Xerosphere

By Cody Sisco, Manager, Advisory Services

As we take a moment to reflect today on International Women’s Day, it is important to recognize the progress we’ve made on ensuring respect for human rights for women around the world. We must also take this opportunity to consider the challenges that still need to be overcome in order to ensure women’s full participation in the global economy.

Last week in an address to the global community, United Nations Secretary-General Ban Ki-moon said that while we should celebrate the advancements in education for girls and the greater participation of women within the private sector, we must also acknowledge and make progress on the great unmet needs related to maternal health, family planning, violence against women, and, in particular, the vulnerabilities of women displaced by conflict. These challenges greatly impact women’s ability to participate in and benefit from economic development.

Over the past few years, BSR has engaged on several projects focusing on increasing attention and action on issues of women empowerment that are relevant to the private sector. For example:

1. Our women’s health initiative, HERproject, catalyzes partnerships between international companies, suppliers, and local NGOs. These partnerships focus on promoting female workers’ general and reproductive health through workplace training programs that use a peer education model. Through this model, a subset of female workers receive health education from qualified organizations and professionals, and in turn, educate their peers. A new report reveals the results of research conducted after the first year of HERproject programs in China, Egypt, India, Mexico, Pakistan, and Vietnam.
2. BSR and the International Finance Corporation are researching the potential of special economic zones (SEZs) to create regulatory frameworks and initiatives that promote gender inclusion and female entrepreneurship. Together, we are examining current practices of gender inclusive policies and initiatives within SEZs in eight countries, with an in-depth look at Bangladesh. This study will focus on identifying opportunities to support gender inclusion on three levels: low-wage female workers, female managers with an emphasis on opportunities for upward mobility, and female entrepreneurs.
3. BSR has also participated in the development of the Gender Equality Principles—a set of principles and indicators designed to help the private sector assess their progress on seven fundamental gender equality issues. The principles can help companies achieve greater gender equality and build more productive workplaces for both women and men. Companies can also use the self-assessment tool to evaluate their current performance against the principles.

These projects reinforce the importance of private sector involvement in women’s empowerment. As part of our mission to promote a just and sustainable global economy, we are committed to advancing women’s rights, and we look forward to working with our member companies to do so.

By Peder Michael Pruzan-Jorgensen, Managing Director, Europe, Middle East, and Africa

A French weekly magazine recently reported on its front page, “They are doing it again.” And by “it” they were referring to yet another banker’s feast of exorbitant bonuses as reward for the sector’s “terrific year.”

Much as we were locked in debate in the late ‘80s and early ‘90s when options were introduced as a means for rewarding management’s performance, so again do we find ourselves grappling with compensation—and more importantly incentive—schemes to reward superior financial performance. Unfortunately, this debate continues to be focused on financial performance and schemes that incentivize management to deliver ever-increasing shareholder returns. As a result, we have a system that spurns excessive upside risk taking while leaving the equally excessive downside risk to taxpayers or other stakeholders—all in the name of short-term profits.

Don’t get me wrong, it’s important that we discuss how to reward superior performance. The problem is that rewarding just financial performance offers only a partial view of the bigger picture of the health and long-term success of a company. And we need to discuss what we reward as much as how we reward performance.

In this light, it was refreshing to read the other week that two Dutch companies have decided to include non-financial metrics in the compensation schemes of senior executives. The life-science company DSM took the view that its management should be rewarded on performance related to reduction of GHG emissions, improvement in workforce morale, and the introduction of “green” products. Even more interesting is that the scheme has come about through a process of stakeholder consultation, including not only investors but also trade unions, politicians, and workers.
Similarly, TNT, the Dutch mail operator, unveiled plans that included customer satisfaction. This comes at the same time that oil giant Shell introduced a new management compensation plan that links to the company’s rating on the Dow Jones Sustainability Indexes.

These are not entirely new developments, as other companies, such as Novo Nordisk, have long been rewarding their executives for ensuring performance across the triple bottom lines. But they are timely amid the current financial performance media maelstrom and help draw attention to the ongoing question about how to balance short-term profits with long-term performance. And, as recently concluded in a BSR report, these compensation schemes that look beyond financial performance are well aligned with the growing emphasis on non-financial metrics in the mainstream investor community. That being said, there is still a way to go, as even companies leading in the field of sustainability continue to struggle with aligning their procurement bonus schemes with the long-term objective of promoting sustainable supply chain, according to a recent BSR study.

So while compensation will continue to be high on the agenda, we can only hope that a more nuanced debate will evolve that is focused less on the size of the reward and more on the performance that is rewarded.

By Blythe Chorn, Associate, Advisory Services

As discussed in BSR’s recent report on key performance indicators for responsible sourcing, metrics for identifying and evaluating the impact of sustainable supply chain initiatives on society are generally underdeveloped.

However, a few weeks ago, I had the opportunity to participate in the first meeting of the United Nations Global Compact (UNGC) Supply Chain Advisory Group in Oslo. The UNGC and BSR have launched a joint project to develop strategic guidance materials for business on the implementation of the Ten Principles in supply chain programs and operations. During the meeting, we heard about an exciting initiative to procure and evaluate the impact of sustainable products by integrating rural communities into the supply chain.

Restaurantes Toks, which operates 84 restaurants in 20 cities throughout Mexico, has begun sourcing from a strawberry marmalade production group of thirteen women in the rural community of Santa Rosa de Lima. In 2005, before the project began, the Santa Rosa de Lima Enterprise provided an income of US$1K to all the families in the community, and the per capita income was less than US$60 per month. The Santa Rosa de Lima Enterprise now sells over US$461K worth of strawberry marmalade to Restaurantes Toks each year, radically increasing the community’s per capita income.

Restaurantes Toks is also working with the company to implement sustainable farming practices and to build a new facility with environmentally friendly technologies. Human rights conditions—particularly for women in the community—have improved dramatically. And due to the demonstrable impact of this model on protecting and promoting human and economic rights, Restaurantes Toks has duplicated the approach with ten other community food and handicraft production groups.

This is a great example of sustainable procurement and evaluating the impact of supply chain sustainability on communities, and we’re anxious to hear your reactions. Have you heard of similar initiatives undertaken by other companies? Do you find these kinds of metrics useful?

By Linda Hwang, Manager, Research & Innovation

In preparation for my participation in a water scarcity risks and footprints conference in San Francisco this week, I’ve been thinking about the data that bring life to corporate water footprints. These footprints typically include a company’s water usage and wastewater discharges throughout a value chain, and allow companies to effectively account for water use and impacts. However, collecting meaningful water-related information is difficult at best, and today there is no clear guidance on what information should be collected, especially when it comes to a company’s supply chain.

I started keeping a list of water-related statistics mainly because I noticed that when it came to people, the numbers were never consistent. Consider these:

• 12 billion gallons can supply 200,000 people for one year.
• 200 million gallons is enough for 614 typical U.S. families.
• 10 billion gallons is enough for 400,000 Americans.
• 1 acre-foot can support two families of four for one year.

How much does a village of less than one thousand people in Mali need? How much does one person working as an agricultural day laborer need? How much will it cost to supply that water? These questions make calculating the amount of water required to make one pint of beer or one cotton T-shirt seem relatively straightforward.

BSR is working with one global agricultural company that is struggling with the questions related to drinking water required for individual workers and surrounding communities. What I found fascinating is that the company’s seemingly thorough initial water footprint analysis—providing detailed metrics including blue water, green water, source of irrigation, and 10-year average rainfall for hundreds of production sites—did not highlight the fact that at many of those sites, the company’s contract laborers did not have sufficient access to clean drinking water.

At many of the sites, the company’s contract growers sub-contract the labor to work the fields, which means the company does not account for the volume of drinking water required for these workers. Moreover, at each production site, this amount pales in comparison to the volume of irrigation water required, a second reason that this number often goes unseen. There are no red flags that will draw attention to this volume of water.

But despite the size, the workers’ water is a component of the company’s water footprint, and without it, the company can’t address a fundamental challenge that could pose a significant risk to its agricultural operations.

By Nandini Hampole, Associate Advisory Services

I was recently in Bangalore to kick off the HERproject Southern India expansion through renewed partnerships with international companies, their supplier factories, and our local partner St. John’s Medical College.

I grew up in Bangalore and would often meet women who worked in garment factories and who regularly complained of respiratory problems, skin problems, and long working hours. In India, as in many other developing countries, women’s health and education challenges exist because of cultural fears, stereotypes, and discrimination. Through a unique and simple peer educator model, HERproject is addressing these very challenges by training female factory workers to improve their general and reproductive health awareness.

During this trip, Racheal Yeager and I visited a Bangalore factory, which has been running and benefiting from a HERproject program for the last year. The program covers more than 1,600 female workers. Speaking Kannada—my native tongue and the local language of the region—we spoke to the factory’s management, the HERproject peer educators, a group of workers, and the clinic nurse to better understand the health risks these workers face in this intensive labor environment.

Here are just a few highlights from these conversations:

1. The women we spoke with said that, since starting the program, they’ve developed the confidence to communicate and share health knowledge on family planning, nutrition, reproductive health, and exercises with their family members and female friends. They also have a better understanding of child care and menstrual health. When asked about specific changes in behavior, the workers called out, “We all now eat breakfast before coming to work and feel less dizzy.”

2. The factory management noted the positive worker-management relationship thanks to the program and have committed to continuing the program for another year. Line supervisors are working hand in hand with the human resources team and welfare officers to allow the women to be available for the training modules during convenient times in the production process. When quizzed on the impact on the factory, the managing director proudly stated, “We do not have to go in search of workers anymore. They come to us.”

3. Columbia Sportswear Co., which invested and paid for the program implementation costs in the factory, is eager to continue the program because of the equally encouraging response from management and workers.

Building on the program success in this factory—and others around the world—HERproject is set to expand to eight to 10 factories in and around Bangalore in 2010.

Contact us to get involved in HERproject.

By Ryan Schuchard, Manager, Research & Innovation

When the winter Olympics kicked off virtually snowless last week, the record heat was due not only to El Niño, said Tim Gayda, vice president of the Vancouver Organizing Committee, but to “something else that nobody understands at this point."

Though his hesitation to mention climate change raised eyebrows, pointing fingers at the cause doesn’t matter as much as how this snow slump is being dealt with. If what scientists are saying is true—that the 30 remaining glaciers at Glacier National Park and diminishing snow cover in Colorado and Utah are likely to be gone soon—this winter Games may be a dress rehearsal for warmer and wetter events to come.

The Vancouver Olympics have shown us that we can adapt to warmer and more erratic weather events, but there are caveats.

Some resiliency is built in—for example, snowmaking machines can pipe in water, then freeze and spray it around. But only up to a point. Even with the best technology, snowmaking works only when temperatures are well under freezing, the air is dry, and there is a solid base of snow. And even then, it makes only a coat. So scaling up efforts to make snow is only possible within a narrow band, meaning that planning is difficult if climate change runs away uncontrolled, making adaptation and mitigation tightly linked.

Another big challenge with adapting to variability and change is the incremental cost, which can be high and steepen quickly. The most advanced snowmaking machines cost upward of US$30,000 each just to install, and it takes 250 of them to blanket even a small peak like Vermont’s Mt. Snow. When snowmaking proved insufficient at the Olympics, equipment-moving Sikorsky S-64 helicopters were brought in to carry snow from higher-elevation mountains. Those machines are extraordinarily expensive to operate, and few and far between. Compare that to snow falling from the sky for free. The upshot? It’s much cheaper to prevent climate change than to try to “cure” it.

In the end, companies must plan to adapt to climate change to some extent because, at this point, some climate change is inevitable. But our currently programmed responses can be resource- and pollution-intensive, leading to a vicious cycle. Snowmaking can take 160,000 gallons of water to make just a foot of snow for one acre. And the impacts of flying in extra snow are just as high: My own back-of-the-napkin calculation shows that the helicopters used for snow rescue in Vancouver emit 100 pounds of carbon-dioxide per mile (assuming a 4,992-liter fuel capacity, 370-kilometer range, and aviation gasoline with an emissions coefficient of 18.355 pounds of carbon-dioxide per gallon).

In summary, the Vancouver Olympics show us that businesses will—and has already begun to—build more resiliency into planning, strategies, and overall expectations about climate variability and climate-led environmental change. But as we do, it is important to keep in mind that adaptation can exert more strain on the global climate system. And perhaps it makes more sense to prioritize and demand responsible, sustainability-supportive solutions.

By Cody Sisco, Manager, Advisory Services

Last week, BSR hosted a meeting for information and communications technology (ICT) companies in our Paris office to discuss the current state of human rights in the industry. Companies from the telecommunications, software, semiconductor, and industrial equipment sectors, among others, attended. It was fascinating to hear diverse companies from across the whole ICT value chain come together to discuss similar issues that they are facing related to human rights.

The basic approaches to managing human rights impacts were aligned: All companies at the table were grappling with issues related to employees, supply chains, and product impacts. Many companies had made recent strides developing policies, raising internal awareness, and setting metrics to track progress.

Yet the participants also acknowledged growing human rights challenges, including their struggle to understand and influence the realization of human rights at the margins. For example:

• Expectations for supply chain responsibility are increasing upstream (at the point of raw materials extraction) and downstream (in the disposal of electronic waste). The challenge of visibility and influence at the “end links” of supply chains is significant and a key focus area for BSR.
• Respect for human rights is often a core corporate value, and in many cases it is company policy, but the context and priorities vary by geography and business line, making it a challenge to implement throughout a company’s operations. Companies are also struggling with how to apply their policies to joint ventures, channel partners, and others with whom they do business.
• Impacts that result from customer end use of ICT products are very important to the realization of human rights. Impacts can be good (such as access to education and healthcare, privacy protection, or increased opportunities for free expression), but they can also be bad (such as ICT products being used for privacy-invasive purposes or for surveillance by governments). All the companies agree a stronger orientation toward opportunities could gain greater buy in and internal support.

All attendees agreed that more discussion and debate are needed to understand these emerging human rights issues. In particular, there is a need for greater clarity on the boundaries of government and company responsibility to protect and advance human rights in the ICT sector, and how ICT companies can undertake due diligence to minimize the risk that their products and services are associated with human rights violations.

The graphic below illustrates one vision for growing ICT company and stakeholder engagement over time. What do you think of these ideas? How should ICT companies be addressing human rights?

By Xin Zhuo, Manager, Advisory Services

Yesterday, BSR launched its inaugural issue of the Sustainable Investment in China newsletter, a quarterly newsletter for Chinese and international investors actively investing in China.

As we all know, sustainable investment not only mitigates risks in the financial sector, it can also be used as a powerful lever for influencing corporate behavior and helping companies improve their environmental, social, and governance (ESG) performance. To facilitate the development of sustainable investment markets in China—where sustainable investing is just taking off—we decided to launch a newsletter that explores both international and Chinese-specific ESG trends as well as provides a platform where the investment community can share its views. UN PRI has partnered with us and will contribute one article to each issue.

You can read the English version online here.

Or you can access the Chinese version here.

By Aron Cramer, President and CEO

It’s never easy to sum up Davos with a single headline or sound bite. There are simply too many subcultures. It’s really several meetings within a meeting.

I offer these snapshots from my five days there to give you some flavor for the event:

• There is little expectation that the economy is going to roar back to life. I heard little optimism that the economy had stabilized itself to the point that government stimulus could be removed safely. Even China, with its return to nearly 10 percent growth rates, is viewed as continuing to rely on government props.
• The United States continues to disappoint. A year ago, everyone at Davos expected the new administration to make fast progress on financial reform, economic stimulus, and climate. We Americans in Davos had to spend a lot of time explaining why a 59-41 majority in the Senate seems to leave the President powerless.
• One of the great aspects of Davos is the opportunity to pose unexpected questions to interesting people. At the civil society dinner, I asked Brazilian novelist Paulo Coelho how we can tell the story of climate change more effectively. He thought for a moment, and came back with this: stop saying “save the planet.” His view is that the planet will survive—human cultures and civilization are what’s at stake, and it should be explained that way. Great thoughts from a thoroughly engaging man.
• For all the power brokers in Davos, inspiration usually comes from the unknowns prowling the halls. The British Council brought six “Changemakers,” all under 20 years old, from around the world, Iraq to Portugal to Canada. Their energy and enthusiasm make them great candidates to co-chair Davos in 2040. Let’s hope their vision of a better world stays intact.
• There was much consternation about the gender representation of Davos participants. Just under 20 percent of the speakers were women, and this upset many of us, men and women alike. While some of this is reflective of how power is distributed in the C-suite and presidential offices, the meeting would be strengthened by more women on the podium.
• This was to be a “Greener Davos,” as the Forum called on execs to use the communal shuttle instead of private cars. Why then was traffic so much worse this year?
• French President Sarkozy was the lightning rod of the event this year. His call for a more moral capitalism split the audience. I heard many business leaders say that his call was long overdue. An equal number dismissed it as grandstanding. Regardless, questions about the values we use—or don’t—to guide the global economy were never far from the surface.
• One of the fascinating elements of Davos is seeing public figures show their real personalities, unfiltered. This was on display the last night at the closing “gala,” when South Africa showed off its remarkable recent history and its host role at the World Cup this summer—and did so beautifully. Leaders from the country’s government, business, and arts communities were visible throughout—and they put on a great gala. Best of all was this gem from South Africa’s Finance Minister Trevor Manuel: “Tonight we rock, tomorrow we work.” Maybe Timothy Geithner ought to try that.

By Aron Cramer, President and CEO

Since the wrap up of COP-15, a lot of attention has been devoted to debating "Who lost Copenhagen?" Last week in Davos, a far more promising question was being asked: "How can business and consumers create a sustainable economy from the ground up?"

It's nearly impossible to discern the true "mood of Davos," because there are simply too many micro-communities amid the 2,500 participants. But for those of us focused on sustainability, there were many reasons for optimism.

First, if the World Economic Forum's annual meeting in Davos is a barometer of the global business and policy agenda, sustainable business now has a clear seat at the table. It wasn't long ago that sustainability was a fringe topic; today, it is one of the six formal "pillars" of the event.

Second, the gathering tackled the hard questions, particularly in the debate around sustainable consumption. Granted, it's easy to be cynical about how real the debate is when it unfolds at an event where many arrive via helicopter (I took the train). But while I worked with more than two dozen CEOs from across several industries to debate their vision for a sustainable future, I saw a seriousness of purpose that bodes well.

Third, the debate over the fundamental values driving the global economy rages on. French President Sarkozy challenged Davos Man and Woman to build a more moral form of capitalism. His words resonated with many--and angered many others. But they reflected and catalyzed a much-needed debate on just what kind of economy we want and need. And the question of values involved not only bankers' bonuses, but also the role of business in promoting sustainable outcomes. UN environment chief Achim Steiner delivered a stirring wake up call (literally, it was early Saturday morning) for business to advocate for a binding global climate treaty.

But in the end, there was a consensus view--which I share--that as much as a global climate deal is crucial, we can't wait for that to save us. The future depends on sustainability as a driver of innovation that stimulates consumer demand for different products and services.

So when companies begin looking at new avenues for innovation--like the Green Xchange, an open source platform launched by Nike in Davos--that's a win. When a group of designers and sustainability experts explore the creation of a Web- and mobile-enabled portal to information sources about products and services, that's progress. If social entrepreneurs like Harish Hande of Selco continue to spread solar power across India, the fight against energy poverty advances. And when a group of CEOs gets serious about the creation of common metrics they can use to drive water and energy reduction across all their products, that's a great step forward.

None of these ideas relies upon a globally binding treaty. If all these pockets of innovation grow and advance, we may begin to see the building blocks of an economy that is on a more sustainable footing.

It is possible that by the time climate negotiators gather again in Mexico in December 2010, the magic numbers are not G20 or even the 193 countries negotiating through the UN process, but the "G-7 billion." The seven billion of us who are consumers and who can make a real difference with the choices we make.

This blog also appeared in Fast Company.

By Dunstan Allison Hope, Managing Director, ICT Practice, and Blythe Chorn, Associate, Advisory Services

The U.S. Securities and Exchange Commission's announcement last week of guidelines regarding corporate disclosure of climate-related risks brings to the fore a question that has generated growing interest in business and policy arenas: Should sustainability reporting be required?

Over the last five years, six countries have passed legislation or issued directives mandating that companies include at least some corporate responsibility (CR) data in their annual reports. But it’s unclear whether these regulations are signs of a burgeoning trend, or just a short-lived experiment in promoting transparency.

To explore this issue, we debated the pros and cons of mandatory reporting (with Hope in favor of regulation, and Chorn opposed). We invite you to join this debate by posting comments to our blog. You can also download a PDF of this article, which initially appeared in the BSR Insight.

What are your general arguments for or against mandatory reporting?

DAH: The first argument in favor is the sheer significance of addressing sustainability challenges today. Issues like climate change, human rights, and water security are priorities in the 21st century. We have to ask the question, why is the financial performance of companies given greater importance in law than sustainability performance?

Second, we need to consider fairness and responsibility: All companies should report, not just those that have volunteered. No company should be allowed to take a free ride by not disclosing sustainability information. This will become even more critical as companies from emerging markets such as China, India, and Russia become important global players.

Finally, reporting drives change in companies and raises the profile of sustainability issues in boards and among CEOs.

BC: There are a few reasons why mandatory reporting may not be the best move now.

First, there’s the widespread concern that mandatory reporting would create a lowest common denominator in transparency. If governments set a number of key performance indicators that all companies must report on, companies may focus on simply checking the boxes of disclosure rather than thinking through which issues their stakeholders care about most.

This brings up a second challenge with mandatory reporting—that of materiality. It’s hard to define a set of issues that are material to all companies across all sectors. At BSR, we have already seen this challenge play out with companies conducting voluntary reporting according to the Global Reporting Initiative (GRI) G3 Guidelines. Although these guidelines set a strong baseline for reporting considerations, their implementation has led to recognition that sectors face unique sustainability challenges and reporting needs that require guidance. In response, the GRI has begun creating specialized sector supplements. In addition to following the specific requirements provided in the GRI guidelines, BSR encourages companies to define and report on the most material sustainability issues for their business. When considering mandatory reporting, it’s challenging to imagine a framework or list of indicators that would be useful to companies and stakeholders across sectors.

Finally, we need to consider what mandatory reporting would mean for liability for disclosures, and how this could affect transparency. If governments require that companies report on certain topics, companies will be legally accountable for the accuracy of what they’re disclosing, which may have a chilling effect on transparency. While governments and investors may be satisfied with a reduction in disclosures, other stakeholders will likely miss the opportunity for open discussion of challenges and failures as well as policies and positive performance.

What forms would mandatory reporting likely take? What, if any, are your concerns about those formats?

DAH: First, let me say what form it should not take: I don’t think it should be a full GRI-based report or a long list of mandated performance indicators that every company would be asked to disclose.

I do think it should be principles-based—and one of those principles would be materiality: what’s material to society as well as what’s material to the business. It should request that companies disclose and provide discussion around sustainability risks and opportunities, and the actions the companies are taking to address those things.

Perhaps it would include core indicators that are so critical to sustainability that they are significant for just about every company in every industry of every size, with carbon-dioxide emissions and response to climate change being the prime examples.

With those minimum disclosures in place, it would be advantageous to allow space for companies to innovate. Look at financial statements: These include the disclosures every company is required to make, but they almost always are accompanied by a much longer company narrative that tells a more complete story.

I’m agnostic about whether sustainability reports should stand alone or be included as part of a larger annual report. The key point is that we need to shift from a model where mandated disclosures are based on what is “material to the company” into one where mandated disclosures are based on what is “material to the company and to society.”

BC: To date, sustainability reporting requirements have not worked very well. Mandates have been vague and have set low standards. New mandatory reporting regulations would likely take one of two forms:

1. Integrated reporting (annual financial reports that include sustainability information)

2. Reporting against a set of standard indicators in a format determined by the company

I’ll address concerns about integrated reports first. Because integrated reporting requires fitting sustainability data into existing financial reporting frameworks, transparency on sustainability performance often suffers in this approach. Reporting against a set of standard indicators is also problematic, primarily because of the materiality and “lowest common denominator” challenges I described earlier.

The topic of formats raises a key question: What is the primary objective of making CR reporting required? The two main challenges with voluntary reporting are data quality and the lack of comparability among data. Ideally, if reporting were required, we would see an increase in reporting on basic core indicators, as well as a maintenance of existing sustainability reporting that goes above and beyond regulations to meet other stakeholders’ needs.

But I don’t think we’ve figured out the right format or incentives to drive that vision. While a set of standard indicators could improve comparability, it wouldn’t necessarily improve data quality. In Denmark, for instance, the government has mandated that companies report on their CR policies and performance. In the interest of avoiding duplicative reporting, companies can refer to existing UN Global Compact Communication on Progress, but this doesn’t do much to improve the quality of reporting.

How would innovations in reporting be impacted by rules associated with mandatory reporting?

DAH: I don’t think much would change. I would expect that companies would seriously address disclosures related to legal requirements, but that wouldn’t stop them from doing all the other types of communications with stakeholders that they already do, from web 2.0 to engaging with stakeholders on issues that matter to them.

Look at the examples of environmental rules and regulations: Their existence doesn’t hamper innovation. The same applies to labor rules. Likewise, the GRI guidelines don’t stop companies from innovating and going beyond the guidelines. Simply because you raise the floor doesn’t stop you from doing innovative things—and to think it does indicates a strikingly pessimistic view of the innovative and creative abilities of global companies.

BC: I think there’s a distinct possibility that innovation would slow down. Mandatory reporting could lead to a shift in internal responsibilities for CR reporting. Currently, CR reporting is usually owned by CR teams, but if it’s mandatory, that ownership would likely switch to corporate affairs and legal teams. And then reporting would no longer be about openly discussing issues and gaining (positive and negative) stakeholder feedback; it would be about meeting legal requirements.

Also, mandatory reporting would take away some of the competitive advantage from strong transparency. We’ve heard companies ask why they should continue to invest so heavily in reporting if all of their peers begin to do it to some extent. Maybe we would see new mechanisms for transparency and stakeholder engagement emerge, but my sense is that mandatory reporting would remove the incentive to do anything more than comply with regulations.

DAH: Is it a bad thing if legal teams have more engagement in corporate responsibility? I’d welcome that shift. In fact, there are many more lawyers in business willing to be proactive on corporate responsibility than the stereotype presumes. I work with many of them!

How would mandatory reporting influence the way companies approach corporate responsibility—or would it matter?

BC: My sense is that mandated disclosures would remove the incentive for companies to explore material issues and force them to follow a checklist approach to transparency. I also fear that, for the sake of comparability, we would see a set of indicators that all companies are supposed to report on, and that would be where companies would make their investments, and where they would be most transparent.

DAH: For companies that are already practicing corporate responsibility, there would be only one major change: Mandatory reporting would raise the profile of corporate responsibility strategies to the board level. And companies that are not already reporting would have to put in place the people and processes to report on sustainability, so that would also raise the floor.

In response to the concern about the “checklist approach”: I believe that the only quantitative indicator that would be defined as material and mandated for every company is carbon-dioxide emissions, and perhaps water and some type of waste or materials-based indicator. Other than that, I think it would all be principles-based.

It does raise a question about comparability, however, given that we’ve defined so few indicators, and that’s where the continued development of professional standards and the GRI would be critically important.

Is it possible to mandate CR reporting now?

DAH: It’s entirely within our capability to do it in the medium term, especially given our understanding of what a good report looks like and the principle of materiality. The biggest challenge to overcome will be defining the roles of the different legal frameworks around the world in which companies sit (e.g. the governing bodies, jurisdictions, industry and professional standards groups, and stock exchanges).

BC: We need to learn more about the assurance of corporate responsibility data before we can make sustainability reporting mandatory. This is something companies are starting to explore, but it’s one of investors’ biggest criticisms about sustainability reporting. Companies also need to trust the credibility of the data, because they would be held legally liable for it if reporting were required.

DAH: That’s one of the secondary reasons why we should have mandatory reporting. It would use the stick of regulation to force the hand of companies and assurance providers to get their acts together for assurance policies.

If we go down this road, it would be absolutely crucial to have a proper discussion around legal liability, company law, assurance, and accuracy. I don’t think this is the type of thing we can do tomorrow.

By Ryan Schuchard, Manager, Research & Innovation

On January 27, the U.S. Securities and Exchange Commission (SEC) ruled that climate change is a category of risk that companies should consider when disclosing material risk and opportunities. Along with this, the SEC is providing interpretive guidance for disclosing climate risks on key issues such as the:

• impact of legislation and regulation
• impact of international accords
• indirect consequences of regulation or business trends (such as risks driven from legal, technological, political, and scientific developments)
• physical impacts of climate change

In her statement, SEC Chairman Mary Schapiro pointed out that these issues can cut straight to investor concerns about companies’ liquidity, capital resources, and results of operations, and therefore companies have the obligation to determine their material impacts, and then reliably communicate that information to investors. This is, she said, the “bedrock of our disclosure framework.”

The SEC will release detailed guidance on its website soon. Until then, the Global Framework for Climate Risk Disclosure (PDF) offers insights on how companies will address such disclosure in practice.

Many companies (PDF) already disclose climate issues in their SEC reports, and this guidance will encourage them to provide more robust information. It will also likely spur other companies to start reporting on climate issues. Company reporting for the SEC will come in addition to existing efforts, such as annual voluntary submissions to the Carbon Disclosure Project, which offers a standardized way to communicate broad climate issues to investors outside the United States.

While the SEC decision is in step with scientists’ increasing confidence in the mechanics of climate change, and with the growing number of investors asking for details on how climate change will affect their business, the ruling may nonetheless leave it to companies to figure out what to report. That is because the SEC is explicitly taking no position related to the evidence of climate change itself, but rather saying that companies must make their own judgment.

As more details become available about the SEC’s instructions to specify climate risks and opportunities, we will be working closely with our members and clients to navigate this emerging framework, understand the best practices and benchmarks for climate reporting, and help companies get the most out of their investor-related disclosure efforts.