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Blog | Thursday May 23, 2019

What Do the Next 20 Years Hold for the Healthcare Industry?

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1999: the year The Matrix was released, Lance Armstrong won his first Tour de France, and the euro was introduced as a common currency.

For the pharmaceutical industry too, 1999 seems very “last century.” It was the year that Pfizer acquired Warner Lambert; the year after, Astra AB merged with Zeneca, and in the following year, GlaxoWellcome merged with SmithKline Beecham.

1999 was also the year that BSR launched its Healthcare Working Group (HCWG). Serving as a forum for companies to discuss societal issues faced by the healthcare sector, the early members included Bristol-Myers Squibb, Johnson & Johnson, GlaxoWellcome, and Pfizer, all of whom came together with a primary focus on environment, health, and safety.
 

This year, we are delighted to celebrate the twentieth anniversary of this landmark collaboration for the healthcare sector.

On our anniversary, the HCWG is taking a moment to look at what we—and the healthcare industry as a whole—have achieved. At the same time, we’re also looking to the future, as major shifts, from the climate crisis to artificial intelligence, are already reshaping the healthcare sector on a global scale. Amid these changes, we remain convinced that collaboration is vital to address the challenges and to leverage the opportunities these shifts will bring.

Over the past 20 years, the healthcare industry has made significant progress on many issues around good corporate practice and social impact. In 1999, members of the HCWG may have found it hard to imagine that the next 15 years would see the industry’s reputation shaken by corruption, a systemic and global challenge estimated to cost the industry up to six percent of its total revenues, and that this would drive the sector to evolve its approach to ethics from a rules-based culture of compliance to a culture of business integrity and values.

Another thing that they may have found surprising in 1999 would be the UN’s Guiding Principles on Business and Human Rights, which, released in 2011, articulate companies’ corporate responsibility with respect to human rights. They probably would have been even more skeptical if told that the principles would fundamentally change their own industry’s views and understanding of their responsibility in terms of human rights. 

And at the time the HCWG was founded, members may not have anticipated the full significance of the landmark court case in which several antiretroviral manufacturers sued the South African government—this legal case ultimately presaged fundamental changes and formidable progress on access to healthcare. Yet a few years later, HCWG members convened and engaged key stakeholders to shape what became BSR’s Guiding Principles on Access to Healthcare (GPAH)—a set of industry-wide principles and approaches that recognize the multifaceted aspects of access through the importance of five core areas: collaboration, research and development, availability of healthcare services, health systems resources, and human rights. The GPAH were signed by the CEOs of 13 major global healthcare companies, which helped to spur action on this critical topic.

While great progress has been made on access to healthcare, this remains an ongoing challenge and requires continued action.

Today, while great progress has been made on access to healthcare, this remains an ongoing challenge and requires continued action. However, as we look to the next 20 years, it may no longer be the most significant challenge for healthcare companies.

Climate change is a prime example: It will have major impacts on health globally and will thus affect the healthcare industry as well. Climate change will dramatically increase the already rapidly expanding occurrences of noncommunicable diseases and disorders like respiratory diseases, heart disease, depression, and mental disorders. Equally, rising temperatures will bring changes in the distribution and burden of vector-borne diseases (such as malaria, Zika, and dengue fever) and water-borne infectious disease. Meanwhile, water—a key resource for all pharmaceutical companies—will become increasingly scarce and precious.

For healthcare companies, this means thinking hard and acting quickly to build resilience to the coming global impacts of climate change on health. This might mean analyzing production capacity or investing in research and development for the kinds of new drugs that may be required, and overall leveraging their assets, products, services, and innovation to provide solutions that reduce climate-related burdens on health.

Similarly, the healthcare sector at large must tackle antimicrobial resistance (AMR). There are approximately 700,000 AMR-related deaths every year, but the challenge is growing exponentially: One estimate suggests that deaths could increase to 10 million per year by 2050 if AMR is left unaddressed. This is a global challenge that requires collective understanding and solutions. Whether or not healthcare companies have antibiotics in their portfolio or research and development, they are and will be affected by growing and uncontrolled AMR.

As tech companies move into healthcare, new competition is set to drastically disrupt the industry.

A third example is the rise of disruptive technologies, which promise both exciting solutions and challenges. As tech companies move into healthcare, new competition is set to drastically disrupt the industry. Moreover, the growth and use of artificial intelligence (AI) in treatment plans, connected health, and patient monitoring may positively influence standards of healthcare. However, when AI is deployed in healthcare, risks arise in the areas of privacy, informed consent, or even discrimination.

These examples have something in common: They spread across the healthcare sector. They are not isolated topics for individual companies, and they cannot possibly be solved by any one company alone.

The HCWG exists as a forum of experts and peers, working together to share the challenges of today, anticipate the trends of tomorrow, discuss best practices, and co-create solutions. We’re proud to count many of the largest pharmaceutical and healthcare companies as our members: They bring unparalleled knowledge, reach, and influence to address the major trends that impact the world.

Working with our members, the HCWG recently developed a new strategy that sets out its vision to improve health globally through a sustainable and resilient healthcare sector—for the next twenty years and beyond. If you would like to be a part of this, benefit from working with your peers, and continue to be at the forefront on collective action, please reach out to us.

Blog | Monday May 20, 2019

A Five-Step Approach to Engaging Investors on Sustainability

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This article is the second in a four-part series of essays about stakeholder engagement. You can find the first article here.

I started my career in sustainability as an environmental, social, and governance (ESG) analyst in 2005. Witnessing the mainstreaming of ESG investing in the past two years has been truly exciting. Today, I help companies integrate sustainability across their business, and it has never been more critical for companies to effectively engage their investors on ESG issues.

In the United States, ESG investing has entered a new era. The infamous annual letters of BlackRock CEO Larry Fink and majority votes for climate-change-related shareholder resolutions at ExxonMobil and Occidental Petroleum are already strong signals that investors care about sustainable and long-term growth. Beyond this anecdotal evidence, ESG investing in the United States now represents a quarter of assets under management, compared to less than 18 percent in 2014, just five years ago. Between 2016 and 2018, ESG investing grew by 38 percent. According to a survey of 141 asset managers from the US SIF: Forum for Sustainable and Responsible Investment, client demand is cited as the leading motivation for incorporating ESG criteria into investment decisions.

In Europe, this trend is not new. There, ESG investing has represented about half of assets under management since 2014. But times are no less exciting. Last year, the European Union announced an ambitious sustainable finance action plan. It is now building a taxonomy to define what constitutes sustainable investing, creating EU labels for green financial products and enhancing corporate reporting requirements.

In this context, companies that are not engaging investors on sustainability are missing an opportunity to attract and retain investors focused on long-term value and ESG.

It has never been more critical for companies to effectively engage their investors on ESG issues.

From the point of view of companies, engaging investors on sustainability can seem daunting and confusing. Companies are facing a growing number of requests for information from investors and ESG rating agencies. As with any stakeholder group, investors are not a homogeneous group, and they present a diverse set of objectives, investment time horizons, and expectations. One of the most common questions I hear from BSR members is which ESG questionnaire they should be answering.

Recently, BSR published an update of one of its most popular reports, Five-Step Approach to Stakeholder Engagement, which provides practical guidance on defining and implementing a stakeholder engagement plan. There is huge value to applying a structured approach to engaging your investors. Here’s how you can apply our five-step approach to this particular stakeholder group:

Step One: Build Your Engagement Strategy

In step one, set a vision and level of ambition for engaging your investors. Review lessons learned from previous engagements with investors and build out the business case for engaging investors. You will also need to set up a team of champions internally made up of both investor relations and sustainability teams. There are a number of ways in which sustainability and investor relations teams can work together to proactively engage investors on sustainability.

Step Two: Map Your Stakeholders

In step two, identify and prioritize stakeholders and select engagement mechanisms. The team of champions builds a long list of asset owners, asset managers, ESG rating agencies, sell-side research, etc. The team analyzes and ranks the investors across three criteria: (1) the influence of the investor, (2) the credibility of the investor, and (3) the level of resources needed to engage the investor. Put these stakeholders on a 2x2 matrix. The stakeholder map will allow you to select an engagement mechanism (such as monitor, message, advocate, or consult) tailored to the specificity of that investor.

Steps Three and Four: Prepare and Engage

You are now ready to select the engagement format tailored to each stakeholder. Engagement formats will range from sending ESG reporting annually, to distributing invitations to investor days or ESG road shows, to engaging in direct dialogues.

Step Five: Create an Action Plan

Your work does not stop here since you still need to translate the findings and insights you’ve received from your investors and feed them back to your organization. For example, you will want to tell your marketing teams if your investors want to know about your customer satisfaction rates.  

This is a bite-size summary, but our report provides much more depth and nuance. Applying this approach will help companies focus their time on the investors that matter the most—which drives mutual benefit and value. 

Blog | Thursday May 16, 2019

How to Drive Value through Supply Chain Sustainability

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No matter the industry, managing sustainability in supply chains continues to increase in importance. The majority of companies’ risks and opportunities are often in their supply chains, and companies with supply chain sustainability programs have a leg up against competitors to mitigate risk, find cost savings through resource efficiency, drive innovation through supplier collaboration, and access finance and improve working capital. To take just one example of the link between supply chain sustainability and business risk, the WHO, ILO and UNDP have found that productivity losses related to heat-related workplace disruption and injury could rise above US$2 trillion by 2030.  

As supply chain sustainability—also known as responsible sourcing, sustainable sourcing, responsible supply, or sustainable procurement—continues to evolve, companies must also stay abreast of the trends regarding best practice in order to build or maintain a competitive edge. At BSR, we have seen the shift from a compliance-based approach which started in the 1990s, to going beyond monitoring in the 2000s, and into supply chain transformation today. These trends align with overall management trends in the evolution of procurement and supply chain management, and companies need to navigate how to evolve with the times. 

Evolution of Supply Chain Management and Supply Chain Sustainability

In order to help companies either start their journey in implementing supply chain sustainability or improve their existing programs, BSR developed the Supply Chain Leadership Ladder in 2017. The Leadership Ladder is a maturity model for companies to evaluate and evolve their approach to supply chain sustainability. Today, we are pleased to announce the launch of its update, the Supply Chain Leadership Ladder 2.0. 

The Leadership Ladder helps illuminate a path to improved supply chain sustainability performance in the following ways:

• Providing a true assessment of the level to which a company’s existing supply chain and procurement practices integrate sustainability and are providing value across internal and external dimensions
• Ascertaining the company’s own level of ambition in driving supply chain sustainability: Does a company want to be driving impact, managing its most important priorities, or is it comfortable at the level of assuring compliance?
• Identifying concrete actions that the company can take to improve its program and approach, and to align with peers or leading practice.

The Leadership Ladder has four levels, reflecting the actions of companies across industries, as well as BSR’s informed vision for impact.

The BSR Supply Chain Leadership Ladder

Through anonymized assessment data of 32 companies, BSR found that the most common level of maturity across company programs is Level 2, Assuring Compliance. We work with companies at the Assuring Compliance level and help them identify opportunities to improve their programs. This can include identifying how to achieve better visibility of the most critical issues, categories of spend, and sourcing geographies in its supply chain; identifying the roles and responsibilities needed internally; or determining how best to engage suppliers and the supply chain workforce towards better outcomes.

The Leadership Ladder 2.0 incorporates learnings from our work with businesses across industries to assess and benchmark their approaches, as well as an external benchmark of the Leadership Ladder against other global frameworks.

We encourage companies to take a hard look at the opportunities to develop and evolve their approach to supply chain sustainability. As always, we welcome feedback and conversation on the new version of the Supply Chain Leadership Ladder.

Blog | Wednesday May 15, 2019

Artificial Intelligence and Human Rights: We Need to Talk about the Use Phase

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As business, government, and civil society make progress in addressing the human rights impacts and ethical questions arising from the use of artificial intelligence (AI), we believe that one supremely important constituency needs to participate much more actively: the “non-technology” companies integrating AI into their business operations, strategies, and plans.  

Without these participants, dialogue about AI and human rights risks being too focused on the development of AI, with insufficient attention given to the companies deploying AI. Our aim with this blog is to explain why. 

In August last year, BSR published three reports setting out the importance of taking a human rights-based approach to the development, deployment, and use of AI. Since then, we’ve put this advice into practice in our work with BSR member companies in the U.S., Asia, and Europe to develop policies on AI and human rights, engage with civil society organizations, and undertake human rights due diligence of AI solutions. We’ve had the opportunity to consider a wide range of scenarios—including algorithmic decision making, facial recognition, and sentiment analysis—as well as a wide variety of application areas, including retail, national security, human resources, and transportation systems. As can be imagined for technologies that are evolving so rapidly, it’s been a time of extraordinary learning. 

In many ways, this work has confirmed predominant assumptions that exist around how technology companies can fulfill the responsibility to respect the human rights impacts arising from the use of their products and services. Across many different settings, our recommendations have coalesced around some common themes: scrutinize the quality of training data, examine to whom you sell products and services and refuse sales to those most likely to misuse them, and establish acceptable use policies that place restrictions on how products and services may be used. We’ve also recommended system-wide approaches, such as advocating for rights-protecting laws and regulations, increasing disclosure and transparency, and providing best practice guidance for users. 

These are all important responsibilities held by technology companies, and nothing that follows should suggest otherwise. However, we’ve found that the common thread running throughout these recommendations is the notion that technology companies should use their leverage to prevent the misuse of products, services, and technologies by influencing the actions of others—and that no matter how much effort is deployed, there is no guarantee of success. 

Decisions made today about the deployment of AI will bring significant consequences for the realization of human rights long into the future.

This observation has led us to one simple question: In addition to trying to influence the actions of others, shouldn’t we also be working more directly with the companies, governments, and organizations that are directly deploying AI themselves? In the terms of the UN Guiding Principles on Business and Human Rights, why would we spend most of our time working with the companies that are contributing to or directly linked to human rights impacts, and much less of our time working with the companies that might be causing them? 

• In the retail industry, stores are deploying AI for theft protection, creating new privacy, security, and discrimination risks, especially for vulnerable populations and marginal groups.  
• In the transportation industry, airlines and airports are deploying facial recognition during the boarding and screening process, raising important issues of consent and non-discrimination.  
• In the automotive industry, car companies are collecting more location data than ever before and sharing them with governments, provoking new questions about whether automotive companies should join with technology companies in publishing law enforcement relationship reports.  
• In the hotel industry, facial recognition technologies are being used to ease the check-in process, impacting rights such as freedom of movement.  

Companies in all these industries should be taking a human rights-based approach to their use of AI. 

The second of the three reports we published last year on the importance of a human rights-based approach to AI anticipated these issues. In it, we listed the human rights risks and opportunities arising from the use of AI in the financial services, health care, retail, transportation, agriculture, and extractives industries, and proposed sector-wide impact assessments for each industry. One year on, we are doubling down on this point of view, such as during our recent participation in the Skoll World Forum, Sustainable Brands Paris, and our own BSR Connect events.  

Decisions made today about the deployment of AI will bring significant consequences for the realization of human rights long into the future—and this means that undertaking due diligence of AI across all industries now is a matter of urgency and not something that can be put off into a distant future. Today, we are joining the Partnership on AI, and we look forward to making good on this perspective by working more closely with the Partnership on AI and BSR member companies across all industries to assess the human rights impacts arising from their use of AI.
 

Reports | Wednesday May 15, 2019

The Supply Chain Leadership Ladder 2.0

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Across industries, managing companies’ supply chain sustainability has become increasingly important. Leading companies recognize that supply chain sustainability programs create value through mitigating risk, increasing resource efficiency to find cost savings, driving innovation through supplier collaboration, and more.  

The Supply Chain Leadership Ladder is a maturity model that BSR has developed for companies to evaluate and evolve their approach to supply chain sustainability. A better understanding of their current standing with regards to supply chain knowledge, management, and supplier engagement helps these companies to identify how and where they need to invest in their supply chain in order to drive competitive advantage. Supply chain sustainability, also known as responsible sourcing, sustainable sourcing, responsible supply, sustainable procurement, and by other names, continues to evolve, and as such, our approach needed to evolve as well.  

Two years following the launch of the Leadership Ladder, BSR is pleased to release this update. The Leadership Ladder 2.0 incorporates learnings from our work with companies where we use the framework to identify their level of maturity and ambition, benchmark their practices against their peers, and develop concrete action plans to improve. 

For companies looking to build or advance their approaches to supply chain sustainability, the Supply Chain Leadership Ladder 2.0 is a useful tool to assess practices and the opportunity to progress. Please don’t hesitate to contact our team to discuss how we can work together. 

Blog | Thursday May 9, 2019

Progress and Opportunities for Responsible Investing in Japan

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From 2014 to 2018, Japanese sustainable investing assets had an astonishing 308 percent compound annual growth rate, vastly outpacing the growth rates in other global regions. Amid this explosion of sustainable investing, the RI Asia Japan conference last month convened hundreds of engaged participants to discuss progress on sustainable finance around the world and specifically in Japan. Long-time participants expressed enthusiasm that the conference had expanded tremendously, necessitating a move to a much larger venue. Much of the discussion addressed global themes, such as the need for more investor-grade environmental, social, and governance (ESG) data and the imperative for climate action.

From my own experience in working on ESG topics in North America and Europe, and arriving as a newcomer to the Japanese responsible investment (RI) community, three unique, Japan-focused dynamics stood out. These dynamics point to keys for adapting and applying global sustainable investment themes within Japan and ways the rest of the world can learn from Japan’s rapid uptake.

The Japanese private equity market is poised for growth—and sustainable investment will be essential for success.

After many years as a niche market, private equity in Japan may be poised for growth. As Private Equity International (PEI) noted in their recent special edition on Japan, the past few years have seen a significant increase in private equity activity, with many predicting that this time, the uptick is likely to continue. As global and domestic firms expand their investments in Japan, it will be vital to adapt and apply global approaches to responsible investing in private equity in the context of two unique market characteristics in Japan.

First, there is significant skepticism about the industry that has led to some negative public perceptions. Private equity in Japan is also highly relationship-driven, with word-of-mouth and referrals an “important source of dealflow,” according to PEI. Many investments are also expected to target the large pool of Japanese family-owned businesses. Taken together, these considerations mean that it will be crucial for private equity firms to build trust and demonstrate a commitment to responsible investing—as firms and in how they steward companies. As Shunsuke Tanahashi, head of the Japan office for Partners Group and a long-time leader in the Principles for Responsible Investment (PRI) community in Japan, notes, “Japanese buyout general partners (GPs) are, in many cases, helping Japanese companies that are suffering from succession issues. Successful GPs are having sincere dialogues with the presidents of those companies and trying to contribute solutions. Sometimes, GPs get investment opportunities even if they do not bid the highest price because their proposal is very sincere and reflects the president's interests. RI/ESG enables those GPs to show their sincerity and create positive feelings toward private equity.”

Another factor affecting sustainable investing in Japanese private equity is that many deals are also likely to target carve-out businesses from large industrial conglomerates. As those businesses become new, independent companies, firms will have to help them establish their own ESG-related policies, governance structures, and practices (rather than continuing to rely on a corporate headquarters to drive those efforts).

Institutional support for the recommendations of the Taskforce on Climate-Related Financial Disclosure (TCFD) illustrates the potential for regulators and asset owners to spur action and the opportunity for Japanese firms to pioneer successful approaches. 

Several influential figures have expressed ongoing, strong encouragement for the adoption of the TCFD recommendations. For example, at the RI Asia Japan 2019 conference, Satoshi Ikeda from the Financial Services Agency expressed support and encouragement for TCFD. Hiroshi Komori of the Japan Government Pension Investment Fund (GPIF) also expressed support for the TCFD recommendations, in alignment with GPIF’s stated views. GPIF has been a strong voice for the implementation of ESG more broadly as well; the fund’s principles include specific attention to “including the consideration of ESG factors.”

Inspired by such voices, Japanese investors and companies are stepping up. A total of 76 Japanese companies/organizations have committed publicly to the TCFD. Out of those 76 entities, 27, or more than one-third, represent the financial services sector.

To gain the full benefit of TCFD analysis, it will also be essential for investors and companies to look beyond a narrow focus on the quantitative analysis of physical and transition risk. To achieve this, they should use foresight and scenario analysis on a broad range of climate resilience factors, such as related changes in mass migration, human health, labor markets, technologies, etc. In addition, they should address the TCFD guidance regarding a company’s governance, strategy, risk management, and metrics and targets. Doing so may in turn improve the structure for broader ESG efforts as well.

Japanese banks have an opportunity to apply leading global practices on environmental and social risk management to address risks beyond climate.

As Japanese banks are eagerly pursuing growth domestically and overseas, they are pursuing investment and financing activities across industries. Sessions at RI Asia Japan 2019 addressed topics such as ESG in supply chains, natural capital, and life below water, yet it seemed that financial services companies had less-developed approaches in these areas compared to climate. While many banks have adopted sector policies on their activities regarding coal, it is imperative to manage a broader range of risks.

Many European and American banks have adopted robust environmental and social risk management (ESRM) approaches and sectors policies covering industries such as mining, forestry, and hydropower, and topics such as human rights and water. Japanese banks should develop similar approaches starting with overall ESRM policies and governance, adding specific guidance through sector policies and promoting implementation through practical tools.

Based on the presentations and conversations at the conference, it seems that there are some areas where Japanese financial institutions are pursuing leading approaches to ESG management and where there are opportunities to do more. BSR looks forward to continuing to serve our members based in Japan and doing business in the country and checking back in with RI Asia Japan 2020.

Blog | Tuesday May 7, 2019

Making Supply Chains Safe for Women Workers

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The Guardian reported on a recent study of Vietnamese clothing, footwear, and outdoor wear manufacturers, which found that “workers in Vietnamese factories have been harassed, groped, and even raped.” This was both sadly shocking and sadly predictable.  

Though compliance programs are in place, they have not guaranteed harassment-free work environments. The prevalence of harassment is sadly shocking: nearly half of the women interviewed reported having faced abuse in the past year. The abuse “ranged from groping and slapping to rape and threats of contract termination.” What’s more, this took place in a Vietnamese factory that has been under the global corporate compliance microscope since the mid-1990s. 

The story is also sadly predictable in several ways. First, it is well-known in the compliance industry that corporate compliance auditing has difficulty picking up on harassment issues. This article underlines that harassment and gender-based violence is a reality in the (garment) supply chain, no matter what your social compliance data tells you. This new study should drive us to revisit questions of auditing purpose and to ensure that the safeguarding of workers—and not just of buyers’ reputations—is at the heart of our efforts.   

A second sadly predictable finding was “a high correlation between overtime and workplace abuse.” Stress, pressure, and exhaustion rarely lead to good outcomes, as this study makes clear: “Violence and harassment was 3.8 times more likely during the high season than the rest of the year, 2.4 times more likely when workers reported working overtime of 30 hours or more a month, and 1.6 times more likely when workers could not refuse to work overtime.” 

Complying with Vietnamese legal requirements—that overtime cannot exceed 30 hours per month and 200 hours per year—could significantly reduce harassment and abuse. And yet overtime has been one of the most difficult and challenging issues for supply chain compliance programs to really impact. Solutions, as outlined in the article, must be built through supplier relationships.  

The overriding message is that when it comes to tackling harassment and abuse, compliance programs alone are inadequate. They need to be rethought with the worker at the center, and they should measure and bolster the programs put in place to address root causes and build real change.  

How can buyers and suppliers contribute to real, lasting change?   

Buyer-supplier relationships matter in everyday situations as well as in exceptional circumstances. Corporate values stand as the baseline for decision-making. The starting point for buyers should be their own corporate values—which should be the values they expect their supply chain to mirror. These corporate values must be not just listed in a Code of Conduct, but integrated into business processes, trade terms and conditions, internal action, and corporate leadership. 

One clear area for action that can directly benefit buyers and suppliers while contributing to tackling the harassment issues identified in this study is women’s empowerment. Ensuring that women workers have the tools, skills, support, and confidence they need will drive business benefits and address underlying norms and the all-too-prevalent acceptance of violence from both men and women.    

Putting this value into action requires both buyer and supplier action. On the buyer side, “walking the talk” is fundamental, as well as providing incentives and recognition to suppliers which embrace and implement the value. Actions might include signing the Women’s Empowerment Principles (WEPs) and conducting a Gap Analysis to pinpoint areas for improvement. Buyers can also ensure that gender equality is adequately reflected in social auditing practices. When it comes to incentivizing suppliers, Lindex’s WE Women provides one instance of suppliers’ performance on gender equality being incorporated into overall sustainability performance scorecards.

Suppliers also need to “walk the talk.” This might mean evaluating and improving their own workplace attitudes, policies, and standards.  Suppliers can also proliferate and promote knowledge and skills to their workforces and communities through workplace-based interventions while ensuring that management leads with appropriate policies, attitudes, and behavior, and that support is offered to workers to both understand what is right and wrong, how they can set boundaries for themselves, and/or report issues they encounter.

If we put the welfare of workers, particularly women, at the center of purpose, business benefits follow.

BSR’s HERrespect brings together buyers and suppliers to implement such programs and has seen significant impacts in changing attitudes to harassment and gender-based violence. It also supports suppliers in building or improving grievance systems. As the article notes: “Encouragingly, the study found that women working in factories with clear complaints procedures recorded far lower levels of abuse than those without such procedures.” 

The least shocking finding from The Guardian's article is that if we put the welfare of workers, particularly women, at the center of purpose, business benefits follow.   

By acknowledging the challenges and aligning values with supply chain partners, buyers and suppliers can make change. Harassment and violence is a reality for many women workers. You can do something—now—to improve it.   

Join us. 

Blog | Tuesday April 30, 2019

How Companies Should Respond to the Vedanta Ruling

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The UK Supreme Court’s recent decision in Vedanta v. Lungowe is an important read for corporate responsibility practitioners. Although it’s a jurisdictional ruling, for the first time, the UK Court held that a parent company sitting in London could be legally liable for harms allegedly caused to community members living near its subsidiary’s mining operation in Zambia. 

The decision has implications for how companies influence the operations of their subsidiaries through corporate responsibility policies, training, and management support. After Vedanta, many practitioners and legal counsel may, understandably, think about the benefits of retreating from creating or enforcing these types of policies on subsidiaries in fear that they too may be legally liable for harm.  

However, this is almost always going to be the wrong approach. Rather, we believe it is in the best interest of companies to double down on working with subsidiaries to ensure they properly understand and adequately manage environmental and social risk. Failure to do so will result in greater risk of harm occurring to communities and will expose the parent and subsidiary companies to increased legal risk. 

The Vedanta Decision  

Vedanta Resources PLC is an Indian mining company listed on the London stock exchange. They have since de-listed and now maintain a small office in London. Konkola Copper Mines (KCM) is a subsidiary of Vedanta that operates a mine in Zambia. The plaintiffs in the lawsuit, Zambian community members living near the mine, allege that KCM caused significant environmental damage to their farming communities and severely impacted their livelihood and ability to earn a living.  

The plaintiffs sued KCM and Vedanta in Zambia and the UK. They argued that Vedanta owed a “duty of care” to the communities, i.e. that the parent was also liable for the harm caused by the subsidiary, KCM, because it exercised enough influence over the way the corporate responsibility policies were implemented to be held legally responsible. The evidence is still being collected, but the allegations point to Vedanta’s corporate responsibility report showing that Vedanta adopted and enforced corporate policies governing environmental and human rights issues over its subsidiaries and that it provided training and monitoring over the implementation of those policies. This is similar to the way many companies implement corporate responsibility programs. 

Before the ruling, the law in the UK, and most other jurisdictions, treated parents and subsidiaries as separate companies when it came to holding them accountable for harm. This is one reason many companies establish a subsidiary relationship; each legal entity is accountable for their own profits, losses, operations, and legal liability. The plaintiffs sought to challenge this commonly held legal structure by arguing that Vedanta should also be accountable for the harm.  

In the procedural ruling, the Court agreed with the community members and found that they could pursue their claim against Vedanta as long as they could demonstrate that it exercised a sufficient level of “involvement and control” over the operations at KCM at trial. The court did not hold that Vedanta and KCM were at fault or liable for the harm but rather that legally they could be liable and the case may proceed.  

However, the court declined to establish a bright-line test for what a sufficient level of control over a subsidiary means. They simply stated that it all depends on the extent to which the parent “intervenes in, controls, supervises, or advises the management… of the subsidiary.”  

In fact, they refuted what had previously been thought of as the test, which was articulated in an earlier case, Chandler v. Cape. In order to free plaintiffs from the “straitjacket” of needing to gather evidence to meet the bright-line test, they simply found that as long as Vedanta, through its policies, training, and monitoring, exercised enough influence over KCM, Vedanta could be liable for KCM’s alleged harm.  

What does this mean for corporate responsibility practitioners?  

The immediate and understandable reaction to Vedanta may be to simply retreat from providing corporate-level policies, training, and management support to subsidiaries, and being a purely passive investor. This seems like the wrong response, and companies should instead continue to supporting their subsidiaries for several reasons. 

First, failing to understand and effectively manage environmental and human rights risks by subsidiaries leaves companies exposed to legal liability for negligent oversight. Several lawsuits currently pending in Canada are based, in part, on the theory that a parent owes a separate duty of care to local community members when it makes general company-wide statements that can apply to the subsidiary, such as a “commitment to respecting human rights.” The parent then can be liable, under the theory of those cases, when it fails to take adequate steps to protect against foreseeable harms. That can occur, for instance, when the parent understood that the local operating environment presented risks of security-related human rights violations, and it was foreseeable that a failure to properly select, train, supervise, and monitor security personnel employed by its subsidiary would cause harms. 

Second, taking a hands-off approach may not protect the company under Vedanta. When a company makes general statements or issues general policies applicable to its operating units, under the theory of Vedanta and other such cases, it undertakes a degree of responsibility. However, a failure to make such general statements, or issue general policies, also creates risks. While a company might choose to totally stand to the side and allow local operating units to manage its own affairs purely to avoid potential legal risks, the subsidiary may not operate as effectively, or suffer economic and local legal harms that vastly outweigh the potential legal exposures.  Indeed, even in the absence of any general proclamations or policies, certain legal responsibilities still can accrue, such as potential risks that arise when the company consolidates earnings from a passive subsidiary.  In other words, doing nothing to try to circumvent the Vedanta holding creates risks of its own. 

Third, the UK Supreme Court signaled that these cases are likely to be examined on a case-by-case basis. The circumstances surrounding each allegation of harm will be unique and the court will look at the content of corporate policies as well as how they were enforced. When the company’s policies, procedures, and implementation efforts are examined under the microscope of a lawsuit, the company will be in a much stronger position if it can demonstrate meaningful effort to develop and implement effective polices and procedures, rather than burying its head in the sand. 

It is in the best interest of companies to double down on working with subsidiaries to ensure they properly understand and adequately manage environmental and social risk.

At its core, the Vedanta court advises companies to actually do what they claim to do in their corporate responsibility reports or potentially face legal liability. If the parent adopts and enforces an environmental or human rights policy “shown to contain systemic errors” which later causes harm to third parties, it cannot hide behind a parent-subsidiary legal relationship to escape liability.  

Ultimately, the best legal defense – and the best outcome for communities – is to avoid a lawsuit in the first place. The best way to do this is by developing and implementing smart policies and programs in the right way so that harm does not occur.   

Blog | Monday April 29, 2019

Why 2019 Is the Year of Stakeholder Trust

Preview

In 2019, the question of how to build and retain trust—among investors, regulators, customers, suppliers, civil society organizations, and the general public—is the most pressing challenge facing business.

The stakes have never been higher. The average tenure of a business on the S&P 500 shrank from 33 years in 1964 to 24 years in 2016 and is forecast to last a mere 12 years by 2027. Competition, innovation, and technological disruption, while important drivers, tell only part of the story. If a business is not trusted by its stakeholders, it will not be able to maintain revenue, let alone grow, and may soon find its very existence imperiled.

To make matters even more challenging, societies worldwide are experiencing a crisis of leadership and trust in institutions across government, business, and the media. Hyper-transparency, geopolitics, social inequalities, and the increasing fragility of global governance mechanisms are all contributing factors. Businesses must now navigate an increasingly fraught external environment via a combination of firm core principles and imaginative new approaches.

In 2011, BSR published a five-step guide to stakeholder engagement in response to requests from companies for practical guidance on how to navigate the tricky topic of identifying, interacting with, and responding to external voices. The appetite for this topic has been insatiable: the 2011 report has consistently ranked among BSR’s top five most-viewed reports since its publication. And as effective engagement with society continues to be a topic of enormous, ongoing interest, we have just released an updated version of our report to account for major developments over the last eight years that have made the stakes higher than ever.

Why is stakeholder trust so important today?

First, an exponential increase in transparency means that companies must behave as if everything they say or do might become public.

Information becomes available at an ever-accelerating pace. While it is still disseminated primarily on dominant technology platforms, our understanding of facts and truth is far more contested and diffuse. Public concern over social and environmental issues can escalate rapidly on social media (ocean plastics are a recent example) and hyper-local conflicts between business and communities can generate global reputational crises.

Employees are also emerging as one of a company’s most vocal, empowered stakeholder groups; they increasingly invite wider, deeper scrutiny of their employers via media interviews, data leaks, petitions, and even walkouts.

Contractual confidentiality clauses are no longer an effective way to manage this new dynamic: The boundary between the corporation and society has grown permeable. Companies need to embrace strategies that make transparency, timeliness, and accountability core operating principles while bearing in mind that workers may view their social responsibilities as more urgent and compelling than their employers’ short-term profit targets.

Evidence signals that consideration of environmental, social, and governance issues is highly correlated with corporate performance over the long term.

Second, even big investors are declaring that an exclusive focus on company interests has become counter-productive.

BlackRock CEO Larry Fink made a pressing case for strategic stakeholder engagement in his 2019 annual letter, noting: “Companies that fulfill their purpose and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore them stumble and fail. This dynamic is becoming increasingly apparent as the public holds companies to more exacting standards. And it will continue to accelerate as millennials—who today represent 35 percent of the workforce—express new expectations of the companies they work for, buy from, and invest in.”

This quote reflects a broader shift in investor sentiment. Evidence signals that consideration of environmental, social, and governance issues is highly correlated with corporate performance over the long term. Companies that rely on one-way, PR-led approaches to manage these issues will not thrive. Fink’s challenge necessitates a robust engagement strategy in which companies determine how to weigh and balance a broadening array of overlapping and conflicting interests in a transparent and defensible way.

Finally, companies in 2011 primarily understood stakeholder engagement as a way to understand and manage reputational risk.

A key question in any mapping exercise was “Can we trust the stakeholder?” Today, it is usually more important to ask: “Can the stakeholder trust us?” The development of international frameworks that shape sustainability efforts, most notably the UN Guiding Principles on Human Rights, has driven a shift in emphasis toward corporate impacts on society and away from self-interested risk considerations.

We have substantively updated our framework to reflect these developments, emphasizing such new stakeholder mapping criteria as vulnerability, developing a new set of core engagement principles, and shifting the focus away from one-way information-gathering and toward building mutual trust and understanding. We have also considered stakeholder engagement in the context of new business models such as digital platforms, wherein companies face billions of stakeholders and can have an unprecedented impact on their lives.

Stakeholder engagement may seem more difficult and overwhelming than ever, but it needn’t be. Our updated report takes full account of how the world has changed while maintaining our original focus on practicality and clarity. BSR’s goal is to help companies build a deeper understanding of the social systems in which they operate—and to help them develop purposeful direction in pursuing their own goal of building sustainable trust.

Reports | Monday April 29, 2019

Five-Step Approach to Stakeholder Engagement

Preview

Stakeholder engagement is—and will remain—a core element of the sustainability toolkit.

It is a fundamental component of materiality assessments, which are then used to inform sustainability strategy, reporting, and disclosure. Without input from key stakeholder groups, any approach to sustainability will be limited by an organization’s self-interest and inward focus.

In 2019, the landscape of digital communication, international agreements and investor expectations makes stakeholder engagement more important than ever: Digital and social media amplify voices of the public, including civil society organizations; international agreements such as the UN Guiding Principles and Sustainable Development Goals have been established and globally accepted; and investors are significantly more focused on company approaches to environmental, social, and governance (ESG) issues, which in turn necessitate consideration of all stakeholders, not just shareholders.

We first published this five-step guide to stakeholder engagement in 2011. We have updated the guide as a response to developments over the last seven years, all of which necessitate a far clearer focus on stakeholder trust by corporations. This report aims to provide a comprehensive toolkit that incorporates the latest thinking while maintaining the clarity and practicality of our five-step approach:

BSR’s Five-Step Approach

1. Engagement Strategy: Set vision and level of ambition for future engagement, and review past engagements.
2. Stakeholder Mapping: Define criteria for identitfying and prioritizing stakeholders, and select engagement mechanisms.
3. Preparation: Focus on long-term goals to drive the approach, determine logistics for the engagement, and set the rules.
4. Engagement: Conduct the engagement itself, ensuring equitable stakeholder contribution and mitigating tension while remaining focused on priorities.
5. Action Plan: Identify opportunities from feedback and determine actions, revisit goals, and plan next steps for follow-up and future engagement.