Blog | Tuesday October 4, 2022

Navigating the ESG Ratings Landscape: Five Recommendations for Business

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ESG in general, and more specifically ESG ratings, have been in the line of fire recently. The critics have been loud, with strong accusations of a false and flawed system.  

While some critiques are justified, there is a lot of misunderstanding around ESG ratings, which continue to play an important role in benchmarking sustainability information and informing investment decisions. It is important to understand what ratings are, and equally what they are not, to avoid these misinterpretations.  

With a background in the responsible investment industry, I know ratings often raise questions and sometimes frustration among companies—recent headlines risk making matters even more confusing. I’ve received numerous questions from member companies trying to figure out how the rating system works and how to engage with rating agencies.  

With the right insights, companies can grasp the benefits of ESG ratings and how they can play a positive role in self-assessments, benchmarking against peers, and aligning business strategy with respect for social and environmental issues.  

With this backdrop, here are five common dilemmas with key recommendations for business:   

How much should I care about ratings? The short answer is—a lot. ESG ratings are now a mainstream tool in institutional investors practice, used as one of several factors to evaluate ESG performance and make buy or sell decisions. Ratings help benchmark a company against peers, identify leaders and laggards, and get a sense of the ESG landscape within a given sector. For example, they show up daily on Bloomberg terminals around the globe, and often companies are simply not in consideration for investment if they do not pass a certain barrier—so ratings are critical for issuers.  

It is a jungle out there and I don’t know what to focus on. The number of questionnaires can seem overwhelming and raise concerns about how to allocate already limited resources. A first step is to find out how your critical investors are using ESG ratings, identify which issues they believe are important, and what data they are looking for. MSCI and Sustainalytics are the most frequently used rating agencies. Ensure that you are directly engaging with your investors to understand their expectations. It is advisable to monitor for presence on any investment blacklists, as this can result in exclusion from ESG products. If your rating is poor, communicate to your investors how you plan to address the issue.  

I am disappointed with my rating but not sure how to contact the rater. I have heard many executives who are unhappy with their ESG scores, claiming it is based on incomplete research or a lack of contextual analysis. Reach out to the raters and build a dialogue, get feedback, and see what it takes to improve your rating. It is also in their interest to collaborate on gaps and be transparent around methodologies, so it should be a win-win. Look through the rating report shared with you—this should provide contact information for the analyst, and log in to their online platform where you can include additional information.

I have released a new report, but my rating has not improved. Ratings are updated annually, so perhaps your latest report has not been reviewed yet. A typical rating agency evaluates around 700 criteria for thousands of companies, which takes time. It is possible that the analyst simply missed information, which underlines the benefit of establishing a dialogue with the raters for verification purposes. Even when information is retrieved, many raters require this information to be made public. This is a way of pushing companies toward improved transparency and accountability.  

I have just become B Corp certified/signed up to SBTi, but still have a poor rating. External certifications matter less in this context, as ratings measure how a company approaches ESG from a risk management perspective, rather than from business impact. A company can have a product with positive environmental impacts, but if it does not manage labor-related risks or corporate governance, it will never receive a good rating. If you want to improve your score, focus on implementing solid ESG management systems and report transparently on it; this will positively impact your rating at the end of the day, as a mere side-effect.  

ESG ratings are not a silver bullet, but that does not mean they are not useful. They have played a key role in mainstreaming sustainable investing and educating the investor community on how sustainability issues are relevant to business. It is still a nascent industry lacking standard definitions, which is a valid part of the criticism, but it has never claimed to be an exact science. Investors are a powerful actor in the transition toward a more just and sustainable world, and ratings are an important part of their toolbox to get there.  

Blog | Thursday September 29, 2022

The New EU Forced Labor Product Ban: Recommendations for Business

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Modern Slavery Is on the Rise in the Private Sector

September 2022 has seen a string of anti-trafficking developments.  

The newly released global estimates by the International Labour Organization (ILO) show that modern slavery is on the rise, with 27.6 million people in forced labor in 2021—most of whom work in the private sector.

In parallel developments, the European Commission published its awaited proposal for a new trade instrument to ban products made with forced labor from being marketed, sold, or exported from the EU market, which is likely to enter into force in 2026. 

Forced labor bans exist in various forms across North America, including Section 307 of the 1930 Tariff Act (US), the Uyghur Forced Labor Prevention Act (US), and the Tariff Act (Canada). However, the draft regulation would create the first forced labor instrument at a regional level.

It casts a wide net targeting all products and by-products, independently from where they were sourced or produced. This requires business to strengthen evidentiary data and adopt a strong human rights risk-based assessment approach.

How will this new instrument impact business? Does it present a significant departure from existing forced labor import bans? And finally, how can companies prepare?

Here we share some early insights and steps to help business get started.

Three Things Business Need to Know

1. Scope

• The European Commission proposes to ban any product made with or transported using forced labor—at any stage of production, manufacture, harvest, or extraction—that are placed on the EU market or exported.
• Unlike the US Uyghur Forced Labor Prevention Act (UFLPA), which entered into force in June, the EU legislation will apply to imports from all regions and exports
• While all companies doing business in the EU may be impacted, the proposal recognizes that targeted support will be needed for small and medium-sized enterprises.

2. Enforcement and investigation

• High-risk sectors and geographies are likely to be the target of enforcement action, at least initially. Public authorities will follow a risk-based approach, prioritizing value chain steps where there is a higher risk of forced labor.
• Through a two-step approach, national authorities will determine whether forced labor has occurred and can order the withdrawal of products from the market.

3. Evidence

• Various sources of information will be used to determine the existence of forced labor, including submissions from civil society, reports, and an EU database of forced labor risks. 
• Companies will be required to provide information on the actions taken to mitigate, prevent, and bring an end to forced labor risks.

Recommendations for Business

1. Map supply chains and engage suppliers to determine areas of high risk of modern slavery

• Business can map their supply chains from raw materials to finished goods to better understand their origins.
• Efforts should be concentrated in sectors and geographies where modern slavery risks are high (e.g. manufacturing in Asia).
• The use of technology—such as blockchain, DNA tracing, and AI—is a viable means to automate processes and data analysis and, subsequently, identify where products are made and enhance visibility in complex supply chains.

2. Integrate modern slavery risks into broader human rights due diligence and management

• To better anticipate existing and emerging legislation, companies can adopt a holistic approach to managing human rights risks, which incorporates forced labor risks and is aligned with the UN Guiding Principles on Business and Human Rights (UNGPs).
• This includes adopting more stringent modern slavery prevention strategies, such as integrating human rights considerations at the supplier selection phase and engaging with stakeholders—including business partners—to better identify forced labor practices in the supply chain, such as the payment of recruitment fees via third party agencies. 

3. Document more comprehensive human rights due diligence

• Companies can ensure that their due diligence policies and procedures are sufficiently robust and documented to provide the information required under these types of acts, as recent trends would suggest such requirements will only become more commonplace.

With similar forthcoming regulations being debated in Canada, the UK, Australia, and Japan, this is the time for business to ramp up efforts to conduct human rights due diligence on their supply chains and strengthen their modern slavery policies. That way, business can become part of the solution as we continue to proactively anticipate and prepare for emerging legislation.

BSR’s anti-trafficking team advises business from across sectors on due diligence and management of forced labor risks. Please get in touch with any questions.

Blog | Tuesday September 27, 2022

BSR Climate Scenarios: A Tool to Drive Resilient Business Strategy

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The climate crisis is one of the most pressing challenges facing business today, creating significant new risks and opportunities. It requires both business strategies that are resilient to climate risk and disclosure of climate-related information that meets investor expectations, such as those prescribed by the Task Force on Climate-Related Financial Disclosures (TCFD).

Scenario analysis is a well-established methodology that is widely used in different sectors. It’s a powerful tool to explore multiple possibilities in conditions of uncertainty and ultimately helps develop resilient business strategies. The TCFD has embraced climate scenario analysis as an important tool enabling businesses to identify and disclose climate-related risks and opportunities under a wide range of plausible futures.

Companies looking to undertake climate scenario analysis can choose among several different climate scenarios, with various strengths and weaknesses. To date, most of these climate scenarios have not been purpose-built for corporate climate scenario analysis, and business has had to cobble together scenarios from various sets to assess both physical and transition risks. Furthermore, most of these scenarios have been narrowly focused on the physical impacts of climate change without providing any detail on how the broader sociopolitical context might change and impact business. 

To fill these gaps, BSR has developed three extended climate scenario narratives built upon the Network for Greening the Financial System (NGFS) climate scenarios and corresponding datasets. The three scenarios each present different emissions trajectories, which define their warming potential and associated transition and physical impact risks. They cover both physical and transition risks in a single, integrated scenario set, using the same assumptions and data. 

BSR has further enhanced the NGFS scenarios by building extended narratives using trend analysis and forecasting on how a range of business-relevant topics—such as technology and social impacts—could play out in the coming decades. This is important because climate impacts and risk are not happening in a vacuum. The operating environment for sustainable business is being radically transformed by diverse and complex interacting forces driven by the climate crisis and by other macro-level developments, such as geopolitical conflict and technological innovation. Understanding plausible ways in which system-wide changes might unfold is key to making more informed business decisions.

Using Scenarios for Strategic Conversations

A strategy that is predicated on only one projection of what the future will hold is highly vulnerable to unforeseen changes. Scenario planning is a way of considering a multiplicity of plausible future developments. It enables companies to stress test and refine their strategy to make it more likely to succeed across the full range of plausible futures.

The BSR climate scenarios support both a qualitative and quantitative approach to scenario analysis. The extended narratives on a range of business-relevant topics enable organizations to explore the cascading impacts of climate change on their business, their stakeholders, and society. At the same time, the scenarios are accompanied by climate impact data that companies can explore to quantify impacts relevant to their organization, sector, and economy.  

Of course, the most important insights are to be found when using climate scenarios to identify climate-related risks and opportunities specific to your own business and uncover any strategic moves to position your business to thrive across all scenarios. Be sure to give equal consideration to all three scenarios rather than trying to choose “the most likely” scenario. History is full of unlikely scenarios causing great disruption, and scenario analysis provides an important opportunity to ask “what if” questions.

​The Scenarios in Action

BSR is working with companies across sectors to undertake climate scenario analysis. Through workshops, cross-functional groups explore each scenario, identify climate-related risks and opportunities that arise from changing operating contexts, and discuss how to mitigate risks and build strategic resilience. In these conversations, companies also explore how market shifts can unlock business opportunities and gain competitive advantage. These insights can then be translated into action planning for the business and useful disclosures for investors and other stakeholders.

Member companies who are participating in climate scenario analysis are finding value in bringing together colleagues to discuss issues outside of their general scope of work, uncovering unforeseen potential impacts on their business, and identifying feasible business interventions to address climate risks and opportunities.

Read the Climate Scenarios

Reports | Thursday September 22, 2022

Human Rights Due Diligence of Meta’s Impacts in Israel and Palestine

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This human rights due diligence exercise reviews the impact of Meta’s policies and activities during the May 2021 crisis in Israel and Palestine. The primary purpose is to provide Meta with prioritized, action-oriented, and decision-useful recommendations for policies and practices to fulfill Meta’s commitments under its Corporate Human Rights Policy and responsibilities under the United Nations Guiding Principles on Business and Human Rights (UNGPs).

Blog | Thursday September 22, 2022

Human Rights Due Diligence of Meta’s Impacts in Israel and Palestine in May 2021

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In September 2021, Meta commissioned BSR to review the human rights impacts of the company’s policies and activities during the May 2021 crisis in Israel and Palestine. Today, we are publishing the results of BSR’s analysis in Arabic, English, and Hebrew.

BSR would like to thank everyone that participated in this review and provided their valuable time, insights, and perspectives.

The discussions we held with affected stakeholders to inform this review brought home to us how so many detailed decisions about social media policy, technology, and practice have fundamental impacts on the protection, realization, and fulfillment of human rights as a common standard of achievement for all peoples—especially in the context of highly complex social and historical dynamics. We hope this review informs actions that result in meaningful improvements in the daily lives of all people connected to Israel and Palestine.

The primary purpose of the human rights due diligence is to provide Meta with prioritized, action-oriented, decision-useful, and forward-looking recommendations for policies and practices. In doing so, this human rights due diligence helps fulfill Meta’s commitments under its Corporate Human Rights Policy and responsibilities under the United Nations Guiding Principles on Business and Human Rights (UNGPs).

Specifically, Principle 20 of the UNGPs states that companies should track the effectiveness of their response to human rights impacts by engaging with stakeholders, integrating findings into relevant processes, and driving continuous improvement. Principle 22 states that companies should provide for or cooperate in the remediation of adverse impacts, including seeking to guarantee non-repetition of prior harms.

This human rights due diligence also helps fulfill the recommendation of the Meta Oversight Board that Meta should engage an independent entity not associated with either side of the Israeli-Palestinian conflict to determine whether Meta’s content moderation in Arabic and Hebrew has been applied without bias.

BSR found that Meta took many appropriate actions during the May 2021 crisis, including establishing a special operations center and crisis response team, prioritizing risks of imminent offline harm, seeking an approach to content removal and visibility based on necessary and proportionate restrictions consistent with the International Covenant on Civil and Political Rights (ICCPR) Article 19(3), and overturning policy enforcement errors in response to user appeals. For this reason, some of BSR’s recommendations build upon important foundations for a human rights-based approach to content governance that have already been established by Meta.

However, BSR also identified a variety of adverse human rights impacts for Meta to address, including impacts on the rights of Palestinian users to freedom of expression and related rights, the prevalence of anti-Semitic content on Meta platforms, and instances of both over-enforcement (erroneously removed content and erroneous account penalties) and under-enforcement (failure to remove violating content and failure to apply penalties to offending accounts).  

BSR did not identify intentional bias at Meta, but did identify various instances of unintentional bias where Meta policy and practice (such as insufficient routing of Arabic content by dialect or regional expertise), combined with broader external dynamics (such as efforts to comply with US law), leads to different human rights impacts on Palestinian and Arabic-speaking users.

BSR has made 21 recommendations to Meta to address these adverse human rights impacts and bias.

Four recommendations relate to content policy, such as reviewing Meta’s policies relating to content that praises or glorifies violence, and specific elements of Meta’s Dangerous Individuals and Organizations policy.

Four recommendations relate to transparency, such as increasing the breadth, specificity, and granularity of information provided to users about Meta content policy enforcement, such as when action is taken on their content or accounts.

Ten recommendations relate to operations, such as determining the market composition (e.g., headcount, language, location) needed for rapid response capacities, the routing of potentially violating Arabic content to reviewers by dialect and region, improving classifiers (algorithms that assist with content moderation by identifying and sorting content that may violate Meta’s content policies), developing mechanisms to track hate speech based on type, and enhancing content moderation quality control processes to prevent large-scale errors.

Finally, three recommendations relate to systems change that goes beyond just Meta, such as how counterterrorism law applies to the social media industry and support for access to remedy.

The UNGPs lay out the expectation that Meta should avoid infringing on the human rights of others and should address adverse human rights impacts with which it is involved. In a conflict-affected context like Israel and Palestine, this includes understanding how ongoing conflict dynamics intersect with Meta’s platforms, how the online actions of a range of actors are possibly shaping offline events, and which groups are particularly vulnerable to adverse human rights impacts connected to Meta’s platforms given the conflict context.

We believe that BSR’s human rights due diligence will help Meta fulfill these expectations, and we look forward to Meta making progress reviewing and implementing our recommendations. We also hope that the insights we’ve shared today can inform the efforts of policy makers and other social media companies addressing complex challenges of content governance globally, especially in conflict-affected contexts.

Blog | Wednesday September 21, 2022

Beyond the Generation Equality Forum: One Year of Driving Action for Gender Equality

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In June 2021, the private sector stepped up to set a new agenda on gender equality. The Generation Equality Forum called for all stakeholders to make clear financial commitments that address critical issues to the advancement of gender equality and the creation of a world free from gender biases and discrimination where all women thrive.

The forum resulted in a record US$40 billion in pledged commitments and new investments in gender equality across the following six Action Coalitions:

• Gender-based violence
• Economic justice and rights
• Bodily autonomy and sexual and reproductive health and rights
• Feminist action for climate justice
• Technology and innovation for gender equality
• Feminist movements and leadership

One year on from the launch of the Generation Equality Forum, we spoke to two commitment-makers—Tamara Dancheva from GSMA and Justin White from Mars—on how key commitments made at the forum have seen growing progress toward gender equality across their organizations.

GSMA on Equal Access to Digital and Financial Services

GSMA’s commitments include reducing the gender gap in mobile internet and mobile money services, as well as a pledge to provide one million women and girls with access to free training and e-mentoring by 2026 via the EQUALS Her Digital Skills Initiative.

Its Mobile Gender Gap Report, which is used by a wide range of stakeholders to better understand the size of the mobile gender gap to inform business choices, has shown that progress toward closing the mobile internet gender gap has stalled across low- and middle-income countries (LMICs) and, in some countries, even reversed, highlighting a clear call to action. Internally, GSMA has committed to achieving a 50/50 gender balance across its Executive Leadership and Leadership teams by 2025, in line with the UN Women Empowerment Principles.

It tracks progress on these different commitments in various ways, including reporting on progress against targets to increase the proportion of women in mobile internet and/or mobile money services customer base, evaluation of beneficiaries’ experience, and ongoing learning through direct feedback mechanisms and reporting on diversity and inclusion metrics.

“GSMA is proud to be driving action across access, skills and leadership when it comes to closing the digital gender divide and this is reflected in our commitments to Generation Equality. We will continue to drive awareness, prioritization and action around the mobile gender gap including through our extensive research and our Connected Women Commitment Initiative, which supports mobile network operators in proactively reducing the gender gap in their mobile Internet and/or mobile money customer base. We are also equally determined to continue with our efforts to leave no woman or girl behind in an increasingly digital world as we work hard to empower emerging female young talent through our internal and external diversity and inclusion work. As we look to expand the remit of our Generation Equality commitments, support from our senior leadership team has been key and we hope to see many more companies follow suit by engaging their senior leaders directly.”

- Tamara Dancheva, Senior International Relations Manager, GSMA

Mars’ Focus on Economic Justice and Rights, Feminist Movements, and Leadership

Mars’ Full Potential platform brings thought leaders together to advance policies, practices, and partnerships that unlock opportunities for women across their workplaces, in sourcing communities, and in the marketplace to reach their full potential.

In 2019, the platform had a comprehensive set of ambitions, including reaching 100 percent gender-balanced business leadership teams, improving family support benefits, investing in women’s social and economic empowerment in sourcing communities, and working to remove gender bias and negative stereotypes in advertising.

In 2021, Mars launched its #HereToBeHeard listening campaign to inform a new set of priorities and ambitions. During the campaign, Mars asked one question: “What needs to change for more women to reach their full potential?” In total, more than 10,000 women from 88 countries responded.

Applying results from the campaign, Mars has shaped refreshed ambitions around its three pillars: workplaces, sourcing communities, and the marketplace. Their commitments include:

• Spending USD$500 million with women-led suppliers
• Deepening their focus on women in sourcing communities by updating procurement guidance that is gender transformative
• Focusing on key issues such as maternal mental health through the Maltesers brand and leveraging the Dove/Galaxy brand to support women’s financial independence in cocoa sourcing communities

Mars has made progress toward their ambition of 100 percent gender-balanced business leadership teams and is reporting on gender representation in advertising. They are also currently working with leading monitoring, evaluation, and learning experts to design a set of metrics that allow them to better measure the impact of sustainable sourcing programs.

“In the world we want tomorrow, society is inclusive, and women are reaching their full potential. We believe we have an opportunity to unlock opportunities for women, to improve community and business outcomes, and address the key themes identified through our #HereToBeHeard campaign.”

- Justin White, Manager, Human Rights and Gender Equality, Global Sustainability, Mars

It is more important than ever to see commitments across various action coalitions and the engagement of different private sector players within the Generation Equality Forum. However, a year into the launch of multi-stakeholder action coalitions, we still observe limited investment and commitments from the private sector on crucial Action Coalitions—including Bodily Autonomy/Sexual and Reproductive Health and Rights (SRHR) and Feminist Action for Climate Justice, which together represent a mere 10 percent of the total financial commitments to date.

For further insight on the private sector commitments and investments made across the six action coalitions, download BSR’s updated report here.

Case Studies | Monday September 19, 2022

Climate Scenarios with the National Association of Corporate Directors

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In June 2022, BSR and the National Association of Corporate Directors (NACD) collaborated on a joint climate scenarios workshop for NACD’s Climate Continuous Learning Cohort, a group of approximately 50 current and future corporate directors. The workshop demonstrated the potential and value of climate scenarios to navigate climate risks and opportunities for boards in an era of increased transparency and duty of care.

Context

NACD is a member organization for corporate directors aiming to expand their knowledge, grow their network, and maximize their potential. It has worked with members for over 40 years to help improve their performance and create long-term value for their businesses. In March 2022, NACD launched a Climate Continuous Learning Cohort, a year-long learning initiative for peers to connect, share knowledge, and learn from each other. The program offers thought leadership in collaboration with NACD's community of experts, leading directors, and trailblazing companies to advance climate proficiency in the boardroom.

The Challenge

Boards are increasingly aware that addressing climate change is essential to building resilient business strategies. The energy transition, commodity costs and availability, extreme weather disruptions, climate justice, regulatory shifts—all have the potential to pose existential risks and provide opportunities for business.

Investors are shining a spotlight on these risks, like when the world’s largest asset managers call on boards to oversee climate disclosures or when the largest banks implement aggressive plans for decarbonization and climate risk management. Regulators and standards-setters around the world are also stepping up expectations for boards, often in alignment with recommendations from the Task Force for Climate-Related Financial Disclosure (TCFD). The International Sustainability Standards Board (ISSB), the US Securities and Exchange Commission (SEC), the EU Corporate Sustainability Reporting Directive (CSRD), the EU Corporate Sustainability Due Diligence Directive (EU CSDDD), the Japanese Financial Services Agency, and others are all poised to implement mandatory corporate climate disclosures that lodge responsibility for oversight with boards.

In light of both the growing urgency of climate change on the board agenda and the prevailing lack of climate expertise on boards, NACD reached out to BSR to collaborate on a climate scenarios workshop, based on our sustainability and board advisory expertise, our work on futures and scenario planning, and the reach of our global membership.

BSR’s Response

Building on work by the Network for Greening Financial Services, BSR tailored three scenarios to imagine potential versions of the world in 2030 and what they would mean for a fictive healthcare company. (While BSR typically facilitates customized scenarios workshops for participants from a single company, BSR adapted the approach to train directors from multiple businesses.) The scenarios addressed direct climate impacts as well as cross-cutting social, technological, economic, environmental, and political factors. NACD workshop participants collaborated to discuss risks and opportunities that each scenario would pose for the healthcare company. 

BSR facilitators then led the group into the most crucial part of the conversation: If the participants were on the board of the healthcare company, what steps would they take to govern the company for future success and resilience across all scenarios? 

Participants shared ideas for enhancing the board’s composition, structure, strategic engagement, oversight, and accountability measures. They identified questions for management and for boards to consider.

Examples of questions from the Board to management included:

• How might climate-related developments affect our business model and value chain? What alternative business models or approaches can be used to mitigate climate risk and unlock value?
• How ambitious do we want to be and when? What are the advantages/disadvantages of being an early vs. late mover?
• What are our biggest climate risk areas? How does this fit into enterprise risk management?
• How are we preparing for new reporting guidance (EU CSRD, CSDDD, SEC, ISSB, etc.)?

Examples for the Board included:

• How do we ensure a threshold of climate and ESG knowledge across all board members? How can we embed climate/ESG across all board committee charters?
• Do we have the right skills to address climate, including how it relates to existing focus areas such as policy, supply chain, geopolitics, etc.?
• Do we have access to insights from outside experts and stakeholder perspectives?
• How do we maintain a holistic understanding of climate and ESG impacts so that we don't look at issues in a vacuum? 

Impact

The exercise brought to life several keys to success in using scenario analysis:

• Create engagement and ownership among the participants. Arguably more important than the actual output is that the participants drive the process themselves and take ownership of their relevance.
• Use scenario analysis to build capabilities, expand vision, and reveal blind spots—not to choose “the most likely” scenario. Single-point forecasts are often wrong, and basing efforts on one scenario can potentially expose a company to risk.
• Tailor the exercise to the specific company, its value chain, business model, and stakeholders, based on commonly accepted, science-derived inputs.
• Consider climate scenarios with a broad range of outcomes and that consider social, technological, environmental, economic, and political developments. Narrow scenarios can fail to account for reality of risk.
• Consider physical and transition factors, as well as acute and chronic climate impacts. Climate risk is not “just” about storms and floods.
• Identify actions by the board and management that promote business resilience across a diversity of potential scenarios, aligned with respective roles. Scenarios should not be an intellectual exercise.

Participants hailed the exercise as invigorating, educational, and strategically valuable. One participant noted that, “When it comes to climate, an issue that can shape the strategic direction of the company in the long-term, this can get boards to think in more broad and diverse perspectives.” By engaging those perspectives, another participant commented, “It brings wide-ranging considerations to the table—from capital allocation to changes in talent development and complex reporting.” Another participant summarized: “It forces the discussion and thinking further, which should lead to a more robust strategy.”

One participant put it more plainly: a scenarios exercises for the board “helps minimize 'oh shit’ moments.”

Conclusion

Training on fundamentals of climate change—such as those conducted by NACD—are essential to build the knowledge base of board members. Scenario exercises for boards take that engagement a step farther to look at the specific company and the broad context, strategic implications, and the role of the board in building resilient business strategies.

[The] NACD and BSR partnership has proven to be a strong one, as the board members who participated in the workshop found it interactive, relevant, and practical. Through the breakout discussions, the BSR team was able to provide actionable knowledge on how to evaluate and navigate climate risks and opportunities, regardless of industry. I truly valued BSR’s expertise and enthusiasm while working on this project!

-Ghita Alderman, Associate Director, ESG Content, NACD

Blog | Thursday September 15, 2022

Driving Decarbonization: Accelerating Zero-Emission Freight

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Over the past year, global shipping giant Maersk has ordered 13 green methanol-fueled ships and shortened its decarbonization commitment by a decade to 2040, all without a guaranteed global supply of methanol to even fuel these ships. In hopes of getting these ships on the water and fueled by methanol in the next few years, Maersk is relying on partnerships and collaborations instead of waiting for methanol to become available. 

In 2019, freight emissions accounted for 8 percent of global greenhouse gas emissions, and even more if warehouses and ports are included. Now, cargo demand is expected to double by 2050, and a net-zero scenario in the same timeframe requires a 20 percent reduction in emissions by 2030. 

Demand signals, policy shifts, and infrastructure developments necessary for a zero-emission future will require multiple stakeholders to align to influence and fund innovative developments. That will be nearly impossible without concrete action plans and collaboration around, for example, the deployment and testing of alternative fuels. 

Fortunately, some businesses, like Maersk, have the resources to lead the way. However, until there is collaboration and co-investment in pilot projects across the entire freight industry, low- and zero-carbon freight solutions will remain undeveloped at scale. Collaboration experts behind the Sustainable Freight Buyers Alliance (SFBA), a collective action initiative, identified three pillars for businesses of all sizes to utilize when pursuing low- and zero-carbon freight solutions: including multi-stakeholder input, seeking co-investments, and deploying pilot projects. 

Spark Multi-Stakeholder Input

One of the most important, and arguably least integrated, aspects of scaling any new technology is ensuring the right voices are at the table. It is difficult to successfully launch and grow innovations without stakeholders’ input across the value chain. The different perspectives, expertise, and experiences that players bring to the table are key to unlocking freight decarbonization. 

Developing new fuels, like the currently nascent green methanol and green ammonia for maritime shipping, requires open collaboration to understand the complex challenges surrounding technologies, health and safety aspects, supply, bunkering, infrastructure, and shipbuilding. 

For instance, Maersk has ordered numerous new methanol-fueled ships in pursuit of their decarbonization goals. However, the shipping giant may receive the ships before there’s enough supply. Through a multi-stakeholder partnership, Maersk hopes to produce enough e-methanol to fuel at least 12 of their 13 methanol ships by the end of 2025. If companies as large as Maersk are dependent on partnerships and stakeholders to drive decarbonization, nearly every other company will have to come together to ensure the 2050 Net Zero target is within reach.

Co-invest in Climate Solutions

Many climate solutions may work for single businesses, but the sign of a successful project is replicability and widespread support from multiple stakeholders across the value chain. When multilateral stakeholders align to shape solutions in a way that is implementable for numerous businesses while also dispersing costs that allow for additional support, decarbonization efforts are attainable. Often, projects are too costly for a single company to invest in or hedge bets on the first iteration of new technologies, which is why joining forces to offset costs is the most accessible way to bring low- and zero-carbon fuels to market. 

Brand reputation, legal red tape, trust, and skepticism from internal teams also hinder co-investment for many businesses. When companies convene and speak openly about challenges and share best practices, it helps prepare representatives to approach internal teams (e.g., finance, C-suite) for buy-in and expedite processes such as contracting. Co-investment is necessary to rapidly scale climate solutions but will require cooperation and trust among partners. 

Establish Pilot Projects

There is no silver bullet for decarbonizing freight or transportation overnight. Every emerging fossil-fuel alternative must undergo multiple rounds of innovations, improving over years, if not decades. We’ve seen it for far too long in the freight space: companies are reluctant to be the first to invest in unproven fuels. However, it is up to companies to explore new options like green hydrogen and ammonia. 

Namibia recently selected five pilot projects in rail, trucking, and shipping to receive millions for green hydrogen development. Investment firms Carlyle and GIC are collaborating with the green ammonia producer, Eneus, to develop a green ammonia/hydrogen pipeline. Investing early is not only beneficial for decarbonization efforts, but it also helps companies to build a more reputable brand in the eyes of sustainable consumers, drive ESG-minded investments, secure long-term contracts for predictably low supply in the early years, and the overarching greater good of scaling solutions for a cleaner tomorrow.

Collaborate with the Sustainable Freight Buyers Alliance 

The Sustainable Freight Buyers Alliance (SFBA), led by Smart Freight Centre (SFC), formally launched in the first half of 2022 with the intention of aggregating freight buyers to co-invest in pilot projects with input and guidance from multilateral stakeholders. 

While this is not the first freight collaboration, it is a first-of-its-kind, designed to bring the voices of the full freight ecosystem to the table in a way that encourages peer-to-peer collaboration and information sharing. SFC, BSR, and the World Economic Forum foresaw an opportunity to create a unique initiative using Clean Cargo and GLEC as a launch pad. 

SFBA unites all the key players, but it also streamlines processes, data, and project development to expedite the uptake of cleaner fuels and technologies. Through open forum discussions, businesses will build relationships and partnerships, and they will rapidly scale climate solutions that may give us a chance of reaching the SFBA goal of reducing freight emissions by 35 percent by 2030. SFBA recognizes the urgency for freight decarbonization and the need to invest so that solutions are optimized and on the market in time for the 2030 emission reduction and the zero emission 2050 deadlines. 

SFBA is hosting an in-person member meeting in September in New York City during Climate Week. Companies interested in bringing freight decarbonization pilot projects to the forefront or co-investing in these solutions can sign up.

Support to develop this blog comes from a multi-year program between BSR and the Swedish International Development Cooperation Agency (SIDA) to promote business-led multi-stakeholder collaboration. We will be sharing further information on best practices for setting up collaborative initiatives and key examples as part of this program.

Blog | Wednesday September 14, 2022

“And” May Be the Most Important Word

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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.

Blog | Thursday September 8, 2022

Human Rights Everywhere All at Once

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The technology industry is entering a new era of regulation, with several initiatives in the European Union (EU) shaping how the industry assesses risk, addresses adverse impacts, and discloses to the public.

Each of these regulatory initiatives stands in isolation to address a specific topic, be it freedom of expression, artificial intelligence (AI), or privacy. Some are tailored to the technology industry, while others apply to companies in all sectors.

However, while working with BSR member companies to prepare for these various regulations, it has become abundantly clear that human rights based-approaches—and especially the implementation of the UN Guiding Principles on Business and Human Rights (UNGPs)—provide a common thread that ties them all together.

There are certain key features that distinguish a human rights-based approach: reviewing and addressing impacts against all human rights; prioritizing risks to people based on severity—i.e., scope (the number of people impacted), scale (how grave the impact), and remediability (whether the impact can be made good); and paying particular attention to the rights of individuals from vulnerable groups or populations. 

It is striking how these key features of a human rights-based approach provide the conceptual foundation for each new EU regulation that technology companies will need to adhere to. 

• Digital Services Act (DSA): Will require a “systemic risk assessment” encompassing actual or foreseeable impacts on rights contained in the EU Charter of Fundamental Rights, including a consideration of the severity of impact. The DSA emphasizes vulnerable users and offers scope, scale, and remediability as potential prioritization criteria.
• Artificial Intelligence Act: Will require a “conformity assessment” for higher risk applications of AI and uses the EU Charter of Fundamental Rights as the basis for understanding and classifying risk.
• General Data Protection Regulation: Requires that companies undertake “Data Protection Impact Assessments” that consider not just privacy but impacts against all rights contained in the EU Charter of Fundamental Rights, prioritizing the most severe risk to “data subjects.”
• Corporate Sustainability Reporting Directive: Will require that companies take a“double materiality” approach to disclosure, where the prioritization of matters that affect the economy, environment, and people (“impact materiality”) will be based on concepts of scope, scale, and remediability drawn from the UNGPs.
• Corporate Sustainability Due Diligence Directive: Will establish a corporate due diligence duty, which will require identifying, preventing, mitigating, and accounting for adverse human rights and environmental impacts across company value chains, including from the use of products and services.

For companies, there are opportunities to consider the human rights-based synergy between these different requirements. This might include identifying connectivity through compliance processes, creating shared content across different assessments, or establishing an information architecture for reporting that positions these different disclosure requirements as an integrated whole. Companies with well-resourced central human rights functions are better placed to achieve these synergies.

For regulators, there is a need to maximize interoperability between these different requirements. This should include consistency in emphasizing the relevance of all human rights (rather than prioritizing some over others), harmonizing criteria by which adverse impacts on people should be prioritized, or creating more uniformity of disclosure requirements. There is a lot riding on the details of the regulations, where even slight differences in scope or definitions can be counterproductive.

Preparing for this new era will require significant, detailed, and tailored activity to meet the requirements of each regulation. However, it is our premise that taking a consistent human rights-based approach based on the UNGPs will ease this process, enhance compliance with both the spirit of and letter of each regulation, and increase the likelihood that human rights become more deeply embedded in the technology industry.

In the movie “Everything Everywhere All at Once” Michelle Yeoh draws upon distinct elements of her best self to succeed in different contexts; in the reality of “Human Rights Everywhere All at Once,” human rights functions will need to take a similar approach.