Insights+ | Thursday November 21, 2024

Sustainable Business in Context: US Politics and Global Impacts

Preview

Case Studies | Thursday November 14, 2024

Building a Social Performance Framework Aligned with the EU Corporate Sustainability Reporting Directive (CSRD)

Preview

Introduction

BSR worked with Inter IKEA, a global home furnishing brand, to design a social performance framework aligned with the EU Corporate Sustainability Reporting Directive (CSRD), international frameworks, and existing company best practices. The performance framework needed to enable measuring the progress of Inter IKEA’s social sustainability strategy, called Fair & Equal, including key performance indicators (KPIs) and strategic goals.

This project allowed Inter IKEA to bring its key internal stakeholders together in developing a shared understanding of the company’s social sustainability strategy and agreeing on the focus areas and a roadmap for next steps, to confirm its strategic social sustainability priorities, and to prepare for the new regulatory reporting requirements like the CSRD.

Background

The Inter IKEA Group, a BSR member company, is the group of companies that connects IKEA franchisees with range developers and suppliers and aligns the overall IKEA strategic direction. The group employs 219,000 people, operates in more than 60 countries, and works with 1,500 suppliers and partners.

IKEA’s sustainability strategy, People & Planet Positive, covers the entire IKEA value chain and franchise system, including sourcing and extracting raw materials, manufacturing, transporting products, retail activities in stores, customer travel to stores, product use in customers’ homes, and product end-of-life. The Fair & Equal agenda, one of the three focus areas of Inter IKEA’s sustainability strategy, reflects the Group’s commitment to ensuring human rights are always respected and understanding the impact its business has on people and communities where it operates. 

The Challenge

Stakeholder expectations, company values, and new regulations like CSRD and CSDDD prompted Inter IKEA to disclose information on its social performance and the progress of Fair & Equal, its social sustainability strategy. To do this, Inter IKEA sought to develop a social performance framework with strategic goals and key performance indicators.

The complexity of the scope of Inter IKEA's business, which includes various entities operating under the IKEA brand, posed challenges in developing clear measurements and an implementation framework to guide functions in achieving their commitments. Additionally, Inter IKEA faced the challenge of linking the strategy’s overall goals with tangible and measurable daily tasks, leading to a lack of internal alignment on understanding the impact of the social strategy.

This situation presented an opportunity to strengthen stakeholder trust and preparedness for upcoming regulations by developing internal guidance and alignment on reporting metrics for Inter IKEA’s external sustainability reporting. Moreover, the project offered the chance to enhance Inter IKEA’s capacity to deliver on its vision, support a greater and deeper impact of Inter IKEA’s sustainability efforts within Fair & Equal, and make it easy for its value chain actors to undertake similar efforts.

After working with BSR on several other projects, Inter IKEA reached out to BSR for this challenge.

“IKEA’s work affects millions of people around the world. With this reach comes the responsibility to respect human rights and understand the impact our business has on both the people and communities where we operate. That’s why it is important to collaborate with like-minded partners with good skills and experience to support us on our journey to define performance and goal-setting. BSR has supported us and contributed both theoretical and pragmatic perspectives.”

-Lars-Erik Fridolfsson, Head of Fair & Equal, IKEA

BSR’s Response

In co-designing a social performance framework with Inter IKEA’s team, BSR:

• Conducted a benchmark assessment of approaches to social performance measurement
• Conducted interviews to understand current social performance at Inter IKEA and the INGKA Group (Inter IKEA’s biggest franchisee)
• Facilitated two alignment and co-creation workshops with internal stakeholders to achieve a shared understanding of the strategic areas and the envisioned structure
• Developed 200+ KPIs, in alignment with CSRD, international guidance, and best peer practice, for the six levels of Inter IKEA’s value chain under Fair & Equal’s nine strategic areas. These included staff, suppliers, franchisees, customers, communities, and society.
• Developed a high-level roadmap to guide the implementation of the framework, including recommendations on prioritization of strategic areas, based on current maturity and CSRD priorities

Impact

BSR helped Inter IKEA Group internal stakeholders arrive at a shared understanding of its social sustainability strategy for its value chain and agree on the focus areas, performance measurement framework, and a roadmap for the next steps.

"BSR gave an extensive and well-conducted overview of key external frameworks and standards that exist in the field of social impact. They also covered upcoming legislation and regulations that [we will need] to adapt to. [In] this work, they showed that they have a great knowledge… [of] sustainability topics related to human rights and social impact. We felt very secure [in using] this material for our organization's benchmark work and as a part of the foundation for the framework.

The design and outcome of the performance framework has fully met our expectations and will now be aligned [across] our different IKEA organizations and implemented throughout.

As always in large projects, focus changes and new possibilities occur. We found BSR very adaptive and responsive to the changing needs during the project.

BSR was also very performance focused and delivered according to the agreed timeframe for the different phases of the project."

-Lars-Erik Fridolfsson, Head of Fair & Equal, Inter IKEA Group

Conclusion

After agreeing on the baseline framework, IKEA continued the project by adapting the framework further within the organization and mapping where in the value chain it had indicators and metrics that could be used as a first-generation performance framework. It found five KPI areas to start working with, decided on performance indicators, and conducted an impact pathway analysis. This initial framework will now be implemented across the organization in a step-by-step approach.

Reporting does not need to be disconnected from operations and impacts. In fact, good reporting should aim for the opposite: focusing on activities that make a difference, testing the assumptions it builds on, adjusting over time based on successes and mistakes, and helping with effective decision-making. By identifying Social KPIs for policy, process, target, and impact, companies can better align their vision of impact with the impacts of their value chains, products, and services as experienced by the affected parties.

Get in Touch

For more information on setting social KPIs under the CSRD, contact BSR’s Sustainability Management team.

This case study was written by Renata Greenberg. 

Blog | Tuesday November 12, 2024

The Silent G: Six Questions Every Leadership Team Should Ask About Sustainability Governance

Preview

The term ESG (Environment, Social, and Governance) is easy to say but hard to deliver. In fact, recent election results may make it even harder—by exacerbating the fundamental drivers of environmental degradation and societal discord.

Pursuing the vision of just and sustainable business has never been for the faint of heart. Yet business adoption of E, S, and G has progressed, albeit at different paces. Corporate investment in E has the longest history and has proven over decades to improve the state of land, water, air, and climate. Corporate prioritization of S has yielded strides in diversity and inclusion within the enterprise, and improved human rights and workers’ rights along the value chain. And while work in all of these areas is far from complete, new issues are popping up on the ESG agenda, from nature and biodiversity to living wage, a just transition, and responsible AI.

What about G? Governance flashed into the spotlight in 2020-21 with CEO-level commitments spurred by a few select yet seismic events, including Covid-19, the Me Too movement, and the cost-of-living crisis. But this chorus of commitments has quieted—due to the politicization of ESG topics, the challenge of executing against ambitious goals, and the consideration required to align governance with new, turbulent market and societal dynamics.

Don’t Be Fooled by the Silent G.

In BSR’s recent report The CSO at a Crossroads: Three Paths Forward for Sustainability Leaders, 83 percent of the CSOs interviewed felt that increased involvement by other C-suite executives helped advance ambitious sustainability objectives that protect and promote the business. This indicates that despite concerns about market dynamics, corporate leaders see the silent G as a positive force. That support is manifesting in increased professionalization of the CSO role, and the integration of sustainability across corporate functions and from the back office to the boardroom.

In fact, in closed-door convenings and private conversations around the globe, we’re seeing companies refocusing on G. They are assessing material ESG impacts; building data streams to measure and monitor progress; and hiring ESG controllers to collect, consolidate, and report.

At the same time, they are evaluating and upgrading organizational capacity to manage material ESG issues, both within the company and across the value chain. This first piece of homework—baseline analysis—is apt preparation for previously voluntary disclosure regimes such as the Task Force on Climate-related Financial Disclosures (TCFD), which is being embedded in regulations around the world, and for new newly minted requirements such as the Corporate Sustainability Reporting Directive (CSRD) and the International Financial Reporting Standards (IFRS). It also provides a solid foundation for corporate leaders navigating an extremely dynamic, high-risk operating environment, as described in BSR’s report, Between Two Worlds: Sustainable Business in the Turbulent Transition. The number and complexity of the issues at stake and the number and divergence of critical stakeholders underscores the essential role of strategy, oversight, and control to build business resilience.

Principles of Good Sustainability Governance: Key Questions

The confluence of all these developments is a real and abiding tension between pragmatism and ambition, which was on full display at Climate Week New York in September and continues to dominate the atmosphere in which sustainability plans are being developed. As corporate leaders contemplate how to assess and improve sustainability governance in this environment, we suggest asking six sets of questions, three each at the Business and Board levels:

Business

1. Organizational structure, roles and responsibilities: What organizational models will ensure that material issues pertinent to specific business functions get the support, attention, resources, and controls they merit? How should you assign accountability for sustainability across functions? How should you align competency, resources, accountability in practice, and ensure that upskilling happens at all needed levels?
2. Stakeholder engagement: How do you identify, target, and constructively engage stakeholders? What tools and levers can you use to anticipate and prepare for disruptive events?
3. Resilience: How do you harness internal expertise and external perspectives to drive resilience throughout the business and along the value chain? How can company resources be leveraged to anticipate and prepare for cross cutting issues, like climate and health, nature and human rights, and the just transition?

Board

1. Competencies: Does the Board have the depth of expertise required to evaluate key ESG topics, both within the business and in the larger policy environment? How is this expertise integrated into Board structures, roles, and responsibilities?
2. Strategy and risk: What mechanisms does the Board have in place to understand the full range of material sustainability risks and opportunities for the business? How does it maintain a current, coherent view of evolving market dynamics and potential impacts on both business resilience and external stakeholders?
3. Oversight, controls, and accountability: As Boards work to formalize ESG oversight in light of new mandatory disclosure regulations, how are material sustainability issues integrated into enterprise risk management? What mechanisms are in place to support timely oversight and informed decision-making on business strategy, market entry, M&A, and other areas under Board purview? How are decision-making structures and director incentives aligned with ESG goals?  

In BSR’s experience, companies whose leaders ask these questions regularly—and sense-check them with materiality assessments, stakeholder discussions, and learning and foresight sessions—are more resilient to external forces, from extreme weather to economic headwinds.

If you are interested in learning more, stay tuned: we will address each set of questions in upcoming blogs. In the meantime, if you are seeking advisory support to build, enhance, or stress-test your corporate or Board sustainability governance structure, get in touch! Learn more about BSR’s corporate governance activities or contact the Sustainability Management team.

Blog | Thursday October 31, 2024

Racing Past the Crossroads: How Sustainability Leaders Can Reassert Ambition

Preview

BSR’s recent report, The CSO at a Crossroads: Three Paths Forward for Sustainability Leaders, drew on interviews with more than 30 chief sustainability officers (CSOs) to argue that we are at a crucial moment to reassert an ambitious vision for the CSO role.

After a period where CSOs focused (understandably) on reactivity and regulation, it is time to recognize the urgency and scale of global challenges and their implications for business. We emphasized the unique capabilities of the CSO in helping the company navigate external global developments and stakeholder interests with an eye on strategy, risks, and opportunities.

So how can CSOs steer down the more ambitious paths for sustainability leadership? 

Here are seven ways sustainability leaders can reassert ambition in transforming companies, economies, and societies: 

1. Use futures, foresight, and scenarios to reframe the time horizon for ambition. Corporate approaches that emphasize reactivity and compliance are doomed to deliver incremental improvements and miss the long-term changes that affect business and society. Companies can recognize the benefits of more resilient and ambitious strategies by weighing, “What developments might shape our business and operating environment over the next 10 years, and what actions should we take to prepare for them?” BSR’s 2018 report, Doing Business in 2030, encouraged leaders to contemplate scenarios based on the hyper-politicization of business and sustainability, dramatic geopolitical fragmentation, breakthroughs in AI, and a global public health crisis. The 2024 report, Between Two Worlds: Sustainable Business in the Turbulent Transition, updates futures thinking to enable Boards and senior executives to focus on longer-term considerations. 
2. Focus on the top few areas with the most strategic importance and impact. To date, sustainability strategy has too often been an exercise in breadth and bundling—covering a range of topics and aggregating them into themes. This may have made sense in an era when companies were in the early stages of understanding their impacts. With foundational double materiality assessments in place, CSOs can pursue more ambitious impact agendas by identifying and investing in a select few strategic priorities. These priorities will need to be tailored for each company and may be linked to the specific business model (US private sector on EU regulations). As Robert G. Eccles and BSR alumna Alison Taylor noted, “The CSO role is finally becoming strategic, if you define strategy as the art of choosing what not to do. Today, CSOs help identify and direct attention to the ESG issues that have a substantial impact on an organization’s financial performance and risk profile. This approach aligns with broader corporate strategy-making, as it helps organizations focus on what matters most to long-term value creation.” 
3. Shift from disclosure to strategy; from assessment to action. Recent regulations have launched a scramble to strengthen corporate governance, risk assessments, and disclosures on sustainability. Those are worthwhile developments, but ultimately meaningless unless they serve as the basis for strategy, action, and impact. Companies that are investing so much now in due diligence and compliance should begin to focus more on the resulting actions that will yield meaningful improvements in real world risk, opportunities, and impacts. You can’t simply “CSRD away” your climate risk. A focus on collective action and collaboration within and across sectors can also avoid duplication and better align efforts towards more efficient and impactful change. 
4. Rethink business models to address the fundamental tensions among corporate interests, society, and the environment. Business and economic models based on indefinite growth and unmanaged externalities are already running up against environmental, social, and political limits. Those limits will threaten many companies, such as those that depend on cheap natural resources, endless disposable plastics, unfettered trade, fragile logistics networks, low wage labor, and use of personal data. These limitations may manifest in response to commitments and regulations. For example, incremental action against a context of ongoing growth will not suffice to help most companies achieve their public, investor-facing commitments to Net Zero and Science-Based Targets. Additionally, the European Sustainability Reporting Standards specifically call for disclosures to account for the impacts of a company’s business model. Moreover, companies have an opportunity to build more ambitious, resilient strategies by examining and innovating in how they create, deliver, and capture value amid changing environmental and social dynamics. Areas for exploration might include designing products/services for sustainability and human rights, development of circular or service-based business models, expanded employee ownership, and more inclusive governance models. Focusing on business models puts sustainability at the center of major business decisions—where to build a factory, which technologies to adopt, mergers and acquisitions. Boards and executives will have to make such business decisions within the wider societal context. 
5. Activate boards and executives. Corporate leaders have moved rapidly up the maturity curve on sustainability, particularly in their oversight of disclosures and compliance. It will be vital to shift boards and executives to more active roles in grappling with the strategic impacts, risks, and opportunities of sustainability.
6. Elevate expertise and stakeholder voices. Senior executives and board directors rarely bring specific expertise in areas of vital sustainability importance such as climate change, human rights, and responsible AI. They also rarely come from vulnerable stakeholder groups. Important efforts are underway to upskill and diversify corporate leaders, though we can’t expect solutions to be quick or comprehensive. To access expertise, navigate complexity, and incorporate more diverse stakeholder viewpoints, boards and executives will benefit from ongoing platforms to tap external views. That might come through building partnerships, establishing external advisory councils, or leveraging industry wide stakeholder engagement. It might also include more significant governance changes such as mechanisms for employees to serve on boards, or granting a board seat to nature.
7. Engage in public policy; strengthen geopolitical capabilities. The call for companies to engage more thoughtfully in public policy is not new, but it is more important than ever given political backlash and reluctance to take on the major challenges that social and environmental risks pose to economic and societal well-being, and the fracturing of global cooperation on issues like climate change, trade, and peace. Companies will benefit from aligning sustainability and public affairs to promote shared priorities and boost credibility. More importantly, they can enhance sustainable business leadership by using that base of credibility to encourage rational policies that manage systemic risks and promote positive, sustainable transformation in the business operating environment. While business associations have often focused on preventing regulation and tax policy, those associations could be valuable forums to amplify the collective voice of specific industries to advocate for a strengthened enabling environment for sustainable business.

BSR plans to use these preliminary ideas as a starting point to engage members in the coming months, and we welcome your solutions, critiques, and quandaries.

It is especially crucial that these conversations reflect the challenging context of the present and the global imperatives of the future. If CSOs are indeed at a crossroads, it is time to race along a path of integration, ambition, and transformation. We look forward to bringing together CSOs, CEOs, and Board Directors to further discuss the evolving role of sustainability leadership. 

Blog | Wednesday October 30, 2024

Adequate Wages vs. Living Wages: Implementation Guidance for Companies

Preview

The term “Adequate Wage” has emerged across several EU legislations and the International Labour Organization’s (ILO) first ever guidance on Living Wage. As employers navigate complex regulatory environments, we have seen widespread confusion on how Adequate Wage compares to Living Wage and Minimum Wage.

Latest Developments

The recent advancements to drive improved wages both in the EU and globally include:

• ILO Position on Living Wage: The ILO came out with an official definition for Living Wage and published principles that data providers can follow. It is the first ILO framework to guide data providers and employers on Living Wages.
• EU Directive on Adequate Minimum Wages: A 2022 directive that requires EU countries to increase their Minimum Wages to align with “Adequate Minimum Wages.” This is defined as a 'double decency threshold' in which no Minimum Wage should be set below 60 percent of a country’s median wage and 50 percent of the gross average wage. Minimum Wages of EU member states that are below this threshold are expected to increase.
• EU Pay Transparency Directive’s (EU-PTD) Focus on Gender: To align with the EU-PTD by April 2026, companies must conduct gender pay assessments using specific standards, remediate those impacted by identified gender pay gaps, and publish the results of the gap analysis for the public.
• Corporate Sustainability Reporting Directive’s (CSRD) use of Adequate Wage: In order to comply with CSRD’s requirements, companies should work toward collecting, analyzing, and reporting data that address any Adequate Wage gap.
• The Corporate Sustainability Due Diligence Directive (CSDDD): CSDDD requires companies to evaluate and adapt their business plans, strategies, and operations, including purchasing practices, to ensure that they contribute to “Living Wages and incomes for suppliers and employed workers.”

How does Adequate Wage relate to Living Wage, Minimum Wage, Average Wage, and Collective Bargaining?

Minimum Wages are the lowest wage allowed by law. Collective bargaining agreements, driven by unions, also can shape wage rates for a particular industry or job position in a country. Many people question why evaluating Living Wages is necessary when the concept of a Minimum Wage was originally intended to reflect the wage rate required for a worker and their family to live a decent life.

In practice, Minimum Wages are shaped by governments, meaning that the level and frequency at which they are increased to align with costs of living varies, and is often insufficient. Similarly, collective bargaining agreements only exist with strong working unions. Beyond legally compliant wage obligations, compensation teams pay close attention to average wages that reflect labor market conditions. A Living Wage, on the other hand, is based on cost-of-living, and is not shaped by politics, negotiation, or economics conditions.

The concept of Adequate Wage aims to take into account the different roles each of these wage rates play. According to ILO, an Adequate (Living) Wage is “a wage that meets the needs of a worker and their family, taking into account the national economic and social conditions of a country.” While the implementation of Adequate Wages at the country level is still underway, this guidance will aim to inform companies on how to measure Adequate Wages to prepare for CSRD requirements.

How can companies prepare to meet Adequate Wages in the coming years?

The CSRD explains that companies must “disclose whether or not its employees are paid an Adequate Wage.” Companies should start by evaluating if Minimum Wages are paid. This is an important first step, but due to the fact that in some countries a Minimum Wage may not be enough to cover the needs of a worker and their family, a secondary level of analysis is required to determine if the Minimum Wage is an Adequate Wage by looking at Living Wage benchmarks and the double decency threshold.

Understanding the Adequate Wage for a country or region is dependent on each location’s context, in order for companies to close any pay gaps to meet regulations like the CSRD, companies will need to conduct a gap analysis for Minimum Wage, Adequate Wages and Living Wages.

In many cases, Minimum Wages may be sufficient for reporting. Nevertheless, it is important to compare it to Living Wages and the double decency threshold to anticipate where Minimum Wages will likely be increasing. According to WageIndicator’s Adequate Wage Guide, the Adequate Wage is determined by whichever figure is highest. Follow these steps to start your gap analysis:

• Step 1: Check the Statutory Minimum Wage as applicable in the country, sector, industry, region, age-level etc. The Minimum Wage is the law and the minimum threshold.
• Step 2: In countries where there is no Statutory Minimum Wage, where applicable and possible, check the lowest negotiated wages as stipulated in Collective Agreements for your sector, industry, or company.
• Step 3: Check the ‘double decency threshold’ for a country (50 percent of the average wage and 60 percent of the medium wage) as well as the Living Wage estimates for a country and region. In cases where the Living Wage estimates are highest, use those.
• Step 4: If the ‘double decency threshold’ exceeds the Living Wage estimate, consider the Adequate Wage, but first verify regional Living Wage variations.
• Step 5: The CSRD requires companies to report on an “Adequate Wage.” Depending on the country, this could be the Statutory Minimum Wage, a collective bargained wage, an Adequate Wage, or a Living Wage estimate.

How BSR can help

BSR has worked with dozens of companies for twenty years to conduct Living Wage gap analyses and advance their Living Wage programs. For more information on BSR’s services on Living Wage, please contact us.

Blog | Thursday October 24, 2024

Collaboration Crossroads: Recognizing When to Part Ways for Greater Impact

Preview

Business-led, pre-competitive collaborative initiatives are a cornerstone of systems change and advancing solutions to systematic problems. They allow companies to enter a safe space for best practice sharing, pool resources for problems that any single company could not solve alone, and use a collective voice or action to drive system change across entire industries. However, collaborations are not meant to be everlasting, and companies must recognize when it’s time to pull the plug.

When collaborations begin to flounder, resources become constrained, participants become weary, and impact is minimal. Many of the “red flags” participants might see in collaborations can be conquerable hurdles, or they can be warning signs of a pending end. It is important to be able to read the tea leaves, know the difference, and evolve accordingly or plan for an ending.

There are a few clear signs that it may be time for a collaboration to consider sunsetting.

1) Collective goals achieved

The first and most obvious sign that a collaboration should close down is when the intended impact or goal is achieved. Collaborations form around collective visions for learning or creating change. A common mistake is passing that point and trying to refresh a strategy for new goals. While a natural next milestone may arise out of the existing work, trying to carve out a new strategy with the existing members and governance structures may create more challenges and conflict than necessary. Rather than continue, consider which aspects could be spun into a separate, tangential project. BSR’s Future of Fuels is a success story of companies that achieved their mission and goals and sunset the collaboration.

2) Insurmountable barriers

Collaboratives typically form when companies come together to solve some of the world’s most difficult challenges. If they were easy problems to solve, it wouldn’t need a group of companies to find the solution. It is quite common for collaborations to refresh a strategy, change direction, and realign. However, acknowledging when hurdles become blockades is an important trait among participants. Occasionally, we may enter a space before the technology is scalable, before policy allows progress, or there’s a learning curve that sheds light on needs for impossible resourcing. Any number of barriers may pop up, but knowing when they prevent progress and impact will be a telltale sign that a collaboration may not succeed.

3) Dwindling participation or absence of enthusiasm

Nearly every collaboration seeking high-impact or systems change thrives on members’ participation and passion. Individuals may become less interested in topics, turnover in a company might introduce a disinterested or uninformed replacement, company priorities might shift, or the external ecosystem evolves. Any of these factors may influence the participation of members and therefore the progress of the group. This is another “red flag” that may be a temporary challenge, or it may be a sign of greater trouble ahead. Any collaboration that begins to lose its value proposition to members cannot survive. When participants pull back, it is an important reminder to see the bigger picture, reevaluate the problem, rethink aspects like relationships or governance, and determine if there is a possible impact to be made by the group before deciding to sunset.

4) Misalignment among members

It is often a single challenge that brings members together, but it is the individual goals of each participant that keep them in the room. When companies begin diverging from the original goal, it may be due to their own shifting priorities and nothing to do with the collaboration, but it will almost certainly drive a wedge in the collaboration. These situations are fairly common, but when a fracture cannot be repaired and the dissonance is too great, it is important to recognize that it is no longer a collaborative effort for a singular goal. It is natural for priorities and objectives to shift throughout a collaborative lifecycle; however, when members can no longer align on collective objectives, and it is likely more resource-intensive to redirect the group, it may be time to acknowledge the successes and end the collaboration.

Collaboration can be a powerful tool that brings companies together in hopes of solving the world’s most challenging problems. It can also be one of the most difficult, emotionally tolling, and disappointing tools when it falters or fails. Preventing collaboration fatigue and distrust in collaborative efforts often falls on those in the room to know when it is time to sunset. It is rarely black and white, but recognizing the signs and creating a candid space for honest conversations can help tease out the potential impacts and reinvigorate the group. It can also help bring closure when the time comes to shut the doors.

As collaboration experts focused on making an impact, BSR recognizes the difficulties, but also the power, of collective action. The end is inevitable to make room for new beginnings, ideas, and people. The sunset of a collaboration is never truly the end, but rather an opening to start over or for new solutions that can change the world.

Reports | Thursday October 17, 2024

The CSO at a Crossroads: Three Paths Forward for Sustainability Leaders

Preview

The role of the Chief Sustainability Officer (CSO) is evolving in dramatic ways. What began as an entrepreneurial role has now developed into a professional, fully integrated function embedded within corporate governance, compliance, and accountability.

While more visible and valued than ever before, heightened expectations and pressures are placing the CSO at risk of becoming overly focused on compliance at the expense of innovation and strategic foresight.

Amidst a backdrop of rapid changes in the landscape, BSR interviewed 31 CSOs to hear their perspectives on this dichotomy, understand current challenges, and how they ensure that sustainability remains a priority at the highest levels of corporate decision-making.

Download

Join BSR to learn how business leaders can reassert an ambitious vision of their role, and connect with the authors on the report's findings, at the members-only webinar CSOs at a Crossroads: Shaping the Path Ahead. 

Inside the Mind of the CSO

How are CSOs feeling about these changes? Some feel invigorated to finally have the level of integration they have sought for years; others feel dismayed, stuck, or even bored at the lack of progress. Among the 31 CSOs interviewed by BSR, key findings include:

64 percent of respondents feel that regulation enables meaningful strategic impact.

83 percent of respondents feel that increased involvement by other C-Suite executives helps advance ambitious sustainability objectives.

Only 50 percent of respondents spend 70 percent or more of their time on "high-impact" work.

A Crossroads and Three Paths Ahead

CSOs are at a pivotal moment—facing more opportunity, relevance, visibility, and pressure than ever before. The report traces the evolving role, and proposes three potential paths ahead:

Reports | Tuesday October 15, 2024

Stakeholder Engagement in the Transition Context: Guidance for Practitioners

Preview

Stakeholder engagement in the oil, gas, and energy sectors has evolved significantly over the decades. While many companies are currently using well-developed stakeholder engagement methods, the context of a just transition introduces new challenges and opportunities. By acknowledging existing strengths in stakeholder engagement while innovating to address gaps in current approaches, companies can help foster more equitable, inclusive, just, and sustainable engagement with all stakeholders throughout the transition process.

As businesses navigate the transition to a low-carbon economy, it is vital that they engage proactively with stakeholders to understand their perspectives and concerns before making major decisions that impact them. In this report, BSR’s Energy for a Just Transition Collaborative Initiative highlights key considerations and processes for conducting stakeholder engagement within the context of a just transition.

Blog | Thursday October 10, 2024

An Impact-Based Approach to Responsible AI

Preview

Businesses are racing to integrate artificial intelligence (AI) technologies into their operations, spurred by the skyrocketing investment in generative AI, which reached US$25.2 billion by the end of 2023. Studies show that AI has the potential to improve productivity and enhances work quality by enabling employees to complete tasks more efficiently and bridging the skill gap between low- and high-skilled workers leading to reduced costs and increased revenues.

While many companies have adopted “Responsible AI” concepts—such as a focus on AI principles and governance, liability reduction, and avoidance of immediate risks—these approaches are insufficient to manage the profound impacts, risks, and opportunities posed by AI.

The development and use of AI technologies can bring environmental and societal risks related to the electricity grid and water supply, the right to privacy and worker rights, and beyond. Responsible AI efforts are often not well integrated with the core work of sustainability teams in understanding, managing, and reporting on such social and environmental issues. 

BSR believes that a responsible approach to AI considers the potential benefits and adverse impacts of AI on people and the environment across the company’s value chain over the short, medium, and long term.

Rather than a focus on proximate liabilities and compliance, this approach focuses on understanding impacts as a way to identify and manage future risks. It also aligns with corporate sustainability regulations (e.g., the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD)) and business and human rights standards (e.g., UNGPs, OECD Guidelines). An impact-based approach can also help companies comply with the EU AI Act, as the act requires companies to identify and address the impacts of AI on fundamental rights. 

While business leaders recognize the risks associated with AI, companies are largely unprepared to address them. According to Gartner, 66 percent of executives see the mass availability of AI as an emergent risk, but only 11 percent feel confident about their ability to provide effective oversight on AI risks. This points to a significant gap in current company practices. 

BSR recommends five key considerations to effectively manage the social and environmental impacts of AI: 

1) Social and environmental impacts are at the core of AI risks and opportunities. Common company practices for Responsible AI include AI principles, policies, compliance, and avoidance of legal risk. The actual and potential impacts of AI on people and the environment are often under-explored by companies. These impacts can be the main drivers of corporate risks and opportunities; addressing them is essential to build a meaningful approach to Responsible AI.

2) Sustainability teams bring valuable tools to Responsible AI. Responsible AI practices are often led by cross-functional groups including data science, privacy, and compliance/legal teams. Sustainability teams can bring significant value to this work by coordinating with existing initiatives to understand the company’s environmental and social impacts, risks, and opportunities. Sustainability leads can also leverage existing toolkits for addressing these impacts, such as materiality assessments, human rights assessments, stakeholder engagement practices, and sustainability reporting. 

Embedding AI-related impacts into existing sustainability structures and processes can make it easier for companies to manage both these fast-moving risk areas. Furthermore, leveraging the synergies between sustainability and AI can help create long-term business value. 

3) Risks lie throughout the full AI value chain. Often when we think of AI impacts, we think of downstream impacts related to the use of AI, such as job displacement, bias and discrimination, surveillance, or misinformation. However, social and environmental impacts also occur in the upstream AI supply chain, such as worker rights issues related to data enrichment service providers, or increased water use and land conversion for datacenters that power AI systems. All these impacts should be considered as part of Responsible AI efforts. Importantly, sustainability regulations such as the CSRD and CSDDD require companies to conduct due diligence on and disclose impacts across their full value chain. 

4) AI activities and risks differ by business function. AI-related impacts can occur across different functions depending on the company’s business model and AI use cases. Companies examining AI often focus on IT and engineering, but AI-enabled solutions are being used by a variety of different teams, including human resources, marketing, sales, and customer service. Increasingly, boards and executive teams are also using AI-based solutions to support corporate decision making. Engineering and procurement teams are two key functions where Responsible AI measures should be integrated when developing or purchasing AI solutions; but impacts can occur anywhere in the company. 

Below we provide examples of AI use cases and illustrative impacts across different business functions, which can all lead to sustainability and business risks. 

5) AI use will have impacts in the short, medium, and long-term. Often, we focus on short-term impacts; however, AI technologies may also have impacts in the longer term. For example, impacts on labor and the economy, or impacts on democracy and information systems. Note that sustainability regulations such as the CSRD require companies to disclose impacts across the short, medium, and long-term. 

Similarly, some of the long-term impacts are not related to individual companies. They are cumulative impacts of the use of AI across industries. It is important for companies to take collaborative approaches to explore and address these cumulative long-term impacts.

As AI transforms industries, adopting a responsible approach is critical to harnessing its potential while managing its risks. By considering AI’s impacts on people and the environment throughout their value chain, businesses can position themselves for long-term success.

To learn more about how BSR helps companies adopt an impact-based approach to Responsible AI, and to discuss what’s right for your organization, please reach out to us at web@bsr.org.

Blog | Thursday October 3, 2024

Sustainability Strategy in the Age of Regulation: Don’t Lose the Plot

Preview

The sustainability landscape is rapidly evolving, driven in part by landmark legislation like the Corporate Sustainability Due Diligence Directive (CSDDD), among others. Regulation acts as a forcing mechanism, raising the floor for action on sustainability across companies by compelling businesses to use rigorous, best-practice methodologies to identify, act on, and disclose numerous topics and data points. This is a good thing. But it brings new compliance risks associated with undertaking historically voluntary activities in a regulatory context and driving limited resources toward those activities (and often away from other priorities).

Business leaders can focus on three key areas to effectively navigate the complex intersection between corporate strategy, regulatory obligations, and stakeholder expectations: pragmatic compliance risk management, careful prioritization, and proactive opportunity identification. 

1. Take a pragmatic approach to compliance 

While BSR does not provide legal advice, it is safe to say that there are new and heightened risks associated with selectively disclosing and acting on certain sustainability issues while deprioritizing others. Companies are exposed to scrutiny, fines, and potential litigation related to the due diligence they conduct, the thresholds they set, and the accuracy of the information they present. Adding complexity: these regulations are new, they vary in scope and ambition by jurisdiction, and our collective understanding of what constitutes a reasonable effort or “good judgment”, let alone leading practice, is still emerging.

Expert judgement is critical in right-sizing your approach today and continuously improving practices over time. Effective balance of compliance and strategic risk requires stronger collaboration between functions and engagement with relevant external advisors. Companies must leverage the expertise of sustainability professionals with direct experience overseeing sustainability strategies and implementing the prior voluntary standards alongside newly engaged accounting and legal professionals to understand what is right for them. For example, sustainability teams and audit/risk/compliance teams should work closely together to make sure that they deploy consistent evaluation criteria and have a unified understanding of an issue, as they address the compliance and the impact element of the same topic. They can also work together to determine the amount of data that is sufficient to underpin judgments today and how to lay the groundwork for what will be needed over time. Robust governance is essential to support this cross-functional collaboration and ensure that appropriate expertise is adequately represented in decision-making. 

In addition, companies must ensure that the relationship between existing sustainability strategy and relevant regulatory requirements is clear and easily understood. Where possible, it is important to reference sustainability terminology, definitions, KPIs, and metrics from the standards rather than creating your own. 

2. Carefully prioritize what to do with limited resources 

Not all topics warrant the same level of attention. There is a risk that excessive focus on collecting and reporting information on non-strategic issues (both from an impact and financial perspective) may divert attention and resources from key strategic priorities. If too many things are material, it can be difficult to act with purpose. 

So, how can companies effectively determine material topics for disclosure, prioritize impacts for mitigation and choose focus areas for long-term strategy? BSR recommends a methodical approach that pairs the regulatory requirements with good business sense. Meaningfully aligning with the spirit and the letter of these regulations can help companies prioritize their resources on issues that are core to how companies do business, providing a foundation for building business resilience and achieving impact.

Many factors contribute to strategic prioritization, some but not all of which are explicitly driven by mandatory requirements. Financial and impact materiality assessments, human rights salience and impact assessments, climate and nature assessments, and risk and scenario analysis all have a role to play in determining strategic priorities. So too does a deep understanding of a company’s business model, key points of leverage, and financial positioning. As a first step, harmonizing methodologies across various assessments (e.g., establishing uniform criteria for assessing similar impacts or establishing a unified stakeholder engagement strategy) ensures that compliance needs are met and well-established sustainability frameworks inform strategic decision-making.

It is also critically important to take a step back and examine the intersections between topics. While the regulatory frameworks encourage companies to break down information into highly granular detail, thoughtful aggregation of key insights to identify cross-cutting solutions provides the greatest strategic value. For example, a focused initiative to reduce single-use plastics might spark innovative business opportunities with financial and operational benefits as well as benefits to the environment up and downstream. Careful consideration of these intersection points will help to pinpoint a handful of realistic and highly impactful initiatives for a company to rally around rather than a laundry list of disparate actions lacking sufficient attention. 

3. Don’t forget about the opportunities

While regulations like the CSRD call for the identification and disclosure of impacts, risks, and opportunities, in practice many compliance-focused efforts are predominantly concerned with negative impacts and business risks associated with business as usual. Nevertheless, opportunities for innovation remain a critical element of strategy. New models, products, and services that can address broader societal challenges like the energy transition or healthcare for underserved populations are desperately needed, and identifying and addressing critical needs is where businesses have an opportunity to shine.

To start, companies can set themselves up for success by looking for ways to surface opportunities across stakeholder engagement opportunities and assessment work, including where appropriate in environmental and social due diligence (e.g., human rights impact assessments) and reporting.

The regulatory frameworks provide guardrails for how companies act on sustainability but do not go so far as to prescribe a company’s ambition, nor specific performance targets. Realizing potential opportunities therefore requires relevant teams (e.g., sustainability, product innovation, marketing) to proactively explore the future operating environment and have a mandate to pursue objectives beyond minimum compliance, sometimes with more uncertain or longer-term benefits. Trends assessment and scenario planning can be useful complements to backward looking analytical tools. Embedding sustainability considerations in regular interactions with external stakeholders and in decision-making tools (e.g., product innovation check lists) can help to ensure opportunities are surfaced in real time, when they are most strategically relevant and decision useful. 

The rise in mandatory requirements presents both challenges and opportunities for businesses. By pragmatically managing compliance risks, carefully prioritizing objectives, and proactively embracing sustainability-related opportunities, companies can successfully navigate this intersection and drive meaningful progress toward a more sustainable future. 

BSR’s multidisciplinary team takes a comprehensive approach to sustainability strategy and regulatory compliance, helping companies to develop customized approaches that are right for their unique circumstances. If you’d like further information, and to discuss what’s right for your organization, please don’t hesitate to reach out to us.