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Blog | Thursday February 1, 2018

Four Sustainability Management Trends and Opportunities in the Banking Sector

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According to a 2016 study by the Brunswick Group, only 27 percent of Americans trust banks. It has been almost a decade since the financial crisis of 2008, and while the financial services sector has made progress, it is still in many ways working to earn back stakeholder trust. Sustainability efforts offer a major opportunity for banks to demonstrate their commitment to operating responsibly and making a positive impact.

Banks in particular play a major role in our economy, as they provide vast amounts of capital and have the ability to influence other companies and customers across sectors through their products and services. Yet the industry continues to be in the headlines for various environmental, social, and governance (ESG) issues, such as ethics violations or potential human rights implications of project finance decisions.

How has sustainability, or corporate responsibility, in banks changed since the crisis, especially in the context of the Paris Agreement, the Sustainable Development Goals (SDGs), and investor-focused and sustainability disclosure initiatives? What more could be done?

To explore these questions, BSR completed a short research study, assessing leading banks across the U.S. and Europe across a few key areas. Here are four of our key findings.

1. Materiality assessments are being conducted to prioritize corporate responsibility issues but could be leveraged to play a greater role in internal engagement and sustainability strategy development. Banks can also more closely align their efforts with the SDGs.
   
   While it is commonplace for banks to spend the time and resources to go through a formal materiality process and publish the results online, in many cases the process seems to be more of a ‘check-the-box’ exercise for reporting than a determinant of strategy and business activities.
   
   The materiality process can be a powerful mechanism to engage and educate senior leaders and get valuable input from external stakeholders. There is a risk that the feedback it provides will be lost if it is not integrated into company strategy.
   
   The SDGs haven’t yet played a major role in informing corporate responsibility priorities, although banks understand that the sector will play a critical role in achieving them. While all of the SDGs can be inspirational for organizations, focusing on those that align best with the business strategy and existing corporate responsibility priorities will likely be most impactful for the industry. As a first step, banks are mapping business activities to key SDGs. BNP Paribas has created a formal SDG metric, which measures the share of the bank’s loans to companies that contribute exclusively to the SDGs.
    
2. Increasingly, banks are communicating major long-term sustainable financing commitments, which provide an opportunity to link products and services to corporate responsibility; however, they will increasingly need to be transparent about these initiatives.
   
   Bank of America and Citigroup both have 10-year sustainable financing commitments of US$100 billion or more. While these big commitments create internal momentum and demonstrate both business and ESG value, the definitions of what qualifies for this type of funding and how impacts are measured likely varies across banks. Transparency about the methodology and criteria for funding and calculating impacts will help banks add credibility to these initiatives.
   
   Additionally, creating a corporate strategy and mission linked to sustainability, such as ING’s purpose-driven Think Forward corporate strategy and Bank of America’s Responsible Growth strategy, is key in integrating efforts across the business. Our recent report, Redefining Sustainable Business: Management for a Rapidly Changing World, explores this and many other aspects of how to create a resilient business strategy.
    
3. Banks can better establish and communicate focused ESG metrics and targets aligned to their identified material issues.
   
   While banks are providing detailed ESG information in multiple reports and using the GRI standard, the key strategic metric and associated target that is often integrated with company performance results so far has been sustainable financing performance. Hopefully we will continue to see more, new ESG metrics integrated in standard company results, internally and externally.
   
   Some banks, such as Barclays, have moved toward publishing an integrated annual report that includes ESG data. While doing this would seem to imply more streamlined reporting, these banks have still been producing supplemental reports to provide the additional detailed ESG disclosures that some stakeholders require.
    
4. Governance structures continue to play a key role in engaging employees and driving corporate responsibility and business integration—executive ownership and engagement with the environmental and social risk management teams remain critical.  
   
   It is now common for banks to have board oversight over ESG issues, i.e. via a committee. Additionally, cross-functional senior executive committees and other internal councils (for example on sustainable products, human rights, etc.) are critical in integrating ESG across the business and engaging subject matter experts. While it requires more internal coordination, core sustainability teams at banks are seeing positive outcomes from these internal working groups and networks of ‘ESG champions’ dedicated to achieving ESG goals.
   
   One area that needs more consideration is compensation tied to ESG performance. It is encouraging to see BNP Paribas link nine of its 13 corporate responsibility indicators to its variable incentive plan for its 5,000 top managers. More banks should embrace this type of approach.

While banks have clearly made progress in better integrating corporate responsibility, studies show that the industry reputation continues to suffer. There is an opportunity for the sector to do more to engage its leadership, employees, customers, and investors on the powerful role it can play in creating a more sustainable world. Doing so could go a long way toward rebuilding trust. 

Blog | Wednesday January 31, 2018

(Re)Making the Case for Sustainability: Effective Sustainability Management through a CEO Transition

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With an average of one in 10 S&P 500 companies experiencing a CEO transition each year, sustainability departments need to be prepared to effectively manage a change in company leadership.  

As we articulated in our recent report, Redefining Sustainable Business: Management for a Rapidly Changing World, the era of stand-alone sustainability strategies, with subsequent integration of sustainability into company strategy, needs to end; the creation of resilient business strategies that take sustainability as their foundation needs to begin. An important test of a company’s resilience is how it weathers a CEO transition.

In most cases there is sufficient time to adjust—S&P analysis also shows that nearly 80 percent of CEO transitions are the result of long-standing succession plans. But in the case of forced or pressured resignations and mergers, changes can be abrupt and messy and require departments to balance preparing for a new CEO while simultaneously putting out the fires of reputational and cultural crises. The increasing influence of activist investors is contributing to more frequent CEO transitions, and comparatively “poor performing companies” have a 60 percent greater likelihood of seeing a new CEO in any given year.

Even if planned, a CEO transition is disruptive, and being prepared for transition can help make the work of a sustainability department sustainable. There is little doubt that a change at the top can be a nerve-wracking time for sustainability teams: In our 2017 State of Sustainable Business Survey, more than 90 percent of sustainability practitioners identified CEOs as the key influence on their companies’ sustainability agendas—more than employees, investors, or even customers. Losing a senior advocate is a tremendous risk, especially for organizations losing vocal and influential leaders who’ve shaped their corporate sustainability programs.

Part of proactively managing for CEO transition is deeply embedding and integrating sustainability. Making your programs essential to your company’s value creation and standard risk management processes will ensure that efforts are maintained despite the inevitable changes that come with new leadership. Setting long-term public goals is not just good practice—it can help keep the company accountable to those objectives, even through leadership changes.

When a CEO transition happens, however, sustainability teams need to mobilize. With a new audience likely comes the need for a refreshed business case. And while this change could threaten long-standing programs that may be closely associated with a previous CEO’s legacy, a leadership change may also offer sustainability teams a new opportunity to better integrate sustainability into the core business strategy. The task of the sustainability department in these initial months is to begin to build a relationship with your new company leader and provide a succinct narrative for sustainability as value creation.

Boiling down years of efforts and programs is no easy task, but answering a few guiding questions should help you hone and sharpen your pitch for maintained or increased investment.

1. Why was there a transition? Understanding the nature of a CEO transition is critical. In cases where a CEO had long-planned retirement or was enticed by a “new opportunity,” this may be less significant. For more seismic transitions, however, sustainability departments need to pay attention: Was the change precipitated by poor market performance, activist investors, reputational impacts from unethical business practices, or a highly publicized toxic culture? These factors represent failures that a new CEO will be mandated to remediate, and your sustainability department would be wise to explore how you could help mitigate those specific risks in the future.
2. What is the new CEO’s view of sustainability? When a new CEO is selected, it is useful to review his or her past experience: How mature were the sustainability programs in their previous companies? Are there key themes in their previous CEO letters that can help anticipate how they view sustainability? A new leader’s perspective on sustainability may not be clear until your first meeting, but awareness of his or her interests and past efforts can help inform your presentation.
3. What’s the current sustainability strategy—and is it actually current? A change in leadership offers an opportune moment to take stock of your current sustainability strategy. A rapid but robust strategy discussion can be extremely helpful to prepare your team for your first CEO conversation. What are your company’s material issues, and does the CEO change signal a shift in priorities? What has the company’s ambition level on these material issues been to date, and is there a corresponding need to advance your programs on these issues? The CEO transition should offer a moment to evaluate, refresh, and align your company strategy and your sustainability strategy.
4. What has sustainability achieved, where has it failed, and what’s on the horizon? All departments will, to some extent, be required to justify their programs and resources. While an exaggerated litany of achievements may be impressive, a clear-eyed account of achievements and shortcomings may be more effective at creating a strong advocate in the CEO’s office. Highlighting key milestones and demonstrating cross-functional support will show the sustainability department as an effective force for integration within the organization. An honest account of challenges and constraints creates trust that is integral to a strong working relationship. Positioning sustainability as a way to anticipate and respond to emerging trends shows how the team can be a critical partner in driving the company’s new strategic, resilient direction.

Ultimately, answering these questions will arm you and your team to answer the big question: How does sustainability add value to your company? To use a CEO transition to your advantage, you must be able to show that sustainability is not a remnant of an old regime, but a vital part of a company that is forging ahead. Showing how sustainability fits into the new order—whether in reaching new markets, driving innovation, or mitigating new risks—will be critical to gaining the buy-in of your new leadership.

Blog | Monday January 29, 2018

Managing Sustainable Business in a Rapidly Changing World

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At our 25th anniversary Conference in October 2017, BSR launched an effort to collaborate with our member companies to redefine sustainable business. Our new report launched today, Redefining Sustainable Business: Management for a Rapidly Changing World, provides a new framework for how leaders can reimagine sustainable business inside their own organizations.

When we looked in detail at the state of sustainable business in companies today, we saw that disruptive new trends and drivers—in particular, climate change, new technology, and structural economic shifts—are reshaping the business landscape. Companies are highly aware of these dynamics in the external environment, but there is also a sense that rhetoric has not yet caught up with reality. Our survey and interviews revealed misalignment between the external stakeholders who most influence companies’ sustainability agendas and the people and internal departments that are most frequently engaged on sustainability issues.

We believe that the best response to this situation is not to continue advocating for further integration of sustainability into business strategy, but to change the very way that companies design strategy and create value. The era of stand-alone sustainability strategies, with subsequent integration of sustainability into company strategy needs to end; the creation of resilient business strategies that take sustainability as their foundation needs to begin. New types of leadership and a reimagined sustainability function can address these challenges and build company capacity to design and deliver resilient business.

What, exactly, do we mean by this?

First, companies need to act to transform strategy, governance, and management within their boundaries. This involves creating strategies that account for disruptive change and use strategic foresight and futures thinking to embrace uncertainty and build resilience. This approach will naturally place sustainable business issues front and center—because sustainability issues can no longer be separated from core business issues. Boards and senior executives need to develop the expertise and insights to plan for the longer term and build on the momentum from investors we see today to explain and demonstrate social purpose. The sustainability function also needs to be reimagined as a driver of influence and innovation. Change leadership will become the single most important skill a sustainability practitioner can develop.

Companies also need to proactively enable their external environments to understand and provide input to their sustainability efforts through new approaches to transparency and engagement with all stakeholders, not just shareholders. Technology tools like Polecat provide enormous new opportunities for companies to understand the social and environmental systems they operate in and gain deep insight into stakeholder perceptions. Too many companies have yet to take advantage of this; they have resisted increased transparency and interactive engagement with new stakeholders. There is a need for business to proactively shape the company narrative by reconsidering both reporting and engagement in the context of wider societal needs and debates.

Finally, companies should influence the policy and legal environment via vocal support for sustainable business. Silence on key policy issues is no longer an acceptable stance: The public—and your employees—wants to see more concrete evidence of business values and want business to take a more active role in shaping policy for the long term.

Our report sets out a framework for action that is also a vision for the future. We have no doubt that the perspectives shared in this paper will evolve as the world changes, ever more rapidly, around us. However, we believe the fundamental tenets of the “act, enable, influence” blueprint will remain a constant, and we are eager to further refine this approach in partnership with our member companies.

We invite our member companies and other interested stakeholders to engage with us to continue to shape the future of sustainable business. To that end, we will host a series of dialogues, events, and debates throughout 2018 to shape a future for business that meets the needs of all stakeholders. We look forward to continuing this conversation.

Reports | Monday January 29, 2018

Redefining Sustainable Business: Management for a Rapidly Changing World

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Drawing on BSR’s 25 years of experience working with companies and their stakeholders, from corporate headquarters to remote operations and sourcing locations, this report presents our view of how companies can transform their strategies, governance, and management so that they are fit for a disruptive world. It builds on interviews with 50 senior sustainability leaders at member companies and our 2017 survey with GlobeScan on the State of Sustainable Business.

Why read this?

The role of business in addressing sustainability challenges has never been more important than it is today. Progress has been made on a wide range of issues, including climate change, human rights, and transparency, since 1992, the year that BSR was founded.

However, many companies continue to struggle to incorporate sustainability into their strategies, governance, and management structures. This report provides a blueprint for putting sustainability at the center of business to enable companies to play their full part in the creation of a just and sustainable world. It focuses on how sustainability is implemented inside companies.

BSR has developed a new framework to help guide companies looking to adopt resilient business strategies.

Blog | Thursday January 25, 2018

France’s Due Diligence Law: Is Your Company Ready to Disclose Its Vigilance Plan?

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2018 marks the celebration of the 70th anniversary of the Universal Declaration of Human Rights. It is also the year that large companies falling within the scope of the French Due Diligence Law are expected to develop, implement, and publish their due diligence plans to identify risks and prevent infringements on human rights, fundamental freedoms, health and safety, and the environment.

This law, which represents a significant step toward better regulating large companies’ due diligence on human rights, was adopted in an overall context of increasing references to human rights in regulatory and business frameworks. The obligation covers impacts resulting from companies’ own activities, as well as the impacts of both the companies under their control and their suppliers and subcontractors.

Are you seeking to better understand what this means for your company? Here are some common questions I have heard from businesses hoping to do the same.

What should be disclosed in the vigilance plan?

There is little doubt about what should be included in the plan. Although it is not very detailed nor prescriptive, the law is clear on this aspect. Annual public vigilance plans should include the following:

• A mapping of the risk (risk identification and prioritization)
• Procedures to regularly assess how subsidiaries, suppliers, and subcontractors are performing against this risk mapping
• Measures to prevent and mitigate serious violations
• A functioning alert mechanism that collects reporting of existing or actual risks, developed in partnership with trade union organizations
• Monitoring mechanisms to evaluate implementation and effectiveness of measures implemented

... and should be developed in coordination with the company’s stakeholders.

Each component of the plan could be debated at length, but there are a couple of points to keep in mind.

• The scope of disclosure is not limited to forced labor and human trafficking in the supply chain. It also covers human rights and the environment. Companies should disclose the systems they have in place to identify, prioritize, prevent, and mitigate infringements that might happen in their supply chains, but also in their direct operations and in their interactions with clients and customers.
• This is about disclosure, not reporting. Companies should be able to explain the rationale behind their measures. While there aren’t specific procedures or mechanisms that should be put in place to comply with this law, companies should be able to make the case that the systems they are including in their Vigilance Plans are adequate and efficient.

What should companies expect from civil society organizations as a result of this law?

Civil society organizations in France have advocated for the adoption of this law and generally welcome the emergence of legal vigilance obligations for companies. As with the U.K. Modern Slavery Act, we can expect that Vigilance Plans will be scrutinized and benchmarked, and companies will likely be ranked accordingly. Many civil society organizations may also use the law to give companies official notice (mise en demeure) not only to publish, but also to implement, their Vigilance Plans. This is likely to give civil society organizations a lot of visibility, as well as provide opportunities for them to engage companies on these issues.

To avoid having to defend their Vigilance Plans in court, companies should, as suggested by the law itself, develop them in coordination with their stakeholders. To this end, companies should reach out to the organizations with expertise both in their countries of operations and pertinent to the risks they face; they should then collect and address the comments, feedback, and expectations received in their Vigilance Plans.

What does BSR recommend for companies looking to develop due diligence consistent with the law?

After a busy year helping French companies get ready for the law to come into effect, we’d like to share a few of our observations with those of you who may just be getting started: 

1. Risk mapping can be conducted with more or less depth. It is important for companies to have a global vision of the risks they face in all their countries of operations. For some countries, you should also consider finely-tuned risk maps, including identification and detailed review of the risks specific to your operations and identification of vulnerable and marginalized groups, who experience different risks, severity, and impacts of human rights violations than others. 
2. Companies generally struggle with the questions of how far down their supply chains they are required to go and what tools to use to assess suppliers. Site audits are not necessarily the only option to consider for this.
3. To prevent serious violations, companies should be proactive, raise the capacity of their own staff, and collaborate with and train their business partners on human rights and environmental risk management.
4. Engagement with unions is still in early days, and both companies and trade unions themselves are struggling with how to talk effectively about global human rights and environmental issues in companies’ operations and supply chains.
5. Engaging stakeholders and increasing transparency allows companies to make progress in understanding some of the most difficult human rights and environmental issues they face. While this does not shield companies from negative attention, it can help balance it and identify solutions if it arises. 

Do you still have questions about how to comply with this new legislation? Contact us to continue the conversation.

Blog | Tuesday January 23, 2018

A New Year’s Resolution for CEOs: Give Every Worker a Good Job

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Last month, JUST Capital released its annual rankings of America's Most Just Companies and its Roadmap for Corporate America. Rather than relying solely on technical analysis of materiality and reputation risks to develop corporate performance criteria, JUST Capital asked the American public. What makes a corporation just?

For the last three years, one issue has ranked first: worker treatment, or providing employees with good jobs. This includes issues like whether the company pays a living wage, pays a wage that is fair for a specific industry and job role, provides a safe workplace, and guards against all forms of discrimination. Improving worker treatment is Americans' top priority for corporate America, across all genders, ages, income levels, and political affiliations. 

Several trends have led to the public's prioritization of this issue, including almost four decades of flat wages, the slow whittling away of jobs through offshoring and automation, and a shift toward the gig economy and independent work in the last decade. While business has made bold commitments, including in support of the Paris Climate Agreement and the UN Guiding Principles on Business and Human Rights, the issue of creating good jobs for direct frontline workers and contractors in the U.S. and other advanced economies has received short shrift on the sustainable business agenda. Anxieties around economic security have fueled the Brexit vote, the outcome of the recent U.S. presidential election, and nationalist movements across the world. It should come as no surprise that good jobs top this referendum on corporate behavior. 

Here are three steps your company can take in 2018 to treat your workers well and provide good jobs:

1.  Align company values, commitments, and actions across functions

One of the central challenges to advancing better worker treatment is breaking down the silos where pertinent decisions are made and ensuring consistent application of company values and commitments across worker types.

In the 2017 BSR Globe Scan State of Sustainable Business survey, when asked which functions the sustainability team needed to work with most closely to make "substantial progress" on sustainability in their companies, more than 50 percent of respondents cited procurement/supply chains, while only 12 percent identified engaging human resources, the department that develops the corporate employment and contractor policies that most directly affect how workers are treated. Clearly this suggests there is opportunity for increased internal collaboration on this issue.

It's also important to align your company policy agenda with your values. In 2017, the U.S. government rolled back protections to U.S. workers on overtime, workplace safety, and joint-liability protection to contractors and franchise workers. Many of these regulatory initiatives were supported by corporate-backed industry associations. Good jobs can become a norm across the economy if companies ensure that the public policy issues being promoted by their industry associations are aligned with their values.  Companies also can communicate directly with policymakers, such as by participating in the High Road Workplace Campaign to support federal, state, and local initiatives to improve workforce standards.

2. Factor job quality into company strategy and financial valuations

In sustainable investing circles, it is well known that good jobs are the one of clearest 'win-wins' for shareholders and society. A study by Alex Edmans at London Business School found that firms with high employee satisfaction outperformed their peers by 2.3 percent to 3.8 percent per year in long-run stock returns over a 28-year period.  

Many on Wall Street have not heard this message. As an example, when American Airlines announced they were raising frontline worker pay to be competitive with industry standards, Wall Street downgraded the stock, and the company lost about US$1.9 billion in market value in 48 hours, with one industry analyst lamenting: "Labor is being paid first again. Shareholders get leftovers."

You can integrate good jobs into your strategy through a new toolkit developed by the Good Jobs Institute at MIT Sloan, which offers a diagnostic and scorecard that can be used identify actions that will both improve worker treatment and business performance. 

You can communicate with investors on the importance of good jobs by framing them as long-term investments. As an example, when Walmart invested approximately US$2.7 billion into higher levels of pay, benefits, training and store operating improvements, U.S. CEO Greg Foran explained: "We went to Wall Street and said, 'If you give us a breather on the bottom line, we'll deliver an improved top line. But it won't happen in a year; it's going to take three years.'"

3. Be transparent about and report on workforce issues

The greatest barrier for integration of job quality into investor valuations and decisions is the lack of reliable and comparable data. Data are currently available only through employee-reported websites like Glassdoor. In 2017, a coalition of investors, ratings agencies, and civil society began the Workforce Disclosure Initiative to improve transparency and data comparability on workforce issues in direct operations and supply chain. Your company can sign up to the initiative and commit to transparency of your workforce data. 

Through integrating good jobs into company values, strategy, policy agendas, and investor communications, you can help make 2018 the year that everyone has a good job. 

Blog | Monday January 22, 2018

Davos 2018: Advancing the SDGs in a Fractured World

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As the World Economic Forum Annual Meeting in Davos gets underway later today, I am looking forward to a few days of tackling some serious topics—and some interesting paradoxes. The theme for this year’s event is both ambitious and timely: Creating a Shared Future in a Fractured World. Whether its healing aspirations are realized depends not just on what happens at Davos, but on whether the event catalyzes a commitment to action the other 51 weeks of the year.

The shared future that the Forum’s theme calls for has already been defined. Most of the world has aligned around a clear set of global goals, reflected in the Sustainable Development Goals (SDGs) and the Paris Agreement.

It is equally true, however, that there are significant fractures interfering with progress: Nationalism in particular will be a common theme and threat debated by we globalists attending Davos. The Forum’s Global Risks Report, released late last week, cites geopolitical turmoil as a major risk for the world this year, complicating efforts to align around shared goals.

The impact of technology, which features ever more prominently at Davos, reflects both the great promise of shared prosperity and the risk of deep societal fracture. The triumphal techno-optimism that has been celebrated at Davos since I first attended in 2005 has in some ways darkened. We still have many reasons to cheer on the connectedness, human agency, productivity, and base of the pyramid opportunities tech has delivered. However, concerns about cyber-threats, privacy, artificial intelligence (AI) run amok, job-killing robots, and interference with democracy will also be top of mind.

In times of turmoil, it is particularly crucial to stay focused on a north star, which is exactly what the 17 SDGs represent. Amidst all the panels on fake news, cyber-security, and a certain plenary speaker coming to trumpet his America First agenda, there will be considerable effort to advance collaborative work on sustainable development.

Climate will again be center stage, and women’s empowerment is having its (long overdue) moment at Davos. For the first time, the meeting will be overseen by an all-women set of co-chairs, an impressive group that includes Sharan Burrow, Isabelle Kocher, Christine Lagarde, and Erna Solberg.

Interestingly, there will be more and more attention to the very economic model that has benefitted so many of its participants. The circular economy, once on the far fringes of Davos, has now come to the very center of the agenda—something we will explore in the Future of Consumption Systems initiative, which I am co-chairing.

Many of us will also discuss what a just transition—ensuring that the rise of technologies, fundamental changes in our energy systems, new forms of commerce, and new business models are designed, implemented, and governed in a manner that ensures that economic opportunities are generated for those who need them—should look like, and what it means for the 21st-century social contract.

In this context, there are four things that the business leaders gathering this week can do to advance our shared future:

• Commit to business strategies that are dedicated to social purpose in addition to value creation. Larry Fink of BlackRock made the case for this powerfully in his annual letter last week.
• Strengthen corporate governance systems to ensure that goals and incentives are aligned with this vision.
• At a time of deep and wide business disruption, design consideration of social and environmental outcomes into new business models and technologies. The Forum’s call for maximizing the broad benefits of the Fourth Industrial Revolution and mitigating its negative impacts is of urgent importance.
• Use the voice of business to advocate for systems change. Business leaders can—and should—use their voices to ensure that the global community, indeed all of us, resist the xenophobia, nationalism, and authoritarianism that threatens to slow or reverse human progress.

The question hanging over Davos this year, as it has to varying degrees since the financial crisis hit, is the lack of faith so much of the public has in the kinds of institutions that are represented there. Doubling down on the SDGs, and more importantly, the powerful vision of a shared destiny for all the world’s peoples, can help us make progress this week. Failing to make good on that vision will only widen the cracks we see in local communities, nations, and the world at large.

My hope for Davos is that we will all walk away recommitted not only to this shared goal, but also to a shared action plan to achieve it. 

Blog | Thursday January 18, 2018

The Right to Privacy, 70 Years On

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This is the first in a series of blog posts where we and a BSR member company review how business respects individual articles in the Universal Declaration of Human Rights (UDHR), 70 years after its adoption in 1948. This series has the support of the Office of the High Commissioner on Human Rights (OHCHR), but any views expressed here should not be attributed to OHCHR. This particular post, co-authored with Telenor, explores what the right to privacy means for business.

Article 12 of the Universal Declaration of Human Rights: “No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honor and reputation. Everyone has the right to the protection of the law against such interference or attacks.”

When the Universal Declaration of Human Rights (UDHR) was adopted in 1948, there were around 10 million telephone lines in the world. At the time of writing this blog, there are more than 8.3 billion mobile connections (including “machine to machine” connections) and almost 5.1 billion unique mobile users. The emerging Internet of Things is expected to connect around 30 billion objects by 2020, while research group IDC estimates that the world creates 16 zettabytes (that’s 16 trillion gigabytes) of data a year today, and will increase ten-fold by 2025.

By any measure, the nature, scale, and complexity of the challenges companies face to respect the human right to privacy is growing substantially. They are also impacting all industries—there is not a single company in the world today untouched by the privacy challenge.

We believe there are five key elements to a business response to this challenge: distinguishing between different elements of the privacy agenda; appreciating the link between privacy and other human rights; understanding the severity of impact; adopting a privacy by design approach; and collaborating with a range of stakeholders.

First, it is important to distinguish between three related but different parts of the privacy agenda.

• Data security means having the right protections in place to protect against increasingly frequent, sophisticated, and malicious cyber-attacks, as well as guard against data breaches. This is primarily about defense.
• Consumer privacy relates to the desire to create value with the personal data shared with companies by users (such as tailored products and services), while being open and transparent about how personal data is collected and used, and providing user choice. This is primarily about policy choice, and increasingly about legal compliance as governments introduce new privacy regulations.
• Law enforcement relationships are primarily about company-to-government interactions. The interface between the business responsibility to respect human rights and the government duty to protect human rights informs how companies respond to government demands for personal data. While usually made to ensure the protection of human rights by governments, these demands in certain contexts can threaten the privacy rights of users or be made in a manner inconsistent with internationally recognized laws and standards.

Second, it is important to appreciate the link between privacy and other human rights—privacy is a gateway right in that it enables the realization of other rights. For example, if a human rights defender working in a high-risk country is a victim of hacking or has personal data wrongly shared with law enforcement agencies, then in turn this human rights defender faces far greater risks to life, liberty, and security of person (Article 3), the right to freedom of opinion and expression (Article 19), and the right to right to freedom of peaceful assembly and association (Article 20), among others.

Third, while privacy rights are held by everyone, some privacy violations have a more severe impact on human rights than others. For example, the privacy violation of the human rights defender in a high-risk country could have a far greater impact on human rights than, for example, a consumer receiving targeted adverts without their consent. Similarly, vulnerable populations, such as refugees, migrant labor, and children, could face far more severe consequences. While all privacy rights should be respected, a company’s human rights strategy should, in accordance with the UN Guiding Principles on Business and Human Rights, prioritize the most severe cases, and pay special attention to vulnerable populations.

Fourth, privacy by design should form an essential part of every company’s strategy to respect the human right to privacy. With privacy impacts arising through the use phase of products and services, it is essential that legal and privacy teams, research and design teams, and sales and marketing teams collaborate to fully integrate privacy during the design phase.

Fifth, multicompany and multistakeholder collaboration can substantially increase company leverage to protect the right to privacy. For example, in the information and communications technology (ICT) sector, the Global Network Initiative (GNI) brings together companies, investors, civil society organizations, and academics in a united effort to protect privacy when confronted with government demands, laws, or regulations that compromise privacy. Through shared principles, policy dialogue, and advocacy, the GNI has become an essential part of the private sector’s effort to respect the right to privacy in the ICT sector.

The nature, scale, and complexity of privacy risks have expanded greatly since 1948, and private-sector strategies for implementing respect for the human right to privacy has evolved during this time. We would like to leave readers with two key messages: first, that upheaval in a wide range of disruptive technologies—such as artificial intelligence, big data analytics, and the Internet of Things—is only going to accelerate, which means it is essential that companies adapt our business and human rights strategies to cope with this change; and second, that companies from all industries would be well served by both learning from the experience of the ICT sector so far, and by engaging proactively in a shared exploration of what is coming next.

You can read more about Telenor’s approach to privacy in its Sustainability Report and its Authority Requests Disclosure Report. Telenor’s approach is notable for the manner in which it covers both developed markets (such as Norway, Denmark, and Sweden) and emerging markets (such as Myanmar, Pakistan, and Bangladesh), as well as both the company’s own actions (such as privacy and security by design) and collaboration with other companies and stakeholders (such as the GNI).

Blog | Thursday January 11, 2018

Seven Things Every Company Should Know about Artificial Intelligence and Sustainable Business

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This is the first in a series of blog posts BSR will publish in 2018 exploring the intersection of disruptive technologies and sustainability.

Artificial intelligence (AI) is advancing rapidly, thanks to ever-more-powerful computing, massive growth in the availability of digital data, and increasingly sophisticated algorithms. The world’s largest technology firms are investing billions to develop their AI capabilities, and companies across industries, from travel to real estate to fashion, are racing to bring AI-enabled services to market.

AI has the potential to bring significant social benefits, including healthcare (via improved diagnostics), transportation (through self-driving vehicles), and law enforcement (with improved fraud detection). AI also brings new social risks, including to non-discrimination (from algorithmic bias), privacy (through the misuse of personal information), child rights (through lack of informed consent), and labor rights (because of the mass displacement of workers by machines).

While by no means exhaustive, we believe the following seven considerations are essential for our members to factor into their AI strategies.

1. AI is relevant for all industries, not just technology companies. The development of AI today is being driven by Silicon Valley, and it is understandable that private-sector participation in the dialogue about the social implications of AI has been dominated by technology companies. However, it is an urgent priority for companies in other sectors using AI—such as financial services, healthcare, infrastructure, public services, and retail—to understand how AI impacts their business models, employees, and customers.
2. The human rights and ethics impacts of AI are especially important. The UN Guiding Principles on Business and Human Rights were created to guide the integration of human rights into business decision-making, and should be deliberately applied to the development and deployment of AI. This means asking and addressing questions like “What are the most severe potential impacts?”, “Who are the most vulnerable groups?”, and “How can we ensure access to remedy?” Companies should take a human rights by design approach to AI.
3. Environmental issues are important, too. While significant attention has been paid to the ethical and human rights implications of AI, we have a tremendous opportunity to embed environmental learning into AI—as Google has done to radically improve the power use effectiveness of its data centers. AI can also be used as an environmental solution—as Microsoft’s AI for Earth commitment demonstrates. At the same time, it will be important that the data processing needs created by AI don’t substantially increase energy use.
4. Research, product development, and marketing teams are essential to engage on sustainability. In our 2017 annual survey of sustainable business leaders, we asked which functions were most important to achieve substantive progress on sustainability—and only 24 percent mentioned product development, 13 percent mentioned research and development, and 8 percent mentioned marketing. These functions will have a significant influence on the development and deployment of AI, so it is crucial that they participate actively in the conversation around AI and sustainability.
5. Companies will need to communicate the complexity of AI in accessible ways. AI is extremely complex, and only a very small number of people in the world—mostly concentrated inside companies—understand how it works. If AI is to fulfil its potential while mitigating accompanying risks, civil society, rights-holders, and vulnerable populations should have access to information about the issues at stake and channels to participate meaningfully in discussions about its application.
6. Ethics and principles for AI are being developed rapidly, but implementing them in practice will be challenging. It is noteworthy how rapidly the AI field has developed principles, with organizations such as the Institute of Electrical and Electronics Engineers, the Software and Information Industry Association, the Information Technology Industry Council, and the Future of Life Institute all publishing statements of ethics. Initiatives like Partnership on AI, the Ethics and Governance of AI Fund, and AI Now are embarking on substantial efforts to explore key dilemmas and facilitate dialogue on them. However, turning theory into practice will require thorough review of real-life cases.
7. The future of AI is uncertain, but decisions today can have long-term consequences. Taking responsible approaches to AI will require grappling with rapid change, uncertainty, and complexity. We can’t know exactly what path the development and deployment of AI will take, so we should be prepared for different versions of the future and think through the possible long-term implications of today’s decisions. Futures thinking, also known as strategic foresight, can provide structured ways to explore multiple possible futures and chart a path forward that considers the various possible outcomes that might unfurl.

In our recent report on the Future of Sustainable Business, we listed the intersection of technology, ethics, and human rights as one of the three big issue sets that we believe need to be front and center on the business agenda—not only for sustainability reasons, but because these questions will be increasingly central to business performance and strategy. We have much to lose if AI does not evolve in ways that support the public good, and we look forward to working with you to help ensure that it does.

Blog | Tuesday January 9, 2018

Pandemics: They’re Everyone’s Business

Preview

The cover of the May 16, 2017, issue of TIME magazine featured a picture of one the scariest threats to the world. It was neither a picture of a mushroom cloud of an atomic bomb, nor the face of an infamously ruthless dictator. Rather, it was a picture of something rather invisible to the unaided human eye—the Ebola virus. The article, “The World Is Not Ready for the Next Pandemic,” (re)sounded the alarm for the scientific and international communities to take the increasing threat of pandemics more seriously and to incite action and collaboration among global health experts.

While the article points to the actions of government and civic society players, it fails to highlight the efforts of the private sector in preparing for and combatting emerging biothreats. Recently, the BSR Healthcare Working Group engaged several of its members, which represent many of the world’s leading biopharmaceutical companies, to elucidate their evolving and expanding role in pandemic preparedness. Global health security is everyone’s business, and examples from these companies demonstrate that collaborating and partnering is the only way forward.

Pandemics have the potential to bring national economies and international trade to a standstill. The World Bank estimates that the economies of Guinea, Liberia, and Sierra Leone lost US$2.2 billion in forgone economic growth in 2015 due to the Ebola crisis. According to the TIME article, the 2003 SARS epidemic, which killed fewer than 800 people, cost the global economy US$54 billion, much of it in lost trade, transportation disruption, and healthcare costs. The World Bank estimates that the toll from a severe flu pandemic could hit US$4 trillion.

When pandemics occur, local communities and national governments are not the only ones that are thrown into chaos and prompted to act quickly—vaccine producers shoulder the burden, too. For biopharmaceutical companies, vaccines have been traditionally developed and distributed under commercial frameworks that ensure profitability and economic sustainability. For diseases such as Ebola, Zika, and SARS, no real commercial market exists, yet it is expected that pharmaceutical companies will develop and produce solutions in record time, which comes with technical and regulatory challenges, vaccine development expenses, and opportunity cost from pausing other core vaccine programs.

Dr. Jean Lang, associate vice president of global R&D for Sanofi Pasteur, summarizes the challenge well: The system is not fit for purpose and needs to be rethought. As he explains, “It starts with changing the current mindset where the private sector is expected to develop vaccines at risk, without any visibility on a possible return on investment, which is utopian; we need to reach a point where private companies, governments, and health authorities become public health partners upstream to share the risks and benefits.” It’s about inventing a diversity of responses, he says, and “collectively deciding to step away from risk avoidance and move faster.”

GSK is tackling these challenges head on. When GSK got internal approval to move forward with Ebola vaccine development, they put hundreds of people on the project to condense a process that usually takes several years into a matter of months. In late 2016, GSK also opened a global R&D vaccines facility that has the capability to do full, end-to-end development and manufacturing, which is rare in the industry. Moreover, it is partnering with the U.S. government, PATH, and others to prepare for the next pandemic. According to Dr. Rip Ballou, vice president and head of GSK’s global vaccines R&D center in Rockville, Maryland, “GSK is working on a number of technology platforms that may speed up the process of vaccine discovery and manufacture, which could prove valuable during a health emergency. We are also in agreement that this requires collaboration between the public and private sectors, and we’re ready to play our part.”

Johnson & Johnson (J&J) understands this well. Dr. Alan Tennenberg, chief medical officer of global public health at J&J, works with government stakeholders and private-sector players to coordinate efforts around biopreparedness. Alongside the GE Foundation, J&J founded the Private Sector Roundtable for Global Health Security Agenda, which convenes 17 business players to work with governments and security networks to prepare for pandemics, epidemics, bioterrorism, and biosecurity. Furthermore, J&J co-leads the Global Pandemic Supply Chain Network, a public-private partnership that seeks to create a ready supply and network for response, prevention, and control. Private-sector players leverage their expertise in supply chain and logistics to enhance emergency response and avoid critical delays, waste of resources, and losses of lives. As Tennenberg elaborates, “Partnerships are essential. Success is not only private-private, but also private-public. It’s about openness, trust, and transparency.”

Another prime example of this type of collaboration is the Coalition for Epidemic Preparedness Innovations (CEPI), which raises funds and coordinates activities for vaccine development. The four companies we interviewed are all involved with CEPI, helping the coalition and its partners address the commercial challenge that biopreparedness presents and the increased legal liability of speedily testing vaccines on the market each time a biothreat emerges. Dr. Paula Annuziato, vice president and therapeutic area head of vaccines clinical research at Merck & Co., wants to change the perception that biopharmaceutical companies are investing in this area from profit-making motivation. According to Annuziato, “Misperceptions of industry’s intent and motivation can impede collaboration. It is more productive and effective to identify each coalition partner’s core capabilities and expertise and leverage them for the benefit of patients and health systems.”

The world may not yet be prepared for the next pandemic, but there is a growing coalition of private, public, and civil society partners working to change that and ensure that our increasingly interconnected global economy is safe and resilient. And while pharmaceutical companies have unique technical expertise to contribute to pandemic preparedness, every industry, from tech to energy, has a stake in contributing to strong and resilient health systems. Opportunities for partnership abound. We are all in it together.