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Blog | Wednesday March 2, 2022

Mastering a Purposeful Approach to ESG Due Diligence in Mergers and Acquisitions

Preview

There’s no denying that 2021 was a year of significant growth in M&A, and global M&A activity is poised to climb even higher in the year ahead. M&A can be a tremendous tool for companies looking to adopt more resilient business strategies, but failing to account for the critical ESG elements can undermine success and lead to negative outcomes for business. Investors and regulators are placing more emphasis on corporate ESG performance and disclosure, including in M&A activity and financing terms. In addition, a lack of alignment around ESG topics (e.g., related to labor, governance, and corporate values) can substantially disrupt the post-merger integration process. As a result, interest among M&A teams in ESG is steadily growing, with requests to sustainability teams for guidance and frameworks on effectively integrating ESG considerations into standard due diligence.

To help our members meet this demand, BSR has built upon the guidance offered in our 2019 paper Key Considerations in Managing ESG Through a Merger and developed a set of simple steps that companies can follow to conduct effective ESG diligence in M&A. We hope that the guidance below will help our members to better evaluate the potential impact of ESG issues on business value while embracing purposeful sustainability leadership to better navigate these turbulent times.

Each company will need to develop its own approach to diligence that appropriately integrates ESG into each stage of the deal flow. The diligence process should help a company consider any potential impact of the merger or acquisition on their sustainability strategy and the long-term value of the combined entity. There are several basic elements to consider:

A red-flag check.

The objective of this step is to understand any major ESG-related opportunities or risks as part of the initial target identification process.

• Consider the “future fitness” of the core business and relevant assets. For example, do the target’s products and services appear to be compatible with the net-zero economy? Do they support or erode individual rights to privacy? Do they heavily rely on commodities with fragile supply chains (e.g., in conflict zones, reliant on current geopolitical conditions, or susceptible to extreme weather)? Does the business model present significant risks to human rights or a revised social contract (e.g., working hours, living wages and access to basic benefits, emerging legal requirements)?
• Conduct a media scan to understand any major ESG related risks. Searching for media coverage of human rights violations, serious privacy or data breaches, harassment, labor disputes, corruption, or environmental degradation can help to identify any major liabilities or cultural concerns that should be investigated upfront. Tools such as BSR’s partner Polecat perform big data analysis of online and social media, which are specifically focused on ESG.

A set of basic ESG governance questions.

The goal is to understand a target’s overall maturity related to ESG and ability to address current and emerging ESG issues:

• Does the company have a dedicated person or function responsible for management of ESG? What is their level of seniority? What type of oversight mechanisms govern ESG? Does the board play an active role? Is the CEO part of a regular ESG review cycle? What is the training program for the C-suite and board to understand ESG?
• Has the company conducted an assessment to determine its material ESG issues?
• Does the company have an ESG strategy or policy that addresses material sustainability topics and impacts from assessment results?
• Does the company have measurable timebound targets related to material ESG issues?
• Does the company publicly report performance on material ESG topics in line with relevant ESG reporting standards and regulatory requirements? Which regulatory frameworks for ESG disclosure is the company bound to according to jurisdiction?
• Does the company actively engage with external stakeholders, for example through an advisory group?

A shortlist of potentially material ESG topics based on industry, business model, and geography and evaluation of the inherent risk or opportunity level.

• As a starting point, review material issues identified for your own business. Complement this list of issues with information from tools like the SASB, MSCI, or GRI industry profiles in combination with a standard set of publicly available geographic indices (e.g., Transparency International’s Global Corruption Index), and industry- or topic-specific guidance from organizations like CDC.
• It may help to develop a standard list of topics reviewed in any deal (e.g., climate, human rights, and business ethics) alongside a list of possibly relevant additional topics (e.g., hazardous waste).
• Ask yourself how big the risk associated with each issue might be if it went unmanaged. Consider impacts across the full value chain, from raw material sourcing through product use and disposal across all relevant geographies.
• Be sure to take a double materiality approach that considers both possible impacts to business value and the environment, society, and economy associated with the target company.
• Consider dynamic issues that could be relevant in the next 5-10 years for the post-merger organization alongside issues for the individual business today. It may help to have a standard set of scenarios to evaluate performance across a range of possible future operating environments and to regularly monitor emerging issues.

Due diligence to understand risks and opportunities for each material topic.

Pull together an information request for the company based on material issues identified and tap experts as needed to help evaluate performance. Consider the following elements:

• Related policies and commitments: Do policies exist, and are they relevant to the new company?
• Governance: Is there clear ownership and accountability for performance?
• Performance management systems: Do management systems exist and are they certified to relevant external standards? Have goals been set, and are KPIs regularly tracked?
• Track record: Review performance data (e.g., GHG emissions), do a deeper dive on media coverage, consider litigation, and targeted stakeholder activism.

While it is ideal to have as much information as possible early in the process, in practice some of the components can come together after a deal is announced and before it is finalized. It’s worth noting that there are many reasons why M&A deals proceed even against significant ESG challenges. In fact, deficiencies in effective management can offer opportunities to create tremendous value and positive impact. Either way, it is essential to devote resources to defining sustainability strategy, governance, management, and disclosure protocols during and immediately following a merger. It is essential to have a clear and complete picture of the deal by both parties and a defined action plan to realize the potential of every business to maximize its long-term value and contribute to a more just and sustainable world.

Blog | Tuesday March 1, 2022

Ukraine: The Business Response

Preview

The news of Russia’s invasion of Ukraine has shaken the world.

First and foremost, we stand with the brave people of Ukraine, who have been subjected to unnecessary and unfathomable suffering due to this illegitimate and brutal invasion of a sovereign nation. We are horrified by the death, destruction, and displacement Ukraine is experiencing. We urge the rapid end to this conflict with the restoration of full respect for democracy, rule of law, and human rights, and international cooperation to end the suffering of the Ukrainian people. This invasion should also remind us that millions of people in many parts of the world also continue to live under the threat of devastating political violence, often without the global attention the invasion of Ukraine has received.

The situation in Ukraine raises significant questions for business. Vast numbers of companies have ended or suspended their activities with Russia, combined with economic sanctions undertaken by numerous governments. We strongly support these efforts, in the name of the most rapid end possible to this conflict.

While the situation continues to unfold rapidly, there are seven key points for business to consider. Some point to immediate actions, and some relate to longer-term questions. BSR has been providing updates and advice to companies on how they can and should contribute to the most rapid resolution possible.

• Protect Staff: First and foremost, it is crucial that companies take all measures to ensure that their staff in affected locations are protected and that they can offer support to relatives in Ukraine, Russia, and other affected countries. This support extends to the impact these events may have on colleagues who are not directly affected, but who are concerned about new security risks presented by Russia’s actions.
• Express Support for Rule of Law: We have called in other contexts for businesses to express their support for democracy, human rights, and rule of law, and this is a time to restate these calls to action. At a time when human rights, democracy, and rule of law are under threat in all regions of the world, business should use its voice clearly and consistently to reinforce these fundamental underpinnings of both society and business.
• Withdrawal or Suspension of Commercial Relationships: Hundreds of companies have decided to withdraw from Russian activities. These decisions, taken by the lion’s share of international business, avoid potential complicity in the invasion. They also stand to reinforce the economic sanctions undertaken by most of the governments of the world’s largest economic actors and send a strong signal of solidarity with the Ukrainian people.
• Support Relief Efforts: Business can bring to bear the financial, logistical, and other support that can mitigate the human suffering of refugees and others displaced by this conflict. In addition to direct support, business can and should express its support for refugee and other displaced populations, not only in Europe but elsewhere.
• Stay Focused on Climate: Yesterday’s report from the Intergovernmental Panel on Climate Change (IPCC) makes plain the need for decisive, urgent action to combat the growing climate crisis.  The situation in Ukraine is now occupying the minds of policymakers and business leaders. The spike in energy prices is already causing some to argue that we cannot “afford” to focus on clean energy. We cannot let the urgent crowd out our focus on matters of long-term importance. Business leaders should not only reconfirm their commitment to net zero, but also communicate to policymakers that we cannot lose precious time in the transition to an inclusive clean energy economy.
• Prepare for Future Threats to Resilient Business: The news from Ukraine reinforces the essential value of futures thinking in business strategy. As Nik Gowing has written, we are living in an era when the previously unthinkable becomes reality. This extends well beyond geopolitics to social, economic, and environmental shocks. Futures thinking through the lens of scenarios enables companies to anticipate profound change. Boards and leadership teams should use these tools to ensure that their businesses are truly resilient.

The world is facing another humanitarian crisis, and an attack on the rules-based international order. Business action can help to alleviate suffering, express global solidarity with displaced people and support for human rights, and, in doing so, reinforce practices that will help their companies achieve resilience in the face of a world that delivers wave after wave of change.

Reports | Tuesday March 1, 2022

Generation Equality Forum: Stepping Up for Women and Girls

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In June 2021, the private sector stepped up to set a new agenda on gender equality. The Generation Equality Forum called for all stakeholders to make clear financial commitments across six Action Coalitions that highlight critical issues to the advancement of gender equality and the creation of a world free from gender biases and discrimination. The forum resulted in a record US$40 billion in pledged commitments and new investments in gender equality over the next five years.

BSR’s Generation Equality Forum Report provides an overview of private-sector commitments, highlighting exciting new investments and remaining gaps in efforts needed to achieve gender equality.

Blog | Wednesday February 23, 2022

Luxury’s Move to E-Commerce and Its Implications for Sustainability

Preview

Post-pandemic estimates project that revenues in the e-commerce market will grow by 46 percent, from US$3.53 trillion in 2019 to US$6.54 trillion in 2022. This expansion brings with it an increase in greenhouse gas (GHG) emissions, resources, and social risks. As e-commerce continues to grow, brands and retailers face a series of sustainability risks as well as opportunities to shape consumers’ purchasing habits in the years to come. 

The luxury industry is no different. The global COVID-19 pandemic accelerated the adoption of e-commerce by luxury brands and consumers. In 2019, e-commerce made up between 10 and 15 percent of global luxury sales across Europe, the United States, and China. By 2020, this figure had increased by at least 50 percent. Bain & Company projects that as much as one-third of all personal luxury purchases will take place digitally by 2025, with revenues reaching an estimated US$136 billion. 

The expansion of luxury brands’ e-commerce footprint—whether via their own channels or multi-brand marketplaces—carries with it social and environmental risks and opportunities. Luxury brands will have to address these potential issues as they implement their sustainable business commitments and make decisions regarding their online distribution and marketing strategies. 

In 2021, BSR’s Responsible Luxury Initiative (ReLI) took a closer look at the environmental and social risks and opportunities related to e-commerce in the luxury industry. The group developed an Action Guide detailing actions that luxury brands can take in their e-commerce value chains (transport, fulfillment, e-store, distribution, and returns), both individually and with their partners, focusing specifically on climate, resources, and people topics.

While efforts to reduce the impact of e-commerce are emerging, such as the French responsible e-commerce charter, luxury brands can demonstrate leadership by driving exemplary practices within their eco-systems. They can both seek to mitigate specific risks (i.e., reliance on same-day or next-day delivery and GHG-intensive air freight) and leverage their power to drive cultural change, such as luxury consumer acceptance of reusable mailers and slower shipping speeds. 

Below, we share the research’s key findings and ReLI’s perspective on opportunities specific to the luxury sector. In 2022, ReLI invites luxury brands to join the initiative and explore a key focus: how to decrease delivery speeds, which are a significant driver of GhG emissions, while maintaining high levels of consumer satisfaction and service. 

Climate

E-commerce drives up the GHG emissions of a luxury brand, especially in the transport and delivery of goods (last mile and rushed deliveries), including returns. Certain data indicate that the average emissions per item from e-commerce operations can be lower with large and highly efficient US retailers compared to traditional brick and mortar (1700 grams of CO2 eq. versus 2050 grams of CO2 eq.,). However, accelerating delivery can lead to the opposite scenario—rushed online deliveries emit more carbon than in-store shopping (about 300 grams of CO2 eq. more in an urban area, with delivery and packaging contributing the most to the overall carbon footprint).  

An expanding online footprint means that luxury brands must tackle increased complexity—in terms of data tracking and measurement and managing programs with business partners—to achieve significant reductions in GHG emissions required by many luxury brands’ commitments to a decarbonized future. Luxury brands should include their e-commerce footprint in their emissions tracking and reduction plans—encompassing those of transport and logistics partners—and collaborate to reduce emissions, including via relevant green freight initiatives and programs.

Luxury brands can demonstrate leadership by focusing attention on some of the root causes of growing emissions. They can reduce the movement of goods via strong demand management and inventory visibility systems. In this aspect, the luxury industry has an edge on traditional retail, given greater sophistication when it comes to inventory tracking, related to higher product value. Luxury brands can also dramatically reduce reliance on air freight while investing in sustainable aviation and greener modes of transport (air freight emits 20-30 times more carbon than ocean shipping). 

As cultural influencers and standard-setters, luxury brands have a compelling opportunity to inspire new consumer preferences and behaviors related to shipping speed and over-ordering. Over half of consumers are unaware that express delivery services produce more emissions. However, ​85 percent of consumers in a recent survey indicated that they would opt for slower delivery if they were made aware  that it meant a reduction in emissions.

Emissions related to packaging represent a significant share of GHG emissions, which is further addressed in the “Resources” section. 

Resources

E-commerce intensifies the use of natural and other resources via its reliance on transport and packaging materials. This can be especially acute in the luxury industry, where valuable products need to be protected (e.g., bubble wrap, foam, airbags) and consumers expect a rich “unboxing experience.” According to DHL, in some e-commerce categories, there is up to a 40-percent void in packaging.

Luxury brands have two significant opportunities related to resources in the e-commerce value chain. First, they can rethink both B2B and B2C packaging systems, pioneering the luxury experience with responsible and reusable packaging options that go beyond resource-intensive recycling. A compelling example comes from the champagne brand “Ruinart,” which launched a minimalist “second skin” packaging that is nine times lighter than existing boxes and is fully recyclable. 

In a similar method to incentivizing slower shipping delivery, luxury brands can drive new behaviors by educating and potentially incentivizing consumers to return their mailers, rather than tossing their box. Brands are starting to experiment with these emerging reusable mailing systems, such as Hipli, Living Packets, or Olive. Hipli operates a returnable packaging service for brands and consumers, with packages that can be reused at least 100 times. LCA results show that Hipli has a lighter footprint than a cardboard box and is designed to be recycled at end of life.

Luxury brands can also influence sustainable resources via their products. They can increase communication to consumers on their e-stores related to environmental and social product offerings (using easily understandable and comparable data) and support increased desirability and purchase of better options, including preowned products. Several luxury marketplaces now feature sustainability edits, such as Net-a-Porter’s NET SUSTAIN, and re-sale options, such as Farfetch’s Second Life or Reflaunt via Yoox Net-a-Porter. In another example, Gucci clients can browse through a set of icons on its website to discover the sustainability features of around 400 products.

People

Luxury brands are faced with a multitude of social considerations to monitor across the e-commerce value chain, given the involvement of many transport, logistics, and service partners globally. The transport and logistics industry relies on low skilled labor, often from vulnerable groups (e.g., migrants, contractors, women, and youth) particularly during peak periods. Low wages and limited social security can prevail for dockers and truckers as well as gig workers at fulfillment centers. Given these risks, brands should pay particular attention to increasing visibility of the labor practices of their transportation partners and enabling change. Ikea, for example, carried out a study on wage practices and working conditions in its transportation supply chain specifically.  

Luxury brands should also drive exemplary practices on persistent and emerging issues in the digital world. They can lead on strong digital privacy and trust approaches for their consumers. Secondly, they can lend their influence and pave the way for more inclusive digital marketing, including leveraging the power of their influencers on societal topics.

If you would like to learn more about these topics, or get involved in ReLI’s 2022 workstream, please consult our new case study and reach out to us for further information.

Blog | Thursday February 10, 2022

New York’s Trendsetting Legislation Unveiled: Fashion Sustainability and Social Accountability Act

Preview

In early January 2022, in what looked like a groundbreaking move, the Fashion Sustainability and Social Accountability Act (Fashion Act) was unveiled in New York State. The Fashion Act, if passed, would make New York the first US state to pass a law that would hold fashion companies accountable for their role in climate change and other human rights impacts. Given the international nature of fashion companies, growing consumer demand for transparency and sustainability from fashion companies, and increasing legislation surrounding human rights and sustainability, it is likely that New York’s Fashion Act will be setting a trend rather than standing alone. 

Though legislation related to mandatory human rights due diligence is currently being discussed in the European Union, and countries including France, the United Kingdom, Germany and Australia have laws in place related to human rights and modern slavery, this would be one of  the first laws specifically targeting the social and environmental actions of the fashion industry—which has been called “one of the least regulated industries”—and requiring changes. It would also go beyond California’s Garment Worker Protection Act by including the manufacturing portion of the value chain. 

The Act also stands out in terms of the sheer number of companies that would be impacted—meaning that companies that have only started considering ESG issues will be held to the same standard as industry leaders and will need to seriously enhance their performance related to human rights and environmental impacts. 

At a high level, the Fashion Act requires global apparel and footwear companies doing business in New York with more than $100 million in revenues to disclose their environmental and social due diligence policies. 

Specifically, companies are asked to map at least 50% of their supply chain, disclose their material production volumes, share where in their supply chain they have the greatest social and environmental risk or impact when it comes to fair wages, energy, greenhouse gas emissions, water and chemical management, and share concrete plans to reduce those impacts—and disclose this information online. The Act references standards including the Paris Climate Accords and the UN Guiding Principles on Business and Human Rights (among others) when describing how the plans and disclosures should be made. 

Companies would be given one year to comply with the mapping requirements and 18 months to comply with the disclosure requirements. The Act would be enforced by the New York State Attorney General and noncompliant companies that don’t remedy the issue within three months of notice may be fined up to 2% of their annual revenue—meaning that the lowest earning companies would be fined a minimum of $2 million.  

While the Fashion Act is a New York law, it is expected that, if passed, the implications will be global, due to the number of fashion companies doing business in New York with revenue over $100 million, and their supply chains spanning both the country and the globe.  

Fashion companies should therefore pay close attention to the progression of the Fashion Act, as well as their sustainability and human rights risks and impacts. We have previously advised on why and how to assess human rights impacts and have provided a deep dive into climate change and human rights, steps to setting net-zero greenhouse gas emissions, and guidance on sustainability reporting. 

Given the Fashion Act’s consistency with existing environmental and human rights standards, fashion companies leading on sustainability and human rights will be well-positioned to comply. For example, setting public targets in-line with a 1.5C pathway, reporting on key material issues and human rights risks, as well as maintaining supply chain transparency are all consistent with the new mapping and disclosure requirements.

So far, the Act has been both praised and criticized—and two letters, written by a group of 20 labor and advocacy groups, as well as reuse advocates, have suggested revisions. Regardless of its passage, the emergence of the Fashion Act reinforces BSR’s position that the role of business in addressing sustainability challenges has never been more important than today—and the size and scale of the Fashion Act indicates a global trend towards sustainability and human rights.  

The Fashion Act is currently being considered in Senate and Assembly committees, and the sponsors hope to bring it to a vote in late spring. It would need to be passed by both houses of the New York state legislature and signed by the Governor before it becomes law.

Blog | Tuesday February 8, 2022

Inside BSR: Q&A with Anna Iles

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Inside BSR is our monthly series featuring BSR team members from around the world. This month, we connected with Anna Iles, a Futures Associate Director based in Hong Kong.

Anna chatted with us about her sustainability journey around the world and her work at BSR on futures thinking.

Tell us a bit about your background. Where are you from, and where are you based? What is your favorite hobby?

I’m from the north of England, and I have now lived in Hong Kong for five years after three in Singapore. We live on Lantau Island, which is mostly a national park rich in wildlife, beaches, and peaks—a far cry but only a short ferry ride from the city. I love getting out and about: my favorite sort of escape is touring with a bike and a tent—and I’m hoping we can find some way to do that with three kids (one toddler, twins on the way).

How did you first get involved in sustainable business?

My first internship was as a journalist with the environmental magazine Down To Earth in Delhi. This was a formative experience where I learned how intricately social justice is bound up with environmental challenges. Back in London, I worked for women’s health and social care nonprofits and edited the Women’s Environmental Network newsletter before becoming editor of the sustainable solutions magazine Green Futures, published by Forum for the Future.

I developed a passion for futures thinking as a way to support business and society in navigating complex and emerging challenges. In 2014, I relocated to Forum’s Singapore office to set up the Futures Centre, a collaborative platform for tracking change and thinking about its implications. Then, I moved to Hong Kong to run my own futures and innovation agency, working with UNICEF, UNDP, schools, and youth organizations, as well as businesses.

What are some interesting projects that you get to work on as part of your role at BSR? What do you enjoy about them?

I joined BSR’s Sustainable Futures Lab last year, leading our work on emerging issues and our publication The Fast Forward, as well as working with businesses to explore the implications of today’s changes and their capacity to address current challenges and work toward a more sustainable and equitable future.

I appreciate the wide range of topics we work on (recently nature’s rights, carbon capture and storage, the impacts of climate change on mental health) and the access to business leaders with both the power to influence their sectors and the ambition to do so.

It’s also terrific, particularly after four years as a solo ship, to have so many colleagues with diverse backgrounds, interests, and expertise to share ideas with about how critical changes today could play out and what they might mean for different sectors.

What issues are you passionate about and why? How does your work at BSR reflect that?

I’m interested in how we think and the life of ideas: How can we expand our perspectives and embrace new ways of understanding ourselves and the world? Before joining BSR, I published a book The Innovation-Friendly Organization, exploring how organizational culture can enable ideas to thrive (or not). The importance of diversity stands out, as well as the potential to indulge in curiosity.

More recently, I’ve been exploring how we can apply futures thinking to conflict situations, as a way to reframe perspectives and create new starting points for dialogue.

At BSR, my colleagues and our members are very open to trying out new ways of thinking. For instance, we’ve used fictional personas to explore the potential impact of emerging trends for stakeholders in the fashion and luxury industries, and we found this useful in cultivating an empathetic and human-centric approach to strategy and planning.

Adjusting to life during a pandemic can be complicated. What were the things that brought you joy amid the uncertainty and challenges of the past year? What are you looking forward to in 2022?

My son was born at the start of the pandemic, and the rise of flexible remote working has made it easier for me to juggle parenting and professional life. His cheeky, affectionate spirit is a huge joy: It’s the little things like him picking up a plum at the market the other day and biting into it, then lobbing it straight at the saleswoman when I explained we had to pay for it…

The sad thing is that our families and friends “back home” haven’t been able to meet him yet (a common story), given Hong Kong’s three-week quarantine period and intermittent bans on incoming flights. We’re expecting twins very soon, and so I’m most looking forward to welcoming them and then hopefully taking all three back to the UK.

Blog | Thursday February 3, 2022

Impact-Based Materiality

Preview

This is the third in a four-part blog series dedicated to enhancing the value of materiality assessments. In the previous blogs, we discussed why companies should assess double materiality and explored how companies can monitor dynamic materiality. Here, we discuss why companies should focus their materiality assessments on impacts rather than perception.  

The concept of double materiality provides clarity that companies should report on matters that influence enterprise value (“financial materiality”) and matters that affect the economy, environment, and people (“impact materiality”).

This shift also brings a change in how companies should understand the materiality of matters that affect the economy, environment, and people. In short, the field is moving away from methods that are often assessed based on perception and toward methods based on impacts. 

While impact materiality covers both positive and negative impacts across economic, environmental, and people dimensions, the UN Guiding Principles on Business and Human Rights (UNGPs) provide an essential methodological foundation for how impacts across all these dimensions should be assessed. 

The key to this shift is a change in how stakeholders are defined and how matters of importance are identified and prioritized. 

In the past, materiality assessments often defined stakeholders as those whose judgments, decisions, and actions may be influenced by the company’s sustainability disclosures; material matters were those that were “of interest” and “decision-useful” for report readers.  

Impact materiality, by contrast, defines stakeholder as an individual or group that has an interest that is (or could be) affected by the company’s activities and decisions. This includes rightsholders—stakeholders whose rights are (or could be) affected by the company’s activities, even if they are not users of a company’s sustainability reporting. 

As the EFRAG European Lab Project Taskforce (the entity tasked with creating the new EU sustainability reporting standard) described in their report to the European Commission: 

The interests of the stakeholders that are users of sustainability reporting are not necessarily proxies for the potential and actual impacts of the company on people and the environment. In practice, if reporting entities determine impact materiality based on what all users of sustainability reporting find decision-useful, then it is quite likely that everything comes out as ‘material.’ (…) [This] approach has dominated most companies’ practices with regard to impact materiality, inviting certain experts, NGOs, and others to express their interests in what the company should report through ‘materiality’ meetings or online questionnaires. This has not led to sufficiently relevant information being disclosed from a double materiality perspective.

Impact materiality determines material issues based not on whether they are “of interest to stakeholders,” but whether they have “an impact on the economy, environment, and people.” 

For example, when incorporating the UNGPs into the Global Reporting Initiative’s (GRI) new Universal Standards, the GRI revised its definition of materiality to reference “topics that reflect its most significant impacts on the economy, environment and people, including impacts on human rights.”  

In the past, materiality assessments often relied on assessing internal and external stakeholder perceptions to help determine material issues for disclosure. Internal stakeholders were asked which sustainability topics are most significant to the business, while external stakeholders were asked about their expectations of the company and which issues might influence their judgments and decisions. While prioritization methods varied, quantitative methods via interviews and surveys were often used to rank issues according to their importance.  

By contrast, the impact materiality approach stresses that not all stakeholder interests are of equal importance because human rights are an entitlement of all people under international law, and everyone has a right to a healthy environment. For this reason, companies are expected to assess the significance of an impact based on the severity and likelihood of impact, using an approach to assessing issues that is standard in the human rights field. This approach reflects the expectations set out by the UNGPs and in the GRI’s Universal Standards, and EFRAG is proposing a similar approach for the upcoming EU sustainability reporting standards. 

To be clear, impact-based materiality does not ignore company-based internal stakeholders and other experts, especially when their insight is essential to uncover impacts that might otherwise be missed—for example, experts inside and outside the company can provide unique insights into the impacts of new technologies. 

To meet these expectations, BSR is drawing upon two decades of experience in both materiality and human rights assessments to create a double materiality methodology that combines the best of both. In this methodology, we identify and prioritize a company’s positive and negative impacts on the economy, the environment, and people based on: 

• The scale of the positive or negative impact: How grave is the negative impact on the victim, the economy, or the environment? How beneficial is the positive impact? 
• The scope of the positive or negative impact: How widespread would the impacts be on the population and economies of ecosystems impacted? 
• In the case of a negative impact, its remediable character: Is it possible to counteract or make good of the resulting harm? 
• The likelihood of the positive or negative impact: What is the chance of the impact happening? 

Our approach uses all internationally recognized human rights as a reference point, since companies may potentially impact any of these rights. It also recognizes that human rights are indivisible, interdependent, and interrelated, rather than a collection of separate topics. 

The impact materiality approach is being created as we write, and we are seeking opportunities to partner with member companies to refine it based on real-life experience. Several questions require further exploration, such as the relationship between a materiality assessment and a human rights “salience” assessment, as well as the precise prioritization criteria to use, what to include on an initial list of potentially material issues, and how to combine qualitative and quantitative inputs. If you want to learn more about our approach, please contact us.  

Blog | Thursday January 20, 2022

Inside BSR: Q&A with Céline da Graça Pires

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Inside BSR is our monthly series featuring BSR team members from around the world. This month, we connected with Céline da Graça Pires, a Human Rights Manager based in Paris.

Céline talked with us about how her family’s migration experiences generated her passion for human rights, her work on current and upcoming legislation in business and human rights, and how working at BSR supports her commitment to protecting the rights of vulnerable groups.
 

Tell us a bit about your background. Where are you from, and where are you based? What does a day in your life look like? What is your favorite hobby?

I am originally from a tiny village in northern Portugal, and I grew up in a Parisian suburb. I have also lived in Porto, Madrid, Rio de Janeiro, and Santiago, with stints across Brazil, Mexico, and Argentina for project work. I am now based in Paris.

My favorite hobby is laughing! As Chaplin once said: “A day without laughter is a day wasted.” In my spare time, I love swimming, hiking, and cooking. I am also an avid reader and enjoy discovering new places!

How did you first get involved in sustainable business? How long have you been at BSR? What is your current role, and what does that entail?

My family immigrated to France to escape the Portuguese dictatorship and find a better life. I grew up listening to fascinating yet terrible stories of migration, arbitrary arrests, and the fight for freedom, democracy, and inclusion in a new country. These stories sparked an interest that ultimately led to my passion for human rights.

During my internship as a junior legal advisor at Electricité de France, I helped to implement a hydroelectric dam project in Brazil. This experience opened my eyes to many sustainability topics, from social and environmental risk assessments and stakeholder engagement to human rights issues related to renewable energies.

I started my career in Brazil, passed the French bar exam, and practiced at several law firms before working on CSR, human rights, community engagement, free prior and informed consent, and land rights as an independent consultant.

I have been part of BSR’s human rights team for almost three years, and I work with companies on implementing the UN Guiding Principles on Business and Human Rights. Additionally, I support BSR members in implementing recent business and human rights legislation, including the French Corporate Duty of Vigilance Law, and preparing for the upcoming EU mandatory legislation on human rights and environmental due diligence (HREDD).

I also work on specific topics, like community engagement and Indigenous Peoples' rights and emerging issues, such as the rights of nature. Business and human rights are fields that are constantly evolving—this is what makes it so interesting to me.

What are some interesting projects that you get to work on as part of your role at BSR? What do you enjoy about them? 

I focus on helping companies address their human rights risks, identifying opportunities for positive impact, and interacting with various stakeholders.

I’ve enjoyed conducting human rights assessments with local communities in Chile in the mining sector, even remotely during the pandemic! One of my favorite projects currently is supporting a member through human rights crisis management in conflict-affected areas on the southeast coast of Africa.

What I really enjoy about my work at BSR is that I learn new things about my field every day, but also about myself!

What issues are you passionate about and why? How does your work at BSR reflect that?

My friends and family would say that I am a tireless advocate for fundamental rights; especially for the most vulnerable, equal protection of law, and democracy. These debates are particularly relevant today during the COVID-19 crisis and considering the effects of climate change on future generations. I feel thankful to contribute to protecting the rights of vulnerable groups at BSR.

To dive deeper into this topic, I have also started a PhD in Law at NOVA School of Law and am a Research Associate at the NOVA Centre on Business, Human Rights and the Environment.

BSR is a unique place to work due to the diversity and complexity of business and human rights topics, which we work on while applying a vulnerable groups’ lens.

Adjusting to life during a pandemic can be complicated. What were the things that brought you joy amid the uncertainty and challenges of the past year? What are you looking forward to in 2022?

I am grateful to be in good health and that my family and loved ones are too.

The pandemic was disruptive, but it helped me reprioritize the important (and crazy) things in life. I decided to get married mid-pandemic, and twice! It was certainly a challenge but brought hope and joy amid uncertainty.

I look forward to traveling for field work and reconnecting with local stakeholders again. And dancing again in a crowded bar or dance floor! I’ve missed it!

I hope 2022 will be a year in which citizens strengthen their unity and that we will not see more local division and segregation. Hope and resilience are my two key words for 2022!

Blog | Wednesday January 19, 2022

What If All Garment Workers in Bangladesh Were Financially Included?

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Wage digitization of low-income populations has the potential to be a win-win opportunity that can deliver both social and economic progress. For workers, especially women, it can mean the chance to open a financial account, potentially leading to greater economic empowerment. For global buyers, it can mean efficiency savings and increased transparency in global supply chains, and for financial service providers, a new active market segment. 

At HERproject, we believe a financial inclusion transformation is underway in Bangladesh due to digitizing payroll accounts. We are very optimistic about this because in partnership with the Bill & Melinda Gates Foundation, we've supported 70 garment factories with a workforce of around 170,000 people (majority women) in digitizing their wages and have seen the impact for businesses and workers, especially women.

• Wage digitization has led to administration time spent on payroll being cut by more than half.
• One in two female workers opened mobile money accounts and became active account users, conducting an average of eight transactions a month, including sending remittances to their families and buying time for mobile phone calls.
• One in five workers started saving on a monthly basis, a habit that helps them both plan for the future and cope better with unexpected financial crises.

It is much safer to use [mobile money]. It’s convenient and it saves time. I used to be worried about walking with cash, especially on payday, and when sending money. Now I can save some of my wages in my mobile money account and can earn interest.

-Moshrefa, Garment Worker, Bangladesh

There are 4 million garment workers in Bangladesh, more than 58 percent of whom are women. This raises the question, “What if all garment workers became financially included?” This has led to the striking projections—if all 4 million garment workers received their pay in their financial accounts as well as financial capability training to build their skills and confidence to use financial services, we can expect:

• A total of 4 million new active customers for financial service providers. This would also contribute to closing the financial gender gap in Bangladesh. The 2017 Global Findex found that in Bangladesh, 36 percent of women have a bank account, compared with 65 percent of men.   
• Up to US$199 million sent in remittances through financial services to their families. On average, following participation in HERfinance, women send US$54 and men US$43 in remittances each month. Across a workforce of 4 million, this is the equivalent of US$199 million. Sending money to their families is crucial to workers, especially women, since it means they can support their parents in their home villages and invest in children’s education and land for their futures.  
• 400,000 hours of production time saved each month on payday. HERfinance factories reported saving 6 minutes of production time per worker following the transition from cash to digital wages. Time is money—so this represents huge savings for employers, always under production pressure.

We believe this scenario is within reach and will benefit workers, especially women, and businesses. Achieving this scenario requires action across three interrelated areas: increasing inclusive access to financial services; building the labor force’s digital financial capability, especially for women; and increasing digital payment opportunities in the financial ecosystem. All global brands and buyers sourcing from Bangladesh need to encourage, reward, and support their suppliers in switching to digital wages, in a way that considers the needs of workers, especially women. The financial ecosystem needs to promote and incentivize digital payments and acceptance for key payments otherwise made in cash, such as groceries, health care, school fees, bills, and rent. Workers, especially women, need support to build their financial capability, knowledge, and confidence to use their payroll accounts and benefit from digital payments. 

“Digital payments are an important step in achieving global financial inclusion. This fully aligns with our ethical and responsible sourcing strategies and our holistic sustainability plan, especially in respect to human rights in our business and supply chains. Providing the opportunity for workers to be paid digitally, creates economic opportunities for them and their families, advancing the Sustainable Development Goals on women’s equality and decent work.”

-Fiona Sadler, Global Head of Ethical Trading and Responsible Sourcing, Marks & Spencer  

It’s also important to consider and address the barriers that women face in adopting digital wages. Women are less likely than men to have the resources and confidence needed to open and use accounts. They are more likely to feel obliged to share their account details and become victims of fraud. Traditional gender role expectations for women restricts their ability to access and take control of their finances.

“I didn’t know how to use mobile money until we had the training. Through this, we learned about the interest on savings and fees. Now on payday, I send money to my parents and my mother-in-law. I have opened a savings account in a private bank and deposit money each month.”

-Pushpa, Garment Worker, Bangladesh

Key stakeholders, including financial service providers, global brands, and employers, can deliver and scale wage digitization that empowers workers, especially women, by working collaboratively. Find out how to get started with our practical guides for financial service providers, global brands, and buyers and our open source financial capability materials, including posters, videos, and tech learning tools. By working together, scaling responsible wage digitization is possible, and financial inclusion for 4 million garment workers in Bangladesh is within reach.   

Reports | Monday January 17, 2022

Corporate Action to End Gun Violence

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BSR’s Toolkit for Corporate Action to End Gun Violence was developed in collaboration with Everytown for Gun Safety. Gun violence is a national issue in the US. Due to the pervasiveness of gun violence, businesses, their employees, business partners, and customers are all likely to have been impacted by the issue at some point. While many companies see the issue of gun violence as falling outside their sphere of responsibility and influence, companies can and should take action to protect their employees, consumers, and the communities they operate in. This toolkit puts forward a framework for corporate action to end gun violence. The framework features a business case on the importance of ending gun violence, industry deep dives for retail, financial services, media and social media, and tech sectors, and includes many case studies and examples from companies across industries and sectors that have taken action to end gun violence.

What You Will Find in the Toolkit

This Toolkit for Corporate Action on Gun Violence was developed to guide companies as they work to address gun violence, both internally in their own operations and externally in the communities they are linked to. The Toolkit is split into three sections: the business case, framework, and industry deep dives.

1. Business Case: Demonstrate how business is interconnected with gun violence and show the importance of company action on gun violence.
2. Framework: Provide examples of potential actions for companies and connect with useful resources on advancing strategies against gun violence.
3. Industry Deep Dives: Demonstrate for specific sectors detailed case studies, actions, and key learnings for business action on gun violence.

How Companies Can Use the Toolkit

Companies can use the toolkit in three ways: to make the business case for action, to assess where their company intersects with gun violence, and to identify opportunities to integrate actions to prevent gun violence in with existing strategies.