People

Deb Gallagher

Preview

Deb leads BSR’s climate work in the US. She works closely with BSR’s external partnership teams to accelerate decarbonization while engendering climate justice. She works with Transform to Net Zero (TONZ) collaborative initiative members to amplify leadership behaviors that promote a just and resilient future. Deb leads efforts to create a series of TONZ Transformation Guides on issues such as climate transition action plans (CTAPs), climate policy engagement, and climate justice.

Prior to joining BSR, Deb was a professor at Duke University, where she led the Business and Environment program. Her research focused on business leadership behaviors required to advance sustainability, including stakeholder relationship management, ESG data acquisition and use, public policy engagement, and design of strategic partnerships. Over the course of 20 years at Duke, she mentored over 200 sustainability leaders. Prior to Duke, she held environmental leadership positions in manufacturing and government.

Deb holds a PhD in Public Policy from the University of North Carolina at Chapel Hill, a Master's in Public Policy from Harvard Kennedy School, and a BS in Chemical Engineering from Northwestern University

Blog | Friday July 29, 2022

BSR Response: How the EU’s Sustainability Reporting Standards Will Be a Game Changer

Preview

In April, the European Financial Reporting Advisory Group (EFRAG) released a set of sector-agnostic exposure drafts that form the first set of European Sustainability Reporting Standards (ESRS). These standards will become mandatory under the Corporate Sustainability Reporting Directive (CSRD) and will have a significant impact on companies doing business in the EU.

This is one of several major milestones toward the standardization of sustainability reporting on a global scale. This spring, the US Securities and Exchange Commission (SEC) and the International Financial Reporting Standards Foundation (IFRS) individually released exposure drafts for sustainability-related disclosures. 

These public consultations are a unique opportunity to influence the future of mandatory sustainability reporting standards and build a sustainability reporting system designed to enhance both business and sustainability performance.

BSR commends EFRAG for its leadership and efforts in creating the sector-agnostic standards. 

Below, we summarize our response to EFRAG’s public consultation which is informed by 30 years of hands-on experience implementing best practices with member companies. BSR’s comments are made in the service of reporting standards, designed to support improved sustainability performance by companies and the achievement of EU sustainability policy objectives. 

Granularity of Disclosure Requirements

The disclosure requirements outlined in the exposure drafts demand a level of detail and specificity that goes beyond standard reporting practices—even those of the most advanced reporters. While BSR believes that comparable disclosures require ambitious, specific, and prescriptive reporting standards, we question whether all the elements of each disclosure are decision-useful for stakeholders. We support the disclosure requirements to the extent that compliance with them does not (1) overshadow the most decision-useful information and (2) divert resources away from sustainability performance improvement.

Alignment with Other Standards 

We encourage EFRAG to further align disclosure requirements with established standards (such as the Global Reporting Initiative, or GRI) and emerging reporting standards (such as the SEC’s draft climate rule and IFRS Standards). We believe that harmonization is fundamentally important to creating a system that maximizes impact and achieves efficiency and comparability. Even minor differences in language between different reporting standards present the risk that companies will spend time and resources developing separate disclosures concerning the same topics but for different jurisdictions, which would make reports less useful for readers. BSR proposes that EFRAG map the final standards against GRI and International Sustainability Standards Board (ISSB) Standards and cross-label or explicitly reference them as appropriate.

Double Materiality

BSR fully endorses the concept of double materiality. However, we believe that the proposed definition of impact materiality is too broad and lacks the concept of prioritization. Similarly, we encourage EFRAG, the ISSB, and the SEC to align their definitions of financial materiality. Multiple definitions will make it difficult for companies to report across jurisdictions. BSR supports a definition of financial materiality that is consistent, interoperable, and substitutable.

Rebuttable Presumption

BSR does not support EFRAG’s proposal for the rebuttable presumption. We believe it will be difficult and resource-intensive for companies to prove a topic is not material based on “reasonable and supportable evidence,” adding an unnecessary layer of complexity and leading to less concise, less focused, and less decision-useful reporting.

Architecture and Presentation

The standards can be streamlined to avoid duplication and make them easier to understand and navigate for report preparers and users.

Boundaries, Restatements, and Value Chain

BSR agrees that the boundary for the sustainability statement should mirror that of financial reporting and extend to the company's upstream and downstream value chain. While the draft standards request estimates when the full boundary cannot be measured, we believe overusing estimates could be misleading and unhelpful.

Estimates

BSR believes that the current exposure drafts rely too heavily on the use of estimates when data are not available or difficult to collect. We believe that EFRAG should propose a “comply or explain approach” via omissions for disclosures beyond a core set, in line with the approach of the GRI Standards.

Targets

According to ESRS 1, if there are no targets in place, the company needs to provide valid reasons. We believe this sets an unreasonable expectation that companies should be setting measurable outcome-based targets across all risks, opportunities, and impacts. There is a possibility that this will result in companies establishing targets across several topics where targets may not be relevant, meaningful, or useful.

Format of Statements

BSR believes that the standards should allow more flexibility in referencing disclosures inside the management report. This would improve overall usability and avoid duplication within the management report when information is provided in other sections.

Feasibility

BSR recommends identifying additional disclosures as optional or considering phasing in certain topic-specific standards or disclosure requirements (e.g., biodiversity disclosures). In many cases, protocols for reporting on such topics are immature, which risks mandating the disclosure of information that may be less than fully accurate.

Use of Entity-Specific Disclosures

It is unclear whether the ESRS suggests completely phasing out entity-specific disclosures over time as sector-specific standards are created. BSR feels that companies should be allowed to continue to disclose entity-specific information as they deem it relevant and appropriate.

We believe that these exposure drafts are an important first step toward achieving our common goal of improved company disclosure and sustainable outcomes for all. BSR will continue to engage in the development of reporting standards, and in ESG reporting more broadly, through our Future of Reporting collaborative initiative. 

We encourage companies to participate in the consultation process and share their perspective on how to maximize the efficiency, effectiveness, and impact of reporting in support of resilient business and a more just and sustainable world.

Blog | Thursday July 28, 2022

How IFRS Sustainability Reporting Standards Can Contribute to Further Harmonization

Preview

At COP26 in November 2021, the IFRS Foundation announced the creation of the International Sustainability Standards Board (ISSB), a sister board to the International Accounting Standards Board (IASB). This was an exciting development for the investor community, which had expressed a clear need for global and comparable investor-focused sustainability disclosure. Who better to play in this space than the IFRS Foundation? The announcement was particularly timely considering developments such as the SEC’s proposed rule on climate-related disclosures and the EU Sustainability Reporting Standards (ESRS).

With sustainability disclosure standards converging, reporting practitioners and the sustainability community at large have a unique opportunity to shape the outcome of the global sustainability reporting landscape for years to come. We have the power to advocate for increased compliance that not only reduces the reporting burden on companies but also drives concise and decision-useful disclosure. 

BSR welcomes and has responded to the ISSB’s two exposure drafts released in March 2022, grounding our comments in 30 years of experience working with member companies. We want to express our congratulations to the ISSB for this milestone and commend their efforts. Please read our General Sustainability-Related Disclosure and Climate-Related Disclosure comment letters for additional details. 

BSR would like to see final standards that:

1. Strike a balance between prescriptive disclosures and flexibility

Prescriptive disclosures may lead to more comparable reporting; however, every company’s operating context is different. A degree of flexibility—complemented by clear guidance—would allow disclosures to reflect those differences while ensuring that reporting is not overly burdensome.

BSR suggests developing additional guidance on the location of reported information, such as examples of where and how this information can be found based on jurisdictional requirements, or the ISSB’s perspective on best practice. 

2. Align with the jurisdictional definition of “materiality”

We recommend that the ISSB work with jurisdictions to ensure that reporting against one regulator’s materiality definition or set of requirements satisfies those of—or is otherwise accepted by— the requirements of another. Definitions should be consistent, interoperable, and substitutable. Otherwise, they can be interpreted and reported on differently.

BSR proposes that the ISSB clarify that companies may utilize other jurisdictions’ disclosures (e.g., those proposed by EFRAG), which are also intended to satisfy investor needs in the absence of further ISSB standards or where gaps with SASB disclosures remain.

Close alignment between the SEC’s rule on climate-related disclosures and the ISSB Standards is key. BSR encourages the ISSB to maintain close alignment with the TCFD recommendations and include additional topics of disclosure only when deemed necessary to fill significant gaps.

3. Require verifiable climate-related financial disclosures that follow a structured compliance timeline

The ISSB Standards serving as a global baseline for sustainability-related financial reporting implies that jurisdictions will build on them, allowing for the possibility of divergence across jurisdictions. To prevent this, the ISSB should provide guidelines for the adoption of the Standards by regulatory authorities.

Not all jurisdictions will adopt the ISSB Standards, but investors may continue to request ISSB-aligned disclosures as these build on SASB metrics, which will form the basis of the ISSB’s industry-based standards. As such, we recommend that the ISSB continue to provide guidance on how companies can report against the ISSB standards, including on a voluntary basis.

We support the verifiability of climate data as it is especially critical for investors and other stakeholders and features more established collection methodologies. 

BSR believes the effective date of both exposure drafts should be the same given that they were created in tandem. We encourage the ISSB to move forward with a common process and compliance timeline for additional standards

4. Include cross-industry requirements required for decision-useful climate-related financial disclosures

We support the breadth of disclosure topics included in the climate exposure draft, including alignment with TCFD. The ISSB should direct companies to additional guidance that would help disclosure of complex topics like scope 3 emissions. The use of climate scenario analysis is an important tool for identifying and assessing climate-related risk and opportunities. As such, companies should only use alternative assessment techniques if they cannot perform a scenario analysis. The ISSB should also remain flexible on disclosure of transition plans as guidance is evolving.

5. Leverage existing industry-based requirements for climate-related disclosures

We strongly support the ISSB’s proposal to include industry-based requirements (Appendix B) that are derived from the SASB standards. Moreover, we support the ISSB’s efforts to develop additional topic-specific standards over time, and we believe that each topic standard should be accompanied by industry-based requirements derived from SASB.

The consolidation of the Value Reporting Foundation (VRF) into the IFRS Foundation is a critical differentiator and brings years of industry-focused sustainability standards setting experience into a well-established financial standard setting entity. We commend the ISSB for its efforts thus far. We encourage them to continue building relationships with voluntary reporting standards and frameworks, to deepen connections between jurisdictional authorities that are developing their own standards, and to take forward future efforts to build on the two ISSB Exposure Drafts.

BSR will continue to engage on this issue, and in ESG reporting more broadly, through our Future of Reporting collaborative initiative. We encourage companies to get involved in the consultation process by showing support for the IFRS Sustainability Reporting Standards in harmonizing the reporting landscape and highlighting ways the ISSB can strengthen the standards for the benefit of all investors.

Blog | Wednesday July 27, 2022

Business Leadership in the Great Fragmentation: Part 1

Preview

Editor's Note:

It is obvious that 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 over the coming weeks to build insight into how to shape business approaches that address this unique moment. Following last week's piece on changing expectations of business in protecting rule of law, rights, and democracy, today's piece is the first of two blogs on the role of business in combating societal fragmentation. 

We’ll conclude with a deeper dive look 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 recent US Supreme Court hearing that overruled Roe v. Wade is yet another reminder of the profound divisions plaguing the United States. The decision has caused states to take wildly different approaches to women’s rights, business to face the question of how to respond, and a society at each other’s throat.

As momentous as this decision is, it is but one example of the many ways that the world is fragmenting: politically, economically, environmentally, and culturally. Signs are everywhere: growing conflict between illiberal governments and liberal democracies, generational splits regarding the value of market capitalism, and culture wars in the US and many parts of Europe. 

This fragmentation is driven by a set of interconnected and accelerating factors, which present not only serious risks to human progress, but also a massive challenge for business. This is particularly true for those of us advocating for more just and sustainable business. 

Sources of Fragmentation

To understand—and address—our current context, it is essential to understand the six interlocking factors that are accelerating fragmentation. Each is potent, and taken together, they reinforce and amplify each other, creating challenges that metastasize by the day. 

• The Digital World: Digital technologies and social media are both sources and enablers of fragmentation, with three key elements. First, social media enable communities of interest to gather in ways they never could in the physical world. While this is not inherently negative, the phenomenon is clearly corrosive. Second, disinformation and misinformation are turbocharging the digital communities’ embrace of their own realities, untethered to fact. Finally, the rise of the “splinternet,” with multiple walled off internets replacing the initial vision of a single, connected web (e.g., the Great Firewall of China and the “Putin-net”), prevents universal access to information, fostering further division.  
• Social Progress…and Backlash: The rise of #MeToo and Black Lives Matter and increased recognition of LGBTIQ+ rights are, on balance, leading to more equitable societies, with greater awareness of the structural inequities that plague us. There is also a powerful backlash, resulting in expressions of hate and violence. Business is increasingly being pulled into these culture wars, with competing claims of “woke capitalism” from the right and expectations from many, including the rising generation of employees and consumers, that business speak out for social justice. 
• Income Inequality: Our societies also continue to face income inequality that both reflects and reinforces fragmentation. According to the New York Times, the CEO-to-median-worker pay ratio in the US reached 339-1 in 2021, a tenfold increase from the late 1960s. Coming at a time of structural change and dislocation, this fuels extreme distrust, as well as populist movements from both right and left. Brexit, Trump, and Le Pen all galvanized widespread political support, often expressed through and with fear and xenophobia, by capitalizing on income inequality as proof that the system is rigged for the benefit of the wealthiest, leading to further social division.  
• Political and Geopolitical Division: Political divisions within and between countries are also on the rise. The recent French parliamentary elections spread votes across four coalitions, including two that are far to the right and left. The US has been mired in gridlock for two decades. “The Great Sorting” of populations has created urban and rural political divides in Europe and North America. The same is true globally, with sharpened geopolitical tensions. Russia’s invasion of Ukraine, China’s increasingly muscular nationalism, and competition between liberal democracies and illiberal regimes are creating a more politically volatile environment than we have seen since in decades. 
• Social Impacts of Environmental Collapse: Human-caused environmental collapse also fuels fragmentation. The direct impacts of climate change already are more than enough for society to manage. The second- and third-order effects of climate change, however, are sparking additional social division. Climate refugees are adding to human migration, both to Europe from Africa and the Middle East and to the US from Central America, exacerbating already sharp divisions over migration and contributing to further xenophobia. The sheer scope of the energy transition, with the undeniable fact that there will be winners and losers, and pitting historical emitters against vulnerable nations, also magnifies fragmentation. Whether and how to act is also politicized, especially in the United States, where one political party has systematically—and cynically—denied climate science.
• Maximalist Thinking: Finally, these factors, which are powerful enough on their own, are also amplified—and at times weaponized—by the troubling rise of maximalist thinking. Various communities see “their issue,” whether climate or equity or democracy protection as the issue of existential importance. No matter how legitimate—indeed important—their vision and objectives, this kind of thinking has contributed to an environment in which tribes of reformers fail either to achieve their goals or to build needed coalitions. As Ford Foundation President Darren Walker put it recently in The New York Times, “[W]e are mired in a culture of absolutism and tearing ourselves apart at the seams. Everything right now, it seems, is black or white, all or nothing, perfect or unacceptable.” Indeed, if every cause is presented as an existential threat, advocates will retreat to their own corners, many others will simply tune out, and the consensus needed to make progress is rendered impossible.

Each of these developments has immense significance for business. Taken together, they are reshaping the expectations of customers, employees, and other stakeholders; the ways business communicates; and the policy environment shaping crucial issues from climate to employment to reporting and disclosure. 

In Part 2, we will spell out how business can respond to reduce these sources of fragmentation and adapt their activities to address them.

Blog | Tuesday July 26, 2022

In Egypt, Digital Payroll Helps Garment Workers Reap What They Sew

Preview

Port Said, at the northern tip of the Suez Canal, is uniquely attractive to national and international fashion brands due to its direct shipping connections, its free zone, and easy access to so-called “white gold”—superior Egyptian cotton, one of the finest natural fibers in the world. After “black gold”—oil—and actual gold, textiles and apparel are among Egypt’s top exports, and the sector employs more than 1.5 million workers, half of which are women.

In a country with strict gender norms and roles, where men tend to be seen as the breadwinners and women as the main caregivers, this sector offers a unique opportunity for women’s economic empowerment.

Most workers in this industry still receive their wages in cash. It can lead to unfortunate consequences for all parties: Paying employees in cash is risky for factories—it requires them to transport large amounts of money. Another danger for women: They are also more at risk of being robbed than men. Female workers usually have limited control over their salaries, and family members might have easy access to their cash. Additionally, workers stand in long lines to receive their wages, which cuts down on productivity and personal time.

We recently piloted “HERfinance Digital Wages” with workers at Lotus Garments Group, a Levi Strauss & Co. manufacturer in Port Said. Bringing the benefits of the digital economy to cash-dependent workers, the initiative helps managers digitize their payroll while ensuring the specific needs of female workers are considered.

Nearly three years later, 9,310 workers at Lotus were being paid digitally into financial accounts—that’s nearly 90 percent of the factory workforce. Now the initiative is expanding with the aim of supporting nine more factories supplying global brands, including M&S, Kontoor, PVH and The Children’s Place. The goal is to reach 20,000 workers in total.

Marwa, a worker at the Lotus factory, says the training she received as part of the digital wages program helped her save and budget better during the COVID-19 crisis.

Building financial capability for workers, especially women, is a vital part of digital payroll services. With support from the Mastercard Center for Inclusive Growth, participants in the Digital Wages program receive gender-sensitive training, including technical guidance using their new payroll accounts and associated financial services. They also learn lessons on financial planning, budgeting, savings, and discussing finances with their families.

The training especially addresses women workers' needs, acknowledging the discriminatory situations they might face at the workplace and the different challenges they encounter when accessing digital financial services.

“At the beginning, I knew only how to withdraw the money from an ATM, and I used my bank account in the same way as a cash envelope,” says Amal Fahmy, one of the Digital Wages peer educators at Lotus Garments. “Once my salary was put on my account, I withdrew all my money. After the training sessions, I learned about the many services offered by my payroll account and other financial skills. Now I save part of my salary in my account and withdraw only the needed amount of money.”

Digital accounts were also a critical asset during the COVID-19 lockdowns, as many facilities closed and workers receiving payments in cash faced long delays in their salaries. In contrast, most workers with a bank account received payment on time. The knowledge workers gained from the training sessions also helped them cope with uncertainty and foster resilience: “I’ve been using what I learned to follow up on my expenses and build a budget,” says Marwa, 29, a female garment worker. “I think this knowledge on saving and financial planning was especially useful during the COVID-19 crisis.”

After digitizing wages and participation in the HERfinance Digital Wages program, Lotus reported a 42 percent reduction in time spent on payroll, and 96 percent of workers interviewed reported that they prefer to be paid in a bank account, rising from 25 percent at the start of the program. Four in 10 women surveyed reported saving every month after the program implementation.

By sharing digital tools and training, we can improve the long-term financial health of women and, in turn, make the communities in which they live — and the supply chains on which we all depend — stronger and more resilient.

“One of the barriers to digitizing wages was the lack of opportunity for workers to cash out wages on payday,” says Tamer El-Dessouki, sustainability manager at Lotus Garments. With only one ATM near the factory, the company arranged for a mobile ATM to be on-site for payday and the days following. Managers staggered workers’ breaks to reduce demand for the ATM and factory transport buses stopped at other ATMs on the way home. “The next step is to encourage workers to use more financial services, which will reduce their need to cash out on payday,” El-Dessouki says.

The partnership also developed technology tools to facilitate the transition to digital wages at scale. Together with Quizrr, the initiative developed a technology learning tool for workers based on the HERfinance Digital Wages program and training curriculum. The tablet-based training tool uses engaging films, quizzes, and animation to support workers in increasing their knowledge of financial services, improving financial health, and building their digital literacy. Peer educators said the tech tool makes the session more enjoyable and entertaining, and they related to the characters and situations that are used to explain the core concepts.

The collaboration also created a HERfinance Digital Wages Tech Toolkit for Managers, which sets out best practices and guidance for garment managers to transition toward digital payroll in a responsible and efficient manner.

The Egypt Digital Wages partnership has shown that digitizing wages, accompanied by financial capability training, can lead to increased financial inclusion and resilience for female garment workers. Mastercard and HERproject will continue to work together to build the business case for wage digitization and support the scale-up by sharing best practices, insights, and digital training tools with key stakeholders, including employers, buyers, and financial service providers.

Originally appeared on Mastercard.

Blog | Thursday July 21, 2022

Just Transition: Clean Energy with a Clear Conscience

Preview

The Biden administration recently announced a bold plan that would boost US clean energy production by authorizing the Defense Production Act (DPA) to reduce energy costs, strengthen the power grid, and create well-paid jobs. The Administration’s action is a welcomed move to spur the clean energy transition, which enables the continued import of solar components that are required to construct clean energy projects on a domestic scale.

The rise in manufacturing renewable energy technologies, however, may impact workers, including through forced labor, abuses of Indigenous rights, “and the denial of workers’ rights to decent work and a living wage,” all of which cause immeasurable harms and can risk the clean energy transition. While we can celebrate increased clean energy production in the US, policymakers and business have an opportunity to take meaningful action to reimagine a world where clean energy isn’t soiled by human rights abuses.

The DPA would insulate solar importers from potential penalties raised by a recent US Department of Commerce investigation of solar cell anti-dumping circumvention. Originally from a petition filed by a US solar panel manufacturer, the investigation examines claims that solar cells imported into the US were manufactured in Cambodia, Malaysia, Thailand, and Vietnam, using Chinese parts that would otherwise be subject to tariffs.

The new plan would then allow for “a 24-month bridge as domestic manufacturing rapidly scales up to ensure the reliable supply of components that US solar deployers need to construct clean energy projects.” Federal procurement would also support internal US production through a system that would help domestic clean electricity providers sell their products to the US government.

The rights and well-being of people around the world depend on accelerating the energy transition—and we applaud the decision to allow imports of solar products while the alleged tariff circumvention investigation continues. However, that transition shouldn’t come at the expense of the rights of workers and communities impacted by the mining and manufacturing of solar panels.

Concerns around forced labor in China’s Xinjiang region, combined with the fact that around 45 percent of polysilicon—essential in photovoltaic cells—reportedly comes from Xinjiang, in part drove the development of the Uyghur Forced Labor Prevention Act (UFLPA) that came into force on June 21. An estimated 15-30 percent of global cobalt supply, critical to storing solar energy, is mined in the Democratic Republic of Congo, in conditions considered to foster child labor and the exploitation of local miners.

Both the US government and the business community have an opportunity to reconcile long- and short-term plans for heightened production with respect for human rights. It’s possible, though seemingly unlikely, that the bans on solar components from Xinjiang under the UFLPA could herald a more permanent shift in sourcing for US solar cells. Alternative locations outside Xinjiang, and China more broadly, will almost certainly not have the capacity to immediately increase production commensurate with a US solar industry backed by DPA authorization. The US government and US solar companies will need to proceed with this in mind. 

First, addressing the broader nexus between environmental protection and modern slavery risks will require the Biden administration to deliver on its promises of encouraging “the use of strong labor standards…that empower the clean energy transition in low-income communities.” Although the statement calling for project labor agreements and community benefits agreements may be directed domestically, these elements should also be included in manufacturing contracts regardless of geography.

Companies will be expected to enhance their modern slavery policies and map of business activities and relationships with suppliers. Heightened due diligence across value chains is essential to prevent and mitigate the risk of forced labor in sourced components, especially in high-risk geographies. Notably, the UFLPA requires this additional due diligence from companies sourcing products from Xinjiang and China; such practices should also be put in place for Cambodia, Malaysia, Thailand, and Vietnam.

Businesses can also actively engage with human rights and labor organizations to ensure that policies and strategies to address forced labor risks reflect current realities in sourcing countries and keep abreast with modern slavery risks in the solar value chain.

Finally, if the goal is to achieve a slave-free, clean energy transition, then meaningful multi-stakeholder cooperation between business, governments, labor experts and environmental justice groups is essential. The Administration’s commitment to “convene relevant industry, labor, environmental justice, and other key stakeholders” is a good first step, and businesses should follow suit and conduct their own dialogues.  

Taking action on climate change, the just transition, and modern slavery requires more than ticking a box. Compliance with the UN Guiding Principles, the UFLPA, and a host of environmental standards is the floor for corporate behavior, not the ceiling. It might be difficult to balance environmental and social obligations with governmental and corporate needs, but that is the cost of doing business.

Blog | Wednesday July 20, 2022

A Business Approach to Reinforcing Democracy

Preview

Editor's Note: 

It is obvious that 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 over the coming weeks to build insight into how to shape business approaches that address this unique moment. Following last week's piece on the "backlash" against ESG, today's piece explores changing expectations of business in protecting rule of law, rights, and democracy.

We’ll conclude with a deeper dive look 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.

Russia’s invasion of Ukraine. China’s suppression of civil liberties in Hong Kong. Ongoing attacks on voting rights, abortion access, and LGBTIQ+ health and safety in the United States. 

Around the world, we see these and other examples of democratic decline. From multiple directions, the foundational elements of societies based on rule of law, transparently and evenly applied, are facing significant threats. 

To state it bluntly: this presents a clear and present danger for business. Indeed, a recent poll from Morning Consult found that more than 80 percent of business leaders see threats to democracy as threats to business.

First and foremost, it is exceedingly difficult for business to thrive where rule of law is absent, where governments are paralyzed, and where instability is the status quo. Indeed, the decline of rule of law in Hong Kong is causing many companies to shift staff and offices away from that territory. This is not new. Businesses have long recognized that operating where the rule of law is strong is in their self-interest; after all, it protects business, employees, and consumers alike from harmful practices, and helps provide safeguards against governments which otherwise might engage in abusive practices. 

Second, business finds itself embroiled in polarized and angry debates that both reflect and cause the deterioration of public institutions. Many companies have been drawn into the crossfire of policymaking in various American states in the wake of the overruling of Roe v. Wade. Initial efforts by many companies to provide travel stipends for workers who need to travel to access abortion services have been challenged by political figures. Similarly, government inaction on climate change creates both economic and social risk, and it also can lead to an unpredictable environment in which some aim to fill the policy vacuum through litigation. This creates an inconsistent and unpredictable approach to policymaking. Dysfunctional governance creates and amplifies business risk and uncertainty. 

Third, many employees and consumers expect business to speak out on this, and other, important social issues. Worker, consumer, and investor sentiment supports companies taking decisive action. There also has been increased scrutiny of companies that continue to financially support elected officials in the United States that refused to certify the results of the 2020 presidential election.

Fourth, and finally, there is a values case for action. We regularly engage with senior business people who are angry with the decline of democratic institutions in their home countries as well as in the wider world. Many business leaders do not want to stand aside while fundamental rights and freedoms are under attack. In addition to their own preferences, they also see employees, customers, and sometimes shareholders pushing them to express support for public institutions and processes. They face numerous cross-pressures, however, with many voices challenging the wisdom, and even the right, of companies and business leaders to speak out on topics many see as “political.” 

What Can Business Do?

First, business should extend its stated commitment to human rights principles to apply more explicitly to the protection of democratic institutions, wherever they are in peril. Most large companies have now committed to upholding the UN Guiding Principles on Business and Human Rights. Much of the impetus for this movement focused on human rights abuses and poor governance in the global south. It is now time to deploy them closer to home, for example by considering whether law enforcement is equitable when making siting or investment decisions.  

Second, business can take action through large-scale collaborations. Initiatives such as the Voluntary Principles on Security and Human Rights and the Extractives Industry Transparency Initiative are designed to combat non-democratic means of violating rights that affect business directly. Such efforts leverage strength in numbers, with companies, NGOs, and governments working together to achieve reforms that have made a real difference. These models, which promote law enforcement and provision of private security consistent with human rights principles, are good examples of how collaboration is a useful tool to address violations of rule of law.

Third, business can advocate for systemic or structural reforms. Though some will characterize these efforts as partisan, the actual approaches offered can be decidedly nonpartisan, such as supporting action on issues, including the protection of voting rights to ensure full and equal access, the potential for mandatory voting requirements, and other electoral reforms. 

Fourth, and particularly in the United States, companies can withhold political contributions from elected officials and aspiring candidates who fail to commit to upholding democratic processes and the rule of law, There is a rising tide of criticism of such practices, including in shareholder resolutions. The silver lining of the current situation is the opportunity to push back against the arms race of political funding.

Finally, it is time, once and for all, for companies to address the many concerns about the role of trade associations. Companies such as Volvo, Shell, BP, TotalEnergies, and others have conducted formal reviews, with public disclosure, of their membership in trade associations, aiming to reduce misalignment with their ESG priorities. It is also well past time for trade associations themselves to recognize that new threats require new thinking and new models. Advocating for reduced taxes and regulations cannot be the only priority if they are to have a positive impact not only for business, but also for society. If trade associations cannot rise to the occasion and see the bigger picture by calling for democracy protection, perhaps they have outlived their usefulness.

We can anticipate significant pushback against business taking on this agenda. This is “too political,” and business cannot “pick sides.” In fact, many businesses already do take sides when weighing in on legislation, e.g., with many businesses and associations arguing that the SEC is exceeding its mandate with its draft regulations requiring climate disclosure.

In the final analysis, it is no longer difficult to imagine a near total breakdown of the public institutions the West has taken for granted for the 75 years since WWII ended. Eric Vuillard wrote in The Order of the Day, his satirical account of the run-up to WWII, that “great catastrophes often creep up on us in tiny steps.” Business cannot afford to wake up one day and find that the societal foundations on which it relies have collapsed. Business is taking action to combat a similar challenge with respect to climate Isn’t it also time for business to recognize that it can no longer wait for others to address the looming disaster of the collapse of democratic institutions and processes?

Blog | Thursday July 14, 2022

Delaying Climate Action: The Challenges of Moderating Climate Misinformation on Social Media

Preview

Misinformation about climate change has been around for decades, mostly in the form of climate denialism. Today, climate misinformation is focused on seeding doubt about climate science and the measures that are taken to mitigate climate change. Examples include: suggesting that the consequences of global warming may not be as bad as scientists claim, arguing that climate change policies are bad for the economy or national security, describing clean energy as unreliable, or claiming that no action will be able to halt climate change.

These varying manifestations of climate misinformation all have the same outcome: delaying climate action.

Earlier this year, the IPCC drew attention to the impacts of climate misinformation for the first time:

Vested interests have generated rhetoric and misinformation that undermines climate science and disregards risk and urgency. Resultant public misperception of climate risks and polarized public support for climate action is delaying urgent adaptation planning and implementation.

Social media brings both opportunities and risks to the climate science dialogue. Scientific information related to climate change is accessible to larger populations through social media platforms—including real-life experiences of affected populations. On the other hand, social media can significantly undermine climate science by allowing for the rapid and widespread sharing of misinformation through user-generated content and online advertising. Social media platforms are also just one part of the information ecosystem, which also includes news media and professionally created entertainment.

At a point when delays in climate action may lead to catastrophic and irreversible harm, companies must address climate misinformation urgently and decisively. 

In 2021, Ford Foundation, the Ariadne Network, and Mozilla Foundation commissioned a research project to explore grantmaking strategies that can address issues at the intersection of environmental justice and digital rights. As part of this project, BSR wrote an issue brief on the role of social media companies in creating, shaping, and maintaining a high-quality climate science information environment.

The brief explores the specific challenges of moderating climate misinformation. We describe some of these challenges below:

• Climate Misinformation Is Happening in “Subtler” Ways and Is Increasingly Intersectional.
  While outright climate denialism is easy to refute, it is more difficult to identify subtle ways of spreading climate misinformation—such as claims that green policies are too costly. The response to climate change is a topic of political debate, making climate misinformation closely tied to politics, elections, and the larger civic space. These intersectional ties help grow the reach of misinformation and take it to different levels that can be difficult to anticipate.

• Existing Content Moderation Frameworks Are Not Sufficient in Addressing Climate Misinformation.
  Most of the content moderation principles and frameworks used by social media platforms today were written to address immediate harms related to hate speech, incitement to violence, and other objectionable content, and they are not as applicable for scientific misinformation that may be associated with broader, longer-term harms.

• Content Removals May Not Be Adequately Effective in Fighting Scientific Misinformation.
  While the removal of content is effective in fighting harmful content such as hate speech, scientific misinformation may require different approaches. Platforms should not only rely on content removal but also focus on tactics to reduce the visibility of misinformation and display high-quality information to inform users.

• Climate Misinformation Is Political and Is Backed by Institutions.
  Since the 1980s, climate disinformation campaigns have been largely driven by the fossil fuel industry’s intentional efforts to undermine climate science. Today, climate misinformation can still typically be traced to fossil fuel interests. In addressing climate misinformation, it is important to consider the material incentives of the producers of such content.

In our brief, we make recommendations to social media companies, as well as civil society actors, and funders. These include the addition of climate misinformation under content policies, applying content moderation frameworks to climate misinformation, strengthening fact-checking capabilities, investing in user resiliency, and increasing scrutiny on advertising by oil and gas companies. We envision a high-quality climate science information environment that supports informed public debate, ambitious business action, and science-based policy making.

Social media companies have made significant commitments to reduce the climate impacts of their businesses (i.e., reducing GHG emissions), but they also have a responsibility to address the potential harms that they may be connected to through climate misinformation on their platforms. 

Civil society groups and funders have an essential role to play in holding companies accountable for their actions or omissions to address climate misinformation and keep this topic on the agenda. Among these actors, it is our observation that environmental groups are less familiar about the practical challenges, complexities, and nuance of misinformation, and the content governance community is less familiar with how climate information can adversely impact our collective efforts to address the climate crisis. These communities would benefit from increased collaboration and knowledge sharing.

Fostering a deeper understanding of this topic across sectors will not only help remove one of the biggest barriers in the way of climate action, but it will also broaden our understanding of scientific information, and how human rights may be impacted online. 

BSR will continue to work with social media companies, civil society groups, and funders on this topic. Please reach out if you’re interested in connecting with us.

Blog | Wednesday July 13, 2022

What the ESG Critics Are Right About—And Where They’re Misguided

Preview

Editor's Note:

It is obvious that 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.

These and other developments are also reshaping the world of just and sustainable business. After considerable momentum, there is now a backlash against elements of the sustainable business agenda. Claims of greenwashing are rising, including legal actions. The regulatory environment is changing, with heightened requirements for business on human rights, reporting and disclosure, and other matters. Generational change is reshaping public views about business. The rollback of human rights and democratic institutions is leading to calls for business to “take a stand.”

To help our 300+ member companies navigate this volatile environment, we are launching a series of blogs over the coming weeks to build insight into how to shape business approaches that address this unique moment.

We begin with this initial piece on the “backlash” against ESG. Future entries in the series will explore changing expectations of business in protecting rule of law, rights, and democracy; the emerging harmonization of reporting and disclosure standards; the implications of increased regulation of sustainability; the role of business in combating societal fragmentation.

 We’ll conclude with a deeper dive look 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.

Like consumer prices, sustainable business has been on a rollercoaster since COVID-19 emerged over two years ago. Sustainability or ESG (environment, social, and governance) considerations were a business, investor, and media darling. Until recently.

Judging from 2022’s headlines, a casual observer might conclude that sustainable business has gone from hero to zero overnight. Regulators are looking to set rules to govern when investment funds earn the ESG label. Media, consumers, and now regulators are leveling claims of greenwashing on a frequent basis. The public asks: “If every company is doing what they say, and airing slick commercials to convince me how good they are, why is climate change and income inequality getting worse?” And “ESG insiders” have come out of the woodwork to assert that “the ESG emperor has no clothes.”

Some of these questions are not only legitimate, but hugely important.  Some questions, which reflect political backlash, are much less so. And for all of us focused on just and sustainable business, we ignore this backlash at our peril.

To start, the critics get three big things right.

First, there is undeniably a gap between aspiration and delivery. The rise of “net zero” carbon commitments is necessary, but clearly insufficient—so far—to put the world on a trajectory towards a stable climate that can sustain a healthy economy. The same is true with respect to companies seeking to protect biodiversity and oceans by being “nature positive” but not yet achieving the promised benefits. These big aspirations mark a leap in ambition from even five years ago. We need simultaneously to ensure accountability without creating incentives for business to retreat to incremental change.

Second, it also is true that there remains a disconnect between companies’ aspirations and what they—or more often their trade associations—do to oppose public policies needed to put our economies on a more sustainable path. For example, too many companies prioritize opposition to tax reform over full-throated support for climate action through efforts such as Build Back Better and other measures. It is critical that business close the “say-do” gap both with respect to their actions and their policy advocacy.

Third, there is widespread and legitimate confusion over what the terms “sustainability,” “ESG,” and "net zero” actually mean. The rise of consistent standards is welcome and overdue. The promise of global standards defining what companies can and cannot label “ESG,” through efforts like the International Sustainability Standards Board (ISSB), will help bring badly needed order to the current chaos. This will help reduce concerns about greenwashing for the public, and will provide the certainty business needs to make ambitious commitments.

These critiques are both valid and valuable. It is also the case that those fostering the backlash get some big things badly wrong.  

First, sustainable business is about long-term change; it is, by definition, complicated to gauge progress quarter to quarter or year to year. Climate is the best test of this principle, with most net-zero targets up to decades away from full delivery. Showing progress today is needed, but it is to be expected that full delivery will take time. There is a big difference between critiquing illusory commitments and embracing structural change that, by definition, takes time. There must be space for companies to make long-term, high-ambition commitments, even as they know that technological innovation, consumer behavior, and public policy are massive dependencies that will also play a role in whether change takes hold.

Second, some of the backlash seems to be designed to provide an “off-ramp” for businesspeople who have been skeptical about the value of sustainability to begin with. It is remarkable how much media attention has been lavished on Stuart Kirk, who has now left HSBC after his infamous jeremiad against climate alarmists, or Tariq Fancy, who now claims that ESG investing is largely useless.

The media seem to be applying the same “bothsidesism” that climate skeptics have used to their advantage, never mind the science. Basic facts suggest that their critiques are at best overstated.  Climate and the destruction of nature quite clearly threaten business, imposing costs, and disruption. The flip side is also true: increased investments in new technologies, from energy storage to plant-based foods to inclusive hiring, deliver clear benefits. There will be inevitable ups and downs as these new markets mature and take hold; dismissing them is short-termism at its worst.

The final and most corrosive element of the backlash has immense importance, especially in the United States. Many political figures, including several aspirants for the Republican nomination for president in 2024 have attacked so-called “woke capitalism.” This is nothing more than political opportunism, unfairly dragging ESG into toxic culture wars. “Green-baiting” in the 2020s is no more justified than the red-baiting that injected venom into the American political scene in the 1950s. It has been laudable to see business leaders including JP Morgan Chase’s Jamie Dimon and BlackRock’s Larry Fink push back on this narrative. One would think that Dimon and Fink’s bona fides as capitalists would put these specious arguments to rest, but the attacks continue nonetheless.

It is obvious that our world faces immense challenges. Business action can be a great asset in creating innovative solutions and new investments in a world that is safer, fairer, healthier, and more resilient. By all means, business should be held accountable, and greenwashing should be called out for what it is. If sustainable business is going to deliver the goods, and navigate a new level of scrutiny because of its importance and prominence, it’s time to get more serious. It is also time to push back on specious arguments that say more about critics’ self-interest than our mutual interest in human progress.

Blog | Thursday July 7, 2022

What Business Needs to Know about the EU Corporate Sustainability Reporting Directive

Preview

In the fast-changing landscape of sustainability reporting, the EU emerges as a front-runner. And in doing so, it is making a crucial impact not only in Europe but across the world. The EU has set an ambitious path to reorient capital flows toward a sustainable economy while avoiding greenwashing, and it has introduced far-reaching legislation, such as the Sustainable Finance Disclosure Regulation and the EU Taxonomy. To support the EU’s goals, investors need quality and comparable data from companies.

This is where the Corporate Sustainability Reporting Directive (CSRD) proposal comes in.

After a year of negotiations, the EU Council and EU Parliament reached a provisional agreement on June 30. The CSRD is set to replace the Non-Financial Reporting Directive (NFRD). The name change is welcome, highlighting that sustainability topics are also financial topics rather than opposed to them. Ultimately, sustainability information should be considered as important as financial information.

The CSRD is not just about meeting investor needs. It will also enable civil society organizations, trade unions, and other stakeholders to assess companies’ impacts on society and the environment.

Here are six points that businesses should know about the CSRD:

1. More companies will be covered by the CSRD than the NFRD.

All large companies governed by the law of or established in an EU member state and all European stock exchange-listed companies (except micro-companies), as well as small and medium-sized enterprises (SMEs), are under the scope of the new directive.  

A large company is defined as meeting two out three of the following criteria: (1) EUR€40 million in net turnover, (2) EUR€20 million on the balance sheet, and (3) 250 or more employees.

Companies that are not established in the EU but have securities on EU-regulated markets are also in scope.

For non-European companies, the requirement to report sustainability disclosures applies to all companies generating a net turnover of EUR€150 million in the EU and which have at least one subsidiary or branch in the EU.

2. The CSRD proposal applies double materiality.

Double materiality means that businesses must not only disclose how sustainability issues can affect the company ("impacts inward") but also how the company impacts society and the environment ("impacts outward"). For businesses that have historically assessed only risks to their business rather than their impacts on the world, the CSRD implies a fundamental shift in measurement and reporting.

3. Companies will need to report according to new EU sustainability reporting standards.

The European Commission has commissioned the European Financial Reporting Advisory Group (EFRAG) to develop EU sustainability reporting standards (ESRS). The standards will be mandatory for large companies. EFRAG released a draft for public comment in April. BSR encourages its members and the general public to provide feedback on the exposure drafts ahead of the August 8 deadline.

The standards seek to align to the extent possible with global standard-setting initiatives such as GRI and the ISSB Standards, but they also aim to link other EU legislation and initiatives, such as the Sustainable Finance Disclosure Regulation, the EU Taxonomy, among others.

SMEs and non-EU companies will have separate standards.

4. Third-party assurance of the data will be mandatory.

Businesses will be required to seek "limited" assurance of the sustainability information by a statutory auditor. Individual member states may choose to allow other independent assurance service providers (IASP) or non-statutory financial auditors to perform the assurance. Although "limited" assurance still requires an auditor to evaluate the information, it falls short of what is required for the financial audit statement. The EU Commission will adopt standards for "reasonable" assurance by October 2028, which is a more demanding assurance process. 

5. Sustainability information must be included in the management report and digitally tagged.

Companies will need to report sustainability information in a dedicated section of the management report rather than in a separate report (i.e., a standalone sustainability report). This means that financial and sustainability information will be published at the same time and that the administrative, management, and supervisory bodies will be accountable for this reporting. Companies will also need to digitally tag sustainability information so that it can be fed into the European single access point database.

When it comes to reporting at a consolidated level versus entity level, the subsidiary exemption will not apply in the case where the subsidiary is listed on an EU stock exchange.  

6. CSRD application will be phased in.

The European Commission plans to adopt the final text of the CSRD in late 2022, after which member states will have 18 months to translate the directive into local law. The first companies that will need to comply to the Directive are companies that are currently within scope of the NFRD. They will need to report in 2025 based on fiscal year (FY) 2024 data.

• August 8, 2022: The public consultation of the sector-agnostic ESRS ends.
• November 2022: EFRAG proposes sector-agnostic standards to the EU Commission.
• June 2023: The EU Commission adopts sector-agnostic standards through delegated acts.
• January 1, 2024: The CSRD will come into force. Companies already in scope of the NFRD will need to report in 2025 based on FY 2024 information.
• June 2024: The EU Commission will adopt sector-specific standards, standards for listed SMEs, and standards for non-EU companies.
• January 1, 2025: Other large companies need to report in 2026 based on FY 2025 information.
• January 1, 2026: Listed SMEs need to report in 2027 based on FY 2026 information.
• January 1, 2028: Non-EU companies in scope will need to report in 2029 based on FY 2028 information. 

The ESRS standards developed via the CSRD will create a baseline for decision-useful information to both investors and stakeholders at large, and the sustainability reporting standards can both increase the impact of disclosure and reduce the burden of reporting on companies.

At BSR, we have supported greater harmonization and clarity in the field of sustainability reporting for a long time. Competing standards and diverging requests for sustainability information from stakeholders have created an unreasonable burden and reporting fatigue for companies, hindering the effectiveness and impact of reporting. We will continue to push for progress on that front, building on the leadership displayed by the EU.

It is essential that the evolution of these standards reflects the voice of report preparers, so we encourage companies to play an active part in the EU sustainability reporting standard-setting process.  If you would like to discuss this topic further, please reach out to our Future of Reporting collaborative initiative.