G4: Corporate Policies and Management Systems
CERES ROADMAP EXPECTATION
|Companies will embed sustainability considerations into corporate policies and risk management systems to guide day-to-day decision-making.|
Check out the Roadmap in Action section for examples of how companies are implementing the Governance expectations of the Ceres Roadmap.
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. Companies should develop policies covering all sustainability issues that materially affect the company’s performance and plans, and outline the company’s vision and strategy for implementing these policies. Companies should also incorporate consideration of environmental and social risks and opportunities into their risk management systems and other business processes so that sustainability is factored into all decisions. As part of this process, companies will need to engage with stakeholders to obtain feedback on the relevance of existing and proposed policies and to identify gaps. These policies should guide the company’s activities across its operations, the supply chain, logistics, the design and delivery of products and the management of its employees.
HOW ARE COMPANIES PERFORMING?
In The Road to 2020: Corporate Progress on The Ceres Roadmap For Sustainability, we evaluated 600 of the largest U.S. companies on their progress towards meeting the expectations laid forth in the Ceres Roadmap for Sustainability. Using data compile and analyzed by Sustainalytics, social and environmental sustainability policies were evaluated, as well management systems for implementing those policies.
The assessment found that most companies evaluated have adopted policies based on international norms, but fewer companies are adopting sector-specific policies, which tend to address areas of direct exposure and impact. Across the 600 companies assessed, the most frequently instituted policies include those that address bribery and corruption and elimination of discrimination, as well as policies stating overall environmental sustainability objectives.
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. However, when analyzing the 600 companies only 7 percent (42 companies) were found to be signatories to the UNGC. Applying codes based upon international standards is important, but it is not enough to simply be a signatory, companies must also demonstrate how they are integrating these standards into business decision-making.
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. Of the 600 companies, 58 percent (350 companies) have implemented formal environmental management systems. Yet only 12 percent (71 companies) have their EMS externally verified. 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. For example, compared to the 58 percent of companies with an EMS, only 25 percent have a formal supply chain monitoring program in place.
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