New initiatives promise progress in sustainability in 2013.
By Mark Tulay
It’s the start of a new year: time to take stock of corporate sustainability in 2012, which in many ways seemed to embody the Charles Dickens quote:
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair.
The Highs and Lows in 2012
- Rio +20 and Doha Disappointment: Many wondered if there were more carbon emissions generated from travel to and from the Rio and Doha conferences than will likely be reduced as a result of the agreements. The lack of progress at Rio+20 and Doha, coupled with the absence of climate change policy or legislation, signals the need to reset expectations on what governments –– many mired in debt and muffled by lobbyists –– can deliver. In place of government action, set a higher bar for what companies and investors can do to lead the transition to sustainable carbon limits.
- The Few and the Proud: Most corporate sustainability budgets were flat in 2012 and will likely be constrained heading into 2013. Bucking this trend for most of the S&P 500 in 2012, a few companies stand out as increasing commitments and investments to accelerate corporate sustainability. Unilever [NYSE: UL] and its CEO Paul Polman in particular continued to shine bright in 2012, producing economic success and receiving global accolades. Unilever’s sustainability programs provide a blueprint for how visionary CEOs can lead on sustainability while being profitable and delivering value to shareholders. Polman rebukes “quarterly capitalism,” refusing to provide quarterly earnings guidance, and has set a public goal of doubling the company’s revenues while cutting its environmental impact in half.
Corporate Sustainability 2013
The Great Recession shook loose the pillars of trust between the public, investment community and companies. This erosion of trust is particularly acute among the millennial generation, which increasingly believes that Wall Street no longer serves Main Street and companies care more about profits then people and the planet. Companies – such as BP [NYSE: BP] – that once were revered for solving big problems are increasingly chastised for creating big problems at the expense of employees, communities and the environment.
Michael Porter and Mark Kramer, introducing the concept of “shared value,” commented in a Harvard Business Review article that the “legitimacy and credibility of business has fallen to levels not seen in recent history.” Such widespread disillusionment with business, if not reversed, portends a future of conflict and stalemate that neither people nor the planet can afford.
It is foolish to paint all companies with the same brush, however, as the last decade has witnessed the rise of sustainability as a defining element of responsible business strategy and performance.
Companies like Nike [NYSE: NKE], GE [NYSE: GE], PepsiCo [NYSE: PEP], Unilever, UPS [NYSE: UPS], Puma, Novo Nordisk [NYSE: NVO], Natura and dozens of others recognize sustainability as integral to their global competitiveness and long-term prosperity. They understand that sustainability and long-term value creation are inextricably linked and that the world of 21st century business will not tolerate business-as-usual. The challenge is to move beyond this small pool of sustainability-conscious companies and vastly scale up their numbers in both developed and emerging economies.
Key Sustainability Initiatives
An unprecedented opportunity exists today for business, investors, and NGOs to collaborate on and realize this vision of shared value creation and sustainability leadership and organizations have a unique opportunity to participate and contribute in 2013 to a next generation of sustainability standards.
The six key sustainability standards in 2013 are:
1. Sustainability Accounting Standards Board [SASB]
SASB is developing sector-based KPIs for sustainability disclosure. Through its evidence-based approach, SASB will dramatically improve the precision, materiality and disclosure of sustainability indicators for integrating ESG factors into financial markets. SASB is now hosting various sector-based groups to provide input into its KPI development.
2. Global Reporting Initiative [GRI]
GRI is the de facto standard for corporate sustainability reporting. A total of 4,994 organizations have produced more than 10,000 corporate sustainability reports following GRI guidelines. GRI will introduce in 2013 the next generation – G4 – of its reporting guidelines.
3. International Integrated Reporting Council [IIRC]
The IIRC, another disclosure initiative, is a global coalition of regulators, investors, companies, standard setters, accountants and NGOs. Together, this coalition shares the view that communication about businesses’ multi-dimensional value creation should be the next step in the evolution of corporate reporting. Already, hundreds of companies are experimenting in blending financial and sustainability reporting. IIRC is nurturing and tracking this process in its effort to build a generally accepted integrated reporting framework.
4. The Sustainability Consortium [TSC]
The TSC is the leading authority on product sustainability standards. Under the leadership of new Executive Director Kara Hurst, TSC is expanding into China and is ramping up the release of scientific-based and collaboratively developed standards for improving product sustainability.
5. United Nations' Principles for Responsible Investment [UNPRI]
The UN PRI is an international network of 1,138 investors representing over $32 trillion in assets under management. UN PRI works to accelerate the integration of ESG issues into investment analysis and decision-making processes with the goal to understand the implications of sustainability for investors and to help signatories incorporate these issues into their investment decision-making and ownership practices. The rapid uptake of UN PRI demonstrates how sustainability considerations are being infused into investment decision making.
6. Global Initiative for Sustainability Ratings [GISR]
The GISR is a new participant in the family of initiatives aimed at making capital and other markets agents of, rather than impediments to, achieving the Post Rio+20 sustainability agenda. Complementary to the disclosure focus of SASB, GRI and IIRC, GISR's mission is to create a world-class corporate sustainability ratings standard as an instrument for transforming the definition of value and value creation by business in the 21st century.
GISR’s new global standard will be coupled with capacity building, certification and analytical tools to embed sustainability into the capital markets worldwide. GISR will release the principles component of this standard in May 2013 at the Ceres conference.
Accelerating the Sustainability Transition
Collectively these six initiatives, each with a distinct but linked role in the emerging sustainability information landscape, will:
- Transform the way corporate sustainability information is disclosed by developing new disclosure standards for material sustainability information and value generating strategies;
- Reposition corporate reporting to tell a more complete story of how an organization’s strategy, governance, performance and products lead to the creation of value over the short, medium and long term;
- Improve the precision, materiality and disclosure of sector-based sustainability (ESG) KPIs;
- Accelerate the global uptake and impact of integrating ESG factors into investment decisions and financial markets; and
- Build general acceptance for a new standard for measuring corporate sustainability performance that can elevate ratings as a more powerful tool for accelerating the integration of ESG factors investment decision-making.
The early achievements of these organizations point to 2013 as a watershed year for accelerating the transition – and moving markets – toward more sustainable outcomes that both business and the world so urgently need. The shift away from myopic focus on short-term financial returns to a more expansive, long-term focus on vital capitals is an idea whose time has come. Such a transformation is no longer an option, but a necessity, if the next decade and beyond is to avoid a “sustainability cliff.”
The time has passed for small commitments, hyperbole and platitudes – now is the time for leadership, investment and action. Will you step in and lend your support in 2013?