September 14, 2022
Authors
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Senior Advisor, BSR
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Charlotte Bancilhon
Former Director, Sustainability Management, BSR
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Manager, Transformation, BSR
Editor's Note: We are living through a time of profound and accelerating change. Our world has been rocked by a series of disruptions: COVID-19, war and social conflict, rollback of rights and democracy, and now high inflation and the risk of recession. These developments have jolted society and business.
To help our 300+ member companies navigate this volatile environment, we're releasing a series of blogs to build insight into how to shape business approaches that address this unique moment. Following last month’s piece on the role of business in combating societal fragmentation, today we focus on how new laws, regulations, and standards mark the beginning of a new era.
We’ll conclude with a deeper dive into how BSR’s 2025 strategy can help your company to navigate these turbulent times—and how you can collaborate with our global network to push us further, faster, to achieve a more equitable, just world for all.
The field of just and sustainable business stands at the threshold of a new era.
Governments are establishing new laws and regulations that will inevitably reshape the way companies address sustainability risks and opportunities, including how due diligence is conducted, how decisions are made, and how risks are disclosed.
The twin EU directives on reporting and due diligence, the SEC’s proposed climate disclosure rule, and revisions to Japan’s Corporate Governance Code promise to be especially influential.
Standards-setting bodies are accelerating progress toward harmonized reporting frameworks. The International Sustainability Standards Board (ISSB) brings together standards for disclosing the impact of sustainability on enterprise value creation, while the Global Reporting Initiative (GRI) has integrated the UN Guiding Principles on Business and Human Rights (UNGPs) and continues to evolve sustainability standards.
The GRI is also known for collaborating with the European Financial Reporting Advisory Group (EFRAG) and for co-creating the European Sustainability Reporting Standards (ESRS), which will become mandatory under the CSRD.
However, the dialogue about how companies can navigate this new era of decisive change often emphasizes binary choices.
Does today’s focus on “applying the standards” limit more entrepreneurial approaches to just and sustainable business? Will the emphasis on “ensuring compliance” overshadow more ambitious priorities and become a tick-box exercise? Does the instinct to cover everything listed in the new standards undermine the principle of materiality and the company’s ability to focus on what’s most important?
Rather than seeing these as “either-or” options, we believe that “and” is the most important word for this new era of just and sustainable business.
While we recognize the obvious tensions inherent in these binary questions, we believe this can be creative rather than destructive. We encourage companies to see this new era of just and sustainable business as an opportunity to define new approaches.
Entrepreneurship AND Standards
When BSR was founded in 1992, there were no sustainability standards, and everyone in the field needed to be an entrepreneur. We made everything up as we went along, trusting our instinct, using our values as a guide, and creating new approaches based on first principles. Thirty years later, we have standards left, right, and center, and everyone in the field has become hyper-focused on “how we apply the standard in practice.” In doing so, companies risk getting trapped in believing that there is only one “right” approach to just and sustainable business, with little innovation.
It is essential to find a final balance. We can be entrepreneurs and continue exploring ways of doing things better than before, and we need to apply standards so that we can adhere to collective expectations. Indeed, some of the best innovation happens in constrained conditions, so let’s view these new standards as helpful design constraints.
Ambition AND Compliance
Before this new era, compliance efforts made an important but somewhat limited contribution to the field, mainly showing up in labor standards, environmental management, and anti-corruption. By contrast, companies had a huge blank canvas upon which goals could be established, strategies launched, and sustainability reports written. Today, the tide of new standards and regulations raises the standard for everyone and ensures that all companies will undertake a certain amount of “just and sustainable business”—for example, the CSRD will push nearly 50,000 companies in the EU to consider sustainability as part of board discussions.
On the other hand, we fear that the focus on compliance risks is detracting from the original intention, purpose, and spirit of laws, regulations, and standards being implemented. We risk forgetting why we do what we do.
We need to have the discipline of compliance and stand up to the increased scrutiny that will accompany it, but we must also stay true to our transformative ambition and not shy away from the bold goals, innovation, and systemic change that are needed to achieve a just and sustainable world and build resilient businesses for long-term value.
Materiality AND Comparability
Over the past two decades, it has become abundantly clear that companies should focus resources on the most significant issues, no matter how materiality is defined by a company. But while the concept of materiality features prominently in the laws, regulations, and standards of the new era, we hear from BSR member companies a countervailing trend—the instinct to limit legal liability and not to be “caught out” leads to a quest for companies to cover every potential issue referenced in every law, regulation, and standard. Call it the “C.Y.A. approach” to just and sustainable business.
We need to achieve both. BSR believes that a “comply or explain” approach to disclosure will give companies the time and space to put meaningful and rigorous policies and new systems in place for material issues.
We are struck by the sheer reach, ambition, and comprehensiveness of the laws, regulations, and standards that are a defining feature of this new era of just and sustainable business. We urge companies to pay close attention to them because they will surely transform the field of just and sustainable business, impact a company’s business strategy and day-to-day operations, and dramatically change how sustainability is governed within companies.
However, we believe that this important focus on standards, compliance, and comparability should not be accompanied by a rejection of the entrepreneurship and ambition that got us this far. We encourage companies to take creative approaches to the tensions that will undoubtedly arise and seek to achieve both the letter and the spirit of laws, regulations, and standards.
At BSR, we are working with our member companies to map regulatory requirements and assess their preparedness. We also help our member companies develop the ambitious strategies, goals, and targets necessary for a just and sustainable future.
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