Blog | Tuesday November 29, 2022

Deciphering EU Regulation on Finance and Human Rights

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The EU’s ambitious Sustainable Finance and Corporate Sustainability policy agendas are establishing the contours of an ecosystem of regulation with the potential to substantially scale up respect for human rights by businesses and financial institutions.

A mix of noble objectives underpin this development—to close the SDG funding gap, combat greenwashing, and craft a sustainable internal market, among others.

While few will disagree with these objectives, some concerned parties have described the current development as “an avalanche” of regulation. While that might be an overstatement, several interlinked measures are in the pipeline, and many stakeholders are struggling to connect the dots and see the full picture.

Taking a human lens to some of the more prominent regulatory developments will further align with business and human rights standards and can decrease administrative burdens and improve their individual and collective impact on people.

Regulatory Incentives and Increased Transparency

From January 2023, companies with taxonomy-eligible activities must report on their taxonomy alignment. The Taxonomy regulation is known for its environmental focus and for introducing a classification system for environmentally sustainable economic activities and corresponding disclosure obligations on financial market participants (FMPs) and real-economy companies.

It also includes an often overlooked human rights element in its so-called “minimum safeguards.” For an investment to be considered sustainable as per the taxonomy, the investee company is required to respect human rights by the UN Guiding Principles on Business and Human Rights (UNGPs), which can serve as a vehicle to scale up business respect for human rights.

In October this year the Platform on Sustainable Finance published a report which clarified that human rights alignment is part of taxonomy alignment.

Alongside the taxonomy are two additional disclosure-oriented regulations which seek to further incentivize investors and their portfolio companies to improve human rights practices:

The Sustainable Finance Disclosure Regulation (SFDR) introduces human rights related reporting requirements for Financial Market Participants (FMPs). Through Regulatory Technical Standards, the SFDR requires FMPs to publish sustainability statements that involve reporting on five mandatory social indicators (so-called PAIs) related to the human rights performance and processes of portfolio companies.

In this way, the SFDR prompts investors to consider and report on human rights performance across their portfolios and at the level of individual financial products. However, whereas the taxonomy regulation and the platform report reinforce the UNGPs, the five social indicators are not as neatly aligned.

Despite this, meaningful reporting under the SFDR will require significant scaling up of human rights due diligence efforts by investors as well as their portfolio companies and prompt investors to share data relating to human rights management and performance across investees.

The second disclosure-oriented regulation is the Corporate Sustainability Reporting Directive (CSRD), which mandates disclosure on human rights risks and impacts of eligible companies and could be a real game-changer in terms of driving data flows related to human rights processes and performance from companies to investors and other stakeholders.

This information will be key to filling the data gap on "the S" in ESG (environmental, social, and governance) investing that investors have struggled with for years, thereby enhancing their ability to consider a company’s social performance as part of investment decisions as well as in their active stewardship.

A Step Change: Human Rights Due Diligence Obligations on Companies and Investors

Whereas the taxonomy, SFDR, and CSRD can be seen as softer instruments seeking to encourage better human rights performance and reporting, the Corporate Sustainability Due Diligence Directive (CSDDD) takes the agenda to the next level by putting substantive performance requirements on companies and FMPs—enforced through administrative supervision and civil liability.

While FMPs are in the scope of this requirement, there is currently a debate about whether or not to keep it this way. Some argue that FMPs are struggling to meet the wave of regulatory requirements related to sustainability, while others question how a meaningful due diligence process could be carried out across complex products and asset classes.

It is clear, however, from the World Benchmarking Alliance’s latest report that keeping the financial sector in scope is crucial.

The report found less than 10 percent of the 400 institutions assessed disclose the processes they have in place to identify human rights risks and impacts within their operations, and less than 3% within their financing activities, suggesting their journey to UNGP alignment has only just begun.

It speaks volumes that many investors themselves argue they should be covered by the CSDDD and that the number of covered entities should in fact be increased in a recent statement coordinated by the PRI, the Investor Alliance for Human Rights and Eurosif. 

Getting It Right

Bringing each regulation into full alignment with the UNGPs not only improves the quality of the measures individually but also provides a method for ensuring policy coherence. As these regulatory initiatives are finalized and brought into force, we need as much attention to the details of each measure as we do to the joint ecosystem they form. If we get this right at the EU level, we could be on the threshold of a new and more robust era of rights-respecting business and finance.

Originally appeared on BHRRC.

Blog | Tuesday November 22, 2022

Just Transition: Navigating Beyond Best Practice

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COP27, described as the “African COP,” has concluded with a rallying call for community-based renewable projects that work for the people. Companies have a critical role to play in advancing this transition to a low-carbon economy—but will not succeed alone. As part of the Energy for a Just Transition collaboration in partnership with The B Team, BSR has been engaging with energy, utility, and related companies on this topic. Together as a cross-sector collaborative initiative, we understand “just transition” as the fair evolution from a fossil-based economy to a low-carbon or decarbonized world, and we recognize that it is both an outcome and a process that must be based on social dialogue, stakeholder engagement, and respect for human rights.

In our conversations, an important topic for consideration is the difference between just transition and consistently applied best practices.

Key areas of focus include best practices in a company’s own operations and in its supply chain as well as how companies show up in communities and society to achieve a just transition. Many of the practices can be mapped back to existing frameworks, like the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Responsible Business Conduct, the IFC Performance Standards, and the Sustainable Development Goals, among others. These standards, and others, can and should be used in the just transition.

However, what many of these existing standards lack is an explicit focus on equity, inclusion, justice, and benefits sharing—key elements for achieving a truly just transition.

There is no question that a just transition is different from business as usual. But the question remains: have the goalposts changed with just transition, or is it a rallying cry to (finally) do business not only better, but in the best way possible? Are norms changing and our understanding of what “counts” as best practice in the process of evolving?

While the roots of the just transition were born in the labor movement (meaning there is no just transition without workforce involvement, preferably an organized labor force with whom you can engage in social dialogue), it has grown to mean more than that by many stakeholders. With this expansion of scope, the expectations of what companies can do as part of the just transition have grown and will likely continue to evolve and deepen. This moment should be used as a catalyst for (finally) improving company practices.

The challenge that remains is that there are multiple definitions and understandings of just transition. While many different groups may use the term “just transition,” what that means translates into very different levels of ambition and transformation. The Just Transition Research Collaborative offers a framework for thinking about just transition (the Just Transition Initiative has a similar and equally helpful framework), which identifies four ideal-typical approaches to just transition that “form part of a continuum ranging from those approaches that preserve the existing political economy to those that envision significantly different futures.”

• Status Quo: Providing jobs becomes the proxy for justice, with companies compensating and/or providing new job opportunities for workers with a focus on the replacement of “old” jobs with “new” jobs. This can take the form of corporate-run job retraining programs and pension schemes for affected workers, but it does not address why the transition is needed.
• Managerial Reform: Equity and justice are sought within the existing economic system without challenging the existing economic model. Rules and standards are changed, and new ones are focused on workers’ health and well-being, including access to employment, occupational safety and health, social protection, and social dialogue.
• Structural Reform: Decision-making is inclusive and equitable, including collective ownership and management of decarbonized energy systems with an equal distribution of benefits or compensation as the result of the agency of workers, communities, and other affected groups. Power and wealth are broadly distributed.
• Transformative: The existing economic and political system is overhauled to promote alternative development pathways moving away from continuous growth and to envision profoundly different human-environment relations. It is based on the principles of equality for all as well as local control and community-led processes.

Understanding the desired outcome from the just transition will dictate the approach needed to get there. There is a difference between a truly transformational just transition and consistently employing “best practice” as it is defined today. Even the most ambitious companies have not set their targets at transformative just transition, as defined by the Just Transition Research Collaborative, and realistically are not likely to fully do so on their own. However, many are aiming to go beyond the status quo, make managerial reforms, and even begin to enact structural reforms within their companies and their ways of doing business.

Today, we are far from where we need to be on climate and just transition, with a monumental amount of work to be done in a short amount of time to avoid catastrophe. A good place for companies to start is to begin to consistently apply best practices across all operations regardless of local context and think holistically about the interconnectedness of issues.

However, I don’t believe that will be enough. Companies will also need to begin to apply an equity, inclusion, and justice lens to their work—something that goes beyond current best practice. This is not an easy ask, especially recognizing that despite company commitments and clear expectations, business-as-usual is not best practice. Today more than ever, we need companies to consistently implement the best possible practices as we, a global society, engage in a massive economic transformation and transition away from a fossil fuel-based economy.

Contact us if you are interested in learning more about how BSR can support your company in advancing the just transition or about Energy for a Just Transition.

Blog | Wednesday November 16, 2022

Calling for Action on Climate Justice at COP27

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Expectations are high that climate justice will be a focus at the COP27 negotiations, coined the “African COP.” African countries continue to experience severe physical and economic impacts from climate change, although their contributions to GHG emissions are less than 5 percent of the global total. These nations and communities from the global south are contributing to a discourse of loss and damage, which calls for reparations from wealthier countries to compensate them for irreversible impacts.

The global pursuit at COP27 of limiting and adapting to the devastating consequences of climate change is a huge undertaking, and it is only possible with the help of business. Operations and supply chains must decarbonize to halt its progress. At the same time, we need to fully understand and address how the irrevocable physical impacts of climate change and climate solutions are affecting people, including our workforce, suppliers, and the communities that are essential for a thriving global economy.

There are several ways in which businesses can address the disproportionate and unjust impacts of climate change on communities. For example, business can build operational, supply chain, and community resilience to identify climate risks across value chains; ensure a just transition as economies move away from fossil fuels; uphold human rights in the supply chains that are essential for a net-zero future, such as the mining for minerals needed for ion batteries; and ensure equitable access to clean energy. But first, listening to the people most affected by climate change and its solutions is a fundamental step.

The communities that have contributed least to climate change but stand to be most affected have no choice but to prepare and recover from extreme weather events, such as floods and droughts. And these challenges are exacerbated by systemic and structural inequities—the rules, policies, and practices that can perpetuate injustice—and their exclusion from decision-making processes. Discrimination has contributed to prejudicial treatment affecting individuals’ access to financing, housing, healthcare, and decent work.

To identify how a company can advance climate justice, it is critical to understand how communities are affected, what issues they are facing, and how climate change can exacerbate inequities. Business can facilitate social dialogue with communities across their value chain to highlight critical issues and begin to co-create solutions. Social dialogue, long practiced by businesses to consult and share information with employees, is a useful tool as they engage with communities to promote decarbonization solutions.

The social dialogue begins with listening to stakeholder concerns. As a first step, companies can establish focused discussions, meeting with employees and workers across their global markets to understand how they are affected by climate change events and by technology transitions required to decarbonize. Learning how employees and workers are affected by rising temperatures, fast-growing vector-borne disease, wildfire evacuations, or mine closures impacting local economies provides invaluable first-hand accounts of how climate injustices connect to business and its people.

Companies can also meet with community stakeholders to learn about the climate justice issues that they want to be addressed. For authentic community engagement on these issues to be successful, businesses must be prepared to participate in a long-term dialogue with respected community representatives to build a foundation of trust. Businesses engaged in authentic dialogue with communities must recognize the need to move more slowly and adjust planning timeframes accordingly. Justice is a process that moves at the speed of trust.

It is clear that climate change is unfair; the communities and people that are least responsible for it are suffering the consequences. For business, that means a credible net-zero strategy and climate transition action plan must take climate justice into account to address the underlying inequities that will make climate change worse in communities across the value chain. This starts with open social dialogue, and once trust is established, community members and business representatives can begin the challenging work of co-creating beneficial approaches. 

Blog | Thursday November 10, 2022

How Business Can Integrate Biodiversity into a Nature Strategy

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Human damage to the planet’s land, oceans, and freshwater is accelerating, with up to 40 percent of the world’s land classed as degraded and up to 66 percent of the marine environment significantly altered, while half of the world’s people are suffering the impacts. The catastrophic loss of biodiversity has made us all aware of our impact on nature. As a result of a growing crisis, the term Biodiversity has been increasingly cited in the news, included in corporate statements, and within the financial sector.

This newfound attention to the biodiversity crisis is effective at driving interest and investment in building solutions. However, there are growing concerns that a lack of common ground on what defines biodiversity, as well as society’s role in protecting and restoring nature, can harm efforts to expedite corporate action on biodiversity loss and protection.

What is Biodiversity?

At BSR, we are engaging the corporate sector to understand biodiversity and its connection to nature. “Biodiversity” is commonly understood as biological diversity, including diversity within species, between species, and all ecosystems. While biodiversity is a core element of nature, these two concepts are not interchangeable. Nature is broader in scope and covers all elements of Earth’s realms (land, freshwater, oceans, and atmosphere). Biodiversity is an element of nature and reflects the health of a given ecosystem.

How Biodiversity Could Affect Your Business

A clear understanding of the relationship between nature and biodiversity is a crucial first step for any business to develop credible and strategic action. Acknowledging that these concepts are separate, yet related, has key implications for business:

Biodiversity is a measurable output

An abundance of biodiversity is an indicator of a healthy ecosystem, which offers value and resilience for business. We are all intrinsically dependent on ecosystems. The outputs or processes provided by nature directly or indirectly benefit humans or enhance social welfare. Examples include key services such as waste decomposition, crop pollination, flood control, water purification, and carbon sequestration—to name a few. The importance of ecosystem services to the global market is staggering, with the OECD estimating the economic worth at US$125-140 trillion per year, which translates to almost 1.5 times the size of the global GDP.

Businesses are dependent on nature, which goes beyond biodiversity gain and loss

Business operations that impact biodiversity have a direct effect on ecosystem health, often destabilizing landscapes of critical raw materials, and resulting in risk to the resilience of value chains. Instability is already present as a result of our current economic model, which treats biodiversity as an unlimited resource. This mindset has led to humans overusing Earth’s biocapacity by 56 percent, meaning we are overestimating nature’s ability to regenerate. The impact of biodiversity loss is such that IPBES (2020) estimates our current trajectory will undermine progress toward 80 percent of the SDGs, impacting the ability to meet goals addressing poverty, hunger, health, water, cities, climate, oceans, and land. How the corporate sector understands biodiversity and its impact on nature, and how this is factored into decision-making, will determine society’s ability to fulfill the 2030 Agenda.

The Benefits of Getting Biodiversity Right

It is paramount for companies to delineate the distinction between the two terms, understand and analyze the interrelation between their dependencies and impacts to nature broadly, and set the right level of ambition for their business. This will enable the creation of targeted, relevant policies and strategies with credible goals and metrics that create opportunities, minimize risk, and reduce costs.

A Nature Assessment Can Help Prioritize Action

At BSR, we believe the best way for companies to gather insight into nature and biodiversity begins with a nature assessment. The assessment provides information on the most material nature issues and enables companies to prioritize action. The results of this analysis will enable risk management and safeguard access to ecosystem services, through nature-based solutions that mitigate harmful impacts, safeguard communities, and protect and regenerate biological diversity.

Furthermore, we recommend that companies who wish to define a biodiversity policy as part of their nature ambition can outline their commitment and approach to how biodiversity is considered and prioritized. However, the work of achieving biodiversity commitments should be enacted through specific strategies, such as eliminating deforestation or supporting regeneration that is tied to an overarching mitigation hierarchy approach.

Finally, for strategies to achieve credible, ambitious results, companies should not lose sight of other related issues, such as climate, social equity and justice, and human rights. This is why, at BSR, we encourage and help organizations to take a holistic approach to account for the interconnectedness of nature and biodiversity when addressing these issues to catalyze action and progress that is good for the people and the planet.

This is the first in our Nature blog series. As attention to biodiversity’s key role in preserving our access to natural resources grows, so does the urgency to act against current rates of depletion. A key driver of biodiversity loss is land use change, in the form of deforestation. In BSR’s next publication, “Is Deforestation in Your Supply Chain?” we explain how companies can identify and hedge against deforestation-linked risks across their entire value chain.

Blog | Wednesday November 9, 2022

Inside BSR: Q&A with Jonathan Morris

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

I was born and raised in New Jersey, studied computer science in upstate New York, and spent the first stop of my career working as a packaging developer for Coty in New York City. I had a “crisis of conscience” in my mid-20s and ultimately made my way across the pond to study sustainability at HEC Paris. I’ve lived in France for over 13 years, and I wouldn’t want to be anywhere else.

A day in my life consists of lots of family time with my wife and two little ones, Olivier (5) and Agatha (3), biking in and around Paris, often on the way to the BSR office. My evenings are split between home-cooked meals with friends, a handful of hobbies, and a fair amount of external work events. My favorite hobby is definitely singing—second only to training for races. I’ve been singing and playing instruments since I was little, and today I’m a tenor soloist in a 30-person choir.

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

I got involved in sustainable business thanks to a fluke, really. I was studying sustainability at the Business School HEC, but it was a real career shift moment and those are never guaranteed.

HEC held a speed-networking event with alumni, and I met Pablo Fuentes who had just finished the same masters program and then interned at BSR (who now works for Rever Consulting in Brazil). Once he described BSR’s work and mission, I was convinced it was the place for me.

I’ve now been with BSR for almost 12 years, and I've worn multiple hats over the years. I first supported our work in stakeholder engagement, sustainable fashion, and French regulation, and I supported a number of collaborations, such as Clean Cargo and Pharmaceutical Supply Chain Working Group. I also joined the Consumer Sectors team as BSR’s beauty and personal care sector lead, working with companies like L’Oréal and Estee Lauder. And over time I became our global reporting lead, founding our Future of Reporting collaboration.

Recently, I’ve shifted gears once again and I have three prime responsibilities: I lead BSR’s Paris office, I lead the intersection of tech and industrials sectors for EMEA, and I lead our engagement with high-growth companies in EMEA.

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

That’s my real passion—working in tech and in sustainability. I’ve always been a self-professed tech geek. I grew up surrounded by tech. My mom started her own communications business in our basement, and we always had cutting-edge Macs and high-speed internet. It was a perfect storm.

I found ways to involve myself with our technology members over the years, but today I count myself incredibly lucky to dedicate much of my time to solving the crunchy tech sector sustainability challenges—from identifying human rights risks to defining responsible product development and use practices, to enabling more sustainable e-commerce and building sustainability programs from the ground up for early-stage companies—and beyond.

There’s something about people working in tech. They’re passionate, innovative, energetic, and disruptive—but increasingly extremely well-informed on the responsibility that comes with the power of tech in the 21st century. It’s thrilling. And I get to dive into incredibly fun topics like AI, VR, virtual twins, the metaverse, electric vehicles, and much more. Working on these exciting and daunting topics is a way of pairing my passion for tech and my driving need to work on sustainability. As I said, I’m incredibly lucky.

What were the things that brought you joy amid the uncertainty and challenges of the past two years? What are you looking forward to in 2022 and beyond?

These past two years of COVID have been a challenge. But what has brought me joy amidst all of that is simple—the people around me. Watching my little ones continue to grow, finding a new rhythm with my partner, working with incredibly supportive colleagues, and connecting with family, friends, and peers all around the world in our shared, virtual, at-home existence. It was surreal, but it was also heartening that we found ways to reach out and be with each other.

Looking forward can be daunting. We have our work cut out for us. The planet’s getting warmer, our political divides are deepening, and our once taken-for-granted progress on issues like gender equality and diversity are being put into question. We have to accelerate our work. While tech alone won’t save us, I look forward to deepening my work in the sector and with the BSR team, because I know our people are motivated to overcome these challenges and make the world that much better.

People

Richard Wingfield

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Richard co-leads BSR's Responsible Technology, working with companies that develop and use technology to build human rights considerations and practices into their products, services, and policies. He brings a strong understanding of international human rights law and standards and how to translate the corporate responsibility to respect human rights into practice for companies of different sizes and sectors. ​

​Richard is particularly experienced in supporting companies with their regulatory requirements where these touch upon human rights considerations, and has worked with many companies undertaking risk assessments required by the EU's Digital Services Act and UK's Online Safety Act.​

​Prior to joining BSR, Richard led the legal and policy team at Global Partners Digital, an international human rights organization focused on the impacts of digital technologies on human rights.​

Richard holds a LLB in Law and European Law from the University of Nottingham and is a qualified lawyer in England and Wales.

People

Ife Ogunleye

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Ife works with BSR member companies on human rights and technology issues.

She brings several years of experience on a variety of anti-corruption, privacy, tech, and artificial intelligence (AI) policy issues. Prior to joining BSR, Ife worked with companies and government agencies to identify possible impacts or harms that may arise from the development or deployment of AI products as well as appropriate mitigation strategies, and she supported the development of AI regulatory and strategic frameworks in various jurisdictions. She has also worked as an attorney, providing legal advice to multinational companies in the extractive, energy, telecommunications, and financial technology industries on mergers, acquisitions, and financings as well as conducting anti-corruption, money laundering, and fraud investigations. Ife began her career as a policy analyst working on privacy and consumer protection issues in the UK and Europe.

Ife holds a Master of Development Practice from the University of California, Berkeley and a law degree from the University of Manchester, England.

People

Diane M. LuTran

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Diane advises private equity firms and global investors on integrating sustainability and impact into core investment and operating decisions.

As Global Lead for BSR’s Financial Services practice, she sets the strategic direction for the firm’s private markets work and partners with investment and corporate leaders on impact fund strategy and design. Her work spans the full investment lifecycle, from due diligence through post-investment value creation and exits. She also contributes to BSR’s AI strategy, bringing a systems-thinking approach to the intersection of AI, sustainability, and organizational transformation.

Previously, Diane was a Senior Manager at Ramboll Strategic Sustainability Advisory and held roles in corporate strategy, impact investing, and economic policy at the World Bank Group, the International Finance Corporation, and the International Monetary Fund.

She holds a joint Global MBA from Columbia Business School, London Business School, and Hong Kong University. She also earned a Master’s in Management and Business Economics from Harvard University and a Bachelor’s in Economics and Political Economy from UC Berkeley.

People

Julie Kling

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As part of BSR’s finance team, Julie is responsible for overseeing all day-to-day accounting activities, including payroll, accounts receivable, accounts payable, the general ledger, project-based accounting, grant and fund accounting, purchasing, and fixed assets.

Prior to joining BSR, Julie worked as a Controller at a nonprofit that provided recreational and camping activities for disabled people and therapy to children with developmental delays. There, she rebuilt the finance department during the pandemic and implemented software solutions and processes to strengthen internal controls and improve efficiencies. Prior to that, Julie spent eight years as a financial statement auditor in public accounting and then seven years at an outsourced accounting service company working with a wide variety of nonprofit organizations in the San Francisco Bay Area.

Julie has a BS in Business Administration with a concentration in Public Accounting and a minor in Psychology from California Polytechnic State University San Luis Obispo. Julie is a Certified Public Accountant (CPA).

People

Jarrid Green

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Jarrid is a director for BSR’s Inclusive Business Practice.

He supports leaders of global companies in their efforts to build inclusive organizations; navigate emerging industry and policy trends/flashpoints; and achieve strategic community and social impact. Jarrid also partners with philanthropic organizations including foundations and nonprofit intermediaries to identify opportunities to harness business influence for greater societal good.

Prior to joining BSR, Jarrid worked at Freedman Consulting, where he developed and managed strategic philanthropic initiatives, including donor coalitions and nonprofit initiatives focused on racial and civic justice issues, climate/sustainability impacts, and public health. Jarrid has also served in senior research and project management capacities at The Democracy Collaborative and The Center for Social Inclusion, where he led, supported, and published policy research and case studies focused on opportunities to dismantle structural racial inequities within community and economic development fields and practices.

Jarrid received his MBA in Sustainability from Bard College where he served as an inaugural member of the program’s Justice, Equity, Diversity, and Inclusion (JEDI) Advisory Board and provided advisory support and instruction to first- and second-year MBA students in his role as a part-time faculty member for the college’s experiential-learning, sustainability consulting course NYCLab. In 2024, he received a Certificate in AI Essentials for Business from Harvard Business School Online.

Jarrid holds a BA in English Language and Literature from the University of Maryland. He is also an alum of the Council of Urban Professional Fellowship Institute.