March 30, 2020 The Corporate Social Responsibility Newswire

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Getting the Right Knobs in Place: Closing the Gap Between Reducing Impacts and Achieving Sustainability

Companies and investors need quantitative guidelines on how to live within the planetary budget if we are the draw back from dangerous ecological and social thresholds.


By Francesca Rheannon

Last week on this site, I wrote about the burgeoning movement for fossil fuel divestment founded by the group and promoted by a growing coalition of activists. The movement hopes that, by making investment in fossil fuels repugnant, enough of the stuff will be left in the ground to keep the planetary temperature from crossing the threshold of two degrees of warming.

Threshold Investing

We have already passed the threshold needed to avoid climate change – 350ppm of atmospheric carbon, so even if we were to cease emitting all greenhouse gases today, the planet would face up to a thousand more years before returning to the temperature norm under which all human civilization developed. And that’s not the only threshold we’ve passed. Nine planetary boundaries that we have crossed or are in danger of crossing have been identified by the Stockholm Resilience Center.

Divestment is one side of the coin of moving capital away from fossil fuels.

The other is investment in sustainable enterprise. Green investment opportunities are growing by leaps and bounds, but they still only comprise a fraction of the investment universe. Ethical investors want to know that the companies they invest in – whether in the green industry sector or not – are committed to sustainability.

And growing that sustainability means taking into account the complex web of relationships between the environment, social needs and democratic governance – not just taking ESG indicators in isolation from each other (and picking and choosing among them like a Chinese menu.) It means, as in Oxfam’s Doughnut, “a safe and just space for humanity to thrive in.”

Most major companies are measuring at least some of their environmental impacts – usually their carbon emissions. And they are setting targets to reduce those impacts. But how do we know those reductions are enough to keep us within the safe zone?

Keeping Within Our Ecological Budget

While companies may adopt reporting mechanisms and standards to give them metrics on their ESG complex web of sustainabilityimpacts, that’s not the same as measuring their sustainability impacts, says consultant Bill Baue. In an article he co-wrote with Mark McElroy and Cary Krosinsky for the Guardian, Baue lays out the case for putting investment decisions within the context of the planet’s overall ecological budget

Would you invest in companies that habitually operate beyond their financial budgets? Prudence suggests not. What about companies operating outside the thresholds of the ecological budget? Prudence speaks with the same tongue, but most investors aren't listening.

Socially responsible investors have long applied ad hoc environmental screens that vary widely, but we are unaware of investment screens or strategies explicitly tied to objective, science-based planetary boundaries or ecological thresholds. Developing and implementing such an investment approach is a positive transformation.

The three authors have been helping companies applying their context-based approach – among them Cabot Creamery, as I wrote in a post last year. The approach seeks to assign numbers to a company’s allowable impact budget – Cabot, for example, is setting targets for its water use within the watershed of its operations, so as to take no more than its fair share of the region’s water resources.

Calculating A Company’s Fair Share

But what constitutes a company’s “fair share?” And who gets to decide that?

One way is per capita. That’s what Cabot does: it calculates the sustainable share of water use of each employee during the hours of work within the context of the watershed’s population’s overall use of CO2water. But calculating a global company’s fair share of the atmosphere based on per capita of employees across a wide range of conditions and possibly unreliable work hours seems like a headache in the making.

Another way to allocate fair share is based on a company’s contribution to GDP, Baue told CSRwire. He explained in an email:

"They're now leading with the economic allocation, using percentage contribution to GDP, in all their context-based work (carbon, water, and now waste)." [More on how they arrived at their decision]

GDP also presents concerns, however, since many question GDP as a marker of social value. As Jeremy Grantham points out:

GDP measures must be improved so that they begin to measure output of real usefulness or utility. The current mish-mash of costs and of “goods” and “bads” produces poor and even damaging incentives. Accurate measurements of growth must eventually include the full costs of running down our natural assets. True income (said Hicks) is meant to allow for sustained productive capacity, which our current measures clearly do not.

The context-based approach taken by Baue, Krosinsky and McElroy weights OECD countries’ impacts higher than non-OECD countries, thereby addressing the historical balance sheet of carbon emissions. They are using the methodology developed by the Tellus Polestar Project. An alternative to GDP is the Genuine Progess Indicator, which is based on GDP but adds social value and subtracts environmental impact  -- and McElroy’s Center for Sustainable Organizations is also exploring the use of GPI instead of GDP.

Tools For Threshold Metrics

“There are many ways to allocate, so gaming the numbers is a potential problem,” Baue acknowledged, but there are tools committed companies can use right now to calculate their true impacts, such as that developed by the Tellus Institute.

He says the real issue right now is to get the right knobs in place, so that companies know how much they need to dial down their impacts to remain within the ecological threshold budget. “So far, PoleStar Projectcompanies are making their targets based on what they can achieve economically, they're not basing them on what needs to be achieved scientifically,” he told CSRwire.

And that means investors are hampered in knowing just how “sustainable” their investments are.

To move the needle on investments, international standards that incorporate threshold metrics need to be developed, such as by the Greenhouse Gas Protocol, as well as by standards applying to other impacts, like water, waste and social equity.

Setting Up The Right Goal Posts

But that’s not happening fast enough, Baue fears:

"I have seen movement. For example, now everyone has to measure their carbon footprint; it's de rigeur. That's progress, but I think a lot of people are mistaking that for the goal. And I think that's not the goal. Corporate sustainability as practiced right now is essentially a game without goal posts."

Baue cites conversations with corporate sustainability officers who worry, “We've been setting these targets for five years now and we don't know if we are any closer to sustainability because our targets just set incremental reductions of impact.”

Baue says the focus on reducing impacts needs to shift to solving them.

“In order for us to survive, we really have to go this way, and it's really just a question of whether we smarten up in time to avoid the catastrophic impacts -- or not.” He noted that Royal Dutch Shell recently admitted the planet would surpass the two degree threshold of warming. “They're not even imagining a future that doesn't transgress that limit. They say eventually -- by 2100 -- we'll be on a fully renewable energy economy, but they're essentially admitting we're not going to make it in time. And that's depressing.”

Clearly, we need the right knobs in place to know how to draw back from that threshold. But even more than that, we need the commitment to turn the dials so the global economy can live within its ecological budget.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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