Organisations are increasingly seeking to position themselves as ethical, green and sustainable. But what standards are being used and what do they actually mean in terms of action on climate change and pollution? In this post we review the history and implications of three ways in which you can tell the world you are a truly sustainable business.
The history of business ethics can be traced back to the earliest notions of “fair exchange” through the philanthropists of the 19th century and public pressure in the 1970s to modern corporate mission statements and annual reports.
Indeed perceived ethics underlies one of the key metrics that determines the success or failure of any organisation, trust. Whether actively measured by NPS (Net Promotor Score), by employee engagement survey or investor sentiment, trust is now often declared to be as important as cash reserves in organisational “capital”.
While organisations have been proclaiming their ethical standing for the last 50 years, over the last 10 years we’ve increasingly seen sustainability added into the statements, with the emphasis ratcheting up rapidly this decade.
With this ramping up of the “green agenda” we’ve also seen concerns over greenwashing – a term first used in 1985 to describe companies seeking to manipulate our behaviour or sentiment through unsupported ecological statements.
There are clearly overlaps, as illustrated below.
So let’s look at a brief summary of CSR, SDG and ESG, acronyms that help to define our era:
CSR (Corporate Social Responsibility)
CSR emerged during the industrial revolution but became more established as a concept through corporate philanthropy after the second world war. The adoption was accelerated in the 60s and 70s as reaction to the anti-apartheid and civil rights movements which demonstrated how “people power” could dramatically affect businesses. To take advantage of, or defend against, this new market force CSRs sought to define and establish a social contract between business and society.
As the global and digital economy emerged from the 1990s onward, awareness of supply chains and international labour practices became the focus and CSR focussed on a combination of profit, social good and anti-slavery / human rights commitments.
From 2010 sustainability started to appear as a common CSR commitment and from 2012 this was frequently linked to one or more of the UN’s Sustainable Development Goals (SDGs).
Ultimately the issue with CSR is that there is no simple or standard way to evaluate performance and delivery against commitments. Clearly there is accountability against promises and figures are routinely presented in annual reports, but without agreed standard of frameworks or metrics these can be interpreted and presented to flatter actual progress.
SDG (Sustainable Development Goals)
The conclusions of the paper “The Future We Want” were adopted at the United Nations Conference on Sustainable Development in Rio de Janeiro in 2012. The paper proposed SDGs which would build on the Millennium Development Goals from 2000 which had sought to establish a global effort to tackle poverty and hunger.
The resulting “2030 Agenda” with its 17 SDGs was adopted in 2015, the same year as the Paris Agreement on Climate Change. The SDGs are interconnected goals to deal with the threat of climate change, better manage natural resources, achieve gender equality, seek better health outcomes, eradicate poverty, foster peace, create more inclusive societies, reduce inequalities and help economies prosper.
The SDGs are significant in that affirm an international commitment to build a more sustainable, safer, more prosperous planet for all humanity and one in which no one is left behind.
Importantly in 2017 the UN also agreed the “global indicator framework” for performance against the goals. Regularly “refined” and updated since (most recently in March 2021) the framework includes 247 indicators of which 231 are unique (12 are repeated in two or more categories).
This allows the creation of an annual scorecard, league table and trending graphs rating countries from 0- 100 in terms of their performance against the goals. (https://s3.amazonaws.com/sustainabledevelopment.report/2020/2020_sustainable_development_report.pdf ).
For organisations there are now many initiatives and toolsets to align organisational performance reporting against the SDG performance indicators, typically through consultancy, architectures, “blueprints”, data frameworks and audit engagements.
ESG (Environmental Social and Corporate Governance)
ESG effectively developed from the same roots as CSR, as a reaction to increased interest among investors in particular, but also customers and stakeholders in measuring the impacts of an organisation on the planet and society.
Closely linked with the increased interest in ethical investments, it provides a framework for evaluating and comparing performance across three key areas: Environment (Sustainability), Social Impacts (Employees, Customers, Politics and Community / Added-Social Value) and Corporate Governance (Board, Audit and Compensation).
In 2005 the United Nations Secretary General Kofi Annan invited some of the world’s largest institutional investors to develop principles for responsible investment. As a result in 2006 the UN launched a set of six investment principles encouraging the incorporation of ESG issues and reporting into investment practice, attracting support from many of the major financial institutions.
Unlike other commitments and reports ESG is linked to the fiduciary duties (i.e. the legal and ethical requirement of directors to act in the best interest of clients and shareholders) so it has the real potential of driving board-level decisions and actions.
From 2020 there has been a considerable increase in attention to these metrics from individual and institutional investors. A series of scandals around organisations that were not as green or ethical as their marketing had made out (https://www.investorschronicle.co.uk/news/2021/03/18/esg-s-dirty-secret/ ) caused real concerns that in many cases the ESG commitments were only “skin deep”.
There is a much greater emphasis on generating metrics that are relevant, timely and verifiable. In some cases these are linked to the SDG goals above, in others they are more related to risk, including the risks caused by environmental issues. Clearly different sectors have different priorities, and ESG lacks any single definition of what should be included, which makes direct comparisons difficult, but linking ESG to compliance reporting (including progress on reducing carbon emissions and transition no Net Zero) provides some opportunity for science-based metrics.
Reporting and compliance are significant issues for organisations in every region and sector. In terms of sustainability GHG emissions reporting (which falls within all three remits as a strategic, compliance and environmental metric) is now mandatory for many organisations and policymakers worldwide are increasing the requirement for its reporting and disclosure.
There is also huge incentive to “get this right” with investment into ESG funds in 2020 exceeding $40 trillion.
There are moves to create standards around disclosure and ESG specifically from organisations like the CDP and International Financial Reporting Standards (IFRS) but for now three significant challenges to true accountability remain.
- Standards – the lack of international standards and methodology means that “comparability” between reports and disclosures is compromised. Accountability is a key factor in driving behaviour.
- Priorities – there is still a priority imbalance between financial and environmental considerations. As long as GDP and profitability remain the prime metrics (and products are evaluated by price and feature comparison without proper life-cycle analysis and environmental “weighting”) then sustainability will always be a secondary consideration.
- Data – there is a genuine lack of objective, verifiable, science-based data on which to base reporting. This is the area where Px3 is focussed based on PhD research overseen by Warwick University and Warwick Business School, we aim to make it simple to measure and reduce GHG emissions from IT.
Overall it’s tempting to dismiss CSR as being too subjective to have any real value, SDGs as being too broad and ESG as too focussed on presenting the best “face” to attract investment.
The fact is we need a combination of all of these to drive effective change, with CSR providing the “sentiment and purpose”, ESG providing the wider company metrics, alignment with and progress against SDGs offering a global perspective and GHG reports tracking actual progress.
All you need now is the right data and a simple dashboard to display it…..
About the Author: Ewen Anderson BSc, MMS (Dip), CIO @ Px3
Ewen is CIO of Px3, a company on a mission to help organisations balance people, planet and productivity by promoting sustainable IT strategies. Px3 has set itself the goal of removing the CO2 emissions equivalent of 100,000 cars from our atmosphere by 2050. With a background in psychology, management services, consultancy and enterprise IT, Ewen is a passionate believer that the right technology used in the right way can significantly reduce environmental impacts, engage users and improve productivity.