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Blog | Thursday September 23, 2021

Human Rights Are Not Just an “ESG Factor”

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The notion that investors should use environmental, social, and governance (ESG) considerations to inform their decision-making is having a moment. This is undoubtedly a good thing for those who believe that just and sustainable business has an essential role to play in the creation of a more equitable future. However, there is a risk of fundamental concepts getting lost in the process. One of these concepts is the responsibility of business—including institutional investors—to respect human rights.

The profile received by ESG today may seem sudden, but is happening for good reason: The physical impacts of climate change are becoming more apparent with each season, the global pandemic has forced a renewed examination of human capital across company value chains, and the decline of democracy and trend towards political polarization has significantly increased legal, operational, and reputational risks for companies everywhere. In this context, it is not hard to convince investors of the material significance of ESG to enterprise value creation.

However, this lens—of viewing ESG considerations solely as a series of factors that impact enterprise value creation and financial returns—may jeopardize the very outcomes we are seeking to achieve. 

Put simply, respect for human rights is not just an ESG factor, but a global standard of expected conduct for all companies, including institutional investors. Human rights are not a subset of discreet social topics to be addressed, but a globally agreed upon standard of achievement for all people, covering a wide range of interdependent civil, political, economic, social, cultural, and environmental rights.

...enterprise value creation should only happen when business can meet its responsibility to respect human rights.

In the business context, this is manifested in a responsibility to adopt a human rights policy, embed respect for human rights throughout the business, and undertake human rights due diligence—in other words, a fundamental methodology and mindset, not simply an issue to address. And crucially, taking action to address human rights risks should not be contingent on their relevance to enterprise value creation; enterprise value creation should only happen when business can meet its responsibility to respect human rights.

However, too often the opposite is the case. When investors position risks and opportunities for the business as the core metric for evaluating ESG performance, companies will respond by focusing too much on what shareholders have to say, and not enough on the voices of those whose rights are impacted. And by aggregating ratings across E, S, and G factors, companies may be labeled as strong ESG performers by investors due to their high ranking on financially material environmental criteria, despite contributing to human rights harms on social criteria. 

This is a problem. Many investors misinterpret fiduciary duties as limiting their ability to act on anything that does not demonstrably increase the financial standing of beneficiaries or customers in the short-term. While severe risks to people often converge with risks to business, measuring the returns of paying a living wage (for example) may not be apparent in the short-term. 

Public debates on the merits of ESG too often ignore the growth of business and human rights, such as the incorporation of the UN Guiding Principles on Business and Human Rights (UNGPs) into the OECD Guidelines on Multinational Enterprises and the subsequent creation of responsible business conduct guidance for institutional investors by the OCED. Emphasizing this shortcoming, a recent United Nations report found that “knowledge of human rights, including how human rights are defined, how they are relevant across ESG factors, and what meaningful human rights due diligence looks like remain limited in the investor community.” 

We believe that the business and human rights framework tackles many weaknesses in today’s ESG landscape, and important organizations are moving in this direction too. The EU has taken on a leadership role in re-defining responsible business and ESG investing by codifying the human rights expectations of business actors—for example, the Sustainable Finance Disclosure Regulation requires investors to disclose the adverse impacts of ESG-branded investments on people and planet regardless of financial materiality, while the proposed EU “social taxonomy” is also grounded on human rights standards and frameworks.

The notion of “double materiality,” which features prominently in proposals for a new EU Corporate Sustainability Reporting Directive, is especially promising. Building upon two decades of standards development, double materiality makes clear that business is accountable in two different ways—to investors, for the creation of enterprise value, and to society at large, for impacts on people and the environment. We need standards for both.

The two dimensions of double materiality are connected because impacts on people and the environment increasingly interact with the creation of enterprise value creation. This has become known as “dynamic materiality,” and wise companies will seek to convey to investors how they address this relationship. However, the two dimensions of double materiality—to investors, for the creation of enterprise value, and to society, for impacts on people and the environment—are distinct and exist entirely on their own merits.

Ten years ago, the unanimous endorsement of the UNGPs by the UN Human Rights Council brought new clarity to the notion that all companies, including investors, have a responsibility to respect human rights, regardless of its significance to financial returns. By all means, let’s seize the moment of increased investor interest in ESG to advance more responsible forms of business; but let’s not forget the conceptual foundations that make for truly just and sustainable business, and make sure that the ESG movement meets its own responsibility to respect human rights.

Reports | Tuesday September 21, 2021

Climate Change: Building Resilience While Protecting Human Rights

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Overview

Human rights and climate change are inextricably linked. The impacts of rising global temperatures—natural disasters, the proliferation of vector-borne diseases, climate migration, famine, and drought—negatively impact many human rights, such as rights to shelter, natural resources, mobility, health, employment, and livelihoods.

Whether caused by physical climate impacts (e.g., extreme weather events, flooding, heat stress, the spread of disease) or climate solutions themselves (e.g., communities excluded or left behind as companies install new infrastructure as part of their transition to a net-zero economy), climate change has disproportionate impacts on poor and marginalized communities, and it exacerbates the underlying systemic inequities that these communities already face.

As climate change magnifies inequalities and vulnerabilities, protection of human rights becomes even more urgent: where human rights protections are weak, individuals and communities are less able to adapt and build resilience to climate impacts.

Why This Matters for Business

The UN Guiding Principles on Business and Human Rights (UNGPs) serve as the primary internationally accepted framework for standards and practice regarding human rights and business. According to the UNGPs, companies have a responsibility to respect human rights, which requires that companies (a) avoid causing or contributing to adverse human rights impacts through their own activities and address such impacts when they occur and (b) seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products, or services by their business relationships, even if they have not contributed to those impacts.

In the context of climate change, this means that companies have:

1. A responsibility to address human rights impacts related to their physical climate impacts;
2. A responsibility to address human rights impacts related to their transition to a low-carbon economy; and
3. An opportunity to promote the realization, fulfillment, and enjoyment of rights in a resilient world.

The table below illustrates how physical climate impacts, transition risks, and transition opportunities should be considered in the context of a company’s climate and human rights strategy.

Blog | Monday September 20, 2021

In Memoriam: John G. Ruggie (1944-2021)

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All of us at BSR are deeply saddened by the passing of John Ruggie, leader, colleague, and friend.

John is known to many of us at BSR and in our wider network as the dogged visionary who led the creation of the UN Guiding Principles on Business and Human Rights.  It is no accident that they are referred to as the “Ruggie Principles.” The significance of the Guiding Principles cannot be overstated. They created the de factor global standard on how business should safeguard and advance human rights.  They have been adopted and applied by companies in every corner of the world. John’s vision in steering the Principles to conclusion was matched only by the complexity of the task of achieving a consensus that all stakeholders and nations could embrace.

Aron Cramer, BSR’s President and CEO, recalls that when he spoke with John soon after he was named the Secretary General’s Special Rapporteur on Business and Human Rights, and asked John what he hoped to accomplish, John’s reply was “avoid a train wreck.”  That comment, and his subsequent, painstaking work, showed John at his best: bringing humility, insight, and a strong sense of purpose.  John knew that his task would bring criticism: he never let that deter him, not for one day.

While the UN Guiding Principles are what many of us remember him for—and are deeply grateful for—his professional achievements go well beyond that. John was a close partner with Secretary General Kofi Annan in reforming the United Nations, and he was, along with Mr. Annan and Georg Kell, the architect of the UN Global Compact, to name only two of his signal accomplishments.

Cramer said, “When the definitive history of responsible business in this era is written, John will be in every chapter. He was a master builder who constructed a framework enabling business to shape a better, fairer world, with dignity and respect for all. At a time when globalism is rejected in the name of division, John believed in the universal values of human rights, and was relentless in keeping all of us focused on the vision in the Universal Declaration of Human Rights. John also was an extremely kind person. I had the privilege of getting to know John, and travel to far-flung locations with him, getting to see his great sense of humor. I will miss him greatly.”

All of us hope to leave a lasting impact. John has shown us all what that looks like when it is more than an aspiration. His legacy and memory will continue to guide us, enable progress, and give us a model to which we should aspire.

At a time when human rights and democracy are under threat in all corners of the world, it is now up to all of us to take the tools and vision that John has now passed to us, and make the most of them.

Additional tributes to John Ruggie from our partners and friends throughout the Human Rights community.

• Business & Human Rights Resource Centre: “In Memory of John G. Ruggie: Tribute by Bennett Freeman”
• Institute for Human Rights and Business: “Salil Tripathi on John Ruggie’s Legacy”
• Arabesque: “In Memory of John G. Ruggie”
• Shift: “In Memory of John G. Ruggie”

Blog | Monday September 20, 2021

Only Transformative Net-Zero Implementation Will Meet Our Climate Crisis

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The world’s leading authority on climate science, the Intergovernmental Panel on Climate Change, had not delivered a major report in 7 years. But the installment released last month paints a dire picture of our future. 

On our current path, we will likely breach the Paris Agreement’s stretch target of limiting global warming to 1.5°C above pre-industrial levels in the next two decades, and may breach the fallback target of well below 2°C around mid-century.¹ For these goals set just a few years ago, the 2020s will truly be the decisive decade. This year’s scourge of wildfires in California and Siberia, floods in Germany, and deadly storms like Hurricane Ida remind us of what is to come.

The IPCC report tells us that climate change isn’t a problem we should solve for the next generation; it is a problem we must solve immediately, for ourselves. The impacts of a 1.5°C and 2°C world – extreme heat and weather, species loss, crop yield reductions, fishery decline, disrupted supply chains, public health crises and displaced communities – would arrive during our own working lives. We, not our children, would see how the dice are loaded. The heatwave that happened once every 50 years before industrialization would happen 9 times at 1.5°C and 14 times at 2°C.²

So, the staggering rise of corporate net-zero commitments comes at an auspicious time. Over the past three years more than 3,000 businesses, large and small, have made net-zero commitments now aggregated under the UN’s Race to Zero campaign.³ All of these meet a set of criteria in force as of this June.⁴ This momentum from businesses to build net-zero value chains can change our global trajectory. But net-zero commitments are also increasingly subject to five criticisms which implementation must address to be truly credible and transformative.

1. The first criticism is that net-zero commitments divert attention from immediate abatement, effectively licensing short-term emissions. That is why companies with net-zero targets must also set and deliver an interim emissions reductions target following a 1.5°C trajectory, for example under the Science-Based Targets initiative, or as part of the Race to Zero campaign.⁵
2. A second criticism is that net-zero commitments, which are typically based on a company’s fair share of global net zero carbon dioxide by 2050, should not be inequitable as between developed and developing countries. That is why, companies whose emissions footprint sits largely in developed countries who have high historical emissions, should aim to achieve net zero ahead of 2050.
3. A third criticism is that net-zero commitments, by focusing attention on removals which net out emissions in the target year, divert attention from immediate climate investments outside the value chain needed to keep 1.5°C within reach. Companies can dramatically increase their impact on the climate crisis by not merely abating emissions in the value chain en route to net zero, but also compensating for emissions outside the value chain, for example by investing in climate solutions and methane reductions.
4. A fourth criticism is that net-zero commitments may greenwash business-as-usual action. Building a net-zero value chain requires genuine business transformation across functions, from supply chain engagement and procurement, to finance, and research and development and product design. Net zero implementation then must demonstrate business transformation across these functions, including integration into the company’s business strategy with a clear climate action plan which has been vetted and approved by shareholders.
5. Finally, a fifth criticism is that net-zero commitments perpetuate climate and environmental injustice, for example in BIPOC and low wealth communities. Here a company can support these communities through its net zero implementation. Renewable electricity can be purchased from companies with a proven track record of increasing energy access. Carbon credits can be selected which benefit these communities. Low-carbon products and services can be procured in a manner which improves the equitable distribution of benefits of the net zero economy. This is where net-zero implementation strategies intersect with equity in the sustainability agenda.

These criticisms point towards what climate leadership will look like in future. This includes: 

1. Selecting a net-zero target year earlier than 2050 if your footprint is largely in developed countries;
2. Setting and delivering an interim emission reduction target consistent with a 1.5°C trajectory;
3. Compensating for emissions outside the value chain enroute to your target year;
4. Implementing business transformation across functions; 
5. Supporting communities which have suffered from climate injustice through net zero implementation;
6. Using your company’s influence to advocate for policy which advances climate justice and which supports a just transition for all.

This can be a lot to ask of a company formulating its next climate target and implementation plan. But debate over net-zero commitments is heating up as COP26 approaches and will not slow down anytime soon. Listening to these concerns from the climate community helps companies to make their net-zero implementation commensurate to the crisis at hand.

¹ IPCC AR6 WGI SPM, table SPM.1.
² IPCC AR6 WGI SPM, p. SPM-23.
³ https://unfccc.int/climate-action/race-to-zero-campaign
⁴ https://racetozero.unfccc.int/wp-content/uploads/2021/04/Race-to-Zero-Criteria-2.0.pdf
⁵ The Race to Zero criteria require that companies “[s]et an interim target to achieve in the next decade, which reflects maximum effort toward or beyond a fair share of the 50% global reduction in CO2 by 2030 identified in the IPCC Special Report on Global Warming of 1.5C”.

Reports | Monday September 13, 2021

BSR Submission to EU Social Taxonomy Process

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BSR this month submitted its feedback to the EU Social Taxonomy Process, an effort initiated under a mandate from the European Commission Platform on Sustainable Finance to ensure that vital social aspects of sustainability are integrated into the EU’s Taxonomy Regulation. 

The Platform is instrumental in enabling cooperation among a wide range of stakeholders from the public and private sector, including the best expertise on sustainability from the corporate and public sector, industry, academia, civil society and the financial industry.

BSR’s recommendations on the draft social taxonomy report highlighted six key points for consideration, including the importance of grounding socially sustainable business practices in international human rights standards and relevant frameworks; the necessity of robust corporate governance for tackling sustainability challenges, and ensuring that minimum human rights safeguards are understood to involve proactive and ambitious corporate due diligence.

Blog | Thursday September 9, 2021

Reimagining Investment: Human Rights in Venture Capital

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The increasingly widespread media coverage of surveillance and spyware technologies used to track ethnic and racial minorities and immigrants and surveil journalists, human rights activists, and other prominent figures has put a spotlight on the role of private equity firms, including venture capital (VC) investors, in financing human rights abuses in the United States and abroad.

By providing critical funding for technology start-ups, VC firms play a crucial gatekeeper role, deciding which companies make it onto the market, and ultimately, which technologies shape our lives. This has far-reaching consequences for human rights. While digital technologies present opportunities for economic growth, environmental protection, and the realization of human rights, such innovation can be associated with widespread infringements on privacy and free expression, enable the proliferation of hate speech fueling offline violence, and deepen inequalities, including through "algorithmic discrimination"—affecting people in the job market, accessing loans and public services, and in the criminal justice system.

Despite these societal harms, a July 2021 report released by Amnesty International found that “the vast majority of the world’s most influential venture capitalist firms operate with little to no consideration of the human rights impact of their decisions.” The report concludes that “the absence of human rights policies and due diligence processes amongst VC firms has significant consequences for human rights,” citing a range of examples, such as investments in companies that provide support for the repression of the Uyghur population in China.

These findings run contrary to the global expectation that businesses of all sectors and sizes, including VC firms, take the necessary steps to ensure that their business activities and value chains respect internationally recognized human rights. Unanimously endorsed by governments in the UN Human Rights Council in 2011, the UN Guiding Principles on Business and Human Rights (UNGPs) are the authoritative global framework outlining the responsibility of businesses to respect human rights.

Managing human rights risks is not only good for people—it is also good for business. 

Managing human rights risks is not only good for people—it is also good for business. Public equity investors have already recognized the relationship between human rights risks, including digital and labor rights, and the material costs on return (e.g., SASB standards, Investor Statement on Corporate Accountability for Digital Rights, and digital rights-related resolutions in 2019). A 2019 Harvard study on VC found a link between start-up technology companies that fail and poor performance in addressing environmental, social, and governance (ESG) risks. IPO valuations have also been threatened due to business models that undermine human rights. Firms may even be exposed to legal risks connected to their investments in companies that develop high-risk technologies, while reputational risks are increasing due to the growing focus of NGO advocacy on private capital and human rights.

Tech companies themselves are also realizing this. Growing pressure from regulators, civil society, employees, and shareholders over the human rights abuses connected to their business models, products, and services has led many publicly listed tech companies to adopt human rights policies and take due diligence measures to address risks.

VC firms can meet their human rights responsibilities, help shape a world where technology contributes to social progress, and increase their financial returns by deploying approaches based on the following three principles: 

• Adopt a policy commitment to respect internationally recognized human rights. The policy should set out the human rights expectations of start-up companies, which should be clearly communicated, including during pitching sessions and on the VCs website.
• Conduct human rights due diligence. VC firms should update their core business activities to manage human rights risks. Known as human rights due diligence, this means that VCs need to know the risks to people connected to their investment portfolios and show how they address these risks. This involves assessing how the firm invests and putting in place structures that identify and address risks to people as an inherent part of doing business. This includes processes and mechanisms for engaging stakeholders, including civil society with the relevant knowledge and expertise, to identify the risks and real-world impacts connected to investment portfolios. To show the constructive role they play in strengthening the human rights performance of start-ups, VC firms should also disclose their human rights risk management approach, including through formal reporting.
• Provide space and resources for entrepreneurs to do their due diligence: A core aspect of VC’s own due diligence involves using leverage to enable and support start-ups in their efforts to respect human rights. This may include offering start-ups trainings and tools that support their ability to manage human rights risks, connecting entrepreneurs with business and human rights experts, and encouraging them to assess business models, products, and services to identify human rights risks. Where a VC sits on the board of directors, they should also seek to shape and embed a rights-respecting culture within the company and ensure that the board provides appropriate oversight.

By supporting company founders in their mission to grow their businesses responsibly, VCs can play a transformative role in shaping the behavior and culture of emerging companies and the associated outcomes for society. The UNGPs provide a roadmap for VC firms to reimagine the way they conduct investment, helping to ensure that addressing risks to people is a fundamental part of their core business.

Reports | Thursday September 2, 2021

Access to Remedy

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Introduction

The third pillar of the UN Guiding Principles on Business and Human Rights (UNGPs) states that individuals whose rights are harmed by business must have access to remedy. Despite 10 years of implementation of the UNGPs by companies and states alike, the remedy pillar remains largely undeveloped and under-fulfilled. There is little practical guidance on how to provide effective remedy—including a lack of tools on how to measure effectiveness—and few public case studies, limiting the ability to learn from others and advance the field.

Companies are hesitant to publicly disclose what they are doing on remedy and to admit responsibility for harm they have caused or contributed to out of fear of reputational and financial consequences, precedent-setting, or the likelihood of legal claims. Even businesses that have made a commitment to providing remedy continue to struggle with determining which approaches are most effective and lasting. Many companies avoid providing remedy at all unless obligated to by the courts.

Much of companies’ focus with respect to remedy has been on access to operational-level grievance mechanisms (OGMs), with far too little emphasis on the substance of remedy. It is important to note that merely having a grievance mechanism, no matter how effective, does not mean the company is providing access to remedy. Grievance mechanisms can be critical in the process of obtaining remedy; however, remedy must result in an outcome whereby the individual or group harmed is restored to their position prior to the harm.

Expectations are changing, and companies will increasingly be expected to address the harms they have caused or contributed to through their business relationships. The landscape is shifting toward greater human rights responsibility, including an increasing prominence of ESG factors such as human rights, when evaluating company performance. Additionally, mandatory due diligence legislation is growing, especially in Europe, with some legislation requiring access to remedy.

The Role of Business in Providing Remedy

For companies to get ahead of expectations and fulfil their obligations under the UNGPs, they need to understand the four key roles business has in providing remedy:

Blog | Tuesday August 31, 2021

Creating Opportunities for Action: Advancing Children’s Rights in the Palm Oil Industry

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In January of this year, we published a blog highlighting practical steps that palm oil companies can take to respect child rights and address child labor in their operations and supply chains. In June 2021, the ILO and UNICEF reported that the number of children in child labor had increased from 152 to 160 million globally—and these numbers are expected to rise as the COVID-19 pandemic continues to affect Southeast Asia. COVID-19 is expected to further obstruct efforts to eliminate child labor as more children are expected to drop out of school and fall into hazardous work.

We can see these impacts playing out in the palm oil industries in Indonesia and Malaysia. Companies wishing to eradicate child labor from their supply chains may be best served by looking beyond their own value chains to the wider context in which they source and manufacture products and by partnering with other actors to address structural drivers and systemic issues which require an industry-wide approach.

Why Industry Collaboration Is Critical

Companies cannot tackle child labor in isolation, given its entrenched nature and complexity. While greater progress is needed on engagement and collaboration with governments and civil society, forming partnerships across the palm oil industry can be an impactful way to systemically address the issue. Here’s why:

• Industry partnerships can be integral to the success of strategies needed to leverage companies and their suppliers to prevent or mitigate child rights violations through promoting awareness and understanding of complex issues, encouraging others to act, and developing solutions together.
• Greater collaboration between businesses can identify and scale effective solutions and facilitate shared learnings while avoiding potential duplicated efforts. Individual company responses may not be as effective in tackling an issue rooted in poverty, for example.
• Increased collaboration can enable companies to share the risk and create a more level playing field.

A wide range of voluntary, business-led, industry-wide, and cross-industry initiatives has emerged in recognition of this need for greater collaboration.

How Palm Oil Companies Can Act on Child Labor

While the UN Guiding Principles on Business and Human Rights acknowledge the complexity of addressing human rights issues, they encourage companies to engage with a wide range of stakeholders. In addition to conducting human rights due diligence in their own operations and supply chains, as well as adhering to national and international laws and standards, companies can address complex issues such as child labor in several ways:

• Raise standards through the creation of industry guidance on due diligence, remediation, and monitoring to define corporate behavior regarding child rights violations.
• Work with relevant, local stakeholders to understand risks, look at potential solutions, or address a specific impact. For example, companies could partner with peers and local civil society organization (CSO) networks to lobby the government to make legislative changes. They could also advocate for a national action plan on child labor.
• Use leverage to engage with less resourced companies within supply chains and build capacity, raise awareness, and share best practices and lessons learned through training. Companies could work in partnership with leading organizations to develop training and/or guidance for suppliers on child rights, challenges, and practical solutions.  
• They could also join a leadership platform on child labor to build on and strengthen existing efforts for collective action and practical solutions.

At BSR, we work with key players in the palm oil industry, including producers and buyers, to tackle child labor by integrating children’s rights into plantation policies and practices. Last year, we supported the development of agribusiness group Wilmar’s Child Protection Implementation Manual, in collaboration with global buyers. This year, we’re continuing our work with Wilmar—in collaboration with The Centre for Child Rights and Business and the Earthworm Foundation and with the support of global palm oil buyers— to pilot and test the manual’s practical applicability with a participating supplier and share lessons learned with Wilmar’s supplier base and the wider industry. A key deliverable of this project will include a manual, which will be adapted for the Malaysia context aimed at addressing complex issues related to foreign workers.

The manuals will not only be used as a guideline for the industry to respect and promote child rights, but more importantly, the pilot also demonstrates proactive steps toward risk management, accountability, collective action and building a shared understanding of how to address child labor in different geographical contexts. This is an important opportunity to share lessons learned within the Indonesian and Malaysian palm oil industries with a view to expand learnings across other sectors. As we move into the next phase of work, we will continue to engage palm oil industry players to leverage collaborative efforts to invest in sustainable change for children.

For more information on BSR’s work on business and human rights, including children’s rights, please reach out to connect with our team.

Blog | Monday August 30, 2021

Sustainable from the Start: Embedding ESG into High-Growth Business Strategy

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We are experiencing a profound shift in stakeholder expectations and business growth strategy: sustainability is more important than ever before. Younger, high-growth companies—those that either are privately held or recently went public—face unique challenges and opportunities as they expand business while also considering environmental, social, and governance (ESG) factors, be it climate change, privacy, diversity, or a range of other material issues. 

Over the past two years, we have hosted quarterly convenings for high-growth companies to share challenges and approaches on a variety of ESG topics. In these meetings, BSR spoke with company sustainability leaders, who shared how their experiences might apply to younger businesses. Based on the outcomes of these discussions, what are the main considerations for a high-growth company at the start of its ESG journey?

First Up: Identify Material ESG Issues

Conducting a materiality assessment is an essential “do this first” step to jump-starting an ESG strategy. A materiality assessment is a widely used approach to help companies develop ESG priorities by understanding the most important topics. It identifies key areas of overlap between enterprise value creation (“impact inwards”) and impact on society and the environment (“impact outwards”).

Materiality can help a young company: 1) align on relative priorities and clarify the rationale; 2) enable better allocation of resources to address priority issues; and 3) communicate more effectively, internally and externally, on the most material issues. 

We explore other key steps in a recent report published in collaboration with Morgan Stanley, which addresses why, when, and how high-growth companies can develop ESG strategies that support value generation and meet growing stakeholder (i.e. investor) expectations. 

So, you’ve taken the initial recommended steps. What do you need to consider first among the ESG dynamics at play?

Environmental Issues

Acting on the climate crisis is more urgent than ever, no matter where a high-growth company is in their sustainability journey. While younger companies may have a smaller environmental impact than more established ones, they must not ignore issues such as climate change and energy use because extreme, systemic climate risks can be disruptive to the global economy and all businesses.

To develop a climate strategy that fits a company’s business model, scale, and stakeholder expectations, start by measuring the company’s greenhouse gas emissions footprint, which will provide a baseline to make informed decisions, commitments, investments, and operational changes moving forward. Once the company understands its footprint, it can then create a strategy to meet an ambitious climate action commitment, as exemplified by Atlassian’s Science-Based Target and net-zero goal and Okta's 100-percent renewable energy commitment.

Social Issues

The COVID-19 pandemic, ongoing social justice movements, and recent social media deplatforming events have put a spotlight on how companies need to address the “S” in corporate ESG issues—and younger companies whose workforces are rapidly growing cannot wait to act.

While studies continue to show that diverse and inclusive teams provide many business benefits, companies big and small still struggle with creating a workforce where employees enjoy equitable opportunities in a welcoming environment. BSR recommends that high-growth companies adopt equitable and inclusive practices early on, such as ensuring job descriptions don’t include gender-biased language and working with a third party to conduct an annual study to ensure pay equity. We also encourage companies to promote social justice by leading with equity. 

Additionally, collaborative efforts with partners like the Tech Equity Collaborative, Alliance for Global Inclusion, and Partnership for Global LGBTI Equality are great ways for younger companies with smaller teams to work with others to help improve DEI practices and realize benefits at the company and industry-wide level.

Governance Issues

High-growth companies develop with such speed and scale that they often lack strategic approaches and governance structures for managing various ESG issues and are often not resourced with dedicated ESG staff. In turn, the management and communication of ESG efforts can be often an overwhelming task, leaving employees looking around and asking, “who’s responsible for what, and how does any of this get done?”

In establishing an ESG governance structure, first look at team members. Senior leadership support for and awareness of the business case for addressing material ESG issues is critical to gaining resources and realizing the benefits of action over time. Regardless of whether a dedicated Head of ESG position is an option or not, a cross-functional approach—in which senior leadership engages with various business units, be it human resources, investor relations, legal, sales, or product engineering—helps to ensure shared ownership and management of ESG issues that are often interconnected.  

When it comes to communications, start with a featured section of the company website that transparently shares where the company is in its ESG journey. Then consider more robust reporting frameworks, such as the Global Reporting Initiative and the Value Reporting Foundation, to identify indicators to use when reporting annual progress on the company’s material ESG issues.

It is never too early (or too late) to embed ESG into a high-growth business model. Embracing ESG practices early has shown to improve valuation and ultimately long-term success. BSR continues to run our high growth webinar series both in the US and EMEA—if you want to participate, don’t hesitate to reach out.

Blog | Thursday August 12, 2021

China’s 14th Five-Year Plan: Broad Insights for the Healthcare and Pharmaceutical Industries

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2021 is witnessing the beginning of China’s 14th Five-Year Plan (14th FYP), which charts the next five years of China’s journey to build a modern socialist country and achieve its second centennial goals. It provides a comprehensive framework for how the country’s society and economy will develop by 2026 and includes the strategy to build a “Healthy China,” which aims to improve overall social conditions, including healthcare.

As a country with a population of 1.4 billion, China faces many health challenges. These include high medical care costs and resource disparity between urban and rural areas, resulting in poverty due to illness, especially in rural areas (approximately 20 million people faced disease-causing poverty as of 2015). Other challenges include an increasingly aging population and rising rates of noncommunicable diseases (NCDs) linked to lifestyle factors like smoking.

So how does China’s 14th FYP impact the healthcare and pharmaceutical industries? Here are three ways these companies can help advance the “Healthy China” strategy.

1. Improving Affordability of Healthcare Services

Primary healthcare reform in China over the past decade has included extensive plans to broaden basic healthcare coverage and establish a national essential drug system. While “Healthy China” aims to improve overall health through healthy lifestyles and prevention approaches, there is an opportunity to enhance medical coverage for the entire population through better integrated rural and urban health insurance programs, to expand insurance schemes to allow more diversified commercial health insurance options, and to further cut down medical costs for patients.

Developments and reform in medical insurance, as well as drug pricing, will indisputably exert pricing pressure for pharmaceutical companies in China. However, experts believe that the policies will trigger convergence toward a developed-market profile for mature brands and will prompt multinationals to reevaluate their returns on investment and to transform business models to improve productivity and sustain profitability.

Moreover, there are enormous opportunities for pharmaceutical and insurance companies to collaborate on creative approaches to improve access to healthcare. For example, in 2015, Roche China started a partnership with the Shenzhen Reimbursement Authority and the leading Chinese insurance company Ping An to cover four of Roche’s targeted cancer therapies in the municipality’s health insurance program, which gave millions of people unprecedented access to innovative cancer treatments and diagnostics.

2. Strengthening Accessibility in Healthcare

The 14th FYP also covers recommendations to deepen reform of public hospitals and to provide equal access to basic public healthcare services, such as digital primary care, remote medical treatment, and rehabilitation services for seniors. The recommendations also support development of traditional Chinese medicine (TCM), which is significantly more accessible and affordable in China.

As China plans to significantly promote digitalization in healthcare, there is huge potential for the private sector to play a role in accelerating delivery of Internet-based healthcare services through artificial intelligence, machine learning for diagnostics and treatment, and augmented-reality surgeon training. Already, some Chinese companies are piloting related initiatives, such as Pingan Good Doctor, Tencent WeDoctor, AliHealth, and JDHealth.

We encourage companies to expedite the move online by deepening their understanding of new user behavior and providing support. Digitalization is becoming essential for customer and patient engagement: According to a Bain survey, 97 percent of Chinese respondents expressed interest in digital health services if the costs were covered by an insurance provider or employer, and 64 percent expected to use telemedicine within the next five years.

Companies could also play a role in supporting local governments to achieve their public health and environmental goals related to medical waste and supply chain management. Specifically, Shanghai aims to become one of the safest cities for public health by 2025, opening up opportunities to participate in a range of initiatives covering infrastructure, operational efficiencies, and new capabilities, all with the goal of building an intelligent platform for public health.  

3. Enhancing Cultural Focus on Well-Being

According to officials, objectives in the 14th FYP, compared to previous Plans, have shifted to have a greater focus on public health promotion and prevention, rather than on treatment. The healthcare and life sciences industries are promoting early warning and prevention of infectious diseases and NCDs, vaccine research and development, online medical services, and, perhaps most importantly, patient awareness raising that emphasizes healthy lifestyles and physical fitness.

Most multinational pharmaceutical companies already place emphasis on enhancing acceptability or delivery of healthcare and have piloted various sustainability and community programs in China dedicated to patient education and raising awareness—and more companies can follow suit.

Moreover, the preventive healthcare strategy calls for more innovative efforts to support public health awareness, which are cost-effective and ultimately improve overall health and quality of life. In this regard, companies have the opportunity to engage more in public education and facilitate effective patient engagement programs by building these activities into their sustainability strategies.

Learning from COVID-19

The fight against COVID-19 shows both weakness and resilience in China's healthcare system, as well as its ability to mobilize resources in both communities and in the private sector. 

Post-pandemic, we can expect greater attention on public health, prevention, and development of primary care at the central government level. At local levels, leaders will likely pay even more attention to healthcare as a leading indicator of their performance and draft ambitious blueprints for their local healthcare systems. Business and local communities can participate and play an active role in promoting a healthy life—BSR’s HERhealth program illustrates that businesses can support workers to improve their health awareness, achieving a positive impact in the workplace.

While the “Healthy China” strategy creates many possibilities for the healthcare sector, we can anticipate that wider healthcare coverage in China—as well as increasing local needs for healthcare services that are more accessible, affordable, and acceptable—might stimulate continuous ramp-up of local manufacturing and production.  

Supply chain management with a particular focus on environmental practices, such as proper water management and wastewater treatment, will need extra attention to ensure manufacturing practices are aligned with China’s national climate and environmental protection targets. Companies will also need to ensure proper control of medical waste and manage social protection—especially workers’ benefits—well.

What’s Next

BSR’s China team will continue to unpack business impacts of the national plan. Future blog posts will provide more details on industry impacts and how businesses should prepare through insights and dialogues with climate and energy experts and other important stakeholders across sectors. 

If you are interested in learning more about how BSR can help shape your China strategy, please reach out.

This blog is part of a series examining the business impacts of China’s 14th FYP, which has drawn great interest among the international community, from policymakers to business. To learn more, read our previous posts on what business can expect, China’s climate goals, and impacts for investors.