It is clearer than ever before that sustainability practices can affect corporate value. That was the main thread of a panel that I led at the National Association of Corporate Directors’ 2016 Global Board Leaders’ Summit in Washington, D.C. My co-panelists Christianna Wood, director at H&R Block, and Seth Goldman, founder of Honest Tea, and I discussed the potential risks and opportunities that environmental and social issues pose to companies. Sustainability is a broad term, and not every environmental or social issue belongs on the board agenda. But when an environmental or social issue has the potential to affect corporate revenue and earnings in the short and long term, sustainability absolutely should be on the table. At the end of the day, it all comes down to materiality, and this is where corporate directors have a critical role to play. Materiality is about determining a company’s priorities. As fiduciaries responsible for overseeing a company so that it not only survives but also thrives in the long term, directors have a responsibility to assess whether a company is making the right choices. But the much harder question is: When does an environmental or social issue rise to the level of being material? Here are some steps directors can take to drive discussions about whether sustainability issues are material to the companies that they oversee. 1) Understand how sustainability is being integrated into your company’s efforts as a way to identify material issues. There are a few ways to do this. Directors could point management towards the Sustainability Accounting Standards Board’s Company Implementation Guide, which provides a great starting point for companies to assess whether certain sustainability factors could be considered material for the purposes of the company’s financial filings. Directors could also integrate themselves more meaningfully into corporate efforts aimed at identifying material sustainability issues. They could provide perspectives on the connections between sustainability factors, corporate strategy, risk, and revenue. 2) Include key issues being raised by critical stakeholders in the materiality exercise. While a broader range of stakeholders is raising a variety of issues these days, the financial community is a particularly critical constituency to direct attention towards. As we discussed in our panel, the U.S. investor community is starting to make the connections between sustainability and the financial value of companies in their portfolios. During the 2016 proxy season, close to 400 shareholder resolutions on climate change and other sustainability issues were filed. Large investors including CalPERS, CalSTRS and State Street Global Advisors are asking their portfolio companies to put directors with climate expertise on their boards. In addition to tracking broad sustainability trends that investors are paying attention to, prudent directors could consider opportunities to engage directly with key shareholders to get a sense of issues specific to the company and the industry. Directors could also track and engage with the broader activist and advocacy community as a risk management exercise. 3) Weigh in on the time frame over which issues are considered to be material. Since the board in particular is responsible for long-term corporate performance, directors play an important role in examining whether their company’s materiality process focuses on considering issues over the long or short term. Overall, momentum is building to adopt a more long-term view to encourage companies and boards to think more broadly about sustainability and materiality. The recently released Commonsense Corporate Governance Principles, which are backed by major U.S. companies including JPMorgan Chase & Co., Berkshire Hathaway, and Blackrock, support the move to long-term thinking. And more companies including Unilever, Coca Cola, and National Grid are moving away from the practice of issuing quarterly guidance specifically to encourage investors and other stakeholders to adopt long-term thinking. 4) Disclose details on what you consider to be your company’s material priorities. Noting that determinations of materiality depend on whom the company considers to be its most significant stakeholders, governance experts are starting to call on corporate boards to release a statement noting critical audiences that the company is oriented towards and issues that the corporation is prioritizing. Companies like the Dutch insurance company Aegon have started to issue such statements. The process of helping to identify the right issues is just a first step in a director’s responsibility on materiality. Directors have an important role to play in ensuring that material issues, when identified are integrated into board deliberations on strategy, risk, revenue and accountability systems. However, getting to the right issues lays an important foundation for the company and its key stakeholders to build on. Veena Ramani also recently authored the report View From the Top: How Corporate Boards Engage on Sustainability Performance. Read the post at National Association of Corporate Directors
At the end of September, water wonks cheered as Governor Jerry Brown signed into law an important new bill that will set California on the path towards a 21st-century water management system. Though it received little attention amid the flurry of new bills signed by the governor, the Open and Transparent Water Data Act (AB 1755) is a critical step forward in ensuring the long-term sustainability of California’s dwindling water resources. As the bill’s author, assembly member Bill Dodd, put it in a press release: “The drought has exposed the need for a modern water information system to address the state’s water supply.” I heartily agree. While reams of water data are currently collected by local, state and federal agencies, the information is often inaccessible or incompatible. That creates inefficiencies for water managers. How, for example, can a municipal water manager and a regional water quality control board make a decision to either move forward with, or dial back, a water reuse project that would reduce discharges of treated wastewater to a nearby surface water if he or she doesn’t know the environmental flow needs of the stream, or have information about upstream discharges and withdrawals? Municipal wastewater treatment facilities report discharge volume and water quality data to the regional water board, but the California Department of Fish and Wildlife or a neighboring municipality is often the keeper of upstream flow data. Meanwhile the state water board or the Department of Water Resources has data on diversions. Now, water managers will have access to all of this data at their fingertips. What’s more, to date there are no clear protocols for promoting compatibility among datasets that would allow for sharing, aggregation and analysis by multiple groups. As one clear example, more than 2,000 local and state agencies are involved in California groundwater management, and there is a recognized lack of consistency in data collection among the groups. In fact, a survey of groundwater professions conducted by Stanford’s Water in the West program identified prevalent inconsistencies in groundwater data formatting and collection methodologies. Further, they noted inadequate spatial and temporal data collection. Thus, the data are hard to compare and assess by decision-makers. The law sets out to address these problems by creating an online water data information system that integrates existing datasets and provides information on water transfers. And it requires the development of open-data protocols for data sharing, transparency, documentation and quality control that will avoid misunderstandings, reduce disputes and increase the effectiveness of management decisions. Hopefully, the system will also help the state more easily identify gaps in data to help drive new data collection efforts. All of that should go a long way toward making California’s water transfer market more transparent and more efficient – and a well-functioning water market is key in periods of drought. Water markets can help steer water to its best use and create incentives for efficiencies in water management. The Environmental Defense Fund’s recent report “Recommended Reforms for the California Water Market,” in fact calls for robust, transparent data on all water exchanges as a key policy recommendation. AB 1755 helps get California on this path. The new law will also help with implementation of the Sustainable Groundwater Management Act. More comprehensive data at the fingertips of the Groundwater Sustainability Agencies will help them to better understand the water balance of their groundwater basins, so that they can be better managed. As the old business school adage goes, “What gets measured gets managed.” Though perhaps more apt here is, “What gets measured, and shared, gets managed.” And that takes me to my last point. Some of the state’s largest businesses came out in support for the bill. In a letter to members of the Senate [organized by Ceres Connect the Drops Campaign], they wrote: “A key constraint to creating a sustainable water management system, one that is able to meet the challenges of prolonged drought as well as heavy rainfall and flooding, is the lack of accessible data that would support timely and science-based decision making and a more robust water market.” As business leaders, they know that comprehensive water use data will lead to smarter water management decisions, that will help in turn ensure sustainable water supplies for California’s future. And that’s good news for all of us. Read the post at Water Deeply
CALIFORNIA HAS A lot of work to do to expand water recycling. Some experts contend that as much as 2.5 million acre-feet (3 billion cubic meters) of potentially reusable water is yet to be developed. To put that in perspective, the city of Los Angeles supplies approximately 512,000 acre-feet (630 million cubic meters) per year to its customers. The most recent water recycling surveys place the state at only 13 percent municipal reuse. Given that California is one of the nation’s most water-stressed states, the current rate of reuse is nowhere near enough to provide the supplemental resources needed to help reduce the state’s vulnerability to droughts and other water-supply constraints. Yoram Cohen, professor of chemical and biomolecular engineering at UCLA, drove that point home at a recent forum on statewide water reuse hosted by the California Governor’s Office of Planning and Research. I was invited to attend and moderate a panel, joining stakeholders from state agencies, legislative offices, nongovernmental organizations and businesses, as well as leading academics. We spent an entire day learning from each other about the barriers to expanding water reuse and then discussing the steps required to expedite its expansion in California. Felicia Marcus, chair of the State Water Resources Control Board, opened the session by stating she hoped that “we have achieved greater maturity on this issue” – referring to the science that has been tested, the on-the-ground examples that have been collected and the egos that have been checked – which would help in figuring out how to integrate water reuse wisely. But, as she highlighted, we need to be smart about the best uses for reclaimed water. “It isn’t the smartest use of resources to treat water to pristine levels and then pump it uphill in order to have green lawns looking like we’re in Scotland.” Thankfully, California’s residents are ready to embrace water recycling. A recent California-based survey by Xylem found that 76 percent of respondents believe recycled water should be used as a long-term solution, regardless of drought. Echoing public sentiment, the water board has been working to expand municipal water reuse, such as by releasing standards for groundwater recharge with reclaimed water and indirect potable reuse, as well as developing a streamlined permissions system for projects. Just a few weeks ago, the board released a draft report to the legislature on the feasibility of developing uniform water recycling criteria for direct potable reuse. Kara Nelson, professor of environmental engineering at U.C. Berkeley, called the effort a game-changer and “a landmark moment” in terms of municipal reuse. But, as Jay Ziegler, director of external affairs at the Nature Conservancy, noted at the statewide water reuse forum, innovative financing ideas and perhaps some legislative drivers will be needed to really ramp up municipal reuse. The $625 million earmarked for recycled water projects in Proposition 1 is already accounted for. One such driver could be a policy in the vein of Senate Bill 163, proposed in the last legislative session by Sen. Robert Hertzberg. Acknowledging that 1.5 billion gallons (5.7 billion liters) of treated water are lost to the ocean each day in coastal California, the bill called for reuse to be ramped up at these facilities. Though the bill stalled, these types of policy concepts should be pursued. Clearly, more consistent standards for where and how recycled water can be used are also critical for scaling up on-site water reuse projects, such as those proposed by large companies. The Public Health Alliance just released a survey that found that 95 percent of Californian environmental health directors believe on-site water reuse is an important issue and feel the need to engage. But, shockingly, 82 percent of those from the same survey were unsure of regulatory standards and their role in overseeing on-site water reuse, citing current regulatory uncertainty as the cause. No wonder many of our partner companies tell me that their innovative on-site reuse projects have stalled. Richard Luthy, professor in civil and environmental engineering at Stanford University, presented a poignant example of the confusion that exists. He shared a chart with standards for gray water used to flush toilets in different states. The risk should be the same regardless of the state or county, right? But the standards vary greatly. Nevertheless, strides are being made on this front in some localities. The San Francisco Public Utilities Commission (SFPUC), for example, recognized a growing interest in on-site reuse from the San Francisco business community and sought a path forward for these projects. Paula Kehoe, director of water resources at SFPUC, said that her team found that consistent and appropriate water quality and monitoring criteria were necessary across the many involved agencies. As a result of their efforts to set consistent criteria and establish a path forward on these projects, 20 decentralized reuse systems are now online in San Francisco. I am hopeful that their imminent draft policy for California, based on the lessons learned from this impressive work, will lead to a solid proposal in the next legislative session. Removing barriers to water reuse is a big component of Ceres’ business-led California water campaign “Connect the Drops.” Many of Ceres’ company partners in California are keen to move forward on water reuse projects, especially considering the ongoing drought and its impact on their businesses. But they have run into confusion, as well as roadblocks, from regulators at the local level. Many “Connect the Drops” signatories supported AB 1463 in this past legislative session; the bill laid out a road map for coordinating local and state governments around water reuse standards and monitoring for on-site water reuse projects. Unfortunately, this bill stalled because of unsolved issues between the administration and the bill’s author. It’s going to take a heightened level of coordination and alignment of standards to motivate stakeholders such as the business community to begin seriously implementing water reuse on a grander scale and quench the thirst of farms, businesses and households alike. However, the future for water reuse is bright. With the population of California expected to almost double by 2055, and with the anticipated effects of climate change in an already water-strained state, water reuse will need to be an integral part of California’s water story. We cannot afford to let this opportunity go literally down the drain. Read the post at Water Deeply
The spotlight on the role of the board in driving sustainability is intensifying. That was one of the main takeaways from last week’s panel I led at the NACD’s Christianna Wood, director at H&R Block, and Seth Goldman, founder of Honest Tea. A variety of trends are prompting directors to take on more responsibility for ensuring their companies are addressing sustainability issues like climate change. In particular, our panel pointed to the growing number of investors focusing on these issues through shareholder resolutions, corporate engagement and research. Just this month, a large group of investors met with Congressional leaders and the SEC calling for stronger corporate disclosure of material climate risks. Wood highlighted actions that the country’s largest pension fund, the California Public Employees Retirement System, is taking as an investor. By mapping out the carbon footprint of the 10,000 companies in its $300 billion investment portfolio, it identified that just 80 are responsible for half of the portfolio’s total greenhouse gas emissions. With this information in hand, CalPERS is pushing those companies to adopt long-term strategies for managing and adapting to climate-related risks. “More investors consider themselves asset holders, not shareholders,” Wood noted. There was a strong consensus that sustainability challenges impact corporate value, whether directly or indirectly, a fact that’s borne out by a number of academic studies. That led to a discussion about how these issues should be addressed by corporate boards. We all agreed that as fiduciaries responsible for ensuring that companies not only survive, but thrive, directors have a responsibility to assess whether a company is making the right choices. We also discussed the need for corporate directors to drive sustainability discussions in informed ways. ‘Climate competence’ is a hot issue in the investor and corporate space right now, and large investors like CalPERS and CalSTRS have recently updated their governance principles by calling on their portfolio companies to recruit directors with specific climate change expertise. “Every board will need to display some level of sustainability (expertise),” Wood said, adding that the type of sustainability skills needed depends on the industry the company is in. But tackling sustainability isn’t simply about managing risks—it’s about creating new opportunities. Goldman highlighted how activists and social trends can help boards and management identify new business opportunities. His company, Honest Tea, tackled the concerns that the medical professions was highlighting on obesity and labor activists were raising around fair trade and labor policies in developing countries. Now, with Beyond Meat, his high-profile startup that produces plant-based burgers, chicken and meatballs and that’s garnered the attention of the likes of Bill Gates, he’s responding to social trends again. A final note that also resonated with the audience was embracing “long-termism.” Goldman explained that, in balancing reaching the long-term future he wanted to create for his company with the short-term thinking of building up sales, it was crucial to develop clear guardrails of what the brand was about. “That gave us structure to what we were doing and made it clear how we were going to grow,” said Goldman. Adding more sugar to Honest Tea, for instance, might have helped with getting on the shelves of more sales outlets early on, but it would have diluted the brand. Boards have a role to play in helping define and maintain such guardrails for their companies.
Despite Clean Power Plan Court Case Virginia and Colorado Moving Ahead to Seize Low-Carbon Opportunity
On Tuesday, the D.C. Circuit Court of Appeals heard formal legal arguments on the Environmental Protection Agency’s Clean Power Plan aimed at reducing carbon pollution from the nation’s power plants. But even as the legal impasse continues, many utilities and states are forging ahead with efforts to reduce carbon emissions—and seizing the economic benefits that follow. In fact, some states are independently forging ahead to capture the economic benefits of a low-carbon economy. Earlier this summer, Virginia Governor Terry McAuliffe issued an executive order calling for concrete steps to reduce carbon pollution. “Many of the largest employers on the globe have made it clear that the availability of clean energy is a key part of their decision making process when it comes to new jobs and investments,” the governor said. “To continue attracting competitive and innovative businesses, we need to invest in a 21st century energy policy to ensure our grid is reliable, affordable and clean.” McAuliffe’s executive order responds to strong calls from businesses and investors to embrace policies that will mitigate climate change. They can also help states attract new businesses, industries and good-paying jobs. Additionally in Colorado, Gov. John Hickenlooper is rumored to be drafting an executive order to cut the state’s carbon emissions by 35 percent by 2030. Colorado has already seen major benefits from its renewable energy standard, which has helped catalyze more than three gigawatts of wind and solar energy to date. State officials say they will move forward with new carbon reduction efforts regardless of the outcome of the Clean Power Plan. Today, two members of the Ceres Business for Innovative Climate and Energy Policy (BICEP) coalition—Aspen Skiing Company and New Belgium Brewing—are hosting a dialogue with Colorado lawmakers at New Belgium’s Fort Collins headquarters. Both businesses will discuss why they are supporting the Clean Power Plan and other state clean energy policies that will accelerate the transition to a low-carbon future. Meanwhile, targets laid out in the Clean Power Plan are becoming increasingly achievable as electric utilities begin to cut carbon emissions, according to an analysis from M.J. Bradley & Associates and the Environmental Defense Fund. The report found that 21 of the 27 states trying to block the Clean Power Plan are actually on track to meet their 2024 targets. These states will be able to meet their targets with their existing power fleets and investments already in the pipeline. The bottom line is this: states have a significant opportunity to invest in a low-carbon energy future and attract new businesses, investments and jobs. The competition is on—and forward-looking states will surely be the winners.
Today, challengers to the U.S. Environmental Protection Agency’s Clean Power Plan will try to make their case to the D.C. Circuit Court of Appeals that the plan—the nation’s first comprehensive effort to reduce carbon pollution from power plants—will cause “irreparable harm” to our economy. However, hundreds of leading investors and businesses—as well as top climate and energy experts—recognize that this claim is far from the truth. A 2016 report from the U.S. Energy Information Administration shows that the Clean Power Plan will in fact accelerate annual growth of renewable energy production nationwide by nearly five percent through 2030, falling in line with the mandate’s goal of reducing U.S. power-plant carbon pollution 30 percent by 2030. Businesses from across the country—from large employers to mom-and-pop stores—support the Clean Power Plan. Last summer, more than 365 companies and investors sent letters to governors calling for swift implementation of the plan. Industry leaders like General Mills, Staples, Unilever, eBay and Levi Strauss were among the wide swath of companies who signed onto to the letters, stating, “tackling climate change is one of the greatest economic opportunities of our time.” More recently, eight major companies—including Adobe Systems Inc, Blue Cross Blue Shield of Massachusetts, IKEA North America Services and Mars Incorporated, took their support a step further by submitting legal briefs in defense of the Clean Power Plan. “[We] believe the Clean Power Plan, when fully implemented, would not cause business harm to [our] operations as large energy consumers and purchasers,” wrote the companies. Tech companies Apple, Amazon, Google and Microsoft submitted a separate legal brief. These companies understand that the Clean Power Plan plays a major role in the United States’ contribution to the global Paris Agreement—a climate pact signed by more 170 countries that showcases broad, universal support for addressing greenhouse gas pollution across the globe. They acknowledge the value of moving towards a low-carbon economy and the importance of forward-looking climate policies that will help to secure a clean energy future. The Clean Power Plan is a critical step in making that future an achievable reality.
The electric power sector will be closely watching this week’s D.C. Circuit Court of Appeals hearing on the Clean Power Plan and eagerly awaiting the clarity that the court, and likely the U.S. Supreme Court, will provide. Regardless of where the legal debate lands, however, a few points are becoming increasingly clear: First, the Paris Climate Agreement will soon be entered into force, bringing more heft to its ambitious goal of limiting global warming to well below 2°C. That means that the U.S. power sector will need to achieve greenhouse gas reductions beyond the expectations of the Clean Power Plan, which calls for a 30 percent cutback in carbon pollution by 2030. The credit rating agency Moody’s made exactly this point when it announced in June that it would begin analyzing carbon transition risk based on scenarios consistent with the Paris Agreement, and noted the especially high carbon risk exposure of the power sector. On the positive side, the US power sector is already decarbonizing and the actual goals included in the Clean Power Plan are becoming much more feasible and cost-effective due to plummeting solar and wind production costs, as well as improved energy efficiency. Second, it’s not just the electric power sector that should be paying attention. For the first time since 1979, GHG emissions from cars and other modes of transportation recently surpassed those from the power sector, increasing the likelihood that the power sector will have a key role to play in reducing transport emissions, via electric vehicles. While power companies should absolutely be paying close attention to the court deliberations, they also need to think holistically and long range about the role they play in the global push toward carbon neutrality by mid-century. That’s why it’s encouraging to see major power companies – even ones that have expressed concerns about elements of the Clean Power Plan – making meaningful long-range commitments to lower their carbon footprints. For example: NRG Energy, the country’s fourth largest CO2 emitter, has set science-based GHG reduction targets of 50 percent by 2030 and 90 percent by 2050; Xcel Energy, with 60 percent of its 2014 power generation coming from coal, has established a target of reducing its greenhouse gas emissions by 60% by 2030, well beyond Clean Power Plan goals; Energy provider National Grid, with operations in the U.S. and the U.K., has set GHG goals of 45% by 2020 and 80% by 2050, and has already reduced its US footprint by 65% below 1990 levels by 2013; Global power company Enel has committed to reduce its carbon intensity by 25% between 2007 and 2020, and to achieve carbon neutrality by 2050. While these are all encouraging signs, other major players are taking a less helpful, wait-and-see approach. The nation’s three biggest carbon emitters, AEP, Duke Energy, and Southern Company, have all been reducing their carbon footprints, but should take the next step and perform some robust 2°C scenario analyses, align their business plans with the low risk scenario and set ambitious long-term greenhouse gas goals. The bottom line: all of our nation’s electric utilities need to be onboard to make the Paris Climate Agreement an achievable reality, and they should recognize the important role that the Clean Power Plan can play in setting us on the proper path.
While legal experts are debating EPA’s Clean Power Plan in Washington next Tuesday, the U.S. business community is galloping ahead on the clean energy future. From General Motors to Bank of America to Apple, dozens of iconic companies are now fully committed to running their companies with 100 percent renewable energy. The writing is on the wall: clean energy has arrived and fossil fuel power generation is fading. And a favorable Clean Power Plan ruling will hasten this transition, benefitting both our global climate, which is over-heating due to carbon pollution, and businesses that want policy certainty in dealing with this threat. By enacting this rule, all 50 states will be on the path to lowering the carbon footprint of their electric power plants. Even with today’s patchwork quilt of energy policies, wind and solar power are becoming mainstream. More than 10,000 megawatts of new capacity was added in 2015 alone, more than two-thirds of the total renewable energy generating capacity installed last year in the United States. The green power boom is being fueled by a combination of factors, the biggest being plummeting renewable energy costs that have made wind and solar energy cost-competitive with fossil fuel power plants in many states. A multi-year extension of federal tax creditsfor wind and solar power has helped, too. States and regions that have enacted their own carbon-reducing policies are seeing the biggest benefits. Nine states in the Northeast, for example, have saved billions of dollars in their energy bills by encouraging more aggressive energy efficiency programs through the Regional Greenhouse Gas Initiative, or RGGI, a cap-and-trade effort that has helped reduce power plant emissions by 30 percent since the program began in 2008. The nine Northeast governors are discussing plans to extend and strengthen RGGI’s goals beyond 2020, and 90-plus companies and investors are encouraging them to do so. Another shining success is California, which will be celebrating the 10th anniversary of its seminal climate law, Assembly Bill 32, next Tuesday. Since enacting the law, the state has added 500,000 new clean energy jobs, all while growing the economy at a healthy 3 to 4 percent a year. Last month California lawmakers, with strong support from the business community, passed a new climate law, Senate Bill 32, that will extend and strengthen the state’s carbon-reduction goals well beyond 2020, to 2030. And, more than anywhere, California is targeting both the power sector and the transportation sector for massive carbon reductions. In addition to getting a quarter of its electricity from renewables, the state is pushing forward on low-carbon fuels and electric vehicles. Earlier this year, the state’s largest utility, PG&E, submitted plans to install 7,600 electric vehicle charging stations in California, which would provide a major bump to Gov. Jerry Brown’s bold vision to have 1.5 million zero-emissions vehicles on California roads by 2030. So why are businesses like PG&E and General Motors so enthusiastic about electric vehicles and green power? First, they see climate change as a direct threat to many businesses that we must deal with by lowering carbon pollution. Second, they strongly prefer broad, consistent national policies over patchwork state policies. And third, they prefer the energy cost certainty of sourcing renewable energy over natural gas and other fossil fuels, which are prone to volatile price swings. General Motors cited many of these reasons when it announced its 100 percent green energy goal last week. “This pursuit of renewable energy benefits our customers and communities through cleaner air while strengthening our business through lower and more stable energy costs,” CEO Mary Barra said. About a half-dozen companies, including IKEA and Mars Inc., echoed the sentiment in a legal brief they filed last spring in support of the Clean Power Plan. “Swift and full implementation of the Clean Power Plan will directly benefit [our] operations,” wrote the companies in their 30-page filing. The evidence is clear: the business community is already moving forward with clean energy, and by getting the Clean Power Plan back on track, their efforts will advance even faster. And that will be good news for both the global environment and our national economy. Read the post at Forbes Sustainable Capitalism Blog
From laptops to backpacks to the carefully chosen outfit for back-to-school pictures, it might surprise you that the must have-items on your kids’ shopping lists might also sit on the U.S. Department of Labor’s list of goods produced with child and/or forced labor. As we march past Labor Day and into the classroom, we are reminded of an essential component for building a global sustainable economy: protecting the human rights of workers. But even today, forced labor and human trafficking affect an estimated 21 to 27 million people worldwide. For companies with global operations and complex, multi-tier supply chains stretching down to the farm and factory level, ensuring universally safe and equitable working conditions can be an enormous challenge to overcome—and often companies don’t know quite where to start. n support of the collaborative efforts of the international community, including the 2020 Sustainable Development Goals and the UN Guiding Principles for Business and Human Rights, we recently updated the Ceres Roadmap for Sustainability. We specify more clearly how we expect companies to build fair, safe and equitable workplaces, including the protection of workers’ human rights across operations and global supply chains. Here are 10 steps companies can take to address child and forced labor: 1. Assess key risks and impacts: From basic education to conducting robust human rights risk assessments, and from mapping supply chains to tracing materials used in products, it is critical to gain a sound understanding of key risks and impacts. 2. Establish effective policies: These policies should align with internationally recognized standards and be applicable to both direct employees and suppliers, and made accessible in relevant languages. 3. Develop implementation programs and time-bound measurable goals: Leverage workers voices in the creation of programs, where possible, to ensure they are addressing key needs and impacts and set goals and targets to drive performance. 4. Communicate expectations: Clear policies and programs and performance goals can be used to communicate commitment and accountability from the top both internally and to suppliers. 5. Align internal processes, including procurement practices and strategic business decisions: These processes should reinforce, not diminish, fair and equitable working conditions. 6. Invest in training and capacity building: Ensure company employees, management, and suppliers have the training—and incentives—needed to effectively manage and meet expectations and that they are cascaded throughout the supply chain. 7. Engage suppliers as partners and innovators: Support their efforts by demonstrating their business value and empowering them to create solutions. 8. Measure performance: Understand that audits, while important, do not provide a full picture of working conditions. Find ways to engage workers, providing robust grievance mechanisms and measure outcomes, not just process. 9. Disclose results: Regularly report performance, both quantitatively and qualitatively, and candidly discuss challenges, including actions taken to address and prevent recurrence. Encourage suppliers to report their performance. 10. Engage stakeholders: No one company, industry, or organization can solve this issue alone. Collaboration with peers, labor and human rights organizations, investors, government, and others is more effective than tackling it alone. To affect meaningful, widespread, and long-lasting changes in all workplaces, from corporate offices to factories and fields, companies must act—and act now. Learn more at: https://www.ceres.org/roadmap-assessment. Note:.The author’s original article was published on May 21, 2014 by Know the Chain. It was updated on Sept. 8, 2016. Additional, detailed information about forced labor in supply chains is available in the Ceres case study Hidden in Plain Sight.
Despite growing evidence that environmental and social issues affect corporate bottom lines, Ceres research has shown that corporate directors at most major U.S. companies are not engaging on these issues in ways that are effective and meaningful. While many of these companies have sustainability programs, only a few companies consider these issues to be "board relevant." I’m not suggesting that every sustainability challenge merits board attention, but when an issue materially could affect corporate performance or value, it belongs on the table. Sustainability officers at companies have a key role to play in driving the understanding of what should rise to the top. When an issue materially could affect corporate performance or value, it belongs on the table. So how can sustainability officers do a better job of elevating relevant issues to their boards? Here are a few ideas based on my 10 years of work on integrating sustainability into corporate strategies and bottom-line performance. 1. ENGAGE CORPORATE SECRETARIES Corporate secretaries act as intermediaries to corporate boards and work closely with the CEO and the board chair to decide when and how issues get on the board agenda. A key role of the corporate secretary is advising the board on how they can discharge their responsibilities towards shareholders, which is why the CS and investor relations departments work closely together. Sustainability officers could engage the CS and IR by demonstrating that the company’s ownership is starting to pay attention. In fact, companies such as EMC and Intel have explicit board sustainability oversight systems in part because of engagements with shareholders. We’ve seen record-breaking growth in investors caring about sustainability (PDF) writ large, as well as investors specifically focused on the role of the board for sustainability (PDF). Large institutional investors such as CalPERS, CalSTRS and State Street Global Advisors (PDF) even have set public expectations on how corporate boards should be elevating their focus on climate change. 2. BUILD ON EXISTING PRIORITIES Kathrin Winkler, former chief sustainability officer at EMC, said, "It is important to do one’s homework on how governance is structured at the board level." That means understanding the board committees, including their composition and charters. It also means knowing what issues the committees are already focused on. Given time constraints on a board’s agenda, rather than trying to add a new item for the board to consider, consider how sustainability can be folded into a discussion the board is already focused on such as evaluating the business model and supply chain risks or workforce retention. For instance, investors are looking to engage with the boards of energy companies on climate-related issues given the major impacts on their business models from carbon-reducing regulations and other carbon-reducing trends. 3. MAKE THE BUSINESS CASE Ceres recently updated its Ceres Roadmap for Sustainability to call on boards to integrate sustainability into discussions on strategy, risk and revenue. In fact, as my recent View from the Top report points out, risk and revenue are the most direct routes for getting the board to focus on a sustainability issue. Dan Henkle, senior VP of global sustainability at Gap, suggests that in some cases, sustainability officers can use "points of pain" to frame sustainability from the risk perspective and engage the board and the CS on how these risks can be mitigated. This also could be a way to translate sometimes theoretical ideas into practical impact. Whether and how sustainability should be elevated as a material issue is a subject of intense investor focus. "They need to touch and feel what you are talking about," he noted. For instance, many companies recognize the need to conserve water for environmental reasons. But where water scarcity is linked to cotton production, the impacts become much more tangible to an apparel company. Partnering with colleagues from the business side in this process also can be helpful. For instance, Nike’s Board Sustainability Committee is jointly staffed by the company’s chief sustainability officer and chief operating officer. Executives often appear before the committee to discuss how sustainability and business strategies are aligned and how this is reflected in the work of the teams that they lead. 4. DON’T OVERREACH As noted earlier, it all comes down to materiality. In View from the Top, we underline that rather than engaging boards on sustainability writ large, it is most effective to get them to focus on specific environmental and social issues that materially could affect the company’s short and long term value. Most companies that publish sustainability reports have a process to determine material sustainability issues. But these efforts rarely inform board level discussions because they are not considered to meet pre-determined financial and regulatory thresholds. Whether and how sustainability should be elevated as a material issue is a subject of intense investor focus, with many investor groups, including Ceres, filing input to ratchet up the Securities and Exchange Commission’s attention to this issue. One way sustainability officers could bring these worlds together is to explore opportunities to emphasize the focus on "impact on corporate value" as a part of the materiality process. Given that sustainability officers typically lead the reporting function at companies, one tactical option is to advocate to have the board chair include a message in the sustainability reports. For instance, EMC systematically maps its material sustainability issues to the company’s major strategic themes, allowing for more integration into business priorities. The company also includes its board in materiality exercises, and revises key issues identified based on board feedback. Prudential Financial emphasizes the importance of getting material sustainability issues included in financial filings as a way to get sustainability issues in front of the board, which reviews such disclosures. Its annual financial proxy includes details (PDF) about the company’s environmental and sustainability efforts and features a board qualifications matrix that specifically pulls out board member expertise in sustainability and social responsibility. 5. BE MORE TRANSPARENT Companies could do a much better job of telling the story of when their boards have been engaged in thoughtful oversight and decision making on key sustainability issues. Interest is growing in an initiative led by Harvard professor Robert Eccles calling for boards to release an annual Statement of Significant Audiences and Materiality, laying out whom the board considers to be a company’s primary stakeholders and corresponding matters that the company prioritizes. Given that sustainability officers typically lead the reporting function at companies, one tactical option is to advocate to have the board chair include a message in the sustainability reports. Many European companies routinely have their CEO and board chair sign off on the leadership message in these reports. The bottom line is that the sustainability officers have a big task in front of them in getting their boards on board — especially at U.S. companies — to focus on sustainability challenges with the urgency that these issues deserve. Companies such as EMC, Gap Inc., Nike and Prudential are showing strong leadership in elevating these issues and I hope more companies will learn from them. Read the post at GreenBiz.com