Corporate Policies and Management Systems
Oversight for sustainability requires keen attention to international environmental and human rights standards along with sector-specific criteria, such as biodiversity or responsible lending practices. For this expectation, social and environmental sustainability policies were evaluated, as well management systems for implementing those policies.
Companies that adopt international standards, such as the International Labor Organization’s (ILO) core conventions and are signatories to the United Nations’ Global Compact (UNGC), demonstrate both an understanding of the importance of sustainability issues and a commitment to implement changes in their business. Using these frameworks and transparently disclosing the impacts they have on the business can provide international legitimacy to a company’s sustainability commitment and sends a signal to investors in global markets. Companies including GE and Manpower Group have adopted both of these frameworks.
Depending upon business impacts, companies may also adopt sector-oriented sustainability policies. One example is the Equator Principles. The principles are a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions.4 Some financial services companies are taking the Equator Principles and expanding their application beyond project financing to other lending practices. Of the 19 companies to which the principles apply in the Financial Services and Banking & Insurer sectors, only four —Bank of America, Citigroup, JP Morgan and Wells Fargo—are signatories.
For businesses engaged in natural resource extraction, operations can significantly affect the livelihood and cultural integrity of indigenous communities that maintain strong cultural, economic and spiritual ties to traditional lands and resources. That’s why customized policies and management systems are a critical first step in soliciting a “social license to operate” from local communities for such companies.
Companies must also demonstrate how they are implementing policies that address material social and environmental risks across all direct global operations, subsidiaries, joint ventures and suppliers. Citigroup, for example, employs a robust Environmental and Social Risk Management policy that governs major transactions and guides decision-making. The policy has enhanced due diligence around specific sectors, including forestry, mountaintop removal mining, nuclear and coal-fired power plants, as well as standards for transactions in emerging markets. Policies, however, are only useful if they are applied in a consistent and credible manner that leads to improved performance. In their public disclosures companies need to make a direct connection between strong policies, management systems and actual performance impacts.
Environmental management systems (EMS) are now a baseline expectation for investors and other stakeholders who want assurances that companies understand potential risks and are taking steps to mitigate those risks.
External verification to international standards, such as the International Organization for Standardization (ISO) 14001, enhances credibility to external stakeholders, particularly investors. Despite the considerable uptake of EMS, comparable systems to monitor social risks are lacking.
Equator Principles. “About the Equator Principles.” April 16, 2012.