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Blog | Tuesday May 2, 2023

Climate Transition Plans That Enable Business Transformation

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Investor groups and key climate organizations are expecting clarity on how companies are moving from target-setting to taking action with a climate transition plan. The Glasgow Financial Alliance for Net Zero (GFANZ), the Task Force for Climate-Related Financial Disclosures (TCFD), and the CDP, among others, have released climate transition plan disclosure frameworks and guidance recently. In March 2022, the UN Secretary General’s High Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities published its final report with ten recommendations for non-state entities, which include creating a transition plan.

Calls for these disclosures are a response to gaps between companies’ targets and progress, as well as meaningful emissions reductions. In its latest progress report, the Science Based Targets Initiative (SBTi) highlights this gap—of 692 companies analyzed in the report, only 46 percent reported progress against all their science based targets.

Climate transition plans are a set of actions and accountability mechanisms that ensure business strategies and operations deliver GHG emissions reductions and a net-zero transition. While definitions and frameworks are evolving, climate transition plans should state the company’s climate objectives and goals and how they will be achieved via a net-zero aligned resilient business strategy, governance and accountability, business and financial planning, implementation, organizational culture alignment, and engagement with value chains, industry, and policy. In addition, climate transition plans should ensure a just and equitable transition, as well as the protection and restoration of nature and biodiversity.

To ensure that companies make meaningful progress toward their climate commitment, climate transition plans must enable net zero-aligned business transformation. Effective climate transition plans:

1.     Are integral to a resilient business strategy.

Integrating climate actions into business strategy will not be sufficient to deliver meaningful progress—it will require a paradigm shift. Resilient businesses anticipate material changes to the operating environment, systemically develop and test strategic plans in the context of such changes, and allocate resources that enable success in multiple potential futures. By focusing on building resilience, companies will develop and implement transformative climate transition plans that drive meaningful progress toward climate targets and deliver long-term business value. Building a resilient business may require a rethinking of business models, long-term value, and growth.

2.     Are overseen by the board and executive leadership.

Board and executive-level oversight enables alignment of governance, strategy, and internal processes with climate targets and resilience building. Executive decision-making that is consistent with purpose and long-term value generation avoids short-term thinking that sets failure on targets. Governance, accountability, and the integration of stakeholder feedback are vital for companies to remain on track to deliver emissions reductions and be equipped to respond to a changing regulatory environment.

3.     Allocate resources toward decarbonization programs.

A transition toward net zero will require most companies to radically transform their operations and product and service portfolios and address high-carbon assets. Such interventions will require companies to rethink how they allocate resources and deploy human and financial capital. Prioritizing the allocation of financial resources toward these actions will require upfront investment but can build resilience to changing market conditions and bring long-term returns. Financial metrics must be adapted accordingly.

4.     Integrate climate into skill development and corporate culture.

As business models evolve, climate and sustainability-related responsibilities will be embedded across corporate roles that will involve cross-functional collaboration. To facilitate this integration, companies need to invest in skill development, such as reskilling employees from high-emitting business units to transition programs or providing company-wide training on climate change basics.

In addition, companies will need to create enabling cultures, by openly communicating climate-related plans, policies, and procedures to employees and engaging them in decision-making processes. Leadership will have a role in framing climate change as a priority issue for the company.

5.     Lead to closer engagement with value chains.

According to the CDP, upstream scope 3 emissions of the average global company are 11.4 times greater than its direct operations emissions. To meet Scope 3 targets, companies will need to drastically invest in responsible sourcing strategies. By working with upstream and downstream business partners that have aligned priorities, companies will be able to advance collaborative solutions. Facilitating supplier access to sources of finance, technology, and training will ensure value chains have the critical support needed to advance their own climate transitions.

The disclosure of climate transition plan and other sustainability-related information is key to generating decision-useful information for stakeholders. While it is important that companies disclose high-quality information, they must ensure that climate transition plans are integrated into business strategy, lead to short-term action and emissions reductions, and generate a net zero-aligned business transformation. This approach will ensure that companies will be equipped to manage climate-related risks, generate long-term value, and remain competitive in a net-zero global economy.

Beyond business transformation, climate transition plans should lead to system-wide interventions that facilitate a net-zero transition. This requires engagement with public policy, industry, and communities affected by climate and transition policies. BSR will cover these topics in upcoming blogs.

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Pek Siok Lan

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Ms. Pek Siok Lan is Head of Investment Stewardship at Temasek International, responsible for the development and implementation of corporate governance
and stewardship frameworks.

Prior to this, Ms. Pek was General Counsel of Temasek for a decade, leading its global legal, regulatory and compliance function. She was also a Global Executive Council member, serving on Temasek’s investment, strategy, and management committees.

Before joining Temasek, Ms. Pek was General Counsel for more than 20 years at the Singapore Technologies Group and ST Telemedia Group, with responsibilities spanning governance, mergers and acquisitions, corporate restructuring, litigation, and compliance.

She serves on the board of Mandai Park Holdings, a company committed to wildlife conservation and on the investment committee of Temasek Trust Asset Management, a firm dedicated to impact investing.

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Laurence Pessez

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Blog | Wednesday April 26, 2023

Embedding Human Rights from Boots to the Boardroom

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The focus on human rights at the Board of Directors and C-Suite levels often starts in response to one of two situations: a crisis or scandal that forces a company to respond, or pressure from regulators, investors, and other stakeholders to implement a due diligence program. That pressure is very much on the rise, with emerging legislation in the EU such as the Directive on Corporate Sustainability Due Diligence and the Uyghur Forced Labor Prevention Act in the US making it incumbent upon leadership to proactively manage human rights issues across their value chain on an ongoing basis—which requires moving from the due diligence phase into long-term implementation and integration.

Through our partnership approach, BSR works with companies to move beyond the due diligence phase into implementing long-term human rights action plans, governance, systems, cultural integration, and stakeholder engagement to embed those processes across the business.

From experience, successfully implementing a long-term vision for human rights requires the following four steps:

1. Set and Communicate the Ambition

First, establish the level of ambition for mitigating or remediating identified risks. This often requires understanding stakeholder expectations and peer practices, your own company’s leverage, and, most importantly, requires a clear mandate and commitment from the top. This commitment should be accompanied by clear governance and measurable KPIs at the corporate level to channel efforts and track progress. Ambition level has implications for resources—budget, staff time, and strategic planning. Buy-in from the C-Suite and ideally the Board of Directors is critical to securing the resources and mandate needed to follow through.

Putting it into practice: After conducting a human rights assessment and gap analysis for a telecommunications company, BSR presented the results and recommendations to the Executive Committee. The Executive Committee agreed that the company faced significant human rights risks across its value chain and that additional resourcing would be needed to effectively manage those risks over the long term. BSR provided a briefing to the Board to build understanding and awareness of human rights issues for the company and supported the development of two corporate-wide human rights KPIs that were integrated into the following year’s strategy.  

2. Identify the Right Owners 

It is crucial to understand who within the company is the right person and/or department to own the different dimensions of the long-term action plans. Sustainability and/or human rights teams cannot implement follow-up alone. Instead, the entire business needs to take ownership where relevant—whether procurement teams that have direct engagement with suppliers, or product development teams that can embed human rights thinking and concepts like “privacy by design” at the product design stage. Making the business case to manage human rights will look different for each part of a business; for some, it will be a natural extension of their current focus, and for others, it may at first appear at odds to or irrelevant to their core work or context.

Putting it into practice: After an incident at a mining company’s asset in Australia, BSR was asked to provide a human rights training to help build an understanding that human rights are global, universal, and relevant in all jurisdictions. Through informal conversations during breaks in the schedule, the team got to know the participants and identified individuals who seemed ready and interested to embed human rights in their area of work; some were members of the senior leadership team, and others were junior technicians. Working with the Communities and Social Performance Manager, BSR helped build a network of human rights “champions” who could learn from each other, provide mutual support, and be a sounding board as they each continued to work to embed human rights into their separate core functions.  

3. Integrate into Business Functions 

Addressing human rights risks and impacts requires small, incremental changes to everyday processes. Understanding how teams perform their day-to-day roles and making those subtle changes to incorporate human rights thinking into everyday business activity is key.

Putting it into practice: Working with a company in the travel, tourism, and hospitality sector, BSR supported the training of customer service agents to spot concerns raised by customers that could relate to conditions of forced labor or human trafficking. In addition to raising awareness of these issues and educating customer service agents on what to look for, BSR also reviewed the escalation and reporting criteria to ensure that when issues of concern are identified, they are channeled to the right teams for proper handling.  

4. Monitor and Track Progress

Establishing milestones, metrics, and creating an associated governance structure that allows these milestones to be tracked over time and teams to be held accountable to them are critical for long-term success. Integrating human rights frameworks and measurement into a company’s Enterprise Risk Management (ERM) system can help ensure that senior leadership regularly has visibility on the company’s most salient human rights risks and mitigation actions. In addition to a traditional ERM taxonomy that looks at business impacts, integrating a human rights framework helps companies consistently track their potential “outward” impacts on society.  

Putting it into practice: BSR worked with a consumer goods manufacturer to conduct human rights impact assessments across many countries over the course of several years. To support the long-term mitigation and remediation of the issues identified in each country, BSR helped develop action plans, related metrics, KPIs, and timetables. The client worked with BSR to develop a web-based monitoring platform whereby the corporate human rights team could monitor progress across all action plans in real time. Ownership and accountability for each action plan was critical to its success, which included both local and corporate-level roles and responsibilities.

As implementation of the UNGPs has matured, there is consensus and growing awareness that a human rights program is much more than a one-off due diligence process. In fact, a human rights program is an ongoing, ever-evolving process that includes regular due diligence, long-term implementation of action plans, and continuous maturation and adaptation of strategies to provide mitigation and remedy on behalf of rightsholders. Taking the long view, and following the steps outlined above, will help companies implement, embed, and integrate human rights into their business and seal the new accountabilities for executive leadership and boards in a meaningful and impactful fashion.

People

Matthew Welch

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Matthew helps to scale BSR and its impact through translating strategy into implementation, overseeing delivery of the work, and improving the efficiency and effectiveness of operations.

Matthew has a long history of leading and growing mission-driven enterprises. Prior to BSR, he was Chief Operating Officer (COO) of the Sustainability Accounting Standards Board and the Value Reporting Foundation, which pioneered sustainability disclosure standards for the capital markets. Before that, he held COO and senior operating roles at a mix of nonprofit and for-profit organizations in education and health care, where he built products and launched businesses as well as overseeing their operations.

Matthew holds a BA from Grinnell College and a MPA in management and public policy from Columbia University. He speaks Spanish and English and has lived and worked in the US, Spain, and Latin America.

Blog | Wednesday April 19, 2023

Nine Ways to Activate Your Board on Climate

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Recent years have seen an astonishing uptake of ambitious corporate climate goals. And recent weeks have seen an even more dramatic rise in activist action to boards and leadership on the very climate goals set by organizations.

Many companies have adopted climate change as a topic for board oversight—either directly or via climate commitments and reporting. As of early 2023, 2489 companies set Science-Based Targets, and 1748 made net-zero commitments through the Science Based Targets initiative (SBTi). These commitments represent prudent business and vital ambition. They also entail a level of corporate disclosure, risk management, and business transformation that should put net zero-aligned transformation squarely on the agenda for the Board of Directors. 

The major challenge for today’s boards and the companies they oversee is how to fulfill these commitments.

Climate Transformation on the Agenda

Boards are facing increased liabilities, lawsuits, resolutions, and elections on all aspects of sustainability, especially climate. This is driven by various increasingly well-known factors, including:

• Rising investor interest, especially institutional investors who expect board oversight and fluency on climate.
• Growing regulations such as the Corporate Sustainability Reporting Directive, the Corporate Sustainability Due Diligence Directive, the upcoming requirements from the US Securities and Exchange Commission (SEC), and the release of sustainability-related standards by the International Sustainability Standards Board, which include disclosures related to board oversight, expertise, and sign-off on targets and performance.
• Increased scrutiny on “greenwashing,” with a recent wave of rules across various jurisdictions, including Australia, the US SEC, the EU, and the UK Competition Markets Authority bringing about a zero tolerance on net-zero greenwashing.

These factors combined are rallying for a changed mindset by boards to act on climate-related risks and opportunities, as part of the company’s transformation strategy and growth over the short, medium, and long term.

Lessons Learned from Board Engagement

BSR has worked closely with corporate boards on climate topics. In doing so, three lessons stand out.

First, make climate relevant for the individual business, not just generic training on keywords. We recently conducted a training for a global beverage and agriculture company. After highlighting systemic climate and nature-related risks, BSR led a discussion on how they are relevant to the individual company and its board. The company could then meaningfully consider board oversight of risk management, strategy, and assurance of financial statements.

Second, respect the role of the board vs. management. For instance, BSR recently conducted a training for directors on the boards of private equity-owned companies regarding board oversight of management-led materiality process. It was essential to delineate respective roles, as well as to equip boards with enough knowledge to provide effective oversight.

Third, create shared leadership. In another example, we conducted a joint climate scenario exercise with the executive team and board of a European healthcare company. The exercise demonstrated the importance of getting key parties around the table to build a baseline understanding of climate issues, identify the relevance of climate for business, and agree on a coordinated plan for executive action and board oversight.

Climate Transformation is Not a One-Shot Effort

In March 2023, BSR engaged a small group of cross-industry members from our Transform to Net Zero (TONZ) collaborative initiative who are committed to enabling the business transformation needed to achieve net zero. 

We explored the following questions and challenges:

• How are you engaging with your board on climate transformation?
• What steps has your board taken to create support for managing a net-zero transformation?
• Does it engage in related scenario exercises?
• How does your board sign off on climate targets?
• How does it monitor progress?

Member companies shared strategic insights on how they engaged their boards on climate:

• Transformation must be driven by the CEO and board with “tone at the top.”
• ESG and sustainability teams are the fastest growing internally, impelling more cross-company collaboration, continuous training, and upskilling, including for executives and boards.
• Board committee structure is important, with cross-committee terms of reference and focus. For some members, a dedicated sustainability committee provides oversight across the strategy and programs, with continuous reviews from audit and risk committees.
• Scenario analysis is a key tool to test the resilience of business strategy, and it’s important to tailor the conversation to a board audience.

Climate oversight is a continuous leadership journey for chief sustainability officers (CSOs), executives, and boards alike. Some company leaders are engaging in fireside chats with employees and stakeholders to inspire transformative change. It takes heart and humanity, as well as continuous direction.

Nine Key Steps to Building a Climate-Competent Board

From experience with member company executive teams, BSR has identified three strategies to activate boards:

1. Competencies and structure:

• Build capacity through tailored training and education for the company’s specific circumstances.
• Incorporate climate competencies into the board skills matrix.
• Understand which board committees are charged with climate oversight and adapt messaging to their respective purviews.

2. Strategy and risk:

• Emphasize company risks associated with climate change and with failure to meet climate commitments (e.g., litigation risk, public relations risk, regulatory risk).
• Use scenario analysis to build shared understanding of material climate issues, identify business implications and foster joint problem solving.
• Elevate expert/stakeholder perspectives and impacts through briefings, direct engagement, advisory councils, etc.

3. Oversight:

• Anticipate governance risks related to climate oversight (including board elections, proxy votes, shareholder resolutions).
• Encourage rigorous audit committee oversight and verification in disclosures.
• Evaluate executive remunerations tied to climate and integrate with sustainability across social, human rights, and governance.

Since companies have disclosed and committed to board oversight of climate-related risk and targets, now they are on the hook to live up to those commitments.

Moreover, the latest Intergovernmental Panel on Climate Change (IPCC) synthesis report shows that we must speed up the scale and pace of climate action commensurate to the latest science. Business can take effective, credible action to meet the moment. And this includes an important active role for boards on climate and sustainability at large, in a continuously uncertain world where climate-related risks, opportunities, and the associated net-zero aligned business transformation need urgent attention by all, including from the top.

Sustainability FAQs | Tuesday April 18, 2023

Governance and Oversight of Just and Sustainable Business

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This FAQ sets out BSR’s perspective on the governance and oversight of just and sustainable business at companies. We believe that engaged boards, empowered executive leadership, and clear roles and responsibilities throughout companies are essential for the creation of long-term value for investors and society.

Defining Governance and Oversight

Why is governance and oversight important?

A clear system of governance and oversight ensures that strategies relating to just and sustainable business will be created, implemented, and actioned. 

What is the difference between governance and management?

Governance is the system by which business operations are directed and controlled. The governance structure of a company specifies the distribution responsibilities among different participants, such as the board, managers, and shareholders, and spells out the rules and procedures for making corporate decisions.

Management is the deployment of resources to achieve business goals. The management of a company includes running the day-to-day operations of a company, coordinating the efforts of staff to achieve strategic objectives, and ensuring that the company’s resources are used effectively and efficiently.

Governance is about direction, accountability, and oversight, whereas management is about execution, implementation, and operations. It is important to distinguish between these two different concepts when defining how to advance sustainability and social justice goals with companies by not (for example) assigning “management” expectations to boards.

Who leads governance and management, and who are they accountable to?

The company board is accountable to the company’s shareholders. The company’s board chair leads the board in keeping with the organization’s vision, mission, and strategic planning goals. Duties of boards include choosing the CEO, reviewing / approving company strategy, approving major policies, making major decisions, and overseeing performance.

The company management is accountable to the company’s board. The CEO leads the company in keeping with the board’s direction. The duties of management include making operational decisions, making operational policies, keeping the board educated and informed, creating the company strategy for Board review / approval, implementing the strategy, and bringing well-documented recommendations and information to the board.

What are the key elements of governance and oversight for just and sustainable business?

Governance and oversight for just and sustainable business is the formal integration of social and environmental goals into a company’s corporate governance and operating mode and ensures that material social and environmental issues are effectively managed at all levels of the company. Governance and oversight can be complex because social and environmental issues cut across many different components of a business.

BSR believes that a governance and oversight system should include the following five elements: (1) board level oversight, accountability, and sign-off; (2) executive leadership; (3) a core sustainability team (or similar); (4) clear roles and responsibilities for employees integral to the success of just and sustainable business; and (5) a system for understanding external perspectives via meaningful stakeholder engagement.

Structures for Governance

How should a company board engage on the topic of just and sustainable business?

Best practices include incorporating just and sustainable business into the board mandate, designating a board committee (or committees) for relevant social and environmental issues, training board members on material social and environmental topics, and hiring experts to the Board.

BSR believes there are four critical areas for boards to address:

• Stucture: Formalizing the board’s mandate for just and sustainable business via inclusion in relevant board committee charters and / or creating a new board committee to oversee just and sustainable business.
• Competencies: Recruiting board members with the right knowledge, competencies, and expertise in relevant topics, and with diverse backgrounds.
• Strategy: Developing a strategy with clear consideration for how material topics, emerging issues, and stakeholder impacts shape business success over the short, medium, and long-term.
• Oversight: Establishing goals, incentives, and accountability for management. Meaningful disclosure (e.g., formal approval of annual disclosures on social and environmental topics) is a key aspect of achieving oversight.

How are regulations changing board oversight of just and sustainable business?

Regulations and other emerging global standards are substantially increasing expectations and requirements for board oversight of just and sustainable business. The main implications include: (1) board oversight (e.g., of specific topics); (2) responsibilities outlined in board mandates; (3) board expertise and knowledge; (4) how risks and opportunities are considered in strategy; (5) incentive and remuneration considerations; (6) the board’s role setting up and overseeing due diligence processes; and (7) signing off sustainability reports and disclosures.

For example, the proposed EU Corporate Sustainability Due Diligence Directive (CSDDD) is expected to establish a “duty to act” on the consequence of their board decisions relating to sustainability, climate change, and human rights impacts, while the EU Corporate Sustainability Reporting Directive (CSRD) will require boards to be a part of the company’s due diligence process and sign off sustainability information within a company’s management report. Further, the International Sustainability Standards Board (ISSB) will require climate disclosure and an explanation of board governance and oversight.

These regulations and standards redefine the role of the board implicitly (by creating new corporate standards) and explicitly (by specifically obliging boards to oversee sustainability and human rights at their companies).

What are the best practices for establishing and maintaining board competency on just and sustainable business?

There is increasing awareness of the need to fill the gap in expertise and skills at board and management levels on social and environmental topics, such as climate change, human rights due diligence, and social justice. Best practices include training board members on material topics and emerging trends through formal means (such as executive education) or informal means (such as regular briefings and inviting the participation of external speakers).

It is important to ensure diversity of skills and experience at board level, including consideration of diversity or race / ethnicity, gender, and age. Ideally at least one board member has expertise on material social and environmental topics.

Should there be a separate board committee dedicated to just and sustainable business, or should matters of just and sustainable business be integrated into other board committees?

Assigning social and environmental issues to a board committee (or committees) allows for key issues to be considered systematically and in greater depth. However, there is no “one size fits all” approach to how this is achieved—every company board is uniquely structured, and different issues may be suited to different committees.

For example: an audit committee may oversee human rights due diligence overall or specific topics (such as privacy); a compensation committee may oversee diversity, equity, and inclusion; a nominating and governance committee may ensure that appropriate sustainability skills and experience are present on the board; a public policy committee may consider matters relating to government relations or social impact; a dedicated sustainability or corporate responsibility committee may oversee a company’s materiality assessment process and ensure that social and environmental risks are being appropriately identified, tracked, and addressed.

As a matter of principle, the entire board should have the opportunity to engage with matters of just and sustainable business that impact company strategy and have the right level of understanding required for informed decision making. The audit committee can play an important role in assigning issues to board committees and clarifying when the responsibility extends to the full board.

Structures for Management

What are best practices for executive oversight and leadership?

The “tone from the top” and good executive leadership helps build a culture of just and sustainable business throughout a company; if just and sustainable business is on the leadership agenda, it will be prioritized.

Clear roles and responsibilities provide clarity, alignment, and expectations to those executing the work on just and sustainable business, and enable effective communication between different functions, business units, and teams.

Rewarding performance and creating consequences for non-performance on a set of clearly defined goals helps ensure that just and sustainable business is placed on the same level as other aspects of business. For example, social and environmental performance can be linked to executive compensation and employee bonuses more broadly via key performance indicators linked to issues such as health and safety, CO2 emissions, or diversity.

How should just and sustainable business be organized inside companies?

The most effective organizational structure for just and sustainable business will be different across companies and industries, though most can be categorized as “centralized”, “embedded”, or “distributed” structures:

• Centralized: A larger team (e.g., 15+ staff) acts as the center of expertise and implementation at the company. This team will implement key aspects of just and sustainable business, such as strategy, reporting, and stakeholder engagement, while relying on other functions to implement the strategy and improve performance. Centralized structures are often associated with joined up approaches to just and sustainable business, such as leadership for climate change, human rights, and labor issues being jointly assigned to a single chief sustainability officer.
• Embedded: A smaller team (e.g., 5 or fewer staff) implements core elements of just and sustainable business (such as reporting and disclosure) but relies more on other functions to lead strategy development and implementation.
• Disitributed: A variety of different teams (e.g., sustainability, human rights, civil rights, DEI, product responsibility) lead different elements of just and sustainable business, often in different functions of the company. In this model there are often multiple rather than single executive leads—for example, there may be a chief sustainability officer for climate change, a VP for human rights, and a VP for supplier responsibility all leading different programs.

BSR believes that a dedicated “head” of just and sustainable business can be a best practice for some companies but not others; more important is the existence of a joined-up and cohesive approach that is accountable to the company board. We note that terms such as “sustainability”, “ESG”, and “social impact” have taken on different meanings in different industries and can be associated with very different team and individual mandates.

Which department or function should just and sustainable business be part of?

The most effective function for just and sustainable business will vary across companies and industries. BSR has seen both successful and unsuccessful teams located in departments as diverse as strategy, commununications, risk, government affairs, legal, product, and procurement; for this reason, we have concluded that department or function on its own this is not an important variable determining success. Far more important is that the team (or teams) reside in a part of the company where they can make, shape, and influence the decisions, actions, and implementation priorities most relevant for the company’s material social and environmental issues and have a direct line to CEO / executive leadership decision making.

Should there be a chief sustainability officer, and what should their brief be?

For many companies a chief sustainability officer can be a very effective role, provided the chief sustainability officer is resourced, empowered, and supported effectively. The precise role will vary depending on the company’s material issues—for example, it may focus on value creation where the company is in the business of providing sustainability solitions, or it may focus on risk mitigation where the company is faced with material risks; in both cases, being a change agent and coalition builder are common themes. For some companies a chief sustainability officer may be focussed on a constrained set of issues (e.g., climate change and nature), while in other companies a chief sustainability officer may have a broader brief that also encompasses human rights, labor issues, and ethics. There may be other leaders inside companies (e.g., a VP human rights) with chief sustainability officer-like roles. In all cases, direct access to the CEO and Board is essential.

How should other functions and teams be engaged?

A core sustainability team (even a large one) cannot fulfill a company’s just and sustainable business strategy alone, and a broader group of employees should take on roles and responsibilities to help implement the strategy, achieve goals, and improve performance. This is particularly true for companies with “embedded” and “distributed” approaches.

Many companies create cross functional working groups (or similar, such as councils and networks) to provide a platform for validating programs and initiatives, implement and support strategic initiatives, and engage a broader base of employees. These cross functional working groups can be composed of multiple functions, operations, and geographies, and it is important to establish clear meeting frequencies, agendas, and communications channels.

These cross functional working groups can be formal (e.g., defined membership, formal charter, regular meeting cadence) or informal (e.g., shifting membersip, flexible charter, and meeting “as needed”), with different approaches suiting different company cultures. In all cases an effective support staff or “secretariat” is needed for success.

How should external stakeholders be engaged?

Effective approaches to just and sustainable business require a deliberate, strategic, and structured approach to securing the insights, perspectives, and involvement of affected stakeholders (such as customers, civil society organizations, and local communities) and other experts (such as academics) and to embedding them into company decision making. This is the subject of a different BSR FAQ on meaningful stakeholder engagement.

Should companies establish external stakeholder advisory councils?

An external advisory council can help bring diverse thinking, improved rigor, and greater determination into programming and strategy. When doing so it is important to develop clear terms of reference, including: 

• Objective: Determine the objective of the group (e.g., review policies; input into strategy; provide emerging issue knowledge; guide industry best practice etc.).
• Composition: Determine the makeup of the group, roles and responsibilities, and term limits.
• Meeting frequency and agenda: Set clear meeting frequency, agendas for each meeting, and communication channels.
• Transparency: Establish clarity on whether / where the external advisory council is publicly known and / or whether the external advisory council can issue its own communications.

Sustainability FAQs | Tuesday April 18, 2023

Stakeholder Engagement

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This FAQ sets out the BSR perspective on stakeholder engagement. We believe that meaningful stakeholder engagement is an essential foundation for just and sustainable business and a core element of processes such as decision making, strategy development, materiality assessment, human rights due diligence, and reporting. Without meaningful stakeholder engagement, any approach to just and sustainable business would be constrained by a company’s self-interest and inward focus.

Defining Stakeholder Engagement

What is the definition of a stakeholder?

A stakeholder is someone who affects or is affected by a company’s operations, activities, products, or services, and can be either inside or outside the company. Common stakeholders include employees, customers, users, consumers, suppliers, business partners, investors, trade unions, civil society organizations, policy makers, regulators, and the communities impacted by operations.

The OECD defines stakeholders as “persons or groups who have interests that are or could be impacted by an enterprise’s activities.”¹ The Global Reporting Initiative adopts this same definition and clarifies that stakeholders may not always have a direct relationship with the company—for example, workers in the supply chain or future generations can also be considered stakeholders.²

What is the distinction between a rightsholder and a stakeholder?

The term rightsholder is used for individuals or groups whose individual human rights or collective rights are or could be directly impacted by business activities, products, or services. This is distinct from other stakeholders (such as civil society organizations) who may have insights, expertise, and awareness relevant for rightsholder interests, but who may not themselves be rightsholders. All rightsholders are stakeholders. The term “affected stakeholder” is also used to refer to an individual whose human rights has been affected by a company’s operations, activities, products, or services.³

As a matter of principle companies should engage with potentially affected stakeholders (i.e., rightsholders) by consulting them directly; in situations where such consultation is not possible, companies should engage reasonable alternatives, such as independent experts, civil society organizations, and human rights defenders.⁴

In practice, this can often mean that companies should engage both large international / national organizations and grassroots / local organizations; the relevant stakeholders to engage with may not always be the “usual suspects” of prominent organizations.

What is meaningful stakeholder engagement?

Meaningful stakeholder engagement is characterized by two-way communication based on the good faith of participants on both sides. Meaningful stakeholder engagement is proactive, responsive, and ongoing, and is often conducted before decisions are made.⁵

Stakeholders that choose to engage with companies generally expect the interaction to generate change, so engagement should be treated as a dialogue, not a one-way information dissemination process. This means that the company engages with the genuine intention to understand how stakeholders are affected by its activities and is prepared to both pursue opportunities identified and address adverse impacts.

What is a multi-stakeholder initiative?

The term “multi-stakeholder” is often used to describe collaborative efforts where no single organization has the authority or resources to address a particular issue. However, the term “multi-stakeholder” is used to convey different meanings.

In BSR’s view, a “multi-stakeholder initiative” (sometimes referred to as an MSI) is characterized by a decision-making structure where no single constituency (e.g., companies, civil society organizations, investors, governments) has a majority of the votes. By contrast, a “multi- stakeholder approach” implies the formal involvement of different constituencies, and “multi-stakeholder engagement” implies informal engagement with different constituencies; however, in the latter two cases, a single constituency (typically companies) retains exclusive or majority decision-making power.

Which rightsholders may be at heightened risk of becoming vulnerable or marginalized?

The UN Guiding Principles on Business and Human Rights state that companies should pay particular attention to the rights and needs of, as well as the challenges faced by, individuals from groups or populations that may be at heightened risk of becoming vulnerable or marginalized.⁶ Vulnerability can have four dimensions:

• Formal Discrimination: Laws or policies that favor one group over another.
• Societal Discrimination: Cultural or social practices that marginalize some and favor others.
• Practical Discrimination: Marginalization due to life circumstances, such as poverty.
• Hidden Groups: People who might need to remain hidden and consequently may not speak up for their rights, such as undocumented migrants and sexual assault victims.

Vulnerability is not limited to discrimination and can manifest in heightened risk for several harms, such as bodily integrity, psychological safety, and economic exclusion. Vulnerability is context-specific, and someone may possess a privileged identity in one context that is marginalized in another; vulnerability is also intersectional, and possessing multiple vulnerable identities may compound impacts on a rightsholder.

These features of vulnerability mean that companies should consider which stakeholders are most vulnerable for the relevant context, such as project, product, or service. Engagement with individuals from groups or populations that may be at heightened risk of becoming vulnerable or marginalized may necessitate specific approaches that remove barriers for participation (e.g., language, location, cost).

Purpose of Stakeholder Engagement

Why should companies engage stakeholders?

There are several reasons for companies to undertake meaningful stakeholder engagement:

• Gaining insights: Engaging with stakeholders can help companies gain valuable insights about stakeholder needs, expectations, and concerns. These insights can help companies refine their operations, products, and services to better meet the needs and expectations of their stakeholders.
• Trust building: Engaging with stakeholders can help companies build trust and credibility with their stakeholders. When companies listen to stakeholder feedback and act upon it, stakeholders are more likely to view the company as trustworthy and reliable.
• Risk and impact management: Engaging with stakeholders can help companies identify risks and challenges before they escalate into major concerns. 
• Enhancing reputation: Engaging with stakeholders in a meaningful and authentic way can help companies enhance their reputation and brand image, leading to increased customer loyalty, employee retention, and investor confidence.
• Meeting legal and regulatory requirements: Many companies are required by law to engage with certain stakeholders, such as employees, customers, and communities. Failure to do so can result in legal and financial consequences.

What projects are most relevant for stakeholder engagement?

The following projects are not mutually exclusive, and stakeholder engagement can serve multiple purposes at the same time:

• Environmental and human rights due diligence: When undertaking environmental or human rights assessments companies should seek to understand the concerns of potential affected stakeholders by consulting them directly in a manner that takes into account language and other potential barriers to effective engagement. Engagement with stakeholders should influence other due diligence steps too, such as determining appropriate action, tracking effectiveness, and defining external communications.⁷
• Materiality assessments: Companies should engage stakeholders when identifying actual and potential impacts, assessing the significance of impacts, and prioritizing the most significant impacts for reporting. Stakeholders can have insights into both financial materiality (i.e., what is material to investors from a financial perspective) and impact materiality (i.e., impacts on people and the environment).
• Creating strategy: Meaningful stakeholder engagement can inform the creation of strategies for just and sustainable business—both stand-alone strategy and the embedding of social justice, human rights, and sustainability factors into business strategy.
• Reporting and disclosure: Companies should communicate their approach to just and sustainable business externally and address concerns raised by or on behalf of affected stakeholders. This communication should be in form and frequency that reflects the companies impacts and accessible to intended audiences; for this reason, stakeholder engagement can usefully inform reporting strategies, channels, and forms.

When should companies undertake stakeholder engagement?

Companies should undertake stakeholder engagement prior to major decisions, such as a new activity or relationship, market entry, product launch, or policy change. However, investment in trusted stakeholder relationships over time can improve the quality of engagement quality at moments when timelines and decision-making processes are compressed (e.g., prior to product launch or response to a new crisis).

Meaningful stakeholder engagement is important throughout the due diligence process: identifying actual or potential adverse impacts; devising responses to risks of adverse impacts; tracking and communicating how impacts are being addressed; and identifying forms of remedy for adverse impacts. During due diligence it may be necessary to distinguish between stakeholders whose interests have been affected (i.e., “affected stakeholders”), and those whose interests have not yet been affected but could potentially be affected (i.e., “potentially affected stakeholders”).

Is stakeholder engagement solely taken for the purpose of risk management?

No. While stakeholder engagement can inform risk management (e.g., meaningful engagement of stakeholders during due diligence), stakeholder engagement can also be undertaken to identify value creation opportunities, such as designing new products and services, undertaking more inclusive research and development, and testing new strategic priorities.

Stakeholder Engagement Best Practice

What are the principles of meaningful stakeholder engagement?

Stakeholder engagement methods will vary by context. However, all engagement should satisfy the following principles:

• Focused: Engagement goals should be focused and relevant, and expectations for both the company and the stakeholder should be shared, clear, and realistic.
• Timely: Engagement should be conducted in a timely manner to ensure that the perspectives of stakeholders can inform the outcome of business decisions that might affect them (e.g., at relevant points in a product or project lifecycle).
• Representative: The engagement should be structured in a way that enables the perspectives of diverse stakeholders to be considered. 
• Inclusive: Companies should ensure that engagement reaches individuals from groups or populations that may be at heightened risk of becoming vulnerable or marginalized, such as human rights defenders, political dissidents, women, young people, minorities, and indigenous people.
• Respectful: In the context of stakeholder engagement, respecting means listening as well as sharing, and using an engagement approach that is culturally sensitive and accessible to all participants. This means considering context, location, format, and language.
• Candid: The process of selecting participants should be transparent, and engagement notes, actions, and outcomes should be shared with participants. If full disclosure to the wider public is impossible—given potential risks to participants and to the confidentiality of business decisions—summary outcomes should be disclosed.

What are some of the stakeholder engagement best practices?

The specifics of stakeholder engagement practice will vary by context. Some best practices for stakeholder engagement include:

• Help stakeholders prepare: Making sure that participants are aware of goals, format, envisaged contribution, and any useful background information so the discussion will be as productive as possible.
• Share and address stakeholder expectations: Inviting stakeholders to share their expectations for the engagement, and be clear whether, when, and how these may be addressed after the engagement.
• Allow for equal contribution: Encouraging less-vocal stakeholders to participate in the conversation, creating a space in which this is possible and comfortable, and respecting each party’s right to observe quietly if they choose.
• Focus the discussion: Dialogues can veer off-topic if not properly focused. Sticking to an agenda, remaining within the issue’s scope, and assessing when / how any exciting out-of-scope issues should be addressed.
• Manage cultural dynamics: Participants should be wary of potential cultural misunderstandings and be prepared to manage any that arises. There are various approaches (e.g., local partners, translators) that can help.
• Mitigate tension: Some topics can prove controversial or provocative, and unexpected dynamics or rivalries may surface among participants. Thorough preparation will help, but anticipating a range of outcomes is essential.
• Effective communication: Communication should be tailored to the stakeholders' needs and preferences.
• Transparency: Being transparent with stakeholders about a company’s goals, performance, and challenges can contribute to trust building.

What are the skills needed to conduct meaningful stakeholder engagement?

Meaningful stakeholder engagement requires a good level of cultural competency, especially when conducting interviews or facilitating dialogue with rightsholders. Cultural competency means bringing empathy, awareness, and sensitivity to cultures other than one’s own, and requires actively avoiding inclinations to just see from one’s own experience and perspective. This can be especially important when dominant cultures exist or where there is power asymmetry between the company and stakeholders. It is crucial to not make assumptions, but rather to ask questions, learn, and listen to lived experiences.

The subtlest (and perhaps most important) skill for engagement is understanding that each stakeholder will always harbor certain perceptions of both the company and the other stakeholders involved, and that each is just one player in a dynamic system.

What are some of the main risks associated with stakeholder engagement?

There are contexts where stakeholders may face risks to their personal safety and security and those of their families, friends, and associates if their engagement with the company becomes known—for example, in the form backlash, retaliation, or harassment. Companies should be aware of these risks when recording the engagement (e.g., whether to attribute comments when taking notes), communicating about the engagement (e.g., in sustainability reports), or choosing the engagement location (e.g., selecting a safe / private location).

Should the company board be involved in stakeholder engagement?

While stakeholder engagement should normally be led by company management, it is important for Boards to (1) be informed of insights gained through stakeholder engagement and (2) be involved in discussions about the strategic and risk mitigation implications feedback provided by stakeholders. An external stakeholder advisory council is one method that can be used for Boards to gain regular insight into stakeholder perspectives, alongside executive leadership and relevant teams.

What are some of the biggest stakeholder engagement mistakes?

There are several common mistakes that companies make with stakeholder engagement.

First, there can be a mismatch of expectations for the engagement, such as the perception that it may lead to immediate action by the company for mitigation and remediation.

Second, companies can sometimes view engagement as the end goal, rather than the foundation for an ongoing dialogue or mutually beneficial relationship. Companies sometimes fail to report back on decisions made or actions taken following the engagement, don’t “close the loop” on engagement, and don’t view the engagement as the start of a longer-term relationship.

Third, companies can often view stakeholder engagement as an opportunity to convince the stakeholder of perspective or “tell a good story” about the company’s work, rather than as an opportunity for listening, learning, and dialogue.

Finally, stakeholder engagement can be undertaken in ways that are “extractive”, “transactional”, or “procedural”, with little benefit for participating stakeholders. The best stakeholder engagement builds and nurtures long-lasting and trusted relationships.

Are there power imbalances in stakeholder engagement?

Yes. Company relationships with stakeholders are often asymmetrical, and there can be power imbalances between companies and stakeholders that may be smaller, less influential, and less well-resourced. These power imbalances can be informational (e.g., the company has technical expertise or product knowledge that stakeholders don’t have), resource based (e.g., the company has resources for research that stakeholders don’t have), or time-based (e.g., companies having more time to prepare for the engagement than stakeholders).

Power imbalances can be addressed in various ways, such as timely provision of information needed by stakeholders to participate effectively, the provision of resources (e.g., travel expenses, honoraria), and use of subtitle or translation services.

What is “stakeholder fatigue”?

The risk of “stakeholder fatigue” arises when stakeholders are asked to participate in multiple duplicative and repetitive engagements by many companies operating independently. This can be addressed by companies in similar contexts (e.g., same industry, product, country, value chain) engaging stakeholders via multi-stakeholder initiatives / forums or other collaborative approaches to engagement.

Footnotes

1. OECD (2018) OECD Due Diligence Guidance for Responsible Business Conduct
2. Global Reporting Initiative (2021) GRI 1: Foundation.
3. For example, in United Nations (2012) UN Guiding Principles for Business and Human Rights Interpretive Guide
4. UN Guiding Principles for Business and Human Rights, Principle 18; Global Reporting Initiative (2021) GRI 3: Material Topics.
5. For example, see OECD (2018) OECD Due Diligence Guidance for Responsible Business Conduct and Global Reporting Initiative (2021) GRI 2: General Disclosures.
6. UN Guiding Principles for Business and Human Rights, General Principles
7. UN Guiding Principles on Business and Human Rights, Principles 18 (Assessment), 19 (Appropriate Action), 20 (Tracking), and 21 (Communications)

Blog | Tuesday April 18, 2023

A Human Rights Impact Assessment of Twitch

Preview

From late 2021 to mid-2022, BSR and Twitch undertook a human rights assessment of Twitch, an interactive live streaming service for content spanning gaming, entertainment, sports, music, and more. Today, we are pleased to publish the final report in full.

The goal of the assessment was to identify and prioritize Twitch’s human rights risks and make recommendations for actions to address these risks, including via collaboration with other organizations. BSR and Twitch wish to thank all Twitch employees, rightsholders, and stakeholders who participated in this assessment.

Consistent with the UN Guiding Principles on Business and Human Rights, this assessment is based on risks to people (i.e., risks to rightsholders) rather than risks to the business (i.e., risks to enterprise value creation). This people-oriented approach enables a meaningful human rights program and a sophisticated approach to addressing business risks.

The assessment focuses on human rights most relevant to Twitch service policy, partnerships, and impacts, rather than Twitch’s broader operations and supply chain. This was agreed with Twitch at the outset given the likely greater salience of these human rights impacts and the increasing stakeholder interest in them. Off-service harassment issues are important but were not in scope for this assessment.

BSR would like to emphasize the following three points alongside the assessment:

1. This is an assessment, not an audit. The value of this assessment is to consider human rights risks that may emerge or grow over time as Twitch evolves, such as content and users that extend beyond the gaming community or Twitch becoming more popular in more locations, cultures, and languages. The assessment makes 24 recommendations for how risks may be addressed across content policy, implementation of content policy, product development, system-wide approaches, and tracking and transparency. While understanding how Twitch is used today was hugely important, our primary focus was on preparing Twitch for the future.
2. System-wide approaches are important. Many of Twitch’s human rights risks (such as policy-violating live streamed content being recorded and shared elsewhere) are beyond the ability of Twitch to address alone, and multi-stakeholder efforts offer important opportunities to collaborate with others. Developing moderation tools and approaches that address live streaming risk is one area where Twitch can usefully collaborate with others, including via existing multi-company and multi-stakeholder efforts.
3. Live streaming presents content policy dilemmas that would benefit from further dialogue with stakeholders and experts. Examples include the privacy rights of those incidentally captured in live streaming, the live streaming of major events (such as protests, conflict, and other gatherings) where violating content may exist in the context of otherwise valuable streaming, and content policy enforcement challenges with live streaming, such as the limited reliability of tools for automated detection of potentially violating content. Community moderators play an essential role in identifying potentially violating content on chat and in livestreams, and they will benefit from resources, training, and investment that include human rights priorities, such as on transphobia, gender, and hate speech. 

Taking a human rights-based approach consistent with the UNGPs will help social media companies address the content policy challenges of today and tomorrow. We hope the assessment provides this foundation for Twitch.

Reports | Tuesday April 18, 2023

Twitch Human Rights Impact Assessment

Preview

Twitch partnered with BSR's and Amazon’s central human rights team to undertake a human rights assessment of Twitch. The goal of the assessment is to:

• Identify and prioritize human rights risks with which Twitch is involved, and the vulnerable groups impacted
• Recommend appropriate action for Twitch to address these risks (i.e., avoid, prevent, mitigate, and remedy)
• Describe the roles and responsibilities of other actors in the Twitch value chain, and identify how Twitch could partner with these actors to address these risks

This assessment focuses on the human rights most relevant to Twitch platform policy, partnerships, and impacts (including safety operations), rather than Twitch’s broader operations and supply chain. This focus was agreed with Twitch at the outset given the likely greater salience of these human rights risks and the increasing stakeholder interest in them. Off-service harassment issues were not in scope for this assessment.