A Deeper Shade of Green: The Social Layer of Green FSAs

By Ruth Rennie

Developing Green Firm Specific Advantages (GFSAs) allows firms to build business capacities and assets that enhance both economic and environmental performance.

However developing GFSAs focused solely on environmental management capacity will be inadequate to deliver sustainability and long term financial performance.

An additional set of GFSAs that build capacity to manage the social dimension of the people, planet, profit equation are required. These relate to the internalisation of the social contract, operational approaches that develop social equity, and communications approaches focused on inclusive constituency building.

Introduction

Sustainability frameworks build on the fundamental concept of the “triple bottom line” (TBL) balancing the needs of profit, planet and people. The TBL concept aims to broaden the focus of business performance from profit and loss to tracking and managing a company’s economic (not just financial), social, and environmental impact.

This enables companies to understand the full costs of doing business and calculate real value added.

Today risks associated with climate change, resource scarcity, increasingly stringent government regulation and consumer pressure for transparent and accountable business practice have shifted the focus of sustainability from a simple demonstration of corporate social responsibility to a core driver of commercial viability. Yet business leaders still seldom pay the same attention to people and planet targets as they do to achieving profitability (source: Elkington 2018).

The definition of “green” firm specific advantages (FSAs) first developed in the 1990s acknowledges that firms are likely to invest in better environmental performance only if they will also lead to higher economic returns.

Green FSAs (GFSAs) are business capacities and assets that allow firms to enhance both economic and environmental performance by enabling them to respond to and leverage evolving environmental challenges to achieve sustainable growth and competitive advantage. Developing GFSAs has a range of benefits for firms including cost and operational efficiencies, improved innovation and technological capabilities, enhanced product differentiation and market opportunities, and reputational enhancement (Singh et al 2014).

However, the definition of “green” FSAs related only to environmental management capabilities, creates an unbalanced framework that ignores critical capacities and assets that firms need to manage the social dimensions of sustainability that are increasingly critical to ensure both environmental and financial performance.

The need for wider set of Green FSAs

Though much of the sustainability industry of consultants and framework developers continue to equate “sustainability” and “green” approaches with environmentally-friendly and carbon neutral, the new generation of “green” frameworks explicitly link these issues with social equity and inclusion.

The United Nations calls for “Green Economies” which are “low carbon, resource efficient and socially inclusive” (UN Environment). The current “Green New Deal” policy resolution in the USA emphasises the role of environmental crises and economic transformation in exacerbating “systemic injustices” by disproportionately affecting already disadvantaged “frontline and vulnerable communities.” (Green New Deal Policy Resolution, 2019).

There is ample evidence that businesses are increasingly confronted with risks related to social equity and inclusion that threaten both their commercial and sustainability performance. In a recent survey 80 percent of businesses said they expected their company to be affected by changes to “the social contract” (defined as the general agreement on the rights and responsibilities of members of society[1]) over the next 10 years.

These include workforce risks related to payment of a living wage, technology replacing jobs, and erosion of worker benefits through efficiency measures such as outsourcing.

They also include risks from tensions arising from increasing social inequalities, and rising expectations of the role of business in solving social issues, creating a situation where “Social license to operate is at a higher standard than regulatory license to operate” (BRS 2017).

It is therefore not surprising that companies are now giving the highest priority in their sustainability efforts to social issues related to ethics, diversity, human rights and women’s empowerment, alongside climate change. (BSR 2018)

These trends highlight the limitations of cultivating GFSAs that address only a firm’s environmental management capacity to deliver long-term business sustainability or financial performance. Firms also need to develop “new green” FSAs to strengthen their ability to engage a wide range of stakeholders around a mutually beneficial social contract.

As with the GFSAs defined by Singh et al, the social set of GFSAs also need to be embedded into the firm’s planning and organisational practices, operational practices and communications. This effectively creates an additional layer of GFSAs related to “social management” (for want of a better term) as shown in the diagram below. These relate to the internalisation of the social contract, operational approaches that develop social equity, and communications approaches focused on inclusive constituency building.

[1] The full definition of “social contract” used in the survey was «the unwritten and tacit agreement that exists among members of society (individuals and organizations) that guides behavior and establishes rights and responsibilities of members of society.” (BSR 2017)

Fig 1: Green FSAs : Environmental and Social Management Dimensions

Social Contract Internalization Green FSAs

In the broadest terms Social Contract Internalization GFSAs relate to a firm’s capabilities to incorporate relevant social trends and expectations into strategic planning and develop strategies to mitigate risks related to the impact of their business operations, products and services on different social groups and wider patterns of inequality. Developing this perspective allows firms to internalise the social costs of products, technologies and business practices, and balance environmental management and operational efficiencies with social equity considerations.

Social contract internalisation GFSAs therefore enable firms to develop socially sustainable workforce capacity and supply chain relationships. This includes adopting approaches to measure, report on and address the gender pay gap by which men are still paid more than women for equal work in nearly every country in the world (Rubery, 2019).

It also includes adopting proactive strategies to manage the full range of costs to workers, supply chain actors and communities associated with practices such as the dematerialization of products, sourcing of eco-friendly inputs, achieving resource efficiencies, outsourcing and technological innovation.

For example by assessing the social impact of a shift from producing or using non-renewable to renewable resources such as biofuels on producer communities smallholder agriculture, livelihoods and food security (UNRISD 2012). It also includes developing human resource management strategies that ensure workplace health and safety and freedom from discrimination and harassment, and proactive strategies to address inequalities in access to employment or livelihood opportunities.

Beyond this, firms can develop the capacity for product innovation and expansion to new market segments to address inequalities in access to sustainable products and services between different social groups.


Social Contract Internalization Green FSAs Example – Green Jobs

The International Labour Organisation (ILO)  defines “Green Jobs” as those that both provide employment in the production of green products and services or in environmentally friendly processes AND meet the criteria of decent work by ensuring productive work, a fair income, security and rights at work, social protection, social dialogue and gender equality (ILO 1 & 2).

Yet the social dimension is still often absent from “green” jobs.

A recent study of around 300,000 organisations in Portugal found that the green job sector employs workers with lower qualifications and has poorer provision and lower coverage of Occupational Health and Safety Services resulting in a higher incidence and severity of accidents at work (Moreira et.al, 2018).

Internalization of Social Contract Green FSAs would therefore help firms to mitigate risks and reduce costs of workplace accidents, and demonstrate commitment to reducing the vulnerabilities of low income workers.


Social Equity Development Green FSAs

Social equity development GFSAs recognize that the unequal distribution of risks and rewards within commercial value chains ultimately pose a threat to the long-term sustainability and financial viability of current business models. This is most apparent in the global commodity supply chains where price fluctuations and buying practices such as spot trading create high risk for producers and suppliers that threaten the whole supply chain.

Social equity development green FSAs enable firms to develop business practices and operational processes to share risk and balance the social equity of key actors in the supply chain such as developing long term supplier agreements and investing in producer capacity.

Building social equity in supply chains enables firms to ensure business continuity and implement effective environmental management with producers as long term partners. It also enables firms to develop speciality products based on quality, transparency and local knowledge, enhance brand value develop product portfolios, and satisfy growing consumer demand for authenticity and transparency (Brown 2018, Samper 2018).


Social Equity Development Green FSAs Example – Mars Sustainable in a Generation Plan drive a new approach to commodity sourcing.

Alongside actions to address GHG emissions, water stress, land use, and deforestation the Sustainable in a Generation Plan commits to meaningfully improve the working lives of one million people in its value chain to enable them to thrive.

To do this the company has adopted a new approach to commodity sourcing from known origins and in many cases known farms, with price and sustainability impacts evaluated side by side and generally from longer term partnership arrangements with fewer suppliers.”

In addition Mars is focusing on increasing income, respecting human rights and unlocking opportunities for women. The focus on cultivating long term buyer relationships and investing in the productivity and livelihoods of smallholder suppliers allows Mars to mitigate the risks that poverty discourages the next generation of farmers from participation in essential commodity supply chains. (Sustainable Brands 2018)


Inclusive Constituency Building Green FSAs

The concept of inclusive constituency building goes beyond reputation management, operational partnership development and targeted engagement with local stakeholders already identified in the GFSA framework. Rather it recognises the increasing consumer demand for businesses to demonstrate strong social purpose and to participate in a company’s broader vision. (Brown 2018, BBMG 2017).

A recent global survey shows at least half of consumers believe brands can do more to solve social ills than government and that it is easier for people to get brands to address social problems than to get government to take action. Moreover 57% report buying or boycotting brands based on the brand’s position on a social or political issue (Edelman 2018).

Inclusive constituency-building GFSAs enable firms to develop purpose driven narratives to engage consumers, investors, supply chain actors, local communities and wider stakeholders such as governments, regulators and NGOs in an ongoing relationship based on transparent communication and accountability to build a broad coalition of support for their activities products and services.

This allows firms to develop stronger brand value and engage proactively with employees, customers and peers as brand ambassadors. It also increases firms’ ability for early sensing of societal concerns and foster an organisation-wide culture of listening and engaging with stakeholders that creates goodwill, can transform conflict into productive collaborations and garners “benefit of the doubt” support in regulatory compliance and public approvals processes.

Inclusive constituency building GFSAs also build firms capacity to engage in constructive dialogue to drive product innovation, enhance creativity and strengthen employee motivation through the inclusion of wider perspectives (Sharma and Vrendenberg 1998).


Inclusive Constituency Building Green FSAs Example – Amazon

Amazon is one of the most financially successful companies in the world, and has made environmental sustainability commitments to increase its use of renewable energy and make all amazon shipments net zero carbon, with a target of 50% by 2030. Yet the company’s financial and environmental management strategies are undermined by its failure to develop an inclusive constituency for its brand.

Amazon recently pulled out of a deal to set up a new headquarters in New York City, fearing damage to its reputation from a barrage of objections from politicians, unions, public housing residents, local community leaders and government institutions.

These objections echoed Amazon’s failure to address poor labor practices and anti-unionisation policies, or to contribute to alleviating social inequality issues to which it contributes, by threatening to halt growth in its home city of Seattle if the city approved a tax on large employers to fund homeless services and low-income housing (Sainato, 2018).

The failure of the deal has been attributed to Amazon’s failure to develop a robust strategy to build support amongst key stakeholders groups and miscalculation on how much it needed to engage with those audiences to make the development of the New York HQs a success (Goodman and Weise, 2019).


Conclusion

To adequately ensure sustainability including environmental management and financial performance, Firms need to develop an additional set of Green FSAs focused on the social dimension of the people, planet profit equation.

Social contract internalisation GFSAs that incorporate a social equity and inclusion perspective into strategic planning enable firms to develop socially sustainable workforce capacity and supply chain relationships and strengthen capacity for product innovation and market positioning.

Social equity development GFSAs that build capacity to rebalance risk and build inclusiveness in supply chains enable firms to ensure business continuity and implement effective environmental management strategies based on long term partnerships and to develop product differentiation.

Inclusive constituency building GFSAs that build capacity to engage stakeholders in a broad coalition of support for a firm’s activities products and services allow firms to develop stronger brand value, sense and respond to societal concerns and drive product innovation, creativity and employee motivation through constructive engagement with wider stakeholder perspectives.

REFERENCES

BBMG Globescan (2017), Brand Purpose in Divided Times, Four strategies for Brand leadership. http://bbmg.com/wp-content/uploads/2017/10/BBMG_GlobeScan_BrandPurposeReport_2017.pdf

Britton-Purdy, Jedediah (2019) “The Green New Deal Is What Realistic Environmental Policy Looks Like”, The New York Times Feb. 14, 2019, https://www.nytimes.com/2019/02/14/opinion/green-new-deal-ocasio-cortez-.html

Brown, Nick (2018), “A Radical New Social Contract Concept from James Hoffmann”, Daily Coffee News, October 15, 2018, https://dailycoffeenews.com/2018/10/15/a-radical-new-social-contract-concept-from-james-hoffmann/

BSR, Globescan (2017), The State of Sustainable Business 2017, Results of the 9th Annual Survey of Sustainable, Business Leaders, July 2017, https://www.bsr.org/reports/2017_BSR_Sustainable-Business-Survey.pdf

BSR, Globescan (2018), The State of Sustainable Business 2018, Results of the 10th Annual Survey of Sustainable, Business Leaders, 2018, https://www.bsr.org/files/event-resources/BSR_Globescan_State_of_Sustainable_Business_2018.pdf

Edelman (2017, 2018), Beyond No Brand’s Land, Edelman Earned Brand Study, https://www.edelman.com/earned-brand, / https://www.edelman.com/research/earned-brand-2017

Elkington, John (2018), “25 Years Ago I Coined the Phrase “Triple Bottom Line.” Here’s Why It’s Time to Rethink It”, Harvard Business Review, June 25, 2018. https://hbr.org/2018/06/25-years-ago-i-coined-the-phrase-triple-bottom-line-heres-why-im-giving-up-on-it

Goodman, J. David and Weise, Karen, (2019) “Why the Amazon Deal Collapsed: A Tech Giant Stumbles in N.Y.’s Raucous Political Arena”, The New York Times, Feb. 15, 2019, https://www.nytimes.com/2019/02/15/nyregion/amazon-hq2-nyc.html

Green New Deal Policy Resolution, G:\M\16\OCASNY\OCASNY_004.XML February 5, 2019 (3:27 p.m.) https://assets.documentcloud.org/documents/5729033/Green-New-Deal-FINAL.pdf

ILO 1 – What are Green Jobs? https://www.ilo.org/global/topics/green-jobs/news/WCMS_220248/lang–en/index.htm

ILO 2 – Decent Work, https://www.ilo.org/global/topics/decent-work/lang–en/index.htm

Kantor, Jodi and Streitfeld, David (2015), Inside Amazon: Wrestling Big Ideas in a Bruising Workplace, The New York Times, Aug. 15, 2015, https://www.nytimes.com/2015/08/16/technology/inside-amazon-wrestling-big-ideas-in-a-bruising-workplace.html

Moreira, Sandra, Vasconcelos, Lia, Silva Santos, Carlos, (2018)“Occupational health indicators: Exploring the social and decent work dimensions of green jobs in Portugal” Work, vol. 61, no. 2, 2018 pp. 189-209, https://content.iospress.com/articles/work/wor182792

Rubery, Jill BBC (2019), “Is equal pay actually possible?, BBC News 22 February 2019 https://www.bbc.com/news/business-47212342

Sainato, Michael (2018) Exploited Amazon workers need a union. When will they get one?, The Guardian, Sun 8 Jul 2018, https://www.theguardian.com/commentisfree/2018/jul/08/amazon-jeff-bezos-unionize-working-conditions

Samper, Luis F. (2018), “A New World Coffee Order” Daily Coffee News, October 17, 2018, https://dailycoffeenews.com/2018/10/17/a-new-world-coffee-order/

Sharma, Sanjay and Vredenburg, Harrie (1998), “Proactive Corporate Environmental Strategy and the Development of Competitively Valuable Organizational Capabilities” Strategic Management Journal, 19: 729–753 (1998) http://www.jstor.org/pss/3094125

Singh Nitish, Yung‐Hwal Park, Carri R. Tolmie, Boris Bartikowski (2014), “Green Firm‐Specific Advantages for Enhancing Environmental and Economic Performance”, Global Business and Organizational Excellence, November/December 2014 pp6-17 https://doi.org/10.1002/joe.21580

Sustainable Brands (2018), Screw Incremental Improvements: Mars Is Changing How It Does Business, September 19, 2018, https://sustainablebrands.com/read/walking-the-talk-1/screw-incremental-improvements-mars-is-changing-how-it-does-business / See also – Henderson, James (2017) Mars CEO Grant F. Reid has said business needs to lead “transformational change” in order to tackle the most urgent threats facing the planet and its people, including a radical overhaul of supply chains”. Sep 08, 2017, https://www.supplychaindigital.com/scm/mars-ceo-transformational-business-change-needed-including-radical-rethink-supply-chains

UN Environment “About the Green Economy”? https://www.unenvironment.org/explore-topics/green-economy/about-green-economy https://www.unenvironment.org/regions/asia-and-pacific/regional-initiatives/supporting-resource-efficiency/green-economy

UNRISD (2012), Social Dimensions of Green Economy Research and Policy Brief 12, May 2012, https://www.files.ethz.ch/isn/143941/RPB%2012e.pdf

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A message from G&A Institute

This is the “final paper” authored by Ruth Rennie as she completed the on-line, self-study “Certification in Corporate Responsibility and Sustainability Strategies” hosted by Governance & Accountability Institute and developed by Professor Nitish Singh, Ph.D., Associate Professor of International Business at the Boeing Institute of International Business at Saint Louis University, and founder and consultant at IntegTree LLC; and, Instructor Brendan M. Keating, Adjunct Professor at Wilmington University and VP of IntegTree.

The professionals completing the course work receive certificates from the Swain Center for Executive & Professional Education at the University of North Carolina Wilmington and from G&A Institute.

The certification program provides a broad overview of key corporate responsibility challenges and strategies that will enable organizations to succeed in the 21st Century Green Economy.

Ruth Rennie is a Sustainability and Social Impact Consultant educated at Trinity College, Dublin, Ireland (M.Phil. – Master of Philosophy, History; at Universite Paris 7 (Paris, France), Diplome d’Etudes Approfondies (DEA); and, Victoria University, New Zealand, Dip TESL (Diploma in Teaching English as a Second Language). Profile: https://www.linkedin.com/in/ruth-rennie/

Ruth’s email: rennie.ruth@gmail.com

More information on the CSR course is available at:

http://learning.ga-institute.com/courses/course-v1:GovernanceandAccountabilityInstitute+CCRSS+2016/about

Eco-Efficiency Green Firm-Specific Advantages — L’Oréal Case Study

Guest Post by Laura Malo Yague, Sustainability Reports Data Analyst, G&A Institute

Introduction:

The scope of this case study is the analysis of the sustainability strategy of the French company L’Oréal, focused on the actions taken related to the Eco-Efficiency Green Firm – Specific Advantages.

Eco-Efficiency is a type of operational environmental practices that some companies try to develop and incorporate to their production processes and procedures, in order to mitigate their impact for the planet, the climate, natural resources and human life.

Through these practices, the companies aim to get a closed-loop production, by using innovation and sustainable technology for minimizing the resources and raw material consumption and reducing the carbon footprint.

Companies and firms can improve their products’ design and performance by introducing eco-efficiency advantages in their strategy. One perfect example is the current case of L’Oréal with the official release in 2013 of their Program for sustainability of L’Oréal: ‘Sharing Beauty With All .

Product-related environmental management capabilities and environmental design capabilities under eco-efficiency advantages help firms to integrate environmental concern throughout a product’s life cycle and achieve material eco-efficiency, energy efficiency, and operational efficiency . Following these guidelines, L’Oréal presented its program supported in four basic main pillars:
• Innovating Sustainability
• Producing Sustainability
• Living Sustainability
• Developing sustainability

About L’Oréal and the Eco-efficiency Green Firm-Specific-Advantage: ‘Sharing Beauty With All’

L’Oréal released its first sustainability report in 2006 after acquiring The Body Shop company. The company reports under the GRI Standards and also complies with UNGC guidelines.

It wasn’t until 2013 with the founding of its ambitious sustainability program, ‘Sharing Beauty With All’ — spearheaded by CEO Jean-Paul Argon — that sustainability practices within the company became an important part of the yearly agenda. “We have stepped up our metamorphosis to the new L’Oréal: more universal, more digital and more sustainable,” states Argon.

‘Sharing Beauty With All’ is divided into four pillars of sustainability each with its own particular targets aimed to be achieved by 2020.

L’Oréal has undertaken a profound transformation towards an increasingly sustainable model, to respond to its environmental and social impacts, as well as to the main challenges which the world is facing today.

The company’s strong ethical commitment, its ‘Sharing Beauty With All’ sustainability program, its policy of promoting diversity and the corporate philanthropy actions conducted with the support of the L’Oréal Foundation enables the Group to contribute to 14 of the 17 Sustainable Development Goals (SDGs) set by the United Nations.

L’Oréal has also been awarded a ‘A’ by the CDP two years in a row and rated 4.2 in FTSE .

Through its company-wide program L’Oréal has successfully proven that economic performance and sustainability practices are not mutually exclusive. The program aims to show that both practices can go hand in hand.

For example, in 2017, L’Oréal reduced its CO2 emissions by 73% while increasing its production by 33%.

The CEO has placed the Sustainability Department directly under his leadership. Previously, the department was within the communications and PR department. Argon has also set up bonus incentives for the managers. Thus, the managers must hit their sustainability targets in order to receive their bonuses. These two facts clearly show how serious Argon and L’Oréal are about becoming more sustainable.

L’Oréal Sustainability Evolution and Development

In 1909, Eugène Schueller founded L’Oréal when he developed the first commercialized hair dye. Although L’Oréal got its start in hair-color products, the company expanded into other beauty sectors. In 1963 the company became publicly-traded on the stock exchange and by 1980 L’Oréal had become world’s largest beauty company.

Through multiple acquisitions, the company has grown to reach 140 countries, catering to the needs of each specific culture. As one of the leaders in Personal & Household Goods products, the group is making tremendous progress towards reaching their 2020 sustainability targets .

The first step in the Corporate Social Responsibility path was taken in 1989. Cosmetics R&D industry implies the use of new chemical reactions and components which can be harmful for human skin. After years of controversial due to their research practices, L’Oréal completely ceased testing its products on animals 14 years before the regulation required, becoming pioneers supporting animal welfare.

L’Oréal has learned how to adapt to the new context with a strong company policy tackling crucial issues for the current society, by promoting diversity and inclusion. Also, to the new scenario that our planet presents, with the increasing danger of a worsen global warming, the already-known marine plastic invasion, the unstoppable fossil fuel combustion and the fear of a world with limited natural resources.

With its 2013 Sustainability Commitment, L’Oréal wants to achieve important goals by 2020. Among other actions completed, the company has contributed to the mitigation of the environmental impact with the implementation of different Eco-Efficiency Operational Green Firm-Specific Advantages .

For example, by reducing the CO2 emissions of its plants and distribution centers by 73%, in absolute terms, compared to 2005, while increasing its production volume by 33% within the same period. The group reinforced its ability to combine economic growth with ambitious climate commitments.

Moreover, the 76% of products launched during the last 2017 improved its environmental or social profile. Every time a new product is created or renovated, the Group considers its contribution to sustainability as well as its performance and profitability.

The number of people from underprivileged communities who gained access to employment through one of L’Oréal’s programmes at the end of 2017 was 53,505. The company’s goal is to reach 100,000 people by 2020.

Furthermore, the company has already conducted an assessment of the environmental and social impact of more than 91% of their brands.

Finally, other important challenge was the complete elimination of PVC its packaging by 2016.

We can see the L’Oréal trends by the development of Eco-efficiency Green FSAs and practices under two main pillars from the company sustainability strategy: ‘Producing Sustainability’ and ‘Innovating Sustainability’.

As explained, L’Oréal adopted 14 of the 17 Sustainable Development goals — most of them aligned with these two pillars (see exhibit 1); this, reinforcing the Company’s Eco-efficiency strategy focused on the development of more sustainable products by using more sustainable processes.

Some of the negative ESG (Environmental, Social and Governance) hotspots from L’Oréal that they should take in account for improvement are the product packaging, which they state they are already working on, and the issue ofwater consumption.

Most of L’Oréal products contains many different single-use plastic and paper components, with the implications for the environment, from the extraction of natural resources all the way through to the disposal of the product.

Extracting finite natural resources to produce raw material depletes our resources and requires a significant amount of energy.

In addition, plastic and paper manufacturing process releases an immense amount GHG into the atmosphere.

Regarding the water issue, many of their products also involves water intensive processes along its entire life cycle. Therefore, L’Oréal is trying to reduce water consumption by 60% per finished product unit by 2020. Plastic extraction and cellulose treatment for the paper manufacturing, imply water uptake.
Conclusion

Nowadays, L’Oréal is the biggest beauty brand in the world, generating about 27.2 billion dollars in sales in 2017.

The adoption of this sustainability corporate policy by the company could initially imply big efforts for the group, such as, substantial upfront costs or important changes in the supply chain.

However, due to the important role that L’Oréal plays in the cosmetics industry market, the company can also have a positive and remarkable impact by mitigating CO2 emissions, decreasing fossil fuel use or reducing plastic use and pollution.
Any changes towards sustainability or eco-improvements will directly affect the L’Oréal ecological footprint, bringing great benefits for the environment and for all of us. L’Oréal states that

‘The path from fundamental research to the finished product involves an ultimate challenge, packaging innovation. This is what ensures that the product will be delivered in the best conditions of performance, safety and practicality’.

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Author Laura Malo Yague is a full-time candidate in the Master of Science in Sustainability Management at Columbia University. She was graduated with a degree in Industrial Technical Engineering – Industrial Electronics in Spain and has seven years experience in Product and Project Management. She was a valued intern-analyst at G&A Institute in 2017.

From Laura, some additional background: From Spain to New York City — with a professional background of seven years working as an engineer and a great lover of the environment, I arrived in 2016 seeking for a change in my career path. During the last two years I have been training myself in Project Management, focused in monitoring and evaluation, Corporate Responsibility and Sustainability at New York University (NYU).

I collaborated as a volunteer in the NGO ‘Engineering Without Borders’ for eight years participating in sustainability and development projects focused on environmental problems, eco-efficiency climate change and taking responsibility of our planet’s health, trying to do things better.

I love travelling with my ukulele, where I can combine my passions discover new cultures, meet people and enjoy the diversity of our planet. I would like to work in sustainability strategy to improve the accountability of market and industry process and development.

More information is at: https://www.ga-institute.com/about-the-institute/the-honor-roll/laura-malo-yague.html

Note to readers:  This content was prepared for completion of the Certification in Corporate Responsibility & Sustainability Strategies offered by G&A Institute, with dual credentials from the Swain Center for Executive & Professional Education at the University of North Carolina Wilmington Certificate. The course work is prepared by Professor Nitish Singh, Ph.D., founder and consultant at IntegTree LLC, and Associate Professor of International Business at St. Louis University, Boeing Institute of International Business. Information: http://learning.ga-institute.com/courses/course-v1:GovernanceandAccountabilityInstitute+CCRSS+2016/about

So Many Positives in 2016 for Sustainability – Corporate Citizenship – CR – Sustainable Investing — The Core of “Trends Converging!” Commentaries. It’s 2017 — Now What?

by Hank BoernerG&A Institute

Welcome to 2017! We are off to the start of a challenging year for sustainability / responsibility / corporate citizenship / sustainable investing professionals.

We are being forewarned: A self-described (by his constant tweeting) “new sheriff is coming to town,” along with the newly-elected members of the 115th Congress who begin their meetings this week. Given the makeup of the new Administration (at least in the identification of cabinet and agency leaders to date) and the members of the leadership of the majority party on Capitol Hill, sustainability professionals will have their work set out for them, probably coming into a more clear focus in the fabled “first 100 days” after January 20th and the presidential inauguration ceremonies.

The year 2016 began on such a hopeful note! One year ago as the year got started I began writing a series of commentaries on the many positive trends that I saw — and by summer I was assembling these into “Trends Converging! — A 2016 Look Ahead of the Curve at ESG / Sustainability / CR / SRI.” Subtitle, important trends converging that are looking very positive…

As I got beyond charting some 50 of these trends, and I stopped my thinking and writing to share the commentaries and perspectives that formed chapters in an assembled e-book that is available for your reading. I’ve been sharing my views because the stakes are high for our society, business community, public sector, social sector…all of us!

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The specifics: Throughout the early months of 2016 I was encouraged by:

The Secretary of the U.S. Department of Labor giving American fiduciaries the green light for considering corporate ESG factors in their investment decision-making. Page 7 – right up front in the commentaries!

The Sustainable Accounting Standards Board (SASB) team completing its comprehensive recommendations for 12 sectors and 80 industry components of these for “materiality mapping” and expansion of corporate reporting to include material ESG factors in the annual 10-k filing. These are important tools for investors and managements of public companies. See Page 17.

His Holiness Pope Francis mobilizing the global resources of the worldwide Roman Catholic Church with his 74-page Laudato Si [encyclical] that includes sharp and sweeping focus on climate change, global warming, water availability, biodiversity, and other social issues. Imagine, I wrote, the power that such an institution can bring to bear on challenges, in the world, in the USA, and other large nations…

This is the Pope’s great work: “On Care of Our Common Home.” I explored the breadth of depth of this in my commentaries. That’s on Page 163 – Chapter 44.

President Barack Obama ably led the dramatic advances made in the Federal government’s sustainability efforts thanks in large measure to several of the President’s Executive Orders (such as EO 13693 on March 19, 2015: Planning for Federal Sustainability in the Next Decade).

Keep in mind the Federal government is the largest purchaser of goods and services in the U.S.A. — over time this action will result in positive changes across the government’s prime supply chain networks. Page 50 / Chapter 13.

The European Union’s new rules for disclosure of non-financial information beginning in 2017; As I began my commentary, the various EU states were busily finalizing adoption of the Accounting Directive to meet the deadline for companies within each of the 28 states. The estimate is that as many as 5,000 companies will begin reporting on their CR and ESG performance. Page 27 / Chapter 7.

Here in the USA, Federal regulators were inching toward final rules for the remaining portions of the 2010 Dodd-Frank legislation. Roughly 20% of rules were yet to be completed for corporate compliance with D-F as we entered 2016, according to estimates by the Davis Polk law firm. Page 30 / Chapter 8.

In 2017, one very contentious rule will be in effect — the required disclosure by public companies of the CEO-to-median worker-pay ratio; the final rule was adopted in August 2015 and so in corporate documents we will be seeing this ratio publicized (technically, in the first FY beginning in January 1, 2017). Page 34 / Chapter 9 – What Does My CEO Make? Why It Matters to Me.

Good news on the stock exchange front: member exchanges of the World Federation of Exchanges have been collaborating to develop “sustainability policies” for companies with shares listed on the respective exchanges. At the end of 2015 the WFE’s Sustainability Working Group announced its recommendations [for adoption by exchanges]. Guidance was offered on 34 KPIs for enhanced disclosure. Page 103 / Chapter 27.

The WFE has been cooperating with a broad effort convened by stakeholders to address listing requirements related to corporate disclosure

This is the “SSE” — the Sustainable Stock Exchanges initiative, spearheaded by the Ceres-managed Investor Network on Climate Risk (INCR), and leadership of key UN initiatives as well as WFE member exchanges.

NASDAQ OMX is an important part of this overall effort in the United States and is committed to discussing global standards for corporate ESG performance disclosure.  Notd Evan Harvey, Director of CR for NASDAQ: “Investors should have a complete picture of the long-term viability, health and strategy of their intended targets. ESG data is a part of the total picture. Informed investment decisions tend to produce longer-term investments.”

The United Nations member countries agreed in Fall 2015 on adoption of sweeping Sustainable Development Goals (SDGs) for the next 15 years (17 goals/169 specific targets). This is a dramatic expansion of the 2000 Millennium Goals for companies, NGOs, governments, other stakeholders. Now the many nation-signatories are developing strategies, plans, programs, other actions in adoption of SDGs. And large companies are embracing the goals to help “transfer our world” with adoption of mission-aligned strategies and programs out to 2030.

G&A Institute’s EVP Lou Coppola has been working with Chairwoman of the Board Dr. Wanda Lopuch and leaders of the Global Sourcing Council to help companies adopt goals (the GSC developed a sweeping 17-week sourcing and supply chain campaign based on the 17 goals). Page 56 / Chapter 15.

Very important coming forth as the year 2016 moved to a close: The Report on US Sustainable, Responsible and Impact Investing Trends, 2016 — the every-other-year survey of asset managers in the USA to chart “who” considers ESG factors across their activities. Money managers and institutional investors, we subsequently learned later in 2016, use ESG factors in determining $8.72 trillion in AUM – a whopping 33% increase since 2014. Great work by the team research effort helmed by US SIF’s Meg Voorhes and Croatan Institute’s Joshua Humphreys (project leaders). Background before the report release Page 78.

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The above is a very brief overview of the many positive trends that I saw, explored further, and wrote commentaries on through many months of 2016. I worked to weave in the shared perspectives of outstanding thought leaders and experts on various topics. We are all more enlightened and informed by the work of outstanding thought leaders, many presented in the public arena to benefit us.

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Sharing Thought Leadership

In developing our commentaries we shared the wisdom of many people who are influential thought leaders and who enthusiastically share their own perspectives with us. These include:

  • Chris Skroupa, Founder of Skytop Strategies and prominent Forbes blogger. His views on Page i.
  • Pam Styles, Founder/Principal of Next Level Investor Relations and NIRI Senior Roundtable member. See Page iv.
  • Secretary Thomas Perez, U.S. Department of Labor on ERISA for fiduciaries. Page 7.
  • Dr. James Hawley of St. Mary’s College of California on the concept of the Universal Owner, based on the earlier work of corporate governance thought leader Robert Monks. Page 9.
  • the team at Sustainable Accounting Standards Board led by Chair Michael Bloomberg, Vice Chair Mary Schapiro, Founder and CEO Jean Rogers, Ph.D., P.E. . Page 17.
  • the team at TruCost.
  • the team at CDP.
  • the team at CFA Institute (the global organization for Chartered Financial Analysts) developing guidelines for inclusion of ESG factors in analysis and portfolio management — the new Guide for Investment Professionals – ESG Issues in Investing. Coordinated by Matt Orsagh, CFA, CIPM; Usman Hayat, CFA; Kurt Schacht, JD, CFA; Rebecca A. Fender, CFA. Page 20.
  • the leadership team at New York Society of Securities Analysts’ (NYSSA) Sustainable Investing Committee (where I was privileged to serve as chair until December 31st). Page 21. We have great perspective sharing among the core leadership team (Kate Starr, Peter Roselle, Ken Lassner, Andrew King, Agnes Terestchenko, Steve Loren).
  • experts respected law firms sharing important perspectives related to corporate governance, corporate citizenship / CSR / disclosure / compliance and related topics: Gibson Dunn on compliance matters. Page 25.
  • the law firm of Davis Polk on Dodd-Frank rulemaking progress and related matters.
  • experts at the respected law firm of Morrison & Foerster on executive compensation and related regulatory matters (in the excellent Cheat Sheet publication). Page 30.
  • the experts at the law firm of Goodwin Procter addressing SEC regulations. Page 146.
  • the skilled researchers, analysts and strategists at MSCI who shared “2016 ESG Trends to Watch” with their colleagues. The team of Linda Eling, Matt Moscardi, Laura Nishikawa and Ric Marshall identified 550 companies in the MSCI ACWI Index that are “ahead of the curve” in accounting for their carbon emissions targets relative to country targets. Baer Pettit, Managing Director and Global Head of Products, is leading the effort to integrate ESG factors into the various MSCI benchmarks for investor clients.Page 100.

AND……..

  • Thanks to Peter Roselle for his continuous sharing of Morgan Stanley  research results with the analyst community. 
  • the perceptive analysts at Veritas, the executive compensation experts who closely monitor and share thoughts on CEO pay issues. Page 36.
  • the outstanding corporate governance thought leader and counsel to corporations Holly Gregory of the law firm Sidley Austin LLP who every year puts issues in focus for clients and shares these with the rest of us; this includes her views on proxy voting issues. (She is co-leader of the law firm’s CG and Exec Compensation Practice in New York City.) Page 39.
  • the Hon. Scott M. Stringer, Comptroller of the City of New York, with his powerful “Board Accountability Project,” demanding increased “viable” proxy access in corporate bylaws to enable qualified shareholders to advance candidates for board service. Pages 40, 45 on.
  • the experts at Institutional Shareholder Services (ISS), a unit of MSCI, which counts numerous public employee pension funds and labor pension systems among its clients; ISS staff share their views on governance issues with the rest of us to keep us informed on their policies and related matters. Page 40.
  • SRI pioneer and thought leader Robert Zevin (chair of Zevin Asset Management) who shares his views on the company’s work to improve corporate behaviors. Page 41.
  • Mark W. Sickles, NACD thought leader, and my co-author of “Strategic Governance: Enabling Financial, Environmental and Social Sustainability” (p.2010) for helping me to better understand and refine my views on the “Swarming Effect” (investor engagement) by institutional investors that influences corporate behavior. Page 44.
  • the experts led by thought leader (and ED) Jon Lukomnik at Investor Responsibility Research Center (IRRC) that, working with Ernst & Young LLP, one year ago in January produced the Corporate Risk Factor Disclosure Landscape to help us better understand corporate risk management and related disclosure. Page 47.
  • CNN commentator and author Fareed Zakaria who shared his brilliant perspectives with us in publishing “The Post American World,” focusing on a tectonic, great power shift. Page 61.
  • The former food, agriculture and related topics commentator of The New York Times, Mark Bittman, who shared many news reports and commentaries with editors over five years before moving on to the private sector. Page 65.
  • our many colleagues at the Global Reporting Initiative (GRI) in the Netherlands, the USA, and in other countries, who shared their views on corporate sustainability reporting and related topics; the GRI framework is now becoming a global standard. (G&A Institute is the Data Partner for GRI in the USA, UK and Republic of Ireland; we are also a Gold Community member of supporters for the GRI.) Page 71.
  • our colleagues at Bloomberg LP, especially the key specialist of ESG research, Hideki Suzuki; (and) other colleagues at Bloomberg LP in various capacities including publishing the very credible Bloomberg data and commentary on line and in print. Page 76 and others.
  • Barbara Kimmel, principal of the Trust Across America organization, who collaborated with G&A Institute research efforts in 2016.
  • we have been continually inspired over many years by the efforts of the Interfaith Center on Corporate Responsibility (ICCR), and past and present leaders and colleagues there, who helped to inform our views in 2016 on shareholder activism and corporate engagement. Chair the Rev. Seamus Finn is on point with his “Holy Land Principles” in recent years. The long-time executive director, Tim Smith (now at Walden Asset Management) has been very generous in sharing news and perspectives long after his ICCR career. Details on Page 77.
  • our colleagues at the U.S. Forum for Sustainable & Responsible Investment (US SIF), and its Foundation, led by CEO Lisa Woll; and our colleagues at the SIF units SIRAN and IWG. The every-other-year summary of Assets Under Management utilizing ESG approaches showed [AUM] nearing $9 trillion before the run up in market valuations following the November elections. Page 78.
  • Goldman Sachs Asset Management acquired Imprint Capital in 2015 (the company was a leader in developing investment solutions that generate measureable ESG impact — impact investing). Hugh Lawson, head of GSAM client strategy, is leading the global ESG activities. GSAM has updated its Environmental Policy Framework to guide the $150 billion in clean energy financing out to 2025. Page 83.
  • the experts at Responsible Investor, publishing “ESG & Corporate Financial Performance: Mapping the Global Landscape,” the research conducted by Deutsche Asset & Wealth Management and Hamburg University. This is an empirical “study of studies” that looked at the “durable, overall impact of ESG integration to boost the financial performance of companies.” A powerful review of more than 2,000 studies dating back to 1970. Page 90.
  • Boston Consulting Group’s Gregory Pope and David Gee writing for CNBC saw the advantage held by the USA going into the Paris COP 21 talks: advances in technology are making the USA a global leader in low-cost/low-pollution energy production. They worked with Professor Michael Porter of Harvard Business School (the “shared value” proponent) on research. Page 95.
  • researchers, analysts and experts at Morgan Stanley Research charted “what was accomplished in Paris in 2015” for us; their report identified five key areas of progress that cheered conference participants; I share these in the “Trends Converging!” work. MS Research in the post-Paris days shared perspectives on the carbon tax concept and the status of various nations on the issue — and the actions of the State of California in implementing “AB 32” addressing GhGs. Page 119.
  • G&A Institute Fellow Daniel Doyle, an experienced CFO and financial executive, sharing thoughts on corporate “inversion” and the bringing back of profits earned abroad by U.S. companies. Page 122.
  • the Council of State Governments (serving the three branches of state governments) is actively working with public officials in understanding the Clean Power Plan of the Obama Administration (the shared information is part of the CSG Knowledge Center). Page 101.
  • Evan Harvey, Director of CR at NASDAQ, has continuously shared his knowledge with colleagues as the world’s stock exchanges move toward guidance or rule making regarding disclosure of corporate sustainability and related topics. Page 104.
  • our former Rowan & Blewitt [consulting practice] colleague Allen Schaeffer, now the leader of the Diesel Technology Forum, explaining the role of “clean diesel” in addressing climate change issues. Page 128.
  • Harvard Business School prof Clayton Christensen, who conceived and thoroughly explained “the Innovator Dilemma” in the book of the same name in 2007, updated recently, characterized new technology as “disruptive” and “sustaining,” now happening at an accelerated pace. We explain on Page 147.
  • the researchers and experts at the Society for Human Resource Management (SHRM) has shared important perspectives and research results dealing with the massive shift taking place in the corporate and business sectors as Baby Boomers retire(!) and the Millennials rise to positions of influence and power. And Millennials are bringing very positive views regarding corporate sustainability and sustainable investing to their workplace! The folks at Sustainable Brands also weighed in on this in recent research and conference proceedings. Page 154.
  • Author Thom Hartman in 2002 explored for us the subject of “corporate citizenship” in his book, “Unequal Protection, the Rise of Corporate Dominance and the Theft of Human Rights.” This work continues to help inform views regarding “corporate rights” in the context of corporate citizenship and beyond. The issue of corporate contributions to political parties and candidates continues to be a hot proxy season debate. Page 160.
  • Author and consultant Freya Williams in her monumental, decade-long research into “Green Giants” shared results with us in the book of that name and her various lectures. Seven green giant [companies] are making billions with focus on sustainability, she tells us, and they outperform the S&P 500 benchmark. Page 170.
  • Speaking of the S&P 500, I shared the results of the ongoing research conducted by our G&A Institute colleagues on the reporting activities of the 500 large companies — now at 81% of the benchmark components. Page 195.
  • And of course top-of-mind as I moved on through in writing the commentaries, I had the Securities & Exchange Commission’s important work in conducting the “Disclosure Effectiveness Initiative,” and a look at Regulation S-K in the “Concept Release” that was circulated widely in the earlier months of 2016. Consideration of corporate sustainability / ESG material information was an important inclusion in the 200-page document. Page 174.

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All of the above and more were important contributors in my collected “Trends Converging!” (in 2016) work. I am grateful to many colleagues in the corporate community and in the capital markets community who shared knowledge, wisdom, expertise and more with Lou Coppola and I over the recent years. They have helped to inform our work.

We thank the knowledge and valuable information willingly shared with us by our valued colleagues at RepRisk, especially Alexandra Milhailescu; Measurabl (Matt Ellis); The Conference Board’s Matteo Tonello; Nancy Mancilla and Alex Georgescu at our partnering organization for training, ISOS Group; Bill Baue at Convetit; Herb Blank at S-Networks Global Indexes; Robert Dornau at RobecoSAM Group, managers of the Dow Jones Sustainability Index family; Barbara Kimmel at Trust Across America.

Also, Professor Nitish Singh of St. Louis University, with his colleague VP Brendan Keating of IntegTree, our on-line professor and tech guru for the new G&A on-line, sustainability and CSR e-learning platform.

And, Executive Director Judith Young and Institute Founder James Abruzzo, our colleagues at the Institute for Ethical Leadership at Rutgers University Business School; Matt LePere and the leaders at Baruch College / City University of New York; and, Peter Fusaro, our colleague in teaching and coaching, at Global Change Associates.

And thank you, Washington DC Power Players!

Very important: We must keep uppermost in mind the landmark work of our President Barack H. Obama (consider his Action Plan on Climate Change, issued in December 2015) with the Clean Power Plan for the USA included. His Executive Orders have shaped the Federal government’s response to climate change challenges.

And there is U.S. Senator Bernie Sanders, again and again hitting the hot button sensitive areas for the middle class — like income and wealth inequalities and Wall Street reform — that raised the consciousness of the American public about these issues.
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Former Secretary of State Hillary Rodham Clinton and her views (published in The New York Times) in her “How to Rein in Wall Street” op-ed.

And I thank my G&A Institute colleagues for their support and continued input all through the writing process: EVP Louis Coppola; Ken Cynar, our able editor and news director; Amy Gallagher, client services VP; Peter Hamilton, PR leader; Mary Ann Boerner, head of administration.

So many valuable perspectives shared by so many experts and thought leaders! All available to you…

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And Now to 2017!

And so what will happen in these many, many areas of forward-momentum in addressing society’s most challenging issues (like global warming) with “deniers and destroyers” lining up for key Federal government positions in the new administration and in the 115th Congress?

I and my colleagues at G&A Institute will be bringing you news, commentary and opinion, and our shared perspectives on developments.

If you would like to explore the many (more than 50) positive trends that I saw as 2016 began and proceeded on into the election season, you will find a complimentary copy of “Converging Trends!” (2016) at:http://www.ga-institute.com/research-reports/trends-converging-a-2016-look-ahead-of-the-curve.html

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Please do share with us your own thoughts where you think we might be headed in 2017, and your thoughts on the 2016 trends and their future directions — for 2017 and beyond. Do tune in to the many experts that I included in the various commentaries as they adjust to the New Normal of Washington DC.

I plan to share the individual commentaries with updates in 2017. Do Stay Tuned to G&A Institute’s Sustainability Update blog (you can register here to receive notice of new postings). You can sign on to receive the latest post at: http://www.ga-institute.com/sustainability-update-blog.html (Sharing insights and perspectives for your sustainability journey.)

Best wishes from the G&A Institute team for the New Year 2017!