Department of Labor has identified over 100 goods presumed to be produced with forced or child labor around the world. Victims of modern slavery produce the fruits and vegetables that we consume, the mobile phones and electronics we purchase, and the clothes we wear. Furthermore, many companies, their employees, and the communities in which they operate are impacted by a growing market for human trafficking: after drugs and arms sales, human trafficking is now the world’s third biggest crime business with an annual profit over $150 billion.

The business community has a critical role to play in the fight against modern slavery, a practice that spans all business sectors and geographies. A company’s drive to attract customers with lower prices and faster production in shorter time periods increases the likelihood that workers will be exploited and be placed into situations of modern slavery. The highest risk of modern slavery tends to exist in the lower tiers of a company’s supply chain where the workforce comprises marginalized workers with limited knowledge of their rights or access to labor protections, as is the case with many temporary employees, migrant workers, women and youth.  

A company’s drive to attract customers with lower prices and faster production in shorter time periods increases the likelihood that workers will be exploited and be placed into situations of modern slavery.

The Global Business Coalition Against Human Trafficking (GBCAT) is a collaborative initiative of BSR which aims to harness the power of business across sectors to prevent and reduce the incidence of modern slavery and to support survivors in their reintegration into the workforce. Together with our company members – Amazon, Carlson, Google, Kering, Microsoft, and The Coca-Cola Company – we are advancing progress on combating modern slavery in three ways: 

1. Enhancing the capabilities of small and medium-sized enterprises (SMEs) to prevent and address modern slavery in their operations and participate in responsible global supply chains

The greatest risk of modern slavery lies deep in a company’s supply chain, particularly concentrated within the operations of SMEs. After consulting with SME business providers, we realized that while SMEs are on the frontlines of this global fight, they often lack the knowledge and/or capabilities to manage the risk of modern slavery effectively.

To address this gap, GBCAT is developing a toolkit tailored to SMEs on managing modern slavery risks. The toolkit will explain the relevance of modern slavery to the SME community using real-world examples and focus on key risks associated with modern slavery, such as working hours, use of migrant labor, and retention of identity documents.

2. Enabling business to support modern slavery survivors through employment opportunities and access to job skills training

Limited economic opportunities is one of the root causes of modern slavery. By providing good jobs to ready and interested survivors of modern slavery, we aim to break the cycle of exploitation and prevent any re-exploitation of individuals. 

GBCAT is developing a survivor employment guide which explains why companies should hire modern slavery survivors and what companies can do to create a trauma-informed workplace that both supports survivors and helps them thrive. 

3. Providing resources and guidance to business to navigate the landscape of anti-slavery organizations, training, and tools

While there are a plethora of organizations collaborating with business to address modern slavery risks, many companies are not yet aware of the presence of these organizations. 

GBCAT developed the Interactive Map for Business of Anti-Human Trafficking Organizations to help companies identify the organizations that are partnering with the private sector to address modern slavery challenges and how they are working with business (e.g. running modern slavery trainings for companies). Our interactive database currently reflects 90 different organizations around the world that business can look to when determining partnership opportunities. We will continue to add new organizations to the Map as they emerge so we can make the Map a more robust public resource. 

Companies have a responsibility to ensure their activities do not cause or contribute to human rights harm, which includes modern slavery. 

Above are the three ways we are addressing modern slavery risks in company operations and global supply chains. As the UN Guiding Principles on Business and Human Rights articulate, companies have a responsibility to ensure their activities do not cause or contribute to human rights harm, which includes modern slavery. GBCAT’s work is part of a growing movement where all companies are expected to take action to identify and address modern slavery risks. Developments, such as the ratification of Modern Slavery Acts in the United Kingdom and Australia, corporate benchmarks, and heightened interest from investors and consumers on the conditions under which products are made, are just a few examples of this new norm.

As we commemorate the World Day against Trafficking in Persons, GBCAT welcomes all companies to join us in our shared fight against modern slavery. 

Blog | Tuesday July 16, 2019

Blockchain through the Whole Supply Chain

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This blog is the first in a series where BSR and (en)visible will document our project to establish a blockchain-enabled traceable supply chain that delivers sustainability benefits to all the actors in the supply chain. 

The dirt road got bumpier and the jungle more beautiful, with a seemingly endless variety of trees and wildlife. The villages announced themselves with their wood and straw houses. Residents sat on porches, manning micro markets and looking after children. Others were heading out, machete in hand, to tend their parcels of farmland.  

We had arrived at the start of a global supply chain. 

That term, “global supply chain,” conjures up images of enormous ports filled with colorful arrays of ocean-bound shipping containers, or commercial freight trucks arriving at highly-organized distribution centers. But global supply chains all start before that point—and our actions to make supply chains more visible, traceable, and sustainable need to start at the beginning.  

Many of us working in sustainability know about the long paths that supply chains follow, the rural smallholders at the start of nearly every supply chain, but these are just abstract ideas until they are confronted up close. People need to see it, know it, and feel it. Executives, buyers, consumers—they need to see that behind our everyday products, behind the purchase price and margins, there are real people, real challenges, unpredictable weather, and bumpy routes to market. Yes, there is a growing collective understanding, but it’s one thing to read an article about the plight of smallholder farmers and quite another to see the connection, even if only through a scanned QR code on a package, to understand that these precise individuals brought this product to you—and to know that the individuals also understand their critical role in the global exchange of goods. 

Blockchain technology can allow all of the supply chain actors – from farmer to cooperative to buyer to brand – to participate on more equal terms, to shake hands virtually, to agree on what has happened with an immutable record, and to see where things have been and where they are going. 

BSR is committed to the creation of the visible, connected supply chain. In the project that this blog series will document, we are working with a forward-thinking global brand and with our partners at (en)nvisible, who are providing the blockchain-based traceability solution. It is blockchain that can allow all of the supply chain actors—from farmer to cooperative to buyer to brand—to participate on more equal terms, to shake hands virtually, to agree on what has happened with an immutable record, and to see where things have been and where they are going. There may be other technologies that enable traceability, but nothing quite as elegant.

Forward-thinking companies have a lot to gain from moving in this direction towards transparent, traceable, efficient, and equitable supply chains:

• Deeper insights about their supply chain partners. Just by starting the process, by design, a company gains more transparency over who is in the supply chain, what is happening, and which suppliers are aligned with their mission.
• Increased connection to the farmers in their upstream supply chain. This approach naturally leads to a connection to the source, which helps companies better understand the value of raw materials, and also can enable farmers to better understand the value of their crops and how they are being used.
• Sophisticated understanding of the payment dynamics along the whole of the supply chain. There are dynamics in upstream supply chains that contribute to increased uncertainty and risk, and understanding these dynamics can lead to better access to finance for the most vulnerable actors, reducing risk for everyone.

The corporate priority to digitalize supply chain management and procurement is absolutely right, as long as it takes into account the whole chain and the people who bring it to life. Technology should follow function, and systems should be built with the entire chain in mind.

This blog has provided an overview of the project and the start of the journey. We look forward to sharing specific details of this story as we go down the road. 

Blog | Thursday July 11, 2019

How Business Can Impact Human Rights: Four Lessons from Peacebuilding and Development

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I am thrilled to join you as BSR’s new Human Rights Director! As I step into this role, I carry with me a continued fascination with the global challenges of today, a deep desire to understand the causes of the world’s most pressing human rights issues, and the persistent belief that we can do more to proactively protect the well-being of people in communities where businesses operate.

For the past decade, I worked at Mercy Corps—a humanitarian assistance and development NGO working in the world’s toughest places—to better understand, prevent, and mitigate conflict. As the organization’s first Peace & Governance Director in Myanmar and later as the Director of the Peace & Conflict technical advisory team, I launched, built, and implemented programs that aimed to reduce violence, build the preconditions for peace and development, and address critical and emerging threats—from climate change and disruptive technology to poor governance and gender inequality. This included working closely with communities as well as public, private, and civil society sectors to better protect the public interest and meet public needs.

My experience in international assistance has taught me four things that I bring with me to BSR:

The challenges of today’s world are complex. The destructive impact of climate change, growing income inequality, rising violence and political instability, increasing forced migration: these challenges are driven by multiple causes and are themselves intertwined. The corollary to this is that the solutions, too, are complex: because there is no single cause of today’s global challenges, there is no silver bullet to solve them. I look forward to working with BSR member companies to make sense of these challenges and to establish informed plans to address them

The realization of human rights is a multidisciplinary endeavor. Solving today’s challenges will require us to work across social, political, economic, and environmental systems to address their multiple drivers in tandem. No one actor can do this alone. Collective, multistakeholder action—grounded in a common analysis and driven by a shared strategy—is required to leverage the differential strengths and roles of the public, private, and civil society sectors. Companies will need to work across all operational functions to fully harness their capabilities to not only identify and mitigate human rights risks, but move beyond this to proactively foster the conditions that enable the full realization of human rights for everyone. BSR’s portfolio of multistakeholder and multi-company collaborative initiatives offers an excellent platform for joint actions toward this.

Know your context – and know your impact on it. Regardless of intention, businesses influence the contexts where they operate from the moment they enter. This is of particular concern in fragile and conflict-affected states, where both communities and companies are exposed to heighted risks of armed violence, political instability, and climate change. Knowing how interconnected social, political, economic, and environmental dynamics in a specific location increase state fragility, drive conflict, and undermine public well-being – and knowing how business operations will influence these dynamics – is the first step toward preventing adverse human rights impacts. I look forward to bringing the analytical lens and implementation approaches from the peacebuilding and conflict prevention fields to complement those in the field of business and human rights.

Business can make a difference. Development assistance from official donors was US$153 billion in 2018. That pales in comparison with the value of private sector investment, which was more than seven times that amount during the same period. To put it bluntly, aid won’t lift the world out of poverty—private sector investment will. By the same token, in the human rights realm, the world’s top businesses have an outsize influence on both their geographical areas of operation and their value chains. I look forward to working with BSR member companies not just to respect human rights by preventing adverse human rights impacts and remediating harm, but to fulfill these rights, both by supporting an enabling policy environment and by fostering the conditions—such as inclusive economic growth, women’s empowerment, and sustainable natural resource management—that underpin their realization.

If there’s a through line in my career, it’s the belief that we can build a world in which human rights are fully realized in both law and practice—and I look forward to building it with you.

Blog | Wednesday July 10, 2019

Getting Circular Economy Right: Let’s Put People at the Center of Circular Fashion

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Circular economy is on-trend in the fashion industry right now. The Global Fashion Agenda’s 2019 CEO Agenda says that creating a circular fashion sector must be a strategic priority for the industry.

Estimated at US$20 billion today, the global fashion resale market has the potential to outsize Fast Fashion in just 10 years, whilst double-digit growth is predicted for online clothing rental for the next five years. In the marketplace, disruptors and big brands alike are vying to appeal to consumers increasingly willing to try ‘pre-loved’ and rented clothing for size. Eileen Fischer, for example, has generated impressive traction with its take-back and repair lines. Fashion giants such as Express and New York & Co. are trialing subscription rental models.

Such experiments explicitly target environmental concerns, such as waste and pollution. But as an industry that serves billions of consumers worldwide and employs an estimated 60-70 million people in its value chain, people are too often missing from the conversation. What are the impacts of such business model innovations on people? And how can these be designed to be inclusive and fair from the outset?

BSR is working with the C&A Foundation to explore the ways in which advancing circular fashion affects people and in particular, women. Our research reveals that very few companies adopting circular fashion models are considering the social aspects as they make this shift.

While some companies are interested in social issues, the focus has largely been on the environmental side where progress is usually easier to quantify and measure. Companies and enabling organizations alike are unsure of how to integrate and address social, let alone gender considerations, as they experiment with these new models, their potential impacts, and how to take them to scale.

Potential impacts of circular fashion at scale

In today’s linear fashion model, most fashion items are produced in developing and middle-income countries and are transported for consumption elsewhere. The significant economic and social impacts of a future where circular fashion has taken off at scale must be considered. In the current system, vulnerable populations often disproportionally suffer the negative impacts and without a deliberate design for inclusion, it’s easy to imagine that these new circular models may replicate the same inequalities.

• A growth in clothing reuse (e.g. rental, resale, remanufacturing) could spawn much local economic activity in consumption markets [CC7] and present new job opportunities and types of roles. On the other hand, more traditional roles, such as in-store retail, will likely decline.
• Skills profiles will change, with an overall need for increased technical skills, possibly leaving behind women, who are traditionally underrepresented in the STEM sector.
• Circular models could open opportunities for traditionally underrepresented groups as new roles and flexible working models emerge. However, this also could give rise to growing concerns over the erosion of labor protections and the quality and reliability of “gig-economy” type jobs.
• In production countries, circular models could improve public health and local environmental conditions, which are often associated with declining production and the use of more sustainable processes and materials.
• However, obvious negative impacts on workers’ incomes and job opportunities may arise if this transition is not adequately anticipated and managed by governments and other economic actors. Women workers, who make up most of the garment supply chain workforce, are likely to disproportionately suffer from production declines and from the effects of automation.
• From a consumer standpoint, new tech-enabled circular models will present new privacy concerns. Further, there is the risk that some models will perpetuate existing gendered pressures on women and continue to incentivize “fast-fashion” consumerist behavior.

A need for deliberate action

Despite these uncertainties, one thing is clear: Improvements in working conditions, in the distribution of wealth and power, and in creating better opportunities for women and minorities will not be realized without thoughtful, deliberate actions. Ensuring that the shift to circular fashion truly enables a just transition for vulnerable populations will require confronting some demanding challenges. 

• Circular fashion has great potential to enable sustainable business models but how do we encourage an intentional focus on inclusion and fairer distribution as a core part of this emerging business model? How can we use incentives to do so?
• How can we build circular fashion models that enable local communities and entrepreneurs to flourish? Could some circular models concentrate power in one part of the supply chain or, conversely, have a positive impact in terms of how wealth and power distributed?
• How do we ensure women's needs are informing the design of circular products and services? How do we leverage the role of circular fashion design in influencing positive gender norms?

To tackle these questions—and to support the transition to an inclusive and fair circular apparel industry—C&A Foundation has issued a request for proposals for initiatives to understand how to enable positive outcomes for workers, employees, entrepreneurs, customers, and the broader society. The RFP intends to establish evidence on how new circular business models operate and can, by design, drive better outcomes for people. The deadline for concept notes is 30th July 2019, with full RFP details available here.

Circular economy presents a massive opportunity for a resource-smart future, but much like the linear economy, without an inclusive and fair approach, it will fail to deliver society-wide benefits. BSR is committed to partnering with companies and stakeholders to realize circular economy models that work for people. We encourage all companies to evaluate the impacts of existing business approaches, and to design circular models which are socially inclusive and deliver fair and equitable outcomes for people.

Blog | Tuesday July 9, 2019

Mergers Are Coming: How to Manage ESG through the M&A Process

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We are living through a time of tremendous external disruption, technological innovation, and increased political, social, and climate risk. As a result of this ongoing disruption, we are seeing increased mergers and acquisitions (M&A) activity as companies seek to buy into the latest innovation, to disrupt the competition—or to prevent being disrupted by the competition.

Already this year, we have witnessed high-profile mergers take place in multiple industries, including media (AT&T and Time Warner), pharmaceuticals (AbbVie and Allergan), and mining (Newmont Mining and Goldcorp).

These mergers can have a huge impact on the state of environmental, social, and governance (ESG) affairs for the companies involved. At a time when employees and customers are calling for companies to take stands on social issues and investors, like BlackRock’s Larry Fink, are stressing the value of “purpose,” a company’s ESG performance is more important than ever.  Companies can and should strive to integrate ESG considerations throughout the M&A process from initial due diligence through implementation after the merger.

As business leaders across industries pursue M&A activity, there will be substantial ESG opportunities and risks for the companies involved: opportunities to create more ambitious and resilient sustainability strategies, accompanied by risks that ESG objectives will be sidelined by overwhelming pressures to create short-term value.

BSR has developed a primer, Managing ESG through a Merger, to help Chief Sustainability Officers (CSOs), their teams, and internal allies navigate the M&A process to leverage and enhance ESG-related programs and priorities.

A successful merger requires integration of culture, strategy, and processes—and a company with a resilient sustainability strategy will be better positioned to integrate ESG elements accordingly.

The primer serves as a guide for CSOs and sustainability teams, who may find themselves faced with a range of scenarios:

• Company A bids to acquire Company B, but it is rejected by Company B’s Board due to a lack of commitment to ESG or sustainability. How can Company A avoid this in the future?
• One company has nascent sustainability efforts while the other has a robust sustainability program—how can the merger create an opportunity to elevate the newly formed company up to the higher standards?
• A smaller, sustainability-oriented brand is bought by a larger company—how can the executives ensure that the sustainability commitments, credibility, and progress will continue?
• A larger company intentionally buys a sustainable brand to incubate more sustainable processes or products—how can they replicate those learnings across other parts of the business?
• Two companies with significant investments in ESG merge—how can they combine their efforts, teams, and data in a meaningful way?

A successful merger requires integration of culture, strategy, and processes—and a company with a resilient sustainability strategy will be better positioned to integrate ESG elements accordingly.

It’s important to note that it’s fully expected that the executive management team leading the merger process will prioritize legal and financial issues at play. This still creates an opportunity for CSOs and internal sustainability champions to step in and ensure that ESG considerations are integrated into management’s priorities, particularly during due diligence leading up to the merger. By understanding and acting on the key considerations outlined in our primer, sustainability teams can employ processes that more effectively considers ESG issues, mitigating the reputational and financial risk associated with potential ESG crises and positioning the company to build competitive advantage through better integration of its sustainability strengths.

The new climate for business is one of technological, geopolitical, and climate disruption. It is also one where ESG plays a key role in defining a company’s reputation and culture. As mergers become an increasingly popular business tactic in this climate, business leaders who value sustainability have much to consider. To learn more about how BSR can support your company during the M&A process, please connect with us.

Reports | Tuesday July 9, 2019

Key Considerations in Managing ESG through a Merger

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We are living through a time of tremendous external disruption, technological innovation, and increased political, social, and climate risk. As a result of this ongoing disruption, we are seeing increased mergers and acquisitions (M&A) activity as companies seek to buy into the latest innovation, to disrupt the competition—or to prevent being disrupted by the competition.

Mergers and acquisitions can have a huge impact on the state of environmental, social, and governance (ESG) affairs for the companies involved. At a time when employees and customers are calling for companies to take stands on social issues and investors, like BlackRock’s Larry Fink, are stressing the value of “purpose,” a company’s ESG performance is more important than ever.  Companies can and should strive to integrate ESG considerations throughout the M&A process from initial due diligence through implementation after the merger.

BSR has developed this primer to help Chief Sustainability Officers (CSOs), their teams, and internal allies navigate the M&A process to leverage and enhance ESG-related programs and priorities.

Blog | Monday July 8, 2019

Five Legal Trends Affecting Business and Human Rights

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From working conditions in their global supply chains to ethical use of their products, companies have a lot to consider when it comes to protecting human rights. And while the UN Guiding Principles on Business and Human Rights (UNGPs) provides a framework for the private sector to assess their impacts, national laws regarding how business should address human rights vary widely from country to country.

This inconsistent nature of national government-level approaches to protect human rights is just one factor—along with the climate crisis and technological disruption—that companies, particularly multinational corporations, must contend with in today’s new climate for business.

Like many challenges, the question of how business should address human rights is one that benefits from collaboration—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 spring meetings of HRWG, held in New York, London, and Tokyo, brought together representatives from 40 companies across sectors to connect over the field’s most pressing issues.

Over the course of the spring meetings, HRWG’s discussion covered topics ranging from children’s rights to the risks of doing business in disputed territories, as summarized in Human Rights Insights: Trends from the Human Rights Working Group’s Spring Meeting, which was published today.

One topic that highlighted the challenge of inconsistent approaches by national governments to issues of business and human rights was emerging legal trends in human rights. The Working Group delved into the following trends:

• Vedanta Lawsuit and Supply Chain Responsibility: Regardless of industry, multinational corporations with global subsidiaries should take note of the U.K. Supreme Court’s ruling in the lawsuit against British mining company Vedanta Resources, which deemed that the U.K.-based parent company could be sued for harms allegedly caused by their subsidiary.
• Modern Slavery and Human Rights Due Diligence: More and more, countries are considering or adopting laws that will require all businesses to conduct rigorous due diligence of their operations and supply chains.
• Discrimination Laws: Globally, there has been an increase in laws that prohibit discrimination. This is particularly salient for companies with global operations as countries that didn’t previously have laws relating to issues like gender discrimination are increasingly adopting and enacting them.
• Labor Protections: Protections for gig economy workers are weakening in many markets. Ride-sharing apps have been sued by their drivers to be considered employees instead of independent contractors in order to access better protections.
• Privacy:  Privacy is increasingly an issue of concern for business, particularly those who have access to, and thus must protect, sensitive data from users and customers.

As countries’ concern for human rights changes, so will the legal landscape—as will the operating environment for business. Meetings of the HRWG are a unique space in which business and human rights professionals from companies of all industries can come together to discuss such pressing and emerging issues in the field. The global community fostered by this collaboration leads not only to knowledge sharing, but it also enables individuals to bring back key learnings to their own companies and inform business strategy.

BSR members interested in joining the Human Rights Working Group should not hesitate to reach out and connect with us.