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Blog | Tuesday April 30, 2024

The United States is at Risk of Marginalizing Itself on Sustainability

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This is the first of a two-part series on how developments in the United States are marginalizing the American leadership globally and creating unnecessary barriers to the achievement of a more just and sustainable global economy.

Over the first quarter of 2024, it is clear that the United States is at risk of marginalizing itself and its influence over the direction of the global economy, the urgent challenge of the energy transition, and the competitiveness of American enterprise. This presents an unnecessary risk not only to our collective well-being, but also to the effectiveness of American leadership.

While the Biden Administration and states like California and New York have continued to raise ambition and make smart public investments, several crosswinds threaten to interfere with the trajectory and consistency of these significant federal government actions.

America’s federal system is at the core of the issue. First, as is well known by now, many states and cities have pushed back—vigorously—on the rise of “ESG,” taking aim not only at the terminology, but also on the very concept that investors and businesses should consider the impact of topics like climate or DEI, even when they are plainly relevant to their businesses. The pushback of a loose coalition of state attorneys general has resulted in legal and political challenges to action on climate and diversity in particular. This so-called backlash has begun to have an impact not only on what companies say, but also what they do.

Second, the uber-litigious nature of American political culture means that rules like the SEC’s recent climate disclosure rule, as well as California’s rules, are being challenged in the courts, which could change or delay implementation. Indeed, the SEC’s climate disclosure rule was delayed and watered down in anticipation of significant legal challenge, and has now been paused by the SEC itself due to legal challenges. The end result is uncertainty, delay, and misalignment of US rules with the rest of the world. 

Finally, and has been the case for nearly a decade, the continued presence of Donald Trump on the American political scene, enabled by a fractured media environment in which some outlets traffic in mis- and disinformation, is also having an effect. Project 2025, considered the stalking horse for a second Trump presidency’s policy initiatives, takes direct aim at sustainable business and investing through multiple means, from politicizing the civil service to reversing many Biden administration regulations, and pension funds’ right to consider ESG factors. (The Inflation Reduction Act, however, which is enshrined in law, would likely be spared).

All this threatens to put the United States out of step with the direction of travel in most of the rest of the world, not least its usual allies and partners. Trade, global cooperation, consistent global rules, and political stability are all at risk. 

• Trade: During my recent visit to Singapore and Japan, the focus on a trade-based agenda stood in sharp contrast to the focus on domestic manufacturing in the US, and protectionist sentiments that are, for example, putting Nippon Steel’s acquisition of US Steel at risk. The feeling in much of Asia is that the US has abandoned the open trading system that has generated rising living standards across Asia, ever since it disavowed the Trans-Pacific Partnership in 2016. This is not to say that there are not legitimate reasons why the US has soured on the Washington Consensus, despite its provenance. But the fact that is too often lost on Americans is that the world is ready, willing, and able to get on with the trade agenda, whether or not the US is an eager participant, let alone a leader, and certainly diminishes its role as a central actor on the world stage. Even more, a Trump return to power, especially if it is accompanied by major tariffs, would not only see the US pull back further from open trade, it also would threaten to create a massive disruption and possible trade war. This is deeply concerning to most of the world. All is not lost, however, as witnessed by the announcement this month of a Climate and Trade Task Force by the Biden Administration. 
• Global cooperation: The growing strains of isolation in the US may undermine the US role in negotiating international agreements well beyond trade, including on climate, nature and human rights. There is little doubt that a second Trump term would again turn the US away from multilateralism, this time potentially with even greater impacts. Given the immense significance of COP30 in 2025, where the next round of national climate commitments are due, progress will be hindered by a lack of American engagement. If the world’s largest economy is not working to build international cooperation, the world will find other ways to muddle forward, with the US lamentably lagging behind, forfeiting its leadership status.
• Consistent sustainability regulations: Every business is counting on the slow but steady march towards more harmonized sustainability regulations, with reporting and disclosure being especially important. As we noted in our commentary on the SEC rule released last month, the US now looks out of step with an otherwise growing global consensus. The reasons are understandable, and linked to the backlash and federal system noted above. The unfortunate result, however, is inconsistency that hinders a smoothly running financial system. The US is now playing catch up—most global companies will end up following the rules being adopted in most other markets—and losing the ability to shape how markets operate.
• Emboldening populists: The last point is more about the direction of global politics. The US risks reinforcing the drive towards a populist nationalism that fosters protectionist economics and xenophobic, authoritarian politics. The US is at risk of landing on the side of those who wish to build walls when cooperation is needed; who turn their eyes away from the climate crisis instead of embracing an ambitious national project to fight it, and build the American economy of the future, and who promote raw power politics instead of respect for rule of law and transparency, which history tells us is necessary for genuine and shared human progress. This is an historic shift away from the US’s posture for most of the 80 years since the end of World War II. 

This is of obvious and crucial importance to the entire world. But what is equally true is that this is also of central importance to the well-being, position, and prosperity of the United States and its citizens.

Business wants to make sure the system of global trade continues, for obvious reasons. Business can make the case, but currently it is seen as a flawed messenger by much of the American public. It can make the case for an American public that has lost faith that US leadership globally is worthwhile. The path forward? Business can be effective, though only if it fully embraces a version of global trade that rests on decisive action on climate and nature, respect for all peoples, and rule of law and human rights. 

We will turn our attention to how business can and should respond in our next installment. 

Blog | Monday April 29, 2024

CSDDD: A Pragmatic Approach to Managing Human Rights and Environmental Impacts

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After several years of negotiation, the EU Parliament has formally approved the Corporate Sustainability Due Diligence Directive (CSDDD), which will be formally adopted shortly. Companies in scope have until 2027 at the earliest to comply with its provisions.

CSDDD comes against a backdrop of growing societal inequality intensifying conflict, and worsening environmental degradation with devastating consequences for people whose lives depend on natural resources. Together with the Corporate Sustainability Reporting Directive (CSRD), this is the most comprehensive and ambitious attempt to consolidate and harmonize businesses’ responsibility for their impacts on people and the planet.

Although the Directive will apply only to very large companies (including non-EU companies generating over 450m in turnover in the EU), its impact will extend across global supply chains. Companies in scope—an estimated 5,500 in the EU alone—will have to inspect their operations and their direct and indirect business partners to identify, assess, and address human rights and environmental harms connected to their activities. By adopting the concept of risk-based “due diligence”, in line with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, CSDDD promises to help companies respect internationally recognized human rights and achieve environmental goals.

The six-step due diligence approach set out in the OECD Guidelines is reflected across the CSDDD: 

1. Integrating due diligence into policies and risk management systems (Article 7).
2. Identifying and assessing actual or potential adverse impacts, prioritizing potential and actual adverse impacts based on severity and likelihood (Articles 8 and 9).
3. Preventing and mitigating potential adverse impacts, and bringing actual adverse impacts to an end (and minimizing their extent) (Articles 10 and 11).
4. Monitoring the effectiveness of due diligence actions (Article 15).
5. Publicly communicating on due diligence (Article 16).
6. Providing remediation for actual adverse impacts (Article 12).

In practice, companies of all sectors are connected to a wide range of adverse impacts through their own operations and business relationships. Recognizing that companies may not be able to address all these impacts simultaneously, CSDDD allows them to prioritize action based on the severity and likelihood of impacts on affected people and environments.

This pragmatism extends to how companies will be held accountable. Where a company causes or contributes to (‘jointly causes’) harm, they must remediate the harm and may be liable for damages. A company that is linked but didn’t directly cause or contribute to the harm can build and use its influence to prevent or mitigate the harm but is not required to remediate and is not subject to damages. However, since addressing actual impacts involves remediation, businesses should use their influence to enable it. 

The CSDDD will require a step-change in business practices

From our experience working with companies to implement due diligence in line with international standards, a few provisions of the CSDDD stand out as meriting particular attention from companies.

1) Full supply chain is in scope 

Due diligence is not limited to direct tier 1 suppliers. Companies must take a risk-based approach to managing impacts across their full supply chain. This means mapping and testing the effectiveness of supplier risk management systems to identify “general areas where adverse impacts are most likely and most severe” (Article 8) and investing resources to deepen assessments of those areas. If the most severe or likely impacts are connected to raw materials extraction, then that is where further attention is required.

Recognizing the challenges in addressing impacts far down in supply chains, CSDDD recognizes multi-stakeholder and industry initiatives as tools for increasing leverage to identify and address impacts. However, companies must monitor the effectiveness of initiatives to ensure they fulfil their obligations. 

2) Meaningful engagement with affected stakeholders is necessary 

Meaningful stakeholder consultation is required throughout the due diligence life cycle. Stakeholders include workers and other people affected by business—and their legitimate representatives (including trade unions, civil society organizations and human rights defenders)—as well as national human rights and environmental institutions and civil society organizations working on environmental protection.

To ensure genuine interaction and dialogue, companies must provide consulted stakeholders with comprehensive information, plan ongoing consultations, address barriers to engagement, and ensure stakeholders are free from retaliation and retribution.

This approach will require a significant shift in how companies structure and conduct engagement. It will involve building or deepening relationships and identifying opportunities for continuous engagement at each step of due diligence—while addressing the increased burden this may place on civil society, trade unions, and others representing affected people and the environment. Companies will need to be more transparent with affected stakeholders, reduce power imbalances, and engage in good faith with critical voices who raise concerns.

3) Environmental due diligence and the intersection with human rights 

Historically, in the environmental field, the term due diligence has had a distinct meaning from that of sustainability due diligence: referring to technical, scientific site-specific evaluations of environmental conditions and impacts. More recently, leading environmental frameworks used by companies, such as the Science Based Target for Nature framework, have been based on similar processes—of identification, prioritization, action, and monitoring—to the due diligence approach in CSDDD. Moving forward, articulating how a company assesses and prioritizes its environmental impacts using the lens of severity and likelihood—and integrating meaningful stakeholder engagement—will require concerted efforts and innovation.

The CSDDD also requires companies to address the impacts of environmental degradation on human rights, including the rights to health, food, and clean water and sanitation. This requires bridging environmental and human rights teams—who operate largely in siloes today—to identify and more effectively manage these interconnected impacts. 

In this new era of sustainability regulation, the CSDDD is a gamechanger. But delivering on its ambition will require clear commitment, robust governance, and sufficient resources from companies, including truly cross-functional efforts. BSR looks forward to supporting companies in stepping up to this challenge, through continued analysis and promotion of best practices.

Blog | Thursday April 25, 2024

The EU AI Act: What it Means for Your Business

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The Artificial Intelligence Act (or “AI Act”) is a new piece of legislation that will regulate the development, deployment, and use of AI within the EU, but will impact businesses well beyond its borders. Its overall objectives are to ensure a well-functioning internal market for AI systems within the EU, as well as to a high level of protection of health, safety, human rights, and environmental protection.  

The AI Act is ambitious, not only in the sense that it is the world’s first major piece of AI-related regulation, but also in its scope. The definition of “AI system” (in Article 3) is “a machine-based system designed to operate with varying levels of autonomy, that may exhibit adaptiveness after deployment and that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments.  

Defining a Risk-based Approach 

Within that broad scope, however, the approach taken is a risk-based one, with different rules and requirements depending on the level and nature of the risk with the AI Act categorizing five types: 

1. Prohibited AI practices: The AI Act designates and prohibits a number of AI practices deemed to be particularly harmful, such as deceptive techniques that influence behavior resulting in harm, or which exploit people’s vulnerabilities. These prohibitions will come into force in six months. 
2. High-risk AI systems: The AI Act designates other types of AI systems as “high-risk”. Examples include biometrics and the use of AI in a critical infrastructure, education and vocational training, employment, essential private and public services, law enforcement, and the administration of justice. For these, the Act sets out a number of requirements relating to their development, include establishing risk management systems, maintaining technical documentation, and ensuring accuracy and robustness, as well as human oversight. The Act also includes rules relating to placing these systems onto the EU market, putting them into service, and using them, such as establishing quality management systems, documentation-keeping, cooperating with national authorities, and complying with conformity assessments. These requirements will come into force in three years. 
3. General purpose AI models (including large language models): The AI Act creates a number of requirements specific to general purpose AI models, such as maintaining technical documentation, providing instructions on safe use, and ensuring that copyright law is respected. These requirements will come into force in twelve months. 
4. AI systems requiring transparency: The AI Act’s focus on AI systems that are intended to interact directly with natural persons, and will require providers to ensure that people are aware that they are interacting with AI. In addition, deployers of AI systems that create “deep fakes” or that generate or manipulate text for general information purposes must disclose that the content is artificially generated or manipulated. These requirements will come into force in two years. 
5. Low risk AI systems: While the AI Act does not impose any requirements on AI systems that don’t fall into the above categories, it does require the drawing up of voluntary codes of conduct for these lower-risk systems. 

The AI Act also contains measures intended to support AI innovation, start-ups, and SMEs, including through AI regulatory sandboxes. It will be implemented and enforced both at an EU-wide level (including through the AI Office, a new body being developed within the European Commission, empowered to develop codes of practice, guidance, and take infringement action) and designated national authorities in each EU member state. A range of potential fines and sanctions will be available (under Article 99), with the most serious breaches (non-compliance with the prohibited AI practices) punishable by fines of up to 35 million or seven percent of a company’s total worldwide annual turnover for the preceding financial year. 

Who will the AI Act affect? 

The legislation sets out different requirements for different types of companies in the AI lifecycle: 

• Companies placing on the market or putting into service AI systems or placing on the market general-purpose AI models in the EU (“providers”); 
• Companies that deploy AI systems and have their place of establishment or are located within the EU (“deployers”); 
• Companies, whether providers or deployers of AI systems, where the output produced by an AI system is used in the EU; 
• Importers and distributors of AI systems; and 
• Product manufacturers placing on the market or putting into service an AI system together with their product and under their own name or trademark. 

As such, the requirements are not limited to companies developing AI technology, but any company using AI systems or their outputs in the EU, meaning that the AI Act will be important for a wide range of companies of all sectors using AI (whether that use is specific to a particular sector, such as AI-based creditworthiness assessments for financial service companies, or general uses such as using AI for recruitment decisions).  

Finally, it does not matter whether providers or deployers are established or located in the EU or outside, meaning that the requirements will be relevant for companies across the world where the AI system or general purpose AI model is placed into the EU market, or where its outputs are used in the EU. 

With the AI Act now coming into force, understanding its requirements will be important for any company developing or using AI. The legal framework is novel and complex, but broad both in scope and in the range of companies to whom it will apply, both inside and outside of the EU. By understanding the Act's classifications of risk levels, and your company’s role within the AI lifecycle (provider, deployer, etc.), you can ensure compliance. Our next blog post will delve into how to take a human rights-based approach to address some of the risks posed by AI which the AI Act seeks to mitigate. For more information on the AI Act or to discuss its implications for your business, feel free to contact our Tech and Human Rights team. 

Blog | Wednesday April 24, 2024

Building an Effective Supply Chain Data Ecosystem to Prevent Forced Labor

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Modern slavery is on the rise. Over 27 million people are estimated to be in situations of forced labor on any given day, and 86 percent of these cases occur in the private sector. Forced labor is widespread across global supply chains. The push from regulators worldwide to address this issue has formed a complex web between policymakers, enforcement authorities, businesses, third-party solution providers and civil society organizations either collecting, compiling or processing risk management data on labor rights and violations. 

Yet, despite the considerable amount of disparate data collected to highlight forced labor risks, its full impact and value remain unrealized. Significant data siloes persist between—and within—the corporate sector, civil society and the public sector. Reasons range from legal limitations (e.g., data protection laws or contractual restrictions) and technical barriers (e.g., lack of digital infrastructure) to behavioral challenges (e.g., commercial incentives and lack of trust between actors).

Tech Against Trafficking has recently launched seven principled recommendations to business, policy-makers and civil society to enable an effective supply chain data ecosystem where data is shared at greater scale and for greater impact. 

“Tech Against Trafficking’s goal is to contribute to shaping an environment where all actors—not just business—engaged with supply chains can focus on anti-slavery interventions, rather than data acquisition.”

Claudio Formisano, Global Lead, Forced Labor and Human Trafficking, BSR

The Importance of Data Sharing 

If purposefully done, data sharing can amplify the impact of anti-slavery policies and reduce the costs and duplication of data collection for business and other key actors. For example, evidence of forced labor at a factory will be of value not just to the factory owner, but also to its buyers seeking to understand risks linked to their products and to local authorities and civil society organizations working to address potentially systemic issues in the area. 

Effective data sharing also allows companies to resource more time and financials to take action, rather than constantly processing data. It can help governments target effective policies and enforcement, and civil society support greater insights into the prevalence of modern slavery across regions.

Enabling data to inform the actions of multiple actors to achieve the broadest potential impacts is also an important way of giving due credit and respect to the original data subject, and reduce the burden on victims having to re-tell their stories multiple times. However, it is critical that any data sharing is carried out in a way that protects the privacy and security of the affected rightsholder. 

“When it comes to promoting data sharing, perhaps it’s not about how can we convince self-interested parties to pool their data in a centralized place, but how can we give these parties the tools by which they establish the shared interests that compel them to share.”

Darren Edge, Senior Director, Microsoft Research Special Projects

Promising Technology 

TAT’s research also considers the potential for emerging technologies to facilitate data exchange, and highlights real-world examples of effective data sharing by identifying common success factors that may be replicated or scaled in other parts of the supply chain data ecosystem.

These include mechanisms that can preserve the confidentiality of buyer-supplier relationships, avoid auditing duplication, maintain the confidentiality of the source of information and identity of concerned individuals. 

Underlying factors which underpin the success of deploying technology solutions are the creation of a sense of community bound by shared values and objectives, collective ownership and governance of the data sharing process, the role of a trusted and expert intermediary and a user-friendly interface to upload or access shared data.

Recommendations for businesses, policymakers, and civil society

To achieve greater data interoperability and sharing, the report makes detailed recommendations to businesses, policymakers, and civil society to ensure the field can collect the right data, deploy the right resources (and do so equitably), and adopt the right behaviors to build trust between actors in the supply chain data ecosystem, including: 

1. Standardize Data Collection for Greater Interoperability. All actors that collect data related to instances of forced labor should seek greater alignment and harmonization in the way such data is collected.
2. Focus on Progress and Impact, Not Just Risk. The focus on risk too often leads businesses and solution providers to conflate the evaluation of risks of forced labor (and its adverse impacts on affected workers’ human rights) with risks to the business that would result from a connection to forced labor. 
3. Invest in Data Management. It is a precondition to an effective data ecosystem that data is “fit” for sharing. This starts with determining what valuable data your organization holds, for its use, and potential use by others in the supply chain data ecosystem. 
4. Share Costs of the Data Ecosystem Equitably. Collecting and sharing data has human, technical, and financial costs, which well-resourced companies and government agencies have more power to do, compared to smaller NGOs or companies, exploited workers and consumers. 

“I love the piece about the direction of risk [i.e. recommendation to focus on progress, not just risk], I don’t see a lot of business do that.”

Terri Johnson, Head of Human Rights Due Diligence Development, Hitachi Europe

In the coming months, Tech Against Trafficking will focus on implementing action to contribute to the creation of an effective federated data ecosystem over the long term, through three principal outputs in line with the recommendations above:

1. Standardizing effective qualitative and quantitative datapoints to identify forced labor risk (building on the ILO’s forced labor indicators).
2. Designing a cost effective, accessible, and scalable model for a federated data ecosystem.
3. Enhancing public-private sector dialogue to inform effective policies and regulations, and initiatives to develop public databases on forced labor.

We call on businesses, civil society and governments to join our efforts to overcome the fragmentation and siloes that exist across the supply chain data ecosystem and share data more purposefully and effectively. 

If you are interested in getting involved, please get in touch at tatinfo@bsr.org.

With thanks to all those individuals and organization who contributed to this research, who participated in our launch event in London on 18 March 2024 (recording available here).

Blog | Wednesday April 17, 2024

25 Insights, 25 Years

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I recently entered a new life as a freelance consultant after 20 wonderful years across various roles at BSR and 5 equally wonderful years at BT. 

The field of just and sustainable business has experienced tremendous change during these 25 years, and I have been fortunate enough to experience a lot of that change firsthand. 

I decided to enter my new freelancing era by writing a short paper setting out the lessons I have learned and the point of view I have developed during this time. The result is 25 Insights, 25 Years. 

This paper contains 25 insights across 5 themes that represent those areas of greatest familiarity to me: business and human rights; technology and human rights; reporting and disclosure; public policy; and the field of just and sustainable business.  

I believe that succinctness makes key ideas digestible and accessible, so I have limited my reflections to no more than one page for each insight.  

Throughout the paper I have used the term “we” to mean those of us in the field of just and sustainable business, including those working in companies, civil society organizations, governments, investors, research, academia, and consulting. We may not agree on everything, but we know who we are, and we are all pushing in similar directions.  

The paper sets out my authentic point of view on the future of just and sustainable business by drawing upon my experience rather than research or interviews. These are my reflections based solely on what I have seen, heard, and learned. 

The 25 insights reflect my point of view in early 2024. I am sure my views will evolve over time with new experiences, but I hope the paper provides practical value and becomes something you refer to from time to time. I hope the paper sparks discussion—I am sure you will not agree with everything!—and puts forward ideas that can increase the impact of the field. 

I would love for you to read the whole paper, but to whet your appetite, here are the 25 insights you’ll be reading about: 

Business and Human Rights 

• Ongoing human rights due diligence is more important than a “single moment in time” assessment. 
• Companies should maintain and report a formal register of risks to people and the environment, alongside the formal register of risks to the enterprise. 
• Meaningful engagement with directly impacted [or “host country”] stakeholders can reveal very different priorities than engagement constrained to “expert” [or “home country”] stakeholders. 
• Human rights-based approaches define “how” business should be done, but don’t always determine “what” business should be done. 
• The UN Guiding Principles on Business and Human Rights should have a fourth pillar called “the opportunity to promote”. 

Technology and Human Rights 

• Companies deploying technology have as much influence over human rights impacts as companies developing technology.  
• Focusing on near-term harm will position us better in the long-term. 
• We should focus on “little tech”, not just “big tech”. 
• We need a greater emphasis on systemwide approaches to human rights due diligence to complement company-specific human rights due diligence. 
• We should emphasize both risks and opportunities. 

Reporting and Disclosure 

• Reporting and disclosure are necessary but not sufficient. 
• Materiality and salience assessments should be combined. 
• Who prepares, approves, and reads the report is more important than how many people read the report. 
• We need an equivalent of the Form 10-K for sustainability reporting. 
• Apples and oranges should be compared. 

Public Policy 

• Companies should comply with both the spirit and letter of law. 
• Sustained and responsible public policy engagement is essential for long-term risk mitigation. 
• We need a stronger vision of what it means to “remain responsibly” and provide space for companies seeking to do this well. 
• Understanding how change really happens inside companies should have a bigger influence on public policy creation. 
• We should celebrate not diminish compliance efforts. 

The Field of Just and Sustainable Business 

• Great things can happen when different professional communities collaborate.  
• Don’t confuse accountability with complexity. 
• Changing company culture is more impactful than auditing. 
• Advocates working in civil society organizations should be celebrated. 
• Practitioners of just and sustainable business inside companies should be celebrated. 

This blog first appeared at www.dunstanhope.com

Blog | Tuesday April 16, 2024

Beyond 2025: Setting Credible Sustainability Goals for Long-Term Impact

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Sustainability goals are naturally rooted in long-term ambition. It is not uncommon for companies to set goals 5-10 years in advance or, in the case of climate goals, even longer. Given this long time horizon, they are often pegged to major global frameworks, such as the Sustainable Development Goals or net zero goals for 2030, 2040 and 2050. 

BSR research on members indicated that roughly 35 percent of time-bound goals expire in 2025, and another 40 percent are pegged to 2030. As 2025 goals reach their expiration date and we evaluate progress toward those 2030 commitments, it’s time for many companies to reflect on what they’ve learned and start thinking about what’s next. It’s clear that much has changed since the last time companies undertook this exercise. As we lay out in more detail below, the 2020s have been disruptive, and goals set before 2020 need updating to reflect a new reality and fresh vision.   

The key question is: How can companies seize this moment to develop a set of goals that are ambitious, credible, and flexible enough to be fit for the future?

What are the key trends and disruptions impacting goals? 

Many of the goals set to expire were developed in or before 2020. A great deal has changed since then, as the world experienced the COVID-19 pandemic, wars in Ukraine and Gaza, all amidst a macroeconomic context of inflation and high interest rates. And we should prepare for still more turbulence and change to come. As we look ahead, we need to consider four key trends that will further reshape the operating context for business in the next few years.

Intensifying climate impacts bring new levels of disruption.

We have seen to operations and value chains, threatening people, infrastructure, and the availability of raw materials. In the World Economic Forum's 2024 Global Risks Report, extreme weather topped the list of risks that leaders believe could present a material crisis on a global scale. With progress on emissions reductions still insufficient to meet the challenge of keeping global warming within a 1.5°C limit, stakeholders—including regulators—are strengthening their calls to action. As companies revisit their climate goals, our guidance is to plan the energy transition in line with science, gear up adaptation and nature efforts, and to put justice and equity at the center of our efforts. 

Explosive growth in AI capabilities is poised to change how we work.

It may significantly accelerate progress in scientific research and resource efficiency, and it may also pose risks to privacy, human rights, and livelihoods. As companies review and refresh goals, it will be important to closely monitor and understand these different possibilities, as well as the nascent efforts to regulate this technology. 

Growing geopolitical tensions and regional conflicts are disrupting supply chains.

Trade policy and regulations, human rights, and the energy transition are increasingly refracted through a geopolitical lens. Meanwhile, concerns are rising about the potential for new conflicts. As we enter a season of global elections, leadership changes could result in additional geopolitical volatility. Strategic foresight techniques like scenario planning can help companies chart more resilient pathways towards achieving supply chain, sourcing-related goals, and energy transition goals.

The fast-changing regulatory environment is a critical consideration.

While new requirements like mandatory disclosure and due diligence may sometimes feel like an onerous compliance exercise, new laws and regulation like the EU’s Corporate Sustainability Reporting and Corporate Sustainability Due Diligence Directives are a game-changer for sustainable business. The transition from voluntary to mandatory action is raising the floor for corporate performance and disclosure on a range of sustainability topics, and as such can be a strong foundation for goal-setting efforts.

Of course, all these challenges are interconnected. As our understanding of these complex issues deepens and cross-cutting regulatory requirements proliferate, the connection between traditionally siloed sustainability topics is likely to become more prominent and pressing. These interdependencies and reinforcements will need to be reflected in goals that are cross-cutting and holistic. Responsibility for implementation will need to move beyond the historical E, S and G divide.   

With all of this in play, how can companies best navigate? 

At BSR, we continue to believe that there are several elements that, when taken together, result in ambitious but credible goals: clear priorities, strong understanding of context, and focus on long-term impact.

Focus carefully. Companies need to undertake sustainability due diligence to understand where impacts lie across the full value chain, how the business is connected to the impacts, how they’re governed and managed, and what more they can do to address harms. A double materiality assessment can further help to identify and rigorously prioritize potential business risks and opportunities over the short-, medium-, and long-term. While all impacts, risks, and opportunities should be monitored and managed, when it comes to goal setting, the aim of these efforts should be to surface a handful of focus areas where the company can truly have the most significant impact.

It is also important to consider how actions on selected focus areas will align with a company’s mission and values. Achieving ambitious, long-term goals requires the management of a complex array of thorny challenges. When companies face headwinds like the “ESG backlash” in the US and economic uncertainty, goals that feel misaligned with the core business will start to feel arbitrary and non-essential. Selecting focus areas with goals that clearly connect to mission and values will help ensure commitments remain relevant over time. 

Build an inclusive process. Companies are most likely to achieve goals with strong buy-in from stakeholders, which can either be secured or severely undermined in the goal development process. A smart stakeholder engagement strategy enables diversity of thought, opportunities for co-creation, a clear-eyed view of potential operational challenges, and insights into stakeholder perceptions. It is important that companies consult both internal and external stakeholders, and where possible, engage directly with affected stakeholders.

There are a range of ways to do this in practice. As a starting point, companies can review documentation of prior engagements. They can conduct dedicated interviews, focus groups, and surveys to collect input or feedback on draft goals. They can also integrate discussions into ongoing stakeholder engagement efforts like established stakeholder advisory councils. The right solution will look different for each organization based on its existing relationships, governance structures, and logistical considerations, but the inclusion of diverse stakeholder viewpoints should always be an important priority. 

Leverage futures thinking. Goals reflect our assumptions and aspirations about the future. If you have not explicitly considered how the world is changing, then you risk creating goals that are well-suited for today but will be seriously outdated a couple of years from now. 

Although it's impossible to fully predict the future, strategic foresight offers us structured ways to think about the future and can help inform goals that are more robust, resilient, and ambitious.

Trends analysis can be used to anticipate how the world is likely to change and to identify the likely headwinds and tailwinds for a company's sustainability efforts. Integrating a perspective on relevant trends such as those mentioned above should be considered a fundamental ingredient for a robust sustainability strategy and goals.

In conditions of high uncertainty, such as those surrounding political shifts, scenario analysis offers a tool to increase resilience by stress-testing strategies and goals against multiple different versions of the future. 

Finally, futures techniques like Three Horizons can serve to articulate ambitious visions and goals that support the deep transformation that is needed. 

Whether you are refreshing your goals or overhauling your overall vision and strategy, creating credible and ambitious goals requires a robust process that is both future-orientated and grounded in operational realities. We look forward to supporting businesses to do this as we look beyond 2025. Please feel free to connect with our Futures Lab and Sustainability Management teams to learn more. 

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Carolynn Johnson

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At BSR, Carolynn works with the Government and Foundations team to lead BSR’s pursuit, across all areas of expertise, of high-impact grants to accelerate progress toward the Sustainable Development Goals.

Prior to joining BSR, Carolynn advised the Mayor’s Office of Los Angeles on sustainable transportation policy through an international non-profit called the Institute for Transportation and Development Policy, where she also worked in partnership development to create projects and proposals for people-friendly cities. Prior to that she worked in partnership development for the Rainforest Alliance on their sustainable agriculture, forestry, finance, and tourism efforts in Latin America, Africa, and Asia.

Carolynn has a bachelor’s degree in literature from Carleton College and a master’s in public administration from Columbia University.

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Anna Zubets-Anderson

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Anna works with BSR member companies on a range of consulting projects and collaborative initiatives, with particular focus on sustainability reporting.

Her professional background encompasses corporate reporting, sustainability strategy, and providing training and coaching services. Before joining BSR, Anna operated as an independent ESG consultant and professional coach, following a thirteen-year tenure at Moody's Corporation. During her time there, she specialized in sustainable finance markets, ESG training programs, and ESG rating methodologies, in addition to overseeing a portfolio of companies within the basic materials industries. Earlier in her career, Anna spent nearly a decade at KPMG LLP, serving as an Audit Manager in the U.S. Additionally, she was a member of their International Standards Group in London (UK), where she assisted KPMG member firms and clients in adapting to changes in global accounting and auditing regulations.

Anna’s educational background encompasses social policy, human rights, corporate citizenship, business leadership, and mental health. She holds:

• Master of Social Work, Fordham University, New York, 2023
• Post-graduate certificate in Corporate Citizenship and Sustainability Reporting, Boston College, 2023
• Bachelor of Science in Business Administration, San Francisco State University.

Blog | Tuesday April 2, 2024

So, You’ve Completed a Materiality Assessment. Now What?

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Materiality assessments have long been an integral part of leading companies’ sustainability management. With the transposition of CSRD into law and the proliferation of other mandatory reporting requirements, more and more companies are taking on this important exercise.

At the same time, regulators and standard-setters continue to converge on a unified perspective of what good looks like, which has led to a rise in expectations around assessment depth and rigor. As a result, both established and newly formed sustainability teams, in partnership with colleagues across the organization, are putting a tremendous amount of effort into identifying material sustainability topics and documenting relevant impacts, risks, and opportunities (or “IROs” for short).

It is only natural that once the exercise is complete, topics have crossed the materiality threshold, and new IROs have emerged for management team consideration, teams are left wondering: “So now what?”

There are several immediate next steps that most companies should undertake for the purposes of disclosure:

1. Review Documentation.

Companies can ensure the assessment has been well documented for assurance purposes, including records of all key decisions made, scoring rationale, and supporting evidence. It is prudent for the team executing the assessment to meet with the audit and compliance functions as needed to answer any remaining questions and ensure you are well-prepared for the assurance process. If you haven’t already, consider using this moment to develop a standard operating procedure for future assessments.

2. Understand positioning. 

It is important to undertake a management review to understand current positioning vis-à-vis relevant voluntary and mandatory reporting requirements. This includes understanding the governance, policies, management systems, targets, and metrics current and planned related to each material topic.

3. Engage executive leadership and relevant board members and committees. 

Mandatory reporting requirements have clarified expectations of how sustainability is governed within an organization, including responsibilities at the board level. Boards should be prepared to sign off on assessment results and oversee sustainability performance and related disclosures. Ideally, a board champion kept relevant committees apprised of progress (e.g., dedicated ESG committee, Audit or Risk Committee) during the materiality process. If not, the board will need to be briefed on both the process and results and in some cases, training may be required to ensure sufficient understanding for effective long-term oversight.

4. Develop or clarify your reporting and communications strategy. 

The plethora of mandatory disclosure across different jurisdictions makes it even more important to understand the audience and clarify boundaries for each type of sustainability communication. Topics that are not “material” under a given law but are important to communicate for other reasons (e.g., to support employee engagement) may need to be separated from mandatory disclosures and conveyed through other communications channels. Carefully choosing where and how to communicate can help to enhance clarity, consistency, and comparability of reporting, as well as manage regulatory compliance and litigation risks. It also is important to review and align your communication internally and externally to ensure a consistent, authentic narrative that covers both alignment with your business strategy and a strong understanding of stakeholder needs and expectations.

In addition, even for companies with well-established sustainability programs, the completion of a materiality assessment offers an opportunity for strategic reflection. Companies can take this moment to explore where gaps in knowledge remain, how governance supports objectives, and whether current investments are sufficient for both the company and its stakeholders to thrive now and in the future.

At BSR we recommend companies consider these five additional activities:

1. Reflect on stakeholder engagement strategy: A materiality assessment relies on a strong understanding of both the company’s impacts on its stakeholders and stakeholder information needs. While it can be useful to engage stakeholders during this point-in-time exercise, it is equally, if not more, important to promote the kind of meaningful, ongoing engagement that ensures a real-time understanding of stakeholder perspectives. Now is a moment to reflect on how well you know your stakeholders, the effectiveness of the engagement mechanisms you currently have in place, and the way that information gained through stakeholder engagement flows throughout the organization and into the hands of decision-makers. Consider setting up a stakeholder advisory council or making an investment to map and track ongoing stakeholder interaction. Continuously surfacing, addressing, and documenting stakeholder concerns throughout the organization will make for both better management and better reporting.

2. Assess current management and residual risks: In many cases, materiality assessments focus more on inherent risks and potential impacts prior to mitigation to determine which topics are relevant for reporting. If you haven’t looked at residual risks, considering the controls you already have in place, now is the time to do so. Reflect on whether you’re comfortable with the remaining risks to people, the environment, and the business post mitigation and where you have leverage to address remaining gaps.

3. Update policies and review cross-functional governance: Did the materiality assessment surface an impact or risk that is not yet covered by your existing policies? Now is a good time for a refresh. It’s also a good moment to ensure that all topics have clear ownership and accountability for performance is well defined from day-to-day operations up through the board. Ensure risks are appropriately documented in the risk register. Reflect on whether team members have the skills required to manage and oversee the topics in question and work to fill gaps with training and/or investments in new staff.

4. Refresh targets and reconfirm roadmaps for long-term impact: The materiality assessment often leads to a better understanding of a company’s performance relative to both internal and external stakeholder expectations. The CSRD’s focus on short-, medium-, and long-term impacts requires companies to consider how performance will be managed now and in the future. This is therefore a moment to reflect on where your long-term goals and supporting targets hit the mark and where it would be helpful to refresh or establish new commitments. Have you surfaced trends or emerging issues that might merit an adjustment to your level of ambition? What are the important cross-connections between your activities (e.g., climate mitigation and equity), and how can your activities in these areas reinforce each other? Do you have targets in place that no longer seem relevant? Would it be beneficial to use a strategic foresight tool like futures scenarios to further stress test your approach?

5. Identify areas where you need to go deeper: Understanding all actual and potential impacts, risks, and opportunities across the full value chain in the short, medium, and long term is a tall order. You will inevitably discover areas where you feel you need additional data to have a clearer view of how a topic shows up for your organization. Whether you need a site-level human rights impact assessment or a better understanding of your nature impacts and dependencies, now is the time to think about filling priority gaps. The goal here is not a complete inventory of every possible risk, but rather to sharpen our focus where it matters—more deeply understanding a priority topic or gaining a greater understanding of topics that could be material depending on more information.

This is of course only a subset of the possibilities a company could choose to pursue, and there is no one-size-fits-all approach. If you still aren’t sure how to move forward or would like to discuss what’s right for your organization, please don’t hesitate to reach out to us at BSR. Wherever you are in your sustainability journey, we’d love to help!

Case Studies | Thursday March 28, 2024

Supporting Business Implementation of the UNGC Women’s Empowerment Principles

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Introduction

The United Nations Global Compact (UNGC) Network USA supports companies in doing business responsibly by aligning their strategies and operations with the Ten Principles on human rights, labor, environment, and anti-corruption. As part of this work, the UNGC Women’s Empowerment Principles (WEPs) launched the Target Gender Equality Program (TGE), a gender equality accelerator program for companies. BSR worked with the UNGC to engage TGE participants on developing a global approach to gender equality that aligns efforts to promote company-specific strategies for improving women’s empowerment across countries, brands, and teams with wider sustainability targets and strategies in mind.

Background

The UN estimates that it will take close to 300 years to achieve full gender equality at the current rate of progress. While many companies are making top-level commitments to women’s empowerment and gender equality, few have matched commitments with concrete plans integrated throughout the business.

To guide businesses on empowering women and advancing gender equality in the workplace, marketplace, and community, the UNGC and UN Women developed the WEPs in 2010. In the same year, the UNGC and UN Women worked with the Multilateral Investment Fund of the Inter-American Development Bank (IDB), and IDB Invest to develop the Women’s Empowerment Principles Gender Gap Analysis Tool (WEPs Tool).

Used by companies committed to advancing gender equality, the Tool offers a structured framework to assess practices against the seven Women’s Empowerment Principles. Each principle is accompanied by indicators and scoring criteria, with higher scores reflecting stronger commitments to gender equality. With these scores, companies can track progress, set targets, and demonstrate their dedication to stakeholders. The tool also provides resources for implementing best practices.

The Challenge

The UNGC launched the Target Gender Equality Program to assist companies in “developing and implementing corporate sustainability strategies, operations, and management practices” in line with the Ten Principles. The program consists of six modules, aiming to empower TGE cohort companies to be able to draft targets and action plans for gender equality. Companies range from small- and medium-sized enterprises to multi-national corporations.  

BSR, whose work focuses on implementing many of the Ten Principles, partnered with the UNGC in 2010 and has supported its activities in multiple ways over the last decade. Consequently, the UNGC enlisted the expertise of BSR in engaging with TGE cohort companies on gender equality.

BSR’s Response

BSR provided support for the first two TGE program modules, 1) Foundations and Frameworks and 2) Performance Analysis. These focused on defining the business case for gender equality, raising awareness of the WEPs Analysis Tool, identifying the current gaps and opportunities for companies, and how best to identify priority areas and support implementation.   

BSR’s Equity, Inclusion, and Justice (EIJ) team delivered:

• Workshops entitled Introduction to WEPs and Transition to WEPs Strategy, as well as Strategy Toolkit materials, including guidance on design, position, and roadmap strategy
• BSR’s Benchmarking Toolkit, including a template and criteria for selecting benchmark companies
• One-on-one company support sessions with TGE cohort companies, including review of WEPs results and benchmark assessments

BSR supported the 2023 TGE cohort companies in the following ways:

• Evaluation of each company’s maturity by understanding:
  • Relevant standards and frameworks for WEPs;
  • Current business strategy and management approach to WEPs; and
  • Relevant trends and potential disruptors within “peer” landscape. 
• Review of the scope of each company’s WEPs strategy to determine WEPs priorities and potential impact.
• Provision of guidance and key insights on building a robust WEPs strategy, position of company in benchmarking exercise, and how to build a strategy roadmap.  

Lessons

“The accelerator helped our team learn the skills we needed to implement this work into our own company. By meeting regularly as a group in the accelerator, it gave us the time and opportunity to learn from other outside businesses and BSR how we compare.”

-Christa Svensson, Global Sustainability Program Manager, and Monika Pabon, North America HR Manager, Tri-Marine International Pte. Ltd.

BSR observed the following learnings after engaging with TGE cohort companies:

• Joining a global community of like-minded business and expert stakeholders committed to women's empowerment helps companies take action. ​
• Having a global standard defining “what good looks like” for WEPs can help align industries and individual company commitments across leadership, workforces, marketplaces, and communities. ​
• Tools such as the Benchmark Assessments and WEPs Tool are key in understanding company performance and determining what leadership looks like. ​
• The majority of TGE companies are classified as “improvers” in the WEPs Tool results, meaning that companies are setting ambitions and applying key learnings and insights to build their own WEPs strategy.

"The workshops conducted by BSR have been instrumental in equipping our participating companies with comprehensive insights into the Women's Empowerment Principles (WEPs) and other essential gender equality concepts. The workshops on introducing the WEPs and the Transition to WEPs have played a pivotal role in equipping our companies with fundamental knowledge.

This foundational understanding has served as a cornerstone in the development of comprehensive and resilient corporate gender strategies. The implementation of the WEPs Benchmarking Tool and Guidance has been a cornerstone in solidifying our representatives' commitment to gender equality. Particularly noteworthy are the one-to-one company support sessions offered by BSR, which provided a structured platform for representatives from participating companies to seek personalized guidance on pertinent questions.

BSR's unwavering dedication to fostering gender equality is evident throughout our collaboration. Their professionalism and commitment have been manifested in every facet of the program, and the support provided thus far is deeply appreciated."

-Claudia Herbert Colfer, Head of Programming, UN Global Compact Network USA

Conclusion

More than 6,000 CEOs have signed the WEPs CEO Statement of Support. However, companies still need to take the necessary next steps to meet those commitments by implementing, monitoring, and reporting on progress toward gender equality.

Among the companies that participate in the TGE accelerator program, there are signs of progress. Globally, companies’ average score from using the tool increased to 32 percent from 28 percent, indicating increased efforts by businesses to promote gender equality. However, much of that progress is limited to company commitments. While 78 percent of companies using the tool have made a commitment to gender equality, up from 68 percent in 2020, levels of implementation, measurement, and transparency remain severely low (between 1 and 2 percent on average). This shows the need for more accelerated, urgent, and impactful change.

Companies committed to setting more ambitious targets at an accelerated pace can join the ForwardFaster Initiative of the UNGC. This initiative focuses on five key areas—including gender equality—where the private sector can collectively make the biggest, fastest impact by 2030. For companies seeking to advance gender equity within their operations and beyond, BSR offers support in strategy development based on UNGC WEPs scores, benchmarking against other peers, and bespoke services to close the gender gap.

“BSR is proud to have been a partner of the UN Global Compact from the very day it was launched. In a world where we see good but insufficient progress toward achieving the objectives in the Paris Agreement and the Sustainable Development Goals, UNGC is an important rallying point for businesses in all corners of the world.”

Aron Cramer, CEO and President of BSR

Get in Touch

This case study was written by Felicity Butler and Welela Makonnen. If your team is also interested in better understanding the human rights landscape and gender equality as well as defining target gender equity goals and strategy, please reach out to learn more.