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Blog | Tuesday July 23, 2024

CEO Outlook: How is Business Advancing Sustainability Priorities in 2024?

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At the start of this year, I presented seven pivotal questions that would shape sustainable business in 2024.

1. What impact could the 2024 global elections have on just and sustainable business, and what can companies do about it? 
2. Will the COP28 agreement mark a real transition? 
3. Are DEI commitments flagging? 
4. Can we ensure that emerging technology is developed responsibly and sustainably? 
5. Will new regulations turn sustainability into a compliance exercise? 
6. How is the role of the Chief Sustainability Officer (CSO) changing? 
7. How will business juggle so much interlocking change? 

As we reach the midpoint of the year, I’ve reflected on how these questions interconnect, based on insights and observations from our discussions with companies and other influential actors around the world. 

Companies are focusing more intently on what they know they can deliver with respect to existing goals. 

After a flurry of new commitments in the first part of the 2020s, appetite for ambitious new goals is sharply limited right now. Indeed, high-profile companies in multiple sectors are not only focused on the delivery of existing goals but also on extending the time frame for implementing climate change pledges and other sustainability objectives. This reflects the messy realities of balancing ambition with a hard-headed assessment of delivery challenges. The ongoing tension between ambition and pragmatism can be seen amidst the current battle over the direction of the Science Based Targets Initiative. 

The focus on new regulations is tamping down ambition, which is reshaping the role of the Chief Sustainability Officer–at least for now. 

There is little doubt that new regulatory requirements are having a major impact on company ambition. Preparation and readiness for the new requirements of the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and others, have soaked up a substantial amount of time and attention, as well as budget.

The question on the table is whether this is a one-time transition as companies build systems and competencies, or whether the shift—with a newfound emphasis on verification of quantifiable information and new accountability systems—is here to stay. Will the ESG Controller or the CSO steer sustainability? Will the necessary investments in compliance crowd out the need to have sufficient innovation and ambition?

Compliance orientation is transitory but will also have positive and lasting effects. The CSDDD for example, requires companies to assess and address negative impacts on both people and the environment and helps level the playing field for sustainability leaders. However, it is essential that leaders avoid adopting a compliance-only mindset; that innovation and ambition remain strong; that resources are not overwhelmingly dedicated to reporting, and that businesses transform to meet emerging sustainability challenges. 

Political turbulence is influencing ambition and delivery. 

2024 is the year of elections globally and so far the results have been as unsettled as expected. In the last two months we have seen a surge of the far right in France, followed a week later by a shocking comeback by the left; a landslide changing of the guard in the UK; the election of Mexico’s first female president; a surge of right-leaning parties in the European Parliament; the end of the ANC’s 30-year majority in South Africa, as well as the BJP’s majority in India. The events of the last three weeks in the US have shaken the political system as the upcoming election looms large this fall.

The lack of clear direction and questions about the political system’s stability and resilience create uncertainties that could impede long-term thinking and business planning, including those related to sustainability. Currently, companies do not see sufficient policy stability or certainty on core sustainability issues, and are acutely aware of the public anger and anxiety that is manifesting itself at the ballot box. The rise of nationalism and right-wing populism has targeted business action on diversity, sustainable investing and climate directly, especially in the United States. So far, businesses have chosen to stay quiet about election processes; whether that proves to be a good strategy is not yet clear. 

The underlying realities that underpin the importance of just and sustainable business are stronger than ever, even if company actions appear more muted right now. 

Amidst all this turbulence, the underlying facts facing business and the world remain powerful motivators for action. Climate science change impacts, diversifying and growing populations, economic uncertainty, and the case for investing in a sustainable future remain indifferent to election outcomes. Instead, questions over how much time has to be given to regulatory compliance, or dependencies in delivering on goals, such as the availability of clean energy to enable Scope 3 emissions reductions still stand. A rising generation shows no signs of reducing its demands to see a more fair and sustainable economy.

Almost 20 years after Al Gore’s seminal movie, there are more—and more powerful—inconvenient truths than ever before. Business leaders ignore or diminish them to our peril. No company ever complied its way to innovation. No company can stand by passively as political movements that erode democracy undermine the rule of law that business depends on to operate and thrive. And no company can ignore the need to develop a diverse and talented workforce and a climate-resilient business strategy. 

The questions we posed at the start of the year remain very open. The multiple crosswinds affecting companies’ commitments to just and sustainable business are real. The compelling reasons why these commitments are so important, however, will outlast whatever twists and turns businesses face each year. Sustainable business has always been about looking to the future; that is even more true at a time when the present is turbulent. 

The challenges are real. Nonetheless, a retreat into a compliance-focused mindset; undue caution in the face of uncertainties, and what seems to some as capitulation to political opposition serves no one. We believe that it is high time to renew a focus on ambition, delivery, and innovation. Standing still means falling behind, at a time when real progress is so badly needed. 

If you’d like further information on BSR’s approach to advancing sustainability amid election-related uncertainty and to discuss what’s right for your organization, please don’t hesitate to reach out to us. 

Insights+ | Tuesday July 16, 2024

Navigating US Election Uncertainty: A Call to Action for Sustainable Business

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Blog | Tuesday July 9, 2024

How Financial Institutions Can Manage Reduction of US Reproductive and LGBTQI+ Rights

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Two years since the US Supreme Court overturned Roe v Wade, more than 20 states have banned some or all abortion care. States have also restricted LGBTQI+ rights with 571 anti-LGBTQI+ equality bills introduced in state legislatures in 2023 and 77 signed into law. At least 23 states now limit or ban access to gender-affirming care.

Healthcare providers and others who help patients access care now face criminal penalties. In some states such as Texas, children may even be taken from parents who support their gender expression. Meanwhile, organizations providing financial support for reproductive care and businesses that are inclusive of LGBTQI+ communities are increasingly targeted by policymakers. 

This fractured landscape poses human rights dilemmas for consumer banks, fintech platforms, and credit card issuers seeking to comply with the law while operating responsibly. For instance, in states where abortion is illegal, health insurance no longer covers abortion care, so individuals use personal credit cards, debit cards, cash, and payment platforms such as Apple Pay, Venmo, and PayPal to cover abortion-related expenses, including medication, telehealth visits, and out-patient care.

The greater the distance individuals must travel to access abortions, the higher the financial burden. Meanwhile, gender-affirming care may require ongoing medical visits, medication, and other interventions which extends the financial paper trail over time. As a result, prosecutors may work in collaboration with law enforcement to gather financial information such as purchasing history or transaction data to prosecute individuals and healthcare providers. 

This legal context is destabilizing for business and exposes Financial Institutions (FIs) to financially-material risks. Yet “staying out of it” is not an option—by a margin of two to one, consumers and workers want to live and work in states where reproductive and LGBTQI+ rights are guaranteed. Shareholders are calling on companies, including FIs, to safeguard sensitive customer and user data that may be used to prosecute abortion cases, and regulators are requiring global companies operating in the EU to assess, address, and report on the negative human rights impacts connected with their activities.

Navigating this terrain is complex and the fear of public backlash has led to a chilling effect among many FIs who are increasingly reluctant to speak out publicly. At the same time, little guidance exists to help them manage their approach to legal compliance in ways that respect abortion and LGBTQI+ rights to the greatest extent possible, in line with the United Nations Guiding Principles on Business and Human Rights (UNGPs). The UNGPs clarify that “where domestic laws fall short of internationally recognized human rights, companies should uphold the higher standard. And where laws conflict with those standards, they should seek ways to honor human rights principles within the boundaries of the law.”

There are also no industry or multi-stakeholder initiatives aimed at supporting FIs in navigating government action that undermines human rights. In the technology industry, the Global Network Initiative is a multi-stakeholder collaboration focused on helping tech companies navigate law enforcement data requests that undermine the rights to privacy and freedom of expression.

To address the growing risks to reproductive and LGBTQI+ rights, BSR has published the report, Navigating the Rollbacks in Protection of Reproductive and LGBTQI+ Rights in the United States: A Guide for Financial Institutions, which seeks to equip FIs to assess the implications of legislative developments for how they operate and impact people, weigh competing stakeholder claims, and uphold human dignity. The report summarizes how financial institutions may be involved with human rights impacts and the associated material risks, and provides recommendations on companies’ data practices, handling of law enforcement data requests, de-risking activities, lobbying efforts, and discriminatory or inequitable provision of financial services and healthcare coverage.

Adopting a principles-based approach to navigating this context provides FIs with a roadmap for operating in an increasingly unwieldy patchwork of state laws and regulations in ways that align with human rights principles and create long-term value. 

For further information on the guidance report, or to discuss any of the issues raised further, please reach out to the Human Rights team. 

Blog | Wednesday July 3, 2024

Climate Scenario Analysis: It’s about More than CSRD Compliance

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According to leading climate scientists, 2023 was not just the warmest year in recorded human history—it was the warmest by far. While this increasingly unstable and warmer climate demands business action to decrease emissions, regulations are also requiring companies to begin identifying and addressing the risks and opportunities that climate change, as well as climate policies, poses to business. 

For the past few years, BSR has helped companies meet these expectations by identifying their unique climate risks and opportunities through a best practice known as scenario analysis. This is a well-established methodology that has been embraced by the Task Force on Climate-Related Financial Disclosures (TCFD) to explore divergent climate futures and ultimately develop resilient business strategies that are better prepared for multiple potential realities. 

The Latest Updates to BSR’s Approach to Climate Scenarios 

In 2023, BSR updated its three climate scenarios to align with the latest narratives and datasets published by the Network for Greening the Financial System (NGFS). The NGFS models are notable for their coverage of both physical (e.g., extreme weather) and transition risks (e.g., climate policies, carbon pricing) in a single, integrated dataset.

The latest updates incorporate new policy pledges and targets from countries around the world, updated projections for emerging technologies (e.g., solar, wind, carbon capture and storage), as well as brand-new projections for financial losses from floods and tropical cyclones. 

In addition to including the most current data from NGFS, BSR has made two major changes to its approach to climate scenario analysis: 

Financial quantification of climate impacts to help companies develop a more tangible understanding of their climate risk with estimated impacts to financial performance and cash flow. BSR’s financial quantification methods include the option to estimate the overall risk of misalignment with a net-zero transition and a more bespoke option to quantify the physical risk to your business’s specific locations of interest using geospatial analysis. 

Sector-specific scenarios provide a thorough analysis of how the three scenarios will impact each sector, including insights on which regions are likely to experience the greatest physical risks, which business-relevant opportunities are likely to arise, and which sector trends are likely to be impacted. These ready-made insights provide a better starting point to identify insights specific to your company’s unique situation. For this latest update, the scenarios include coverage of the following six sectors: 

• Consumer Products 
• Energy 
• Financial Services 
• Food, Beverage, and Agriculture 
• Industrials 
• Technology 

Why Conduct Climate Scenario Analysis: It’s About More than TCFD Alignment 

Regulations and standards across the globe are steadily adopting the TCFD framework for climate disclosures, including its recommendation to conduct climate scenario analysis. This includes the EU’s CSRD, California’s recently published climate disclosure bill (SB-261), and numerous other country-level regulations that are aligned with the IFRS Sustainability Disclosure Standards. Beyond complying with regulations and meeting investor expectations, climate scenario analysis can also help companies to: 

• Enable long-term planning to inform strategy setting and financial planning that more robustly capture climate considerations across a wide range of plausible futures
• Improve the management of critical climate risks by integrating them into existing enterprise risk management processes
• Enhance strategic conversations by challenging business-as-usual assumptions and considering novel, disruptive developments 
• Promote collaboration among internal stakeholders through shared discussion of key drivers reshaping the external operating environment 
• Improve strategic agility by establishing indicators that should be monitored and rehearsing responses to disruption in advance 

If you’re interested in conducting a climate-scenario analysis with BSR, please contact us. In the upcoming months, the climate team will continue to develop these scenarios, including the latest models and data from the Network for Greening the Financial System (NGFS), a new fourth scenario that depicts a world with both high transition and physical risks, and guidance on incorporating nature considerations into scenario analysis.

Reports | Tuesday July 2, 2024

BSR Climate Scenarios

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Climate action has never been more urgent.

BSR’s climate scenario narratives are based on a range of temperature pathways and cross-disciplinary research to capture physical and transition risks. Based on decade-by-decade analysis, scenario planning can inform today’s climate risk disclosures, build resilient business strategies, and present key opportunities for bold action.

People

Koichi Sakaguchi

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Koichi supports BSR member companies across various industries, focusing on human rights and sustainability management.

Prior to joining BSR, Koichi was a global trade consultant at Ernst & Young (EY), working with multinational enterprises in various industries on primarily tariff strategies throughout their global supply chains. He also supported the Tokyo2020 Olympics and Paralympics Committees in realizing their global trade commitments. During his studies, he completed internships at the United Nations High Commissioner for Refugees (UNHCR), the International Labour Organization (ILO), and Norway's Business for Peace Foundation. 

Koichi holds a B.A. in Global Political Economy from Waseda University and is expected to receive an M.Phil. in Theory and Practice of Human Rights from University of Oslo (as of June 2024). 

Blog | Tuesday July 2, 2024

Scaling Investment in Carbon Credits with Integrity

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Nature-based solutions (NbS)—often marketed and financed through the voluntary carbon market (VCM)—are critical in scaling up investments necessary to meeting the goals of both the Paris Agreement and Global Biodiversity Framework. However, credits as a mechanism have come under fire, largely due to the uncertainty in their ability to deliver on their stated promises (e.g., the amount of carbon sequestered), making them the target of scrutiny by both regulators and stakeholders.

A proliferation in guidance and regulations globally related to offsetting claims—such as the EU Green Claims Directive and the US’s VCM Principles—have made companies reticent to continue purchasing credits. Business leads are increasingly at a loss for how to frame and justify their investments since ‘carbon neutrality’ claims are by and large no longer allowed. Projects and purchases have also come under increased scrutiny by various stakeholders following a series of explosive articles over the past 18 months; while these rightly pointed out some shortcomings that need to be addressed, they unhelpfully frightened off investment from the credits market entirely instead of helping channel it into high-impact projects. 

At the same time, SBTi’s Board of Trustees recently announced that they will be exploring the use of “environmental attribute certificates” (which include carbon credits) to support companies’ Scope 3 emissions abatement. Leaving aside the governance of that revision, the substance of the announcement means there to how companies utilize credits to abate their Scope 3 emissions. 

Amid such uncertainty, the market for corporate purchasing of carbon credits has been volatile. For the first time since its inception, both 2022 and 2023 saw a contraction in the carbon market compared to 2021 levels. Many companies have been taking a wait-and-see approach, yet science tells us that we must invest immediately and at scale if we are to halt the twin climate and nature crisis. We cannot wait to invest in nature if we are to meet the goals of either the Paris Agreement or the Global Biodiversity Framework, and carbon credits stand as one of the readily available and scalable mechanisms to support both of these.

A host of frameworks, guidance documents, principles exist to help guide the purchase of high-quality carbon credits. Just a few of these include SBTi’s BVCM guidance, ICVCM Core Carbon Principles, VCM Claims Code, Tropical Forest Integrity Guide, and Oxford Principles. We can conclude two things from the diversity of guidelines: 1) there is overall agreement on what constitutes high-quality, such as the need for additionality and permanence, among other characteristics; but perhaps more importantly, 2) the nuances between the frameworks and lack of comprehensive and authoritative guidance leaves companies uncertain about how to engage with carbon credits with integrity for the long-term.

Given the convoluted market, BSR has developed an approach to support companies in carbon credit purchasing for the long term. We align standards and principles from existing frameworks to set a robust minimum standard. This is complemented by strategic visioning and alignment with your climate and sustainability strategies to ensure that purchasing works with internal goals and objectives. We codify the standards and criteria in a strategic framework, which we use to identify and vet potential providers that will enable companies to enact their purchasing strategy efficiently and with integrity. We also support companies in understanding how to communicate their efforts amid increased scrutiny.

High-quality carbon credits are critical for scaling finance quickly, and represent an impactful avenue for corporate investment in the short term. Credits can and should play a role in corporate climate and nature strategies, parallel to business transformation and overall decarbonization, especially in supporting companies’ beyond value chain commitments. Moving forward, BSR suggests businesses evaluate their current use of carbon credits.

Some key questions include:

1. What types of credits are you purchasing? What types of projects do the credits support? Does your current purchasing meet the (increasing) minimum standards for quality? Do your purchases support both climate and nature goals, or are they undermining them?
2. Why is your company investing in credits? If ‘carbon neutral’ claims are driving current purchasing, how might your company re-frame and rationalize credit purchasing? What role do credits play in mitigating your company’s impacts?
3. What claims are important for your company to make about credits? How might it need to update how it talks about its purchasing of carbon credits, such as via contribution claims (e.g., “we contributed to the restoration of 15,000 hectares of Brazilian rainforest”)?

The next 6 months are likely to see significant changes in the rules governing the use and application of credits. Members can get in touch to discuss how we can support your company in purchasing carbon credits with integrity in an uncertain environment, while also supporting internal goals and objectives.

Reports | Thursday June 20, 2024

Navigating the Rollbacks in Protection of Reproductive and LGBTQI+ Rights in the US

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The US has been undergoing a systematic rollback of reproductive and LGBTQI+ rights. Two years after the decision to overturn Roe v. Wade, abortion is illegal in 14 states and healthcare providers and others who help patients face criminal penalties. At least 23 states limit or ban access to gender-affirming care, while hundreds of other anti-LGBTQI+ equality bills were introduced in state legislatures in 2023. 

Financial services companies and other businesses that process healthcare-related payments must grapple with the repercussions of this fragmented legal landscape. Healthcare bans and restrictions complicate the operating environments for business and raise material risks. They also have a chilling effect on companies concerned with operating responsibly. Financial institutions are now exposed to complex ethical dilemmas, such as how to comply with the law while respecting the reproductive and LGBTQI+ rights of their customers, users, and workforce.  

BSR’s new report, Navigating Rollbacks in Reproductive and LGBTQI+ Rights in the US: A Guide for Financial Institutions, is a practical resource for financial institutions and anyone seeking to engage them on reproductive and LGBTQI+ rights in the US context. The guide includes insights on: 

• The rollbacks of legal protections for abortion and LGBTQI+ rights across the US;  
• How financial institutions may impact abortion and LGBTQI+ rights, specifically discussing data practices, handling of law enforcement requests, financial de-risking activities, lobbying efforts, and discriminatory or inequitable provision of financial services;  
• Material risks that result from failing to respect reproductive and LGBTQI+ rights; and 
• Practical recommendations and case studies for navigating compliance with the law while respecting human rights. 

Insights+ | Thursday June 20, 2024

The CSDDD: Compliance Meets Sustainability Ambitions

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Blog | Tuesday June 18, 2024

Space ESG Executive Program: Toward High-Impact Collective Action

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Space is changing: In 2023 a commercial rocket exploded over Texas, spreading debris over a natural preserve; in November 2023, a Michigan citizens' group helped defeat a proposal to build a spaceport site near Lake Superior; and new questions are arising about emissions of rockets in the upper atmosphere and the congestion of many satellites in earth orbit. The best opportunity to foster proven sustainability excellence in the space industry is now, to reduce cost, risk, and ensure the new space economy is as good as it can be.

The commercial space industry is undergoing rapid growth and change—forging an entirely new economy with unforgiving requirements. Consideration for the long-term impacts of the new space economy is fragmented and remains an emerging priority for the space sector.

Many industry experts haven’t prioritized sustainability practices due to a lack of demand from stakeholders, conflict with specific technology, and core mission objectives. The opportunity to build these practices into business plans is before us: we’re launching a rapid start program for space practitioners to upskill experts on the best ways to manage sustainability topics. 

The sector is developing at a rapid pace: already in 2024, there have been over one hundred successful orbital rocket launches. These launches are expanding satellite constellations to provide global broadband service, enabling future missions to Mars and the Moon, developing a working space tourism sector, and advancing supporting technologies for scientific exploration and industrial development. The industry also has the potential to create new impacts for people and the environment. 

For many legacy industries, managing the impacts of their activity on people and the environment has become standard practice. Investors, customers, and business partners have high expectations that externalities are well understood, and managed, and risks mitigated. The cost of failing to do so is too great: legal action from communities can delay production; reputations and contracts can be lost from sourcing conflict minerals; entire facilities can be shut down from climate-related events; and launch schedules can be delayed for years when communities are put at risk of launch failures. Strong governance of environmental, social, technical, regulatory, and other risk factors strengthen business plans and improve investment security.  

Yet, many actors in the commercial space industry remain behind traditional standards of sustainability governance. While some large, diversified companies have comprehensive sustainability programs, we believe there are a few fundamental reasons the sector is lagging overall: the operating environment is very different, and the sector is growing incredibly fast. Greenhouse gas emissions, for example, are a bedrock pillar of most company’s sustainability work, and an urgent global issue. For space operators, air emissions occur in traditional ways, as well as across all layers of the lower and upper atmosphere. Raw materials must be sourced from highly technical supply chains with geopolitical and human rights risks. They are also left to build up in the upper atmosphere upon re-entry. Meanwhile, investors are rushing to grab a piece of the $700B—some say $1T—industry as it outpaces global GDP growth. A rush of cash into a highly complex, technically challenging field under pressure to show positive value is a perfect storm for a lack of governance. 

Today, space companies are beginning to rise to meet the present and coming demand for integrated risk management. BSR’s research shows there is significant attention to the risks of orbital debris. The safety—of flight crews and communities on the ground—is widely acknowledged as a paramount concern. And like other industries, addressing climate risks, challenges in attracting and retaining talent, and managing risk in supply chains are affecting space business. Leaders we’ve spoken to are grappling with understanding how to manage these sustainability issues in the context of space. There are many urgent questions, and as any Chief Sustainability Officer might sympathize, not enough time and great complexity for which investments will generate the best return on reputation, risk, and performance. 

We have heard the call for collaboration to break down and prioritize actions, as well as a greater understanding of best practices and optimal implementation strategies. To catalyze sustainability proficiency for space industry leaders, we’re launching a Space ESG Executive Program.

This six-month program will bring together a group of practitioners to gain a common understanding of good governance, ESG regulation, demonstrate practices in ESG excellence, and develop a common statement for ESG practice in space. We believe this rapid, lightweight learning network will help bring clarity in decision-making, drive impact and lower the cost of action. We also believe it can spark the opportunity for long-term collaboration to create shared standards for ESG excellence in the space industry.

If you’re in the space sector, we’d love to talk. Reach out to us here.