Category: Standards

Sustainability enabler or complexity blinder?

By Milena Karen Bär & Dr. Kristjan Jespersen

◦ 5 min read ◦

The first step of the EU Action Plan of Sustainable Finance

New regulations in the ESG sphere are on the upswing especially in the EU. To reach the commitments of the Paris agreement, the European commission has introduced new regulations as the first step of the EU action plan: the Sustainable Finance Disclosure Regulation (SFDR). The first level was already implemented on March 10th 2021. The implementation of the regulation is an extension of the EU Taxonomy, amending the issue of greenwashing among financial market participants (FMPs). The new reporting requirements are profound and will be fundamental to almost any participant on the European markets, whether you are in the financial, or for that matter, the manufacturing, retail, service, non-governmental and governmental sectors.

The European Union’s experiment in defining what is sustainable and in directing markets to more sustainable investments, is putting pressure on market players to keep up with the quickly paced regulative developments.

Two main issues are subject to the debate of appropriate implementation of the SFDR, which entail firstly, the uncertainty of product classification and secondly, the complexity of data collection and usage. Not only all those affected must revise their whole reporting regime, but the EU must ultimately also ask itself the question whether the regulations have nurtured the intended behavior of the market. 

SFDR and PAI in general

The SFDR is implemented to benefit clarity for investors and asset managers, by improving their ability to compare investment options from a sustainability point of view. Therefore, the SFDR provides a collective framework, which requires FMPs to disclose the way they are taking sustainability risks into consideration in its business practices (entity level) and in its financial products (product level) in a consistent and curated fashion.

Additionally, the FMP must report on the principal adverse impacts (PAIs). These contain a list of mandatory and voluntary adverse impact indicators, covering environmental issues and the field of social and employee matters, respect for human rights, anti-corruption, and anti-bribery matters. Based on the SFDR disclosures, the product offerings can then be classified within the three categories referred to as article 6, 8, or 9 products, which indicate the level of greenness ranging from article 6 which does not consider sustainability at all, and article 9 which must follow a sustainable objective.

Issues arising 

The objective of the EU Action Plan and the SFDR is to reorient financial capital towards sustainable products and solutions. However, certain challenges raise the question whether the regulation can indeed serve this very purpose. To begin with, the mechanics of defining light and dark green products is lacking a foundation and boundaries, allowing for self-interpretation. The differentiation between light and dark green is ambiguous, and thus instead of serving as a guideline, is increasing uncertainty about what the articles constitute. 

Issue 1: The color palette of light and dark green assets

One might say, just as colors are perceived differently by each human, light and dark green assets can be various shades of green and thus, on completely different sustainability levels. The regulatory product declaration is not yet methodologically sound, the lack of distinction of the two leaves room for interpretation of the classifying entity. So far, no specific classification mechanism or framework exists that FMPs can apply and are thus able to approach the classification in more prudent or more generous ways. One may put a product under article 8, while at the same time another FMP might classify the same product under article 9. 

It seems the darkness of green is up for preference of the asset manager. Although there may be consensus that exclusion strategies are minimum requirements for both classifications, the scope of exclusion criteria varies greatly. This allows for instance some article 9 products to still be involved in controversial actions, such as fossil fuels, tobacco, and controversial weapons. 

Secondly, collecting relevant data poses a challenge, and even if data is available, its variety used to report on the SFDR and the PAI, makes the curation inconsistent and biased. An investor might have a full PAI statement to assess its investment, but can one trust the accuracy and relevancy of the data? 

Issue 2: Quality of data fades into the background

The PAI statements can be considered as a curation tool for asset managers (AM) to filter for the most sustainable products and steer capital towards green transition products. Even though the framework of the PAI indicators might be well structured, what is important is the quality of inputs. But the complexity of PAI indicators poses challenges for almost any market participant. PAI data is often not readily available, and this is aggravated by the fact that this data needs to be tracked on a continuous basis. Data collection and maintenance can thus become costly for the underlying portfolio companies. Large cap companies can overcome this issue, but small cap players are confronted with an expensive data collection for a wide range of PAIs or with the need to opt out due to lack of data availability.

Hence, large cap companies may gain competitive advantage without indicating greater performance. AMs incorporate the PAI data in a screening process to extract the most responsible products of the investment universe. However, some asset managers are simply selecting those assets with the highest coverage of PAI indicators. Again, leaving large cap companies in favor, although the high coverage of indicators not necessarily correlates with sustainable performance. The quality of the data fades into the background and investments with higher sustainable and financial potential can be missed out on. Ultimately, businesses leading the market today, may stay right where they are, without enabling opportunities for more innovative and greener solutions.

While the intention of the SFDR is to further restrict greenwashing, current practice may raise the question whether there are still loopholes for FMPs to label their products as greener as they actually are. Although we have seen regulations to be great drivers of sustainable corporate and market action, guidelines must be established to provide more specific and narrow pathways. The weak structure of product classification and the complexity of data may prevent the SFDR to provide a framework for more coherent and uniform information of sustainability risks. The European commission must clarify actual implementation practices, to enable the entire effect of capital reorientation. No market participant is exempted from the need to be aligned with the SFDR today, as new waves of regulations will follow, and it is to start paddling.

About the Author

Milena Karen Bär is a student researcher in ESG and Sustainable Investments, absolving a Master’s degree in applied Economics and Finance at Copenhagen Business School. Her research projects are mainly within the field of ESG metrics and regulation, with a focus on the investor’s side.

Kristjan Jespersen is an Associate Professor at the Copenhagen Business School. He studies on the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.

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How do we think about sustainable investing? Suggestions from an exploratory study

By Margherita Massazza & Dr. Kristjan Jespersen

◦ 4 min read ◦

From the outset, this blog post takes the perspective that behavioral finance is required to assess the perceived tension in sustainable investing (SI). Our work investigates the extent to which sustainability considerations are included in investment decisions, and the drivers behind SI approaches.

Sustainability is increasingly integrated in financial markets, with the acronym “ESG” (Environment, Social, Governance) becoming an all-encompassing term widely used in all phases of the investment process. According to a recent global review, sustainable assets [1] reached USD 35.3 trillion at the end of 2019, representing 35% of total professionally managed assets, and they are set to grow further in the coming years. Yet, despite its growth and the positive sentiment associated with it, there is an inherent tension in sustainable investing.

This tension stems from the apparent disconnect between the theoretical assumptions of classical financial models, focused on risk and financial returns as the predominant determinants of investment decisions (e.g., Capital Asset Pricing Model, Modern Portfolio Theory, etc.), and the empirical evidence of SI, where portfolio allocations are affected by non-financial aspects like personal values and social pressures. How can we make sense of this tension? 

Usually, the contradiction is formulated in terms of a tradeoff between financial returns and ESG impact: in order to achieve one, investors must forego the other. However, this view is still rooted in a traditional finance perspective, according to which including ESG considerations or seeking a non-monetary impact comes at the expenses of returns.

There needs to be more nuance in how sustainable investing decisions are investigated and assessed. Given the pervasive and engaging nature of ESG issues, sustainable investing is likely shaped by internal and external forces that go beyond the financial-vs-impact debate. By acknowledging the role that cognitive limitations, biases, and the external context play for investments, behavioral finance allows to capture the financial impact of factors that tend to be overlooked in mainstream financial theories. 

Under this perspective, the authors carried out a study based on primary data from European retail and professional investors. It focused on two main questions:

To what extent are sustainability considerations included in investment decisions?

Firstly our analysis broke down the relative importance of four attributes for the investment choice, i.e. the relative weight (expressed in percentage) that each characteristic exert on the investment decision. Sustainability attributes carry a relative importance of about 38%, with ESG score displaying a 26% relevance, and the investment’s end objective a 12% relevance. Taken together, these parameters display a larger role than standard financial attributes of risk level (relative importance of 33%) and expected returns (relative importance of 29%) (Figure 1). The results confirm the significance of ESG aspects for a well-rounded assessment of an investment, arguing against the traditional perspective of risk and returns as the sole determinants of investment choices.

Figure 1 – Relative importance of investment attributes for investment choice, by investor type
What drives investors to invest sustainably?

Secondly, we identified the main tendencies leading investors to engage in SI. Starting from a set of 16 heterogeneous motives, 4 main drivers emerged: a desire for self-expression, a financial-strategic rationale, the influence of the external context, and an opportunistic motive (Table 1). These drivers depict SI as a multifaceted phenomenon that unfolds along various dimensions, and not only on the financial and impact layers. They propose a novel perspective to think about SI, which takes into consideration how endogenous (e.g., alignment with values) and exogenous (e.g., role of regulation) forces may affect investments. 

Table 1 – Drivers of Sustainable Investing
How can the findings help us better assess sustainable investing?

This analysis shows the extent to which ESG aspects are integrated in investments, confirming their importance for investment choices. It also shows the multidimensionality of SI drivers, which eschews the rigid perspective of traditional finance and accounts for the impact of relevant internal and external factors. 

With this understanding, it is possible to formulate practical insights for industry participants to address the current challenges of SI. In fact, there are concerns related to the over-inclusion of sustainability in investment decisions at the expenses of fundamental financial analysis, which may lead to mispricing, inflated asset evaluation, and potentially an “ESG bubble”.

  • Standardize definitions and improve sustainability communication. Social context emerged as one of the drivers of SI, and regulators have a strong role to play in harmonizing the meaning of sustainability in finance. Legislative and non-governmental bodies are working to overcome the lack of standard definition and frameworks in SI – e.g., via the European Union’s Sustainable Finance strategy. Their effort to create a common vocabulary and shared understanding of what SI entails will help to align incentives, concepts, and strategies. In parallel, the financial-asset supply side (e.g., fund providers, financial advisors, etc.) should communicate clearly and extensively on the sustainability aspects of financial products. Given the importance of ESG characteristics for investment choices, this will ensure investors have reliable and trustworthy information to guide their investments. Together, the agreement in terminology and the availability of sustainability information will reduce the possibility for misinformation and opportunistic tendencies to sway investment decisions.
  • Recognize the existence of complex drivers behind sustainable investment decisions. Investors, both professional and retail, should evaluate how different motives affect their investment choices. Knowing that multiple drivers exist will ensure that investment are aligned with goals, limiting the influence of irrationality and misinformation. This will not only benefit investment strategies, but also curb counter-productive results such as the emergence of an ESG price bubble. To explore what drives investor’s decisions, an ad-hoc survey could be submitted ahead of opening investment accounts, mirroring the logic of the MiFID directive. This may have positive effects, such as involving more retail investors in sustainable investing [2].
  • Finally, consider adopting a behavioral approach when studying sustainable investing. The flexibility of behavioral finance may allow to grasp further insights and help to think about this timely topic in a novel way.

References

[1] The Global Sustainable Investing Alliance (GSIA) considers defines “Sustainable” all assets that integrate ESG factors in the analysis and selection of securities. More detail in their latest global report.

[2] Retail investors still face barriers to fully engage in SI: the topic is investigated in the paper “Investment Barriers and Labeling Schemes for Socially Responsible Investments” by Gutsche and Zwergel (2020).

About the Authors

Margherita Massazza is a CBS and Bocconi graduate in Economics of Innovation, with a focus on Sustainability. Her research investigates the links between traditional investments and behavioral finance to understand how sustainability decisions unfold. She is currently working in the Foresight team of AXA, an insurance company, where she studies the role that corporations will play in the future and how the concept of sustainability will evolve. 

Kristjan Jespersen is an Associate Professor at the Copenhagen Business School. He studies on the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.

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EU proposal on Corporate Sustainability Due Diligence for human rights and the environment

Advancing responsible business conduct, but failing to consider key functional challenges for remedy

By Karin Buhmann

◦ 9 min read ◦

Why is the proposal important?

The EU Commission’s draft Directive on mandatory ‘corporate sustainability due diligence’  published in the end of February is already recognized to have the potential to become a game changer for responsible business conduct (RBC) in Europe and beyond. If adopted, the proposed Directive will turn international soft law recommendations for companies to exercise risk-based due diligence in order to identify and manage their harmful impacts on human rights and the environment into hard EU law and therefore binding obligations for companies. Companies will be required to exercise due diligence with regard to actual and potential human rights adverse impacts and environmental adverse impacts, with respect to their own operations, the operations of their subsidiaries, and the value chain operations carried out by entities with whom the company has an established business relationship. 

The proposal also aims to establish accountability through corporate liability for violations related to insufficient due diligence.

What the draft directive refers to as ‘corporate sustainability due diligence’ draws on what the OECD Guidelines for Multinational Enterprises refer to as ‘risk-based due diligence’, and what is referred to as ‘human rights due diligence’ by the United Nations (UN) Guiding Principles on Business and Human Rights (UNGPs). Indeed, the proposal refers directly to those two international soft-law instruments, which are generally considered state of the art for responsible business conduct (RBC).

This form of due diligence is a process to identify, prevent, mitigate, remedy and account for risks or actual harm caused by the company (or its partners) to society. Unlike financial or legal liability due diligence, the focus is not on risks to the company, although of course societal (including environmental) harm may also affect the company negatively (see also Buhmann 2018). 

For companies covered by the directive, this will fundamentally change RBC from being voluntary to becoming legally binding. 

The Draft has generally been welcomed by business associations, although some remain hesitant towards a (much watered-down) proposal to strengthen top-level sustainability corporate governance. Civil society also generally approve although the range of companies covered has been criticized for being too narrow, and business relations too focused on contractual relations rather than impacts. The proposal’s introduction of civil liability with EU courts for victims from non-EU countries has been lauded. Yet this could and perhaps should also usher in a deeper debate on the fundamental characteristics of what constitutes adequate or meaningful remedy for harmful impacts on human rights impacts or the environment, and as importantly, how host-country victims will be ensured a de-facto equal standing with frequently well-resourced EU companies in front of EU courts. This short note addresses all of the above issues.

Part of EU corporate sustainability law

After a slow start up to around 2011, the EU has been moving fast since in an incremental development of increasingly detailed obligations on companies, including institutional investors, with the aim of creating transparency on business impacts on human rights, the environment and climate. Given the speed and political support for adopting EU law on these matters, it is quite likely that the proposed Directive will be adopted, although possibly with some changes. 

The proposal forms part of the larger package of corporate sustainability legislation undertaken by the EU recently. This includes the Taxonomy Regulation (which also refers to procedures that companies should undertake to ensure alignment with the UNGPs ad OECD Guidelines); the Non-Financial Reporting Directive (requiring some information on due diligence and risk assessments on human rights), which is expected to be replaced by the Corporate Sustainability Reporting Directive; and the Disclosure Regulation, which requires financial product providers to publish certain types of sustainability related information, including information on due diligence related to harmful impacts on environment and human rights.

The draft Directive builds on a proposal from the European Parliament, but it also follows trends in several individual EU countries to introduce mandatory risk-based due diligence. 

What companies are covered?

The draft Directive applies to ‘very large’ EU based companies (more than 500 employees on average and a worldwide net turnover exceeding EUR 150 million). ‘Large’ companies (having more than 250 employees on average and more than EUR 40 million worldwide net turnover) are included if they operate in specific high-risk sectors: textiles (including leather and related goods), renewable natural resources extraction (agriculture, forestry and fisheries), and extraction of minerals.

The draft Directive’s listing of activities related to minerals is quite wide and applies regardless of the place of extraction. They will therefore apply to many types of raw-materials used in the EU, including those used for power and heating, construction and the ‘green’ energy transition.

Non-EU-based companies are covered if their turnover in the EU corresponds to that of ‘very large’ companies, or that of high-impact sector companies for activities in those sectors. It is expected that requirements will be cascaded onto SMEs through the value chains that they are part of. 

What are companies required to do?

Importantly, like risk-based due diligence and human rights due diligence, corporate sustainability due diligence is not a compliance obligation simply discharged by undertaking and documenting a specific action.

Rather, as established by the UNGPs and the OECD Guidelines, it is an ongoing task that requires continuous assessments of risks or actual harm, and re-assessments, follow-up and efforts to prevent risks from becoming actual harm, and mitigation and the provision of remedy when harm has occurred.

Although the draft Directive seeks to establish that, it does rely heavily on companies applying contractual assurances, audits and/or verification. As argued by the expert organization SHIFT, these are not necessarily the best options for the purpose.

The due diligence obligations proposed are generally in line with the UNGPs and the OECD Guidelines, but in some ways narrower. This applies in particular to the limitation of some aspects of the due diligence process to what the draft Directive defines as ‘established business relationships’, i.e. relationships of a lasting character. This contrasts with the UNGPs and OECD Guidelines which do not require a business relationship (e.g. with a contractor, a subcontractor or any other entity such as a financial partner) to be lasting but, rather, focus on the connection between the company and risk or harm. This is one of the points that have generated criticism of the draft. 

Directives must be implemented by Member States. The means that some specific requirements may differ across EU countries. However, regardless of this companies will be required to integrate due diligence into all their policies and have a policy for due diligence that describes the company’s approach, contains a code of conduct for its employees and subsidiaries, and its due diligence process.

This must include verification of observation of the code of conduct and steps to extend its application to ‘established business relationships’. In terms of specific steps, companies must identify actual and potential adverse impacts; prevent potential adverse impacts; and bring actual impacts to an end (whether they were, or should have been, identified) or minimize impacts that cannot be stopped. In that context they should seek to obtain cascading by seeking contractual commitments from business partners in the value chain.

However, contrary to the UNGPs’ recommendations, there is no requirement that the company actively engages with business partners in its value chain to enhance due diligence cascading. Moreover, the provisions on involving potential or actual victims (‘affected stakeholders’) meaningfully in the development of prevention action plans, let alone the identification and redress of risks and impacts, lags behind the UNGPs.

In line with the UNGPs and OECD Guidelines, ceasing business relationships is not considered the first option. Rather, collaboration should be sought in order to advance better practices. If that is not possible, cessation a relationship may be appropriate.

Companies must also set up a complaints mechanism that can be used by affected individuals, trade unions and civil society organisations. Moreover, companies must regularly monitor their operations and due diligence processes, those of their subsidiaries and ‘established business relationships’ in the relevant value chain. They must also regularly report on these non-financial issues. 

Overall responsibility for the due diligence actions is charged on a company’s directors as part of their duty of care.

Enforcement: administrative and civil liability

Companies’ compliance will be monitored by authorities in each EU country. They may request information from companies and carry out investigations based on complaints by individuals or organisations, or on their own initiative. They may impose interim measures to try to stop severe or irreparable harm, and sanctions for violations of the due diligence requirements.

Companies will not be entitled to public support if they have been issued with sanctions under the directive. 

Importantly, companies can be subject to civil liability for damages resulting from a failure to adequately prevent a potential harmful impact or bring an actual impact to an end. Civil liability means that victims (or in the terminology of the UNGPs and OECD Guidelines: ‘affected stakeholders’) must themselves sue the company. 

A step forward for accountability and victims – but multiple challenges remain

The institution of civil liability for third-country victims in front of courts in EU-based companies’ home states is clearly an advance in regard to establishing formal accountability. However, the complexities of the legal system, especially for those seeking damages through civil liability, can hardly be overestimated. This challenge has been absent from most discussions leading up to the current draft Directive.

By contrast to criminal courts, civil courts generally make judgments based on the ability of one party to convince the court of its arguments. Research has shown that formal civil liability regimes tend to favour those who have the legal knowledge resources to do so. A market based good, legal expertise can be very expensive. The better the record in obtaining results that a client wants, the higher the cost. This may cause a highly problematic discrepancy between the possibilities of victims/affected stakeholders and companies to argue their case. Even if some victims are able to be assisted by civil society organisations, their legal expertise for arguing a case in court, or their resources to obtain such expertise, will not necessarily match those of companies.

Moreover, the civil liability regime focuses on economic damages and compensation. Although that may be relevant in some cases, in others a sum of money does not adequately redress harm suffered. Indeed, the UNGPs emphazise that remedy can take many forms of which economic compensation is only one. 

Arguably, the draft Directive falls short of adequately considering the situation of victims in non-EU countries in regard to having not just formal but actual meaningful access to justice in front of courts. It presents an approach to remedy that does not necessarily fit the complex situations and limited resources of victims/affected stakeholders. It is to be hoped that as the draft will be negotiated and amended towards the version that may be adopted, this issue will gain further prominence.

Conclusion 

The draft directive is an important development towards ensuring that companies based or operating in the EU take steps to identify and manage their harmful impact on the environment and on human rights, and to provide accountability. Although the draft does not cover all EU-based companies, it does cover the largest ones, and large ones in the textile, renewable and non-renewable natural resource extraction, all of which are known to be high-problem sectors. However, the affected stakeholder engagement, remedy and accountability provisions of the draft display too limited understanding of the situation of victims/affected stakeholders.

About the Author

Karin Buhmann is Professor of Business and Human Rights at the department of Management, Society and Communication at CBS, as well as the Director of the Centre for Law, Sustainability and Justice at University of Southern Denmark. Her research and teaching focus on sustainability and responsible business conduct (RBC) with a particular emphasis on social issues, especially in climate change mitigation, business responsibilities for human rights, and sustainable finance.

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“A Little Less Unsustainable Is Not the Same as Sustainable” – Why Including Fossil Gas and Nuclear Power Will Harm the EU Taxonomy

By Andreas Rasche 

◦ 3 min read ◦

The EU Taxonomy reflects a classification system that assesses whether certain economic activities are environmentally sustainable. Without doubt, the idea is a good one and the Taxonomy acts as a prerequisite for the EU’s Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR) to unfold their full potential. But: should fossil gas and nuclear power be included into the Taxonomy and hence count as environmentally sustainable? A leaked EU “non-paper” seems to suggest exactly that… 

Including fossil gas and nuclear power will significantly harm the Taxonomy, both in terms of its perceived legitimacy but also in terms of its consistency with existing policy frameworks and regulations. I believe that there are three key points to consider: 

  1. Legal Inconsistency: Including fossil gas and nuclear power into the Taxonomy is likely to undercut the very regulation that the Taxonomy is based on. Article 10 of the Taxonomy Regulation (EU 2020/852) makes clear that an economic activity is considered sustainable if “that activity contributes substantially to the stabilisation of greenhouse gas concentrations in the atmosphere” (my emphasis); at least for fossil gas this is highly questionable. Although nuclear power is a low-carbon energy source, it is by no standards a safe alternative to renewables. In fact, it is a risky energy source, especially if we consider its entire life cycle. This is exactly why many investors see nuclear power as an exclusion criterion for sustainable finance products. When considering the entire life cycle of nuclear power, this energy source creates non-calculable risks vis-à-vis the Taxonomy’s environmental objectives (e.g., the protection of healthy ecosystems). For instance, the mining and processing of uranium has a questionable sustainability track record. 
  2. Policy Inconsistency: The EU itself suggested that to reach its goal to reduce emissions by 55% until 2030, there is need to cut 30% of the total consumption of fossil gas by 2030. However, including fossil gas into the Taxonomy will re-orient capital flows in a way that money is flowing into this sector (and not away from it). At the end, it is likely that this will lead to higher usage of fossil gas, much beyond the “transitional use” that the EU intends to establish. Further, a number of EU member states have pledged during COP26 to show “public support towards the clean energy transition and out of unabated fossil fuels.” This pledge does not seem well aligned with an inclusion of fossil gas into the Taxonomy. 
  3. Reduced Perceived Legitimacy: A factor that is less debated in the public, but still very relevant, is the reduced legitimacy of the Taxonomy. Although the Taxonomy, and linked regulations like SFDR, imply more work and a certain “bureaucratic burden” for financial market participants, many market actors have welcomed the new regulations. They increase transparency, make greenwashing harder, and hence have the power to re-orient capital flows into sustainable economic activities. Including fossil gas and nuclear power into the Taxonomy, endangers this legitimacy. In fact, the Taxonomy may move “from hall of fame to wall of shame”, as the WWF recently suggested. 

At the heart of the problem, lies a misunderstanding, I think. The EU Taxonomy is supposed to single out those economic activities that have the potential to make a substantial contribution to reaching six environmental objectives. Just because an economic activity is a little less unsustainable than comparable activities, it is not ipso facto sustainable. Being less unsustainable is different from being sustainable. Put differently, just because nuclear may be “cleaner” than coal does not imply that the former contributes to sustainability. 

It is often argued that fossil gas and nuclear power need to be included into the Taxonomy as they are necessary “transitional activities”. I believe this claim is misleading: 

  • Focusing on “transitional activities” sets the bar very low for Europe’s ambitions Green Deal. Ursula von der Leyen called the Green Deal Europe’s “Man on the Moon” moment, pointing to its ambitious character. If contested energy sources like fossil gas and nuclear power become part of the Taxonomy, we have not put a man on the moon. Maybe, then, we have not even managed to let the rocket start… 
  • Excluding fossil gas and nuclear from the Taxonomy does not imply that these energy sources will vanish overnight. It simply means that they will not be considered a sustainable economic activity (like a number of other economic activities). 

It is time to take the Taxonomy seriously, otherwise we may slow down or even hinder the necessary green transition of Europe’s economy…

About the Author

Andreas Rasche is Professor of Business in Society and Associate Dean for the Full-Time MBA Program at Copenhagen Business School. More at: www.arasche.com. 

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Moving towards mandatory CSR – EU’s mandatory Human Rights Due Diligence proposal

By Johanna Jarvela

◦ 2 min read ◦

Last March European parliament gave a proposal to create mandatory Human Rights Due Diligence directive. The aim is to prevent human rights and environmental harm in a more efficient way, through regulation. The commission proposal is based on the UN Guiding Principles on Business and Human Rights and has three core elements: firstly, companies should themselves assess the risks of human rights violations in their supply chains, secondly, take action together with the stakeholders to address identified threats, and lastly – and most importantly – offer a system for access to remedy for those whose rights have been violated.  The commission is expected to give their resolution on the matter before Christmas, though the decision has been delayed already few times.

The EU proposal can be seen as a part of a continuum towards more mandated forms of corporate social responsibility (CSR). Traditionally CSR has been defined as something voluntary that companies do in addition to the letter of law in response to stakeholder pressures and societal expectations. At the level of individual organisations this has meant providing societal good through philanthropy and partnerships with NGOs or avoiding harm by improving the sustainability of business operations. Also, a great number industry level voluntary standards have been invented to solve the environmental and labour issues in transnational supply chains (Fair trade and Forest Stewardship Council being good examples). 

However, the past 20 years of voluntary measures have not been able to eliminate human rights violations in business operations. Indeed, it seems that voluntariness works for inspiring collaboration and innovating for better world.

In situations of wrongdoing, exploitation, and harm, stronger frameworks are needed to hold organizations accountable and offer remedy to victims. 

The recent development towards more mandated forms of corporate responsibility, like the French Due Diligence reporting Act or the UK Modern Slavery act, can be seen as efforts to respond to the accountability deficit. In June this year Germany passed a HRDD law stipulating that companies must identify risks of human rights violations in their supply chains and also take countermeasures. Also, Norway passed a similar law that requires companies to conduct human rights and decent work due diligence. Similar issues have been discussed in most of European governments.

There are caveats in creating this type of regulation. It might lead to tick-the-box type of exercises without true consideration for the human rights risk, burden companies if not given enough time and guidance to adjust, and transparency reporting does not seem to be enough to change business behaviour. One of the most difficult, yet most important, area in developing the new binding standards is the pillar three of UNGP: Access to Remedy. This pillar tries to ensure that in cases of violations, the victims will have a channel to make claims and receive remedy. Whether it should be civil or administrative liability or whether there should be an ombudsman in each country receiving complaints or via whistleblowing is all still in the air. What is clear is that whatever the final design of well-functioning HRDD system requires inputs and cooperation from businesses, civil society, and governments alike. Companies know best their supply chains, but sometimes NGOs may be a useful counterpart for identifying the risks and setting up stakeholder consultations. Finally, governments should be final proofers of the system ensuring accountability and enforcement. 

While some industry associations have raised concerns about the new regulations and the ability of European companies to oversee operations elsewhere, companies also evaluate that the new EU directive might level the playing field and give them a new tool in managing supply chains. Indeed, it seems that we are moving towards regulated CSR not only within EU but globally. UN has launched an intergovernmental working group to prepare a binding treaty on Business and Human Rights, there is an initiative for  minimum global corporate tax and efforts to close tax havens. More and more reporting is expected by companies, not only as increasing ESG reports to shareholders but more and more also as part of the mandatory legal requirements. 

Societal expectations are one of the key drivers for CSR. According to the latest polls it seems that European citizens and consumers expect the companies to upkeep good human rights and environmental standards within their global supply chains. 

About the Author

Johanna Järvelä,  is a postdoc researcher at Copenhagen Business School and member of the advisory committee for Human Rights Due Diligence Law in Finland. Her research focuses on the interplay of public and private governance in natural resource extraction and she’s especially interested in exploring how steer private sector towards providing societal good. 

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How the EU Taxonomy Impacts Businesses Beyond Europe

By Andreas Rasche

◦ 4 min read ◦

In 2020, the EU launched its classification system for environmentally sustainable economic activities, the so-called “EU Taxonomy Regulation” (hereafter: the Taxonomy). The Taxonomy is part of an integrated system of new EU-wide sustainability regulations, including new disclosure requirements for investors. While the Taxonomy is based on EU regulation, it can be expected that it will also have effects on businesses beyond Europe. 

Basically, there are two ways in which the Taxonomy can affect non-EU companies. First, there are direct regulatory effects on non-EU companies. Because of the global nature of financial markets and the existence of global trade flows, non-EU companies will be directly exposed to the Taxonomy in different ways. Secondly, there will also be more indirect consequences, which I call “ripple effects”. Such effects exist because the Taxonomy raises the bar globally for how sustainability information should be disclosed, by whom it should be disclosed, and it which ways it can be disclosed. I briefly discuss both effects. 

Direct Effects 

In the short run, some non-EU companies will be exposed to the Taxonomy because of direct regulatory effects. Consider the following two examples: 

  • A non-EU investor or financial advisor that wants to offer products on the European markets will be exposed to the Sustainable Finance Disclosure Regulation (SFDR) which requires an alignment with the EU Taxonomy. To offer financial products on European markets non-EU investors will therefore have to align with SFDR and hence the Taxonomy.  
  • A non-EU company with EU-based investors is very likely to receive questions from these investors about the company’s alignment with the Taxonomy. Investors need this information to meet disclosure requirements under SFDR, for instance to classify their financial products in terms of their sustainability exposure. In other words, at least some non-EU companies will start disclosing more on Taxonomy-related indicators. 

I could list more examples here (e.g., non-EU asset managers wanting to raise money in the EU), but the message is clear: the effects of the Taxonomy are not limited to businesses located in Europe. Particularly, the Taxonomy’s interaction effects with SFDR will affected non-European companies as well as investors.  

Ripple Effects

Ripple effects are more indirect effects. They occur if an intervention, such as the introduction of a new regulation, creates further effects that reach beyond the system that was supposed to be influenced by the intervention. Such regulatory ripple effects can occur in different ways.

In the context of the Taxonomy, one important ripple effect is related to the practices of European businesses. Many of these businesses are global players, and they will apply the Taxonomy to their global operations regardless of whether these operations occur in a country that is legally covered by the Taxonomy. Sustainability reporting is usually done at the corporate level and therefore also includes firms’ non-European operations. The EU’s new disclosure regulation the Corporate Sustainability Reporting Directive (CSRD) will require that such reporting at the corporate level is taxonomy-aligned. In this way, European global players will “export” the Taxonomy to other parts of the world.

There are also ripple effects at the political level. The system of new EU legislation – including, the Taxonomy, SFDR, CSRD and other regulatory elements – is unique in the world. So far, no other region or country has a comparable system. However, the major economic regions in the world have also realized that future business will be difficult without sustainability-related regulations that enhance transparency and prevent greenwashing.

Consider two recent examples: In June 2021, the UK announced the creation of a Green Technical Advisory Group. This Group is supposed to develop and implement a UK green taxonomy, which is expected to be based in part on the EU Taxonomy system (e.g., in terms of metrics). In the US, President Biden signed Executive Order (EO) 14008 during his first days in The White House. While this EO does not aim at creating a US-based taxonomy, it has created a National Climate Task Force across different federal departments, which at least some see as an important step into the direction of more rigorous ESG-related regulation. 

Other countries and regions are likely to look to Europe when thinking about how to design a workable taxonomy regulation, as the challenges that have driven the creation of the EU Taxonomy are the same throughout the world: we need more transparency around sustainable economic activities, we need to better benchmark firms’ sustainable activities, and we we need to prevent greenwashing.

It is too early to say whether there will be convergence among the taxonomies developed by different countries and regions, but one thing is for sure: they are here to stay… 

About the Author

Andreas Rasche is Professor of Business in Society and Associate Dean for the Full-Time MBA Program at Copenhagen Business School. More at: www.arasche.com. 

Photo by Krzysztof Hepner on Unsplash

Like oil and water…. Shell’s climate responsibility and human rights

By Kristian Høyer Toft, PhD

◦ 4 min read ◦

In a landmark verdict at the district court in the Hague on 26th May this year, Royal Dutch Shell lost a case to the Dutch branch of ‘Friends of the Earth’, Milleudefensie, and other NGOs. The court ordered Shell to reduce CO2 emissions by 45% by 2030 against a 2019 baseline. The decision breaks new ground for the possibility of holding private corporations accountable for climate change – Shell-shocked and a Black Wednesday for the fossil fuel industry, according to expert commentators in international environmental law.

The verdict emphasizes the international consensus that corporations like Shell must respect basic human rights, such as the rights to life and family life. In the ruling, human rights are seen in the context of climate change and the aspirational 1.5-degree target stated in the Paris Agreement (2015), scientifically supported by the Intergovernmental Panel on Climate Change (IPCC 2018).

The verdict is a significant example of a general surge in climate litigation cases globally in which human rights are invoked.

Holding a fossil fuel company accountable based on the standard of human rights might sound as futile as the effort to mix oil and water.

And this sort of skepticism has roots in the recent history of attempts to connect business, human rights and climate change in what could be seen as a ‘bizarre triangle’ of irreconcilable corners.

However, the Shell verdict can be seen as a firm rebuttal to such skepticism. The court argued that Shell had violated the standard of care implicit in Dutch law. To clarify the content of the standard of care, the court used the United Nations Guiding Principles (UNGPs) which provide a global standard for businesses’ human rights responsibilities. This is, however, a bold interpretation in light of the UNGPs silence on human rights responsibilities with regard to climate change. 

In fact, human rights might not fit so neatly with the difficult case of climate change. Firstly, it is difficult to trace the causal links between the emitters and the victims of climate change, although this is contested by recent studies that have traced two-thirds of historical emissions to the big oil and gas companies, the so-called carbon majors.

Secondly, human rights basically apply only to the state’s duty to protect citizens, and thus only indirectly to private companies. This state-centric approach is core to the human rights regime and tradition, and the UNGPs uphold this by allocating less stringent responsibilities to non-state actors such as corporations.

However, the UNGPs also state that private companies have human rights responsibilities independently of the state. The district court in the Hague reaffirms this in its ruling against Shell, stating that corporate responsibility “exists independently of States’ abilities and/or willingness to fulfil their own human rights obligations, and does not diminish those obligations. [..] Therefore, it is not enough for companies to [..] follow the measures states take; they have an individual responsibility.” (4.4.13). 

A third source of skepticism resides in understandings of environmental law and the central role of the polluter pays principle. Accordingly, emitters are responsible for their historical output of CO2 as enshrined in the United Nations Framework Convention on Climate Change (UNFCCC 1992), but the scope is usually taken to be limited to the unit of production (scope 1), e.g. the refining of crude oil. The standard view of pollution is local, as for instance when a factory pollutes the local river. 

However, in the Shell ruling scopes 1, 2 and 3 are taken into account, meaning that consumers’ incineration also counts and therefore Shell must take responsibility for consumers’ emissions as well. The consequences of including all three scopes incur far-reaching and demanding responsibilities on corporations, where previously the distribution of responsibilities between producers and consumers has been disputed, for instance in the carbon majors case.

In sum, the Shell verdict raises the bar considerably for the expected level of corporate climate responsibility. The verdict also challenges the assumption that human rights don’t fit the complexity of climate change; though in fact the UNs first resolution on human rights and climate change appeared back in 2008. Moreover, the verdict goes against the widespread liberal assumption that businesses’ responsibilities are mainly to comply with the law of national jurisdictions and that consumers are comparably responsible for causing climate change. 

It might be time to rethink such assumptions and not simply continue ‘business as usual’ by seeing climate change and human rights-based climate litigation as a managerial risk factor to be handled instrumentally and in isolation from the moral duty to solve the climate crisis. 

One key lesson could be to acknowledge that corporate responsibilities are not just legal but moral as well, since the distinction is not so clear in soft law instruments like the UNGPs nor even in the notion of human rights themselves, not to mention the moral demands following from the need to respect and realize the targets of the Paris Agreement and related transition paths.

When the Special Representative to the United Nations on Business and Human Rights, John Ruggie, started exploring pathways for developing the field, he was inspired by the American philosopher Iris Marion Young whose ‘social connection model’ of global responsibility in supply chains suggests a forward-looking kind of responsibility for mitigating structural injustices. Young’s notion of responsibility was designed to solve large-scale structural problems like climate change by attributing responsibility to all agents according to their powers, privileges, collective capacities and level of complicity. 

This is the kind of thinking now supported in the court verdict against Shell, and it signals a new beginning where climate change reconfigures how corporations and human rights connect… perhaps making the ‘oil and water’ metaphor obsolete.

Acknowledgements

Among the many expert commentators, Annalisa Savaresi’s work provided particular inspiration for writing the blog. I am grateful to Florian Wettstein, Sara Seck, Marco Grasso, Ann E Mayer and Säde Hormio who all gave comments to my article ‘Climate change as a business and human rights issue’ published in the Business and Human Rights Journal (2020) 5(1), pp. 1-27. The blogpost is based on the approach of this article. Julie Murray was helpful with proofreading.

About the Author

Kristian Høyer Toft, PhD in Political Science, Aarhus University 2003. During 2020-21 a guest researcher at the CBS Sustainability Centre, Copenhagen Business School. His research focuses on corporate moral agency, political theory of the corporation and climate ethics and is published in Business and Human Rights Journal, Energy Research and Social Science, and in the book Corporate Responsibility and Political Philosophy: Exploring the Social Liberal Corporation (Routledge 2020). 

Photo by Irina Babina on Unsplash

Mapping unchartered territory: Ecuador’s journey to sustainable palm oil

By Mathilde Birn, Sanne Qvarfordh, & Dr. Kristjan Jespersen

◦ 3 min read ◦

Sustainability certifications have become a widely used mechanism to signal to consumers that a product was ostensibly produced sustainably. Nevertheless, such certifications typically fail to scale beyond at most a fifth of global production. Within the palm oil sector, widely known as a major deforestation driver, the Roundtable for Sustainable Palm Oil (RSPO)’s Jurisdictional Approach is one of a growing number of examples of upscaling strategies. Under the Jurisdictional Approach, all value-chain actors within a province or even an entire country would be certified simultaneously. Ecuador is piloting the initiative at the national scale and is currently developing a national commitment.

The research is informed by 21 interviews with a variety of actors in the Ecuadorian palm oil sector. After qualitatively coding these interviews and looking for common patterns, we identified four main motivations behind Ecuadorian interest in jurisdictional palm oil certification. First, interviewees reported a concern that Ecuador risked losing market access due to sustainability-related import restrictions and consumer preferences in certain markets. Second, 90% of Ecuador’s palm oil producers are smallholders, whose resource limitations make it difficult to achieve RSPO certification on their own. Under the Jurisdictional Approach, smallholders would be grouped together, allowing them to pool resources and share costs. Third, the Jurisdictional Approach facilitates governmental sponsorship for smallholder capacity building. Fourth, previous experience and institution-building around sustainability in general and anti-deforestation in particular produced forward momentum on the part of the civil society and the Ecuadorian government that has led to an institutional infrastructure favourable to ideas like the Jurisdictional Approach.

In the most optimistic scenario, the Ecuadorian government’s commitment to the Jurisdictional Approach, strengthened by multi-stakeholder support, could encourage more sustainable production practices. However, we also identified certain risks associated with the implementation of the initiative. These risks especially significant given the Jurisdictional Approach’s relative novelty. As one interviewee put it: “we have been flying the plane while we’re building the plane”.

We have identified six key risks to Ecuador’s implementation of the RSPO Jurisdictional Approach and paired them with mitigation recommendations. This list is certainly not exhaustive and ought to be further assessed and developed by local stakeholders equipped with relevant expertise.

The Jurisdictional Approach affects several different stakeholder groups with diverse interests that must be actively engaged in the process to achieve success. To this end, efforts should be made to include representatives of stakeholders that are currently missing (or insufficiently represented) in the governance structure of the RSPO Jurisdictional Approach in Ecuador. These stakeholders include academia (which was involved in the beginning of the process but no longer is), domestic civil society organizations, local communities (including Afro-Ecuadorian and indigenous peoples), local governments, and representatives of the global palm oil industry.

About the Authors

Mathilde Birn graduated from CBS with a BSc and MSc degree in International Business and Politics. Academically, her main interest is within the field of sustainable development and the impact of stakeholder dynamics on such development, with a focus on emerging economies.

Sanne Qvarfordh graduated from CBS with a BSc. and a MSc. degree in International Business and Politics. Her main academic interest is sustainable development in emerging economies, with a focus on multi-stakeholder initiatives in Latin America.

Kristjan Jespersen is an Associate Professor at the Copenhagen Business School. He studies on the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.

Photo by Andrés Medina on Unsplash

Responsible to whom and for what?

Contestations of CSR across time, space, and experience … and a Call for Papers 

By Jeremy Moon

◦ 3 min read ◦

It is well known that globalization of business has thrown up a host of new governance challenges and new governance solutions. Conspicuous in this regard are the various ‘responsibility remedies’ for challenges posed in the supply chains of multinational corporations.

The growth and transformation of supply chains, particularly in agricultural products and garments has reflected a pattern of business expansion and penetration of host country markets. These have been followed by revelations of short-comings in the treatment of workers and communities, and in environmental responsibility. And in turn, these have been followed by responsibility remedies, often in the form of partnerships, international standards and multi-stakeholder initiatives.  

Formerly, if corporations were asked to whom they were socially responsible they might well have answered ‘to their communities’ or ‘to their stakeholders’. The concept of responsibility to communities makes sense in an industrial model of production in which the company, its management and workers are united not only by association with the company but also by the place in which the company had its most obvious impacts. The concept of responsibility to stakeholders is premised on its offer of an alternative to exclusive responsibility to shareholders, combining an ethical and a functional logic. But with global supply chains, the concepts of community and stakeholder responsibility are stretched.  In the former case this is to relationships with no face-to-face interaction or even common identity with place and culture. In the latter case it is to corporate relationships with workers who have no contractual relationship with the respective corporation, and may even be unaware that they are working in that corporation’s supply chain.

So we have witnessed numerous alternative models of supply chain responsibility often in the form of partnerships of businesses and civil society organizations, sometimes also involving local, national and international governments. The legitimacy of these partnerships, standards organizations and Multi-Stakeholder Initiatives (MSIs) is usually premised on some reference to, what are taken to be, universal principles, and on the plurality of participants, particularly those reflecting societal voice – ostensibly the surrogates of community and stakeholders.

But notwithstanding the legitimacy that these responsibility remedies initially attracted, research increasingly sheds doubts on their ability to resolve the responsibility question because they tend to obscure conceptions to whom and for what business is responsible for, and specifically by marginalizing representation from the global South – or the production-based economies of the supply chains.  

In my own work, I have seen tensions between host governments and international remedies for oppressive labour standards, with the former regarding such ostensibly well-intentioned initiatives as subversive to their own authority. There are tensions between host country suppliers and international brands and retailers with some of the former going out of business for not readily complying with new standards or complaining that they bear disproportionate costs of factory upgrading. And there are tensions experienced by workers whether with their own governments for regulatory failure, with their immediate employers for low wages and poor conditions, or with international supply chains which structure their livelihoods. But these tensions are often not articulated by virtue of the weak labour organization (often compounded by political environments hostile to organized labour). 

As a result from global South perspectives the new variants of the social responsibility model look ill-suited to the ‘on the ground’ economic, social and environmental challenges, at best. At worse, they look like a legitimization of a continuing model of exploitation.

A forthcoming special issue of the journal Human Relations, ‘Contesting Social Responsibilities of Business: Experiences in Context‘ is devoted to addressing such issues.  Core questions that the SI is designed to address include:

  • How do individuals, groups and communities from various geographic and geo-political contexts experience the imposition of social responsibilities and practices from businesses of all forms? 
  • How are social responsibilities and their related institutions and practices transformed, subverted and/or resisted within, across and outside of organizations and workplaces?

Moreover, the SI editors will also welcome papers on wider issues arising from the social responsibility of business, specifically to highlight perspectives borne of contextual experiences.  

A Special Issue workshop will be held on Thursday 16th September 2021 (applications by Monday 21st June 2021. To be considered for this special issue, full-length papers should be submitted through the journal’s online submission system between February 1st and 28th 2022.

For full details on the call, the workshop and the submission processes please follow this link.

About the Authors

Jeremy Moon is Professor at Copenhagen Business School, Chair of Sustainability Governance Group and Director of CBS Sustainability. Jeremy has written widely about the rise, context, dynamics and impact of CSR.  He is particularly interested in corporations’ political roles and in the regulation of CSR and corporate sustainability.

On behalf of the Guest Editors: Premilla D’Cruz, Nolywé Delannon, Lauren McCarthy, Arno Kourula, Jeremy Moon and Laura J. Spence; and the Human Relations Associate Editor: Jean-Pascal Gond.

SFDR, NFRD and the EU Taxonomy – What is their relationship?

By Andreas Rasche

◦ 5 min read ◦

The new Sustainable Finance Disclosure Regulation (SFDR) is on the minds of many investors these days. While a lot has been written on SFDR itself, I discuss how it relates to the Non-Financial Reporting Directive (NFRD) and the EU Taxonomy on sustainable economic activities. Taken together, these regulations can be overwhelming and maybe even confusing. While this is not the right place to comprehensively discuss all three regulations, I make some clarifications on their interlinked nature. 

SFDR, NFRD, and the EU Taxonomy – What are we Talking About? 

To start with, let us briefly review the three legal instruments, all of which belong to a series of EU regulations under the EU Action Plan on Sustainable Finance.

  • NFRD is the EU legal framework for regulating the disclosure of non-financial information by corporations. It was adopted in 2014 and states that corporations have to report on ESG information from 2018 onwards (for the 2017 financial year). NFRD is rather flexible – it applies only to so-called “public interest entities” (basically rather big corporations) and it contains so-called comply-or-explain clauses (allowing for non-disclosure of information if this is made transparent and reasons are given). 
  • SFDR is the new EU regulation that introduces rules for financial market participants (FMPs) and financial advisers (FAs) to report on how they account for sustainability risks. SFDR applies at the “entity level” (i.e. requiring financial firms to report on how the whole organization deals with such risks) and also on the “product level” (i.e. requiring firms to report on how their financial products are affected by such risks). SFDR contains few comply-or-explain clauses (e.g., smaller firms, with less than 500 employees, can opt out of reporting on due diligence processes). The regulation asks all FMPs and FAs to report on sustainability risks even if they do not offer ESG-related products. If an entity offers ESG-related products, SFDR requires additional disclosures depending on how “green” the product is considered to be. SFDR came into force on 10 March 2021. 
  • The EU Taxonomy regulation (hereafter: the Taxonomy), which entered into force 12 July 2020, reflects a common European classification system for environmentally sustainable activities. Basically, the Taxonomy tried to answer the question: What can be considered an environmentally sustainable activity? Answering this question is essential for investors to prevent “greenwashing” – i.e. a situation in which financial products are marketed as being sustainable without meeting sustainability criteria. The taxonomy defines six environmental objectives, and it defines an economic activity as sustainable if this activity contributes at least two one of these objectives without, at the same time, doing significant harm to any of the other objectives. 
Differences and Commonalities 

To start with, it is important to note the different legal status of SFDR/the Taxonomy as well as NFRD. NFRD is based on an older EU Directive (2014/95/EU). Directives imply that EU member states have to translate the broad requirements into national regulation. By contrast, SFDR (2019/2088) and the Taxonomy (2020/852) are both based on European regulation, which is immediately enforceable and does not require transposition into national law. 

To understand how the three legal frameworks relate to each other, look at the Figure below. NFRD applies to corporations of all kinds. Hence, for investors NFRD is mostly relevant because it stipulates how investee companies report ESG data. SFDR, by contrast, most concerns financial market actors and ensures transparency about how these report on sustainability risks to their audiences (e.g., retail investors). The Taxonomy was introduced to have a common reference point when trying to figure out whether an economic activity really is sustainable. The Taxonomy therefore has the power to further specify the regulations set out in SFDR and NFRD. 

source: Andreas Rasche
Emerging Relationships  

The linkages between the three frameworks will be further specified throughout the coming years. While SFDR has been in force since 10 March 2021, it is only in the so-called “level 1 stage of development”. As with many EU regulations, level 1 development sets out the basic framework principles for a regulation, however without specifying technical details. SFDR level 2 will come into force once the regulation is complemented with Regulatory Technical Standards (RTS), which are developed right now. The RTS will also specify the linkages to the Taxonomy in more detail (e.g., related to the “do-no-significant-harm” concept inherent in SFDR). 

So, what can we say right now? The current versions of SFDR and NFRD do not yet link disclosures to the Taxonomy. This is likely to change, especially with the SFDR RTS being further specified and rolled out (in early February the European Supervisory Authorities released their final draft of the SFDR RTS). Moreover, the NFRD regulation is currently under consultation and will be revised in the near future. However, two important linkages are important to consider right now.  

  • First, the scope of the Taxonomy is defined through NFRD and SFDR. In other words, if an organization is affected by NFRD and/or SFDR, the Taxonomy will also be relevant for its disclosure practices. It is important to note here that the EU Taxonomy defines further mandatory disclosures in addition to what is laid out by NFRD and SFDR. 
  • Second, the Taxonomy asks companies (incl. asset managers) to report the percentage of their turnover and capital as well as operational expenditures that are aligned with the Taxonomy. It also asks asset managers to report the percentage of their portfolio which is invested in economic activities that are aligned with the Taxonomy. 
The Future

We will witness a good deal of technical specifications of all three regulations throughout the next years. SFDR level 2 reporting will kick in once the RTS standards are part of the reporting (probably by mid-2023); also by 2024 year-on-year comparisons of data points under SFDR will be likely mandatory. The six environmental objectives of the Taxonomy will be specified through technical screening criteria, some of which will be released very soon. 

It is good to see non-financial reporting and sustainable finance being backed by strong European regulations. It allows for more comparison and benchmarking and hence transparency. But, of course, we should also be prepared for a good deal of clarifications that will be necessary until institutionalized reporting cycles can fully kick in and unfold their potential. 

About the Author

Andreas Rasche is Professor of Business in Society at the Copenhagen Business School (CBS) Centre for Sustainability. His latest book “Sustainable Investing: A Path to a New Horizon” (with Georg Kell and Herman Bril) was published recently. Email: ar.msc@cbs.dk Homepage: www.arasche.com

Portfolios at risk of Deforestation

How can financial investors better understand underlying risks and act accordingly

By Amanda Wildhaber, Dominik Wingeier, Jessica Brügger, Nico Meier, and Dr. Kristjan Jespersen

◦ 4 min read ◦

Forests play a crucial role in tackling climate change and protecting biodiversity. Around 12 million hectares of tropical forest worldwide were lost in 2018 and approximately 17% of the loss stem from the Amazon alone. The main drivers of deforestations are soy, palm oil, cattle and timber production. As deforestation may harm a company’s reputation, directly affect its supply chains and increase regulatory risks, many institutional investors are concerned about the impact deforestation can have on their portfolio companies.

How can deforestation be measured?

The definition of deforestation risk from an investor’s perspective is difficult to lock-in because different frameworks and approaches focus on different aspects of the risks. The amount of information and the lack of transparency can be overwhelming to financial investors. Therefore, a helpful framework for financial institutions to systematically evaluate the deforestation risk management of portfolio companies has been developed. The framework is divided into two parts, an internal assessment of a company’s commitments and achievements regarding deforestation and an external assessment of outside policies related to deforestation, namely binding laws and private sector initiatives. The framework may serve to complete a scorecard which gives an overview of how well prepared a specific portfolio company is and if it is able to deal with deforestation risks and future regulatory changes. The final scorecard reflects the deforestation risk of financial institution’s portfolio companies.

Is voluntary support sufficient?

Many companies voluntarily support sustainability initiatives and follow zero deforestation commitments (ZDCs) to signal their intention to reduce deforestation associated with the commodities in their supply chain. The reasons behind their commitments include demonstrating corporate social responsibility (CSR), reducing the risk of potential reputational harm and supply chain disruptions. To understand the value of these commitments in mitigating deforestation and associated risks, it is important to critically analyse them in terms of their scope, effectiveness, monitoring and achievements. This includes for example, assessing how companies define deforestation and whether they systematically measure the compliance with their commitments.

External pressure to facilitate internal commitments

It is valuable to see companies implementing robust internal policies and commitments to manage and monitor their deforestation risk. However, it is also important to have external policies in place to hold companies accountable. There are two types of external policies the proposed framework is based on.

  1. The first type are binding laws which apply for portfolio companies and thus represent a regulatory risk. The EU Timber Regulation (EUTR) of 2010, which prohibits the sale of illegally logged wood in the EU, is one example for such a binding law.
  2. The second type are initiatives by third parties, which are of a non-binding nature and complement the binding law. One such initiative is the Roundtable for Sustainable Palm Oil (RSPO), which is an initiative by private companies as well as external parties targeted to eliminate unsustainable palm oil production.
How do the companies score?

Based on the assessment of the two pillars of the framework – internal and external – a scorecard is derived which assists investors to better understand how a portfolio company or a new potential investment is managing its deforestation risk. Answering questions with scores from 1 to 3, whereby 1 is the best score and 3 the worst, the proposed scorecard allows the quantification of the deforestation risk management of a company. While the distinction between 1, 2 or 3 is not always straightforward, the final score gives a tangible assessment of how well a company is positioned to manage its deforestation risks and associated future regulatory changes. The following scorecard provides an overview of the assessment and indicates how well Nestlé is managing deforestation risks.

Having such a scorecard allows investors to manage and mitigate the deforestation risks they face in their portfolios. In addition, the final scorecard enables investment analysts to directly compare potential investments with other companies and can be used as a parameter in the investment process.

The call for action is getting louder

New regulatory requirements, growing public scrutiny and extended private sector initiatives (such as the investor-led initiative Climate Action 100+), mean that it is becoming increasingly important to properly manage deforestation risks. This is also becoming a key concern for financial investors and it is time to think about systematic approaches on how to include deforestation into the investment process. The proposed framework is intended to serve as a starting point for just that. It allows a quantification of deforestation risk and the identification of critical factors. Building the basis upon which investors can engage with companies. This is a first step to support the mitigating of not only financial but also ecological risks.

About the Authors

Amanda Wildhaber is completing her masters in Economics at the University of St. Gallen. She works as a Junior Consultant in the Strategy team of Implement Consulting. Her interest in ESG and sustainable investments developed when she wrote her bachelor thesis on social enterprises in India.

Dominik Wingeier is studying master’s in Banking and Finance at University of St. Gallen. Dominik has been working for BlackRock where he was responsible for executing and monitoring primary, secondary and direct investments in infrastructure projects.

Jessica Brügger is studying master’s in Business Innovation at the University of St. Gallen. Jessica is currently a board member of the Private Equity & Venture Capital Club of the University of St. Gallen and is particularly interested in making the financial industry more attractive to women.

Nico Meier is studying master’s in Accounting an Finance at the University of St. Gallen. Nico has been working at BLR&Partners where he is responsible for private equity investments. Additionally, he has experience providing M&A, ECM and DCM services.

Kristjan Jespersen is an Associate Professor at the Copenhagen Business School. He studies on the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.

Source: photo by Justus Menke on Unsplash

Who really cares about the SDGs when it comes to nobody’s responsibility?

By Suhyon Oh

◦ 2 min read ◦

The Sustainable Development Goals (SDGs) are the common goals of global development as we all agreed. Since its endorsement in 2015, it has become the norm. Multilateral corporations, aid agencies, development finance institutions and international organizations all refer to one or two Sustainable Development Goals (as their priorities) to legitimize environmental and social impact of their business activities. (I must confess here that I was also one of them). However, what are the actual changes in practices? Does it merely work as one other additional reference to our work? Otherwise, does it provoke transformational changes in our business strategies and practices for sustainability? Ironically, the Sustainable Development Goals are at once too sophisticated and too vague to do so.

The complexity of the goal structure should not be an excuse.  

The development process of SDGs has been grounded based on lessons learnt from the Millennium Development Goals. Because the MDGs excessively focus on the social aspect of development, the SDGs embrace economic, social, and environmental aspects. This led the number of goals to increase from 8 to 17. In relation to the goals, 169 target goals and 231 indicators have been developed to track the progress of 17 goals (In comparison, the MDGs only have 21 target goals and 60 indicators). These vast numbers intend to strengthen progress monitoring and enhance result management; however, such complexity seems problematic to fulfil the initial purpose. Some indicator selection processes are still under the technical review process after five years of SDGs have once passed and almost half of the indicators (106 out of 231) contain technical difficulties producing data on a regular basis to track the progress. I know that measuring the fulfillment of the whole massive SDGs is complex and may not be an easy task. However, when it comes to wrestling with such a giant, the sophisticated skill set (here, seeking clear target goals and indicators) would be a winning strategy rather than hurdles. Thus, how should we deal with the giant?  

 We have to consider which specific target goals and indicators are aligned with my actions if you have a will to achieve the SDGs. Simply stating one of the goals does not track your achievement. Each goal cannot be even drawn in parallel rather they are all interlinked.

Universality matters, but not everyone is in the same boat. 

We know why the SDGs have a principle of “No one left behind” across all the goals. This principle is again a result of lessons from the MDGs, which were criticized for the fact that they did not consider inequality and vulnerable groups in a development process. So that, this core principle is embedded into seventeen goals with the terms “inclusive”, “for everyone”, “for all” regardless of the developmental stage of their nations. Then, how can we make sure this would go far beyond the rhetoric?

We need extreme caution here. Do we have enough knowledge on those who are left behind? To move forward beyond the rhetoric, we need to unpack the word ‘everyone’. Even though ‘universality’ is an essential principle, we have to find out ‘who is left behind’ in every different context to make them not left behind, rather than concealing those excluded people under the name of “for everyone”.

Let’s see microfinance. It was expected as a universal means to reduce poverty and inequality since it provides a way of financial inclusion to those previously excluded to access credit. However, many research findings demonstrate that a particular type of “financial inclusion” which is embedded into microfinance cannot solve the marginalized groups’ economic challenges by itself. Without complementary social support, it was not enough to empower the poor, and even sometimes it resulted in an exacerbating situation for the people. I think this tells us the importance of deeper understanding of the poor, thus the need for a carefully targeted approach for impact. 

In brief, working for “everyone” requires additional attention and effort. Whose reality should count first? How could we guide us to hold clear accountability to turn the “No one behind” catchphrase into concrete actions? I believe one of the roles of research on the SGDs should be founded here.

SDGs as a norm: it should be embedded into everyone’s everyday life. 

Unlike the age of the MDGs, the SDGs involve a variety of actors such as private sectors and civil societies, who were not officially a part of the MDG process. Various stakeholders can create synergy through cooperation, but the responsibility to fulfil the SDGs become vague. According to Jurkovich (2019), three essential elements are needed to become a norm: “a moral sense of “oughtness”; a defined actor “of a given identity”; a specific behaviour or action expected of that given actor”. The SDGs as a global norm neither identify relevant actors for each specific goal and indicator nor have a compliance mechanism.

Sadly, the SDGs do not assign the responsibilities to anybody and the technical difficulty to monitor them also implies oughtness can be weakened. Frankly speaking, we officially have no obligation to contribute to the SDGs. 

Despite its non-obligatory identity, I strongly believe that most of us have a willingness to dedicate to the SDGs. Although we all understand its complexity of monitoring, ambiguity of target people and non-compliance mechanisms. I urge you as an individual, a scholar or a member of the whole global development community to carefully consider what goals/target goals/indicators and for whom I can contribute with a strong responsibility. Otherwise, the SDGs risk losing its political power and may be on track to decay its status as the norm before its completion in 2030.

About the Author

Suhyon Oh is a PhD fellow at the Department of Management, Society and Communication, Copenhagen Business School, and has over ten years of professional experience working with the donor agency, international organizations, development consultancy, NGOs as well as private sectors. As an international development expert, she has worked with the projects on development finance, financial inclusion and global value chain development, etc. Her current research interest is development finance institutions, impact investing funds in developing countries, hybrid organization strategy and strategy as practice.  

Is Pollution the Only Road to Business Prosperity?

Sustainable Visioning as a driver of Corporate Transformation

By Heather Louise Madsen

◦ 4 min read ◦

CO2 reduction is a hot topic for almost every company today. Here the focus is not just on the CO2 generated by the company itself, but also on the carbon emitted along its value chain. The problem is that changing processes, or even products and services, to make them more environmentally friendly can be a daunting and costly task. This can leave CEOs and other top managers wondering what the real cost and impact of CO2 reduction is, where to start, and whether it is even possible to create a prosperous business without generating pollution.

In answer to many of these tough questions, an increasing number of companies are succeeding in reducing carbon and completely transforming their businesses into sustainable and profitable powerhouses, using a combination of strategic vision and sustainability orientation.

A new CEO for a Company Topping the Sustainability Ranking Charts

January 1st, 2021 was Mads Nipper’s first day as CEO of the Sustainable Energy Giant Ørsted. And before the end of his first month in this new position, Ørsted ranked the most sustainable energy company for the third year in a row, and the second most sustainable company in the world after Schneider Electric. This raises the question, what is Nipper’s position on sustainability,  and are these views important for his role as CEO of Ørsted?  

In 2016, as the then CEO of Grundfos, Mads Nipper gave a presentation for the Global Compact Leaders Summit in New York where he stated: “I represent an SDG 6 and 13 company, who also happens to be the biggest water pump company in the world.” The UN Sustainable Development Goals (SDGs), representing a global platform and common language for addressing 17 core sustainability issues and their impact, also figure prominently in Ørsted’s corporate language. From Annual Reports to investor letters, Ørsted identifies SDG 7 (energy) and SDG 13 (climate action) as their primary impact areas. This indicates that there may be some very fundamental alignment between Nipper’s visionary statement and the mindset of his predecessors at Ørsted.

What led Ørsted to up-end their core business and undertake a sustainable transformation?

In 2001, Ørsted (then DONG Energy) hired CEO Anders Eldrup, just as Denmark was going through a liberalization of the electricity and gas sectors, which was putting extreme financial pressure on the company. Eldrup was the former Danish Secretary of State, and as such had extensive experience with both financial and political mechanisms. Seeing an opportunity to take advantage of an emerging political demand for climate action and policies to accelerate the development of offshore wind, Eldrup began increasingly to focus innovation resources on offshore wind and renewable energy, while the primary business of the company remained oil and gas. As renewable energy subsidy schemes increased in Denmark and the EU in the years that followed, Eldrup formulated a new company strategy that was released in 2009 called 85/15: “to transform our company from a situation of 15% renewable energy and 85% of fossil-fuel based energy to the opposite”. Jakob Askou Bøss, Head of Strategy and Communication at Ørsted, identified the strategic analysis of CEO Anders Eldrup as “The driving force behind formulating the new vision of the company,“ referring to the 85/15 objectives.

Despite the sacrifices that would need to be made as the core competencies of the company would have to be completely re-designed and transformed to focus on not-yet price competitive technology, the decision had been made. And this strategy was then further anchored to sustainability with Ørsted’s vision: “creating a world that runs entirely on green energy”. This vision made explicit the desire to reach outside of the organization with their “green” aspirations, connecting not only to ideals of wealth and prosperity, but also to planetary concerns.

These ‘green aspirations’ were then followed up by Eldrup’s successor Henrik Poulsen, who became Ørsted’s CEO in 2012. As stated by Poulsen:

“In the world of energy, the fundamental challenge we face is to transform our energy systems so that more and more of the energy we generate comes from renewable sources such as wind power, biomass and solar energy.”

Ørsted, Our sustainability reports, 2012, DONG Energy’s GRI Reporting 2012  

Poulsen then backed these aspirations by setting very specific targets for the company including “quadrupling our offshore wind capacity, from 1.7 GW in 2012 to 6.5 GW in 2020“. By 2017 Ørsted had completely divested all upstream oil and gas. This was also the year that newly built offshore wind became cheaper than black energy for the first time in history. By the time Ørsted reached 2020, the company was ranked number 1 of more than 7500 international, billion-dollar companies in the Corporate Knights’ 2020 index of the Global 100 Most Sustainable Corporations in the World, making Ørsted the most sustainable energy company in the Global 100 index. As demonstrated by Ørsted, strategic vision and sustainability orientation were used as drivers for innovation, transformation  and growing the company’s sustainable business and investment portfolio. But how can Ørsted’s story help other businesses? The answer lies in sustainable visioning. 

How can sustainable visioning help businesses onto a path of prosperity AND sustainability? 

Sustainable Visioning is a new term defining the management process of combining a strong strategic vision with the acknowledgement of the necessity of committing more profoundly to people, planet and prosperity concerns.

Madsen & Ulhøi, 2021

The following are guiding principals of sustainable visioning that Ørsted can be seen as applying, and which may be able to help other companies onto a similar path. First, in order for businesses to achieve sustainable visioning, they need to practice proactive, extroverted and visionary, rather than introverted approaches to sustainability. When working on sustainable innovations, it can also be wise to engage the Tripple Helix model including industry, universities and government working together. Innovation can also be usefully extended beyond products and services, to include business model innovation. This can help to navigate to a desirable sustainable future through direct planning, decisions, actions and behavior in all aspects of the business. And finally, taking a clear long-term orientation is also seen as important for sustainable visioning to be successful. 

In practice, following these key guiding principals of sustainable visioning may make it more likely to effectively link strategic visioning to long-term sustainability objectives, providing the necessary support for corporate growth and innovation needed to ensure a successful transformation.

Further Reading

Madsen, H.L., Ulhøi, J.P. 2021. Sustainable visioning: Re-framing strategic vision to enable a sustainable corporate transformation. J. Clean. Prod. 228.

About the Author

Heather Louise Madsen, Ph.D. is the PRME Strategy Manager at Copenhagen Business School, and has over ten years of professional experience working with sustainability. As a sustainability expert, she has worked with the organizational implementation of the UN SDGs in the private sector, and has extensive experience working with CSR, the UN Global Compact, carbon footprint reporting and social, environmental and economic sustainability. Heather is dedicated to topics of innovation, strategy, business transformation, organizational learning, business model innovation, renewable energy and sustainability.

Counting Trees in the Hopes of Managing Forests – Technological solutions to palm oil deforestation?

By Isaac Caiger-Smith, Izabela Delabre and Kristjan Jespersen

In recent years, companies dealing in global commodities – such as palm oil, soy and timber – have faced increasing criticism for failing to meet zero deforestation targets in their supply chains. In response to these concerns, the use of innovative technological solutions, such as satellite monitoring systems to monitor deforestation in supply chains, are becoming increasingly commonplace.

Companies such as Global Forest Watch, Satelligence and MapHubs provide such platforms, though many large companies also choose to create their own monitoring systems in-house. It is in the palm oil sector that adoption of satellite monitoring has (so far) been most widespread. The palm oil sector is commonly characterised as being ‘hourglass’ in shape, with hundreds of thousands of growers/producers, mostly in Indonesia and Malaysia, being connected to hundreds of thousands of end users all around the world by a handful of powerful traders and refiners. Previously, single companies aiming to monitor their supply chains for deforestation risk would thus be faced with the impossible task of keeping track of (potentially) thousands of suppliers simultaneously.

In principle, satellite technology platforms signify a ground-breaking shift in possibilities for those concerned with monitoring deforestation risk.

By making it possible to map out suppliers’ concessions and monitor in ‘near real-time’ for deforestation events, consumer goods manufacturers and palm oil traders are able to cheaply and accurately ensure suppliers’ compliance with their commitments to zero deforestation, punishing non-compliant suppliers, encouraging and incentivising good environmental practice (Global Forest Watch, 2020). The clear promise such technology brings has led to their rapid uptake by the majority of the world’s largest palm oil traders and refiners, as well as many influential consumer goods manufacturers and non-governmental organisations. The hope of companies and non-governmental organisations is that such technological initiatives will play an important role in supporting zero deforestation efforts. As such, many of these actors are investing significant capital to increase their monitoring capabilities, and are highly vocal about doing so, speaking of the positive environmental impacts they claim will flow from their use. 

Through a series of in-depth interviews, it quickly became clear that despite the far-reaching functions these actors claim satellite monitoring can serve, its impact on the palm oil sector thus far has been far more limited in scope (both in terms of impact on supply chain relations and environmental outcomes) than the PR teams of the world’s palm oil giants seem to suggest.

Despite some positive developments in the realm of certified palm oil, the widespread adoption of satellite monitoring schemes across the palm oil sector has thus far failed to significantly reduce the rates of tropical deforestation associated with the industry.

Lyons-White and Knight, 2018.

Although satellites provide timely data on exactly where and when deforestation is occurring, traders and refiners have thus far been largely unable to use the data to influence the behaviour of offending firms. There are numerous reasons why this is the case. 

Decontextualised data

Knowing where deforestation is occurring does not necessarily tell you who is responsible. In many instances, palm oil traders simply do not know who their third-tier suppliers are – if the alerts provided by remote sensing data cannot be combined with full knowledge of a firm’s supply chain (‘traceability to plantation’), they will often be unable to act on them. Achieving 100% traceability to plantation is a task all of the major traders are currently engaged in, yet it is a long and difficult process – as previously mentioned, the structure of the palm oil sector is complex, with numerous tiers of suppliers separating those engaging in monitoring from those being monitored.

In addition, the difficulty of the task is further exacerbated by inaccurate data on land ownership, competing claims, and unofficial occupation. Until these systemic issues are addressed, the situation regarding monitoring will remain much as it is today – satellite monitoring systems will continue to provide accurate alerts, but in the vast majority of cases (approximately 90%, according to interviewee from palm oil trader) traders will be unable to attribute it with certainty to actors from their supply chain, and thus will not be able to meaningfully respond. 

Leverage issues

In instances where technology users are able attribute a deforestation alert to an actor from within their supply chain, firms often lack the leverage to change suppliers’ behaviour and ensure compliance with their sustainability standards. Buyers have two options: negotiate with producers or blacklist them.

Given that buyers are unwilling to pay a premium for deforestation-free products (Delabre et al, 2020), providing incentives for non-compliant suppliers to stop harmful behaviours is challenging – expecting growers to bear all the costs associated with non-expansion without any reward is not a sustainable system. Furthermore, the threat of being blacklisted from a company’s supply base is also unlikely to have the desired impact; suppliers will likely have no trouble finding other buyers, in markets where sustainability credentials are generally seen as less of a priority (Schleifer & Sun, 2018).

In this context, it is clear that thus far, satellite monitoring has not been capable of producing the far-reaching effects, which may have been desired.

Despite this, satellite monitoring has certainly contributed to several interesting developments in the palm oil sector. For example, interviewees emphasised the positive impacts of environmental non-governmental organisations armed with satellite monitoring technologies, acting as unofficial but powerful ‘watchdogs’, ‘naming and shaming’ consumer brands and traders associated with deforestation events.

It seems the ever-present risk of exposure (and subsequent brand damage) posed by non-governmental organisations’ use of satellite monitoring is a significant driver of new norms and practices within the industry.

These norms emphasise that it is necessary for powerful actors, such as traders and consumer goods manufacturers to be proactive in effectively addressing deforestation, both within and outside their supply chains. Interviewees also emphasised increasing levels of dialogue/cooperation across actor types, through for example, the creation of focus groups made up of producers, traders, local governments and community leaders, for the purpose of discussing the data provided by satellite monitoring, and working together to create solutions. In light of the ever-increasing levels of transparency that satellite monitoring brings, such institutions seem an inevitable and positive consequence of implementation.

However, given the severity of the contextual constraints hindering the industry’s sustainability, it is unlikely that such noble intentions (or even significant capital investments) will be capable of truly addressing the problem. 

Satellite monitoring technology has dramatically expanded the realms of possibility for forest governance, yet its implementation in the palm oil sector remains hindered by the structures, institutions and political and legal realities of palm oil production, and producing countries more broadly, dramatically reducing its ability to create positive change. Whilst they are clearly useful tools for environmentally conscious actors aiming to reduce their deforestation risks, they are only one small piece in a very complex puzzle. The problem of tropical deforestation caused by palm oil expansion is at once an economic, political, social and historical problem. As such, ‘technological fixes’ or the actions of individual firms (or even groups of firms) are themselves unlikely to lead to significant environmental improvements. In order to address such a vast problem, the underlying context must shift. Nothing less than large-scale international public and private sector cooperation is required. 

Bibliography

Delabre, I., Alexander, A. & Rodrigues, C. (2020) Strategies for tropical forest protection and sustainable supply chains: challenges and opportunities for alignment with the UN sustainable development goals. Sustain Sci 15, pages 1637–1651

Global Forest Watch (2020) Global Forest Watch Pro: Securely Manage Deforestation Risk in Commodity Supply Chains.

Lyons-White, J., Knight, A. (2018) Palm oil supply chain complexity impedes implementation of corporate no-deforestation commitments, Global Environmental Change 50, pages 303–313 

Schleifer, P., Sun, Y. (2018) Emerging markets and private governance: the political economy of sustainable palm oil in China and India, Review of International Political Economy Volume 25 Issue 2, pages 190-214

About the Authors

Isaac Caiger-Smith is a Junior Research Associate and undergraduate at the University of Sussex, studying philosophy politics and economics. His current research project focuses on the use of satellite monitoring technologies for addressing deforestation risks. 

Izabela Delabre is a Research Fellow at the University of Sussex, examining sustainable forest governance, sustainable production and consumption of food, and sustainability transformations. Izabela worked for the Business and Biodiversity Conservation Programme at the Zoological Society of London (ZSL) managing ZSL’s global oil palm work. Her PhD (Human Geography) examined the political ecology of participatory impact assessment practices in the context of the Roundtable on Sustainable Palm Oil (RSPO) in Indonesia and Malaysia.

Kristjan Jespersen is an Associate Professor at the Copenhagen Business School. He studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.

Photo by Carles Rabada on Unsplash

Sustainability claims: In what sense are they performative?

By Lars Thøger Christensen

The number of products advertised as “green” or climate neutral has exploded in recent years, according to several newspaper articles. Should we be alarmed? To some extent, yes. In addition to cases of blatant fraud and manipulation, there is reason to be concerned when a plethora of green labels for products – ranging from milk over burgers to gasoline – competes for attention, especially when the variety confuses understandings of what it means to be sustainable.

Moreover, since carbon offset programs tend to obscure the fact that neither air travel nor fashion clothing is or can be CO2 neutral, the need to question and test green advertising claims is more pressing than ever. It is therefore commendable that politicians and NGOs in some countries call for more control with corporations that claim to market green or CO2 neutral products. 

The growth in green advertising claims attracts increased scrutiny, regulation and control.

At the same time, the expansion in green advertising claims illustrates the growing social, political and economic premium put on sustainability. Even if many such claims are superficial and hypocritical, their combined existence is performative beyond what individual corporations, NGOs and regulators can imagine and control. 

When all social actors express the significance of sustainability, something has changed.

Scholars of communication often emphasize that communication is constitutive of organizational and social reality. Communication, in their view, is performative because it does something more than simply describe a preexisting reality. Yet, in what sense does this logic apply to issues of climate change and the broader sustainability arena? 

To what extent has communication performative potential in the sustainability arena?

Critics of the performative view on communication view argue that green messages often fail to change anything, either because the senders are insincere or because larger social forces, such as profit motives or efficiency demands, override any talk about sustainability. The power of sustainability communication to shape organizational practices is therefore often described as naïve or overly optimistic. These are important objections to the performativity perspective. Yet, communication still plays a significant role in instigating better practices.

The articulation of sustainability ideals is often “the leading incident” in its performance (Austin, 1962, p. 8).

It is certainly true that sustainability communication is insufficient in and of itself to ensure more sustainable practices. Some sustainability claims may even prevent organizations from moving in the right direction. Nonetheless, communication about sustainability is an important dimension of sustainable action. Without a communicative engagement of major corporations with the values and ideals of sustainability, changes in that arena are likely to be significantly slower. 

Interestingly, critique and control of sustainability claims may help such claims to perform.

Talk about sustainability and green products tend to attract attention of critical stakeholders and increase internal and external pressure to walk the talk. Bold statements combined with public exposure and critique are important dimensions of what we might call the performativity “cocktail”. Green advertising claims and public statements about CO2 neutrality can be used to apply pressure on corporations and remind them of their promises. If major corporations, out of fear of attracting negative stakeholder attention, decide to remain silent on the sustainability issue, critics and regulators have less material to work with. In other words, a willingness on the part of corporations to expose themselves to critique is key.

Communicative performativity in the sustainability arena is a macro phenomenon.

Obviously, an organization does not become sustainable by simply “talking green”. In fact, it is a mistake to think of performativity – especially in complex areas such as sustainability – as a result of discrete and isolated organizational messages or claims. It doesn’t work that way. Even with the best intentions, green talk takes considerable time and effort to materialize into more sustainable practices. Moreover, it is rarely an organizational effect. Performativity is an outcome of multiple claims that are repeated and reformulated again and again over time and across multiple organizations, public as well as private. The sedimented effect of such dynamic interaction that lead to what Butler (2010) calls “socially binding consequences” (p. 147).

The performativity of sustainability claims should be understood as sedimented effects of multiple claims and understandings. 

The communicative performativity of sustainability claims involve reactions of stakeholders, competitors, legislators and consumers who are variously affected, inspired or provoked by the claims to expect and demand better practices. Still, there is no guarantee that the claims will stimulate significant changes. That, of course, is true for all types of messages. Messages and claims can be ignored, forgotten or outright contradicted by subsequent claims or other types of action. Without the claims, however, society and the physical environment is likely to be worse off. The trick is to use them actively to remind the senders of their social and environmental responsibilities. 

Further readings

Austin, J. L. (1962). How to do things with words. Oxford: Oxford University Press.

Butler, J. (2010). Performative agency. Journal of Cultural Economy, 3(2), 147-161.

Christensen, L. T., Morsing, M., & Thyssen, O. (2020). Talk-action dynamics: Modalities of aspirational talk. Organization Studies. 

Fleming, P., & Banerjee, S. B. (2016). When performativity fails: Implications for Critical Management Studies. Human Relations, 69(2), 257-276.

About the Author

Lars Thøger Christensen is Professor of Communication and Organization at the Copenhagen Business School, Denmark. 

Photo by Helena Hertz on Unsplash

Private Standard-setting Organizations and the Theory of Change

Theory of Change – Evaluating Supply Chain Outcomes

By Kamilla Hvid Andersen, Eileen Ryll, Dr. Caleb Gallemore and Dr. Kristjan Jespersen

Due to globalization, supply chains are becoming increasingly complex, challenging national governments’ regulatory capacity, or, perhaps, political will. Amid these “governance gaps” some private-sector organizations have begun setting voluntary standards promoting sustainable production practices. As they are not backed with legal force, private standards must demonstrate both positive impacts, credibility and inclusive decision-making to be perceived as legitimate in the eyes of external observers and member firms. Due to the complex and interrelated nature of sustainability issues, it can, however, be difficult to relate outcomes back to activities of the standard setting system.

To monitor their programs and evaluate their impact, many standard-setting organizations have adopted a Theory of Change (ToC).

Based on Carol Weiss’s theory-based evaluation approach, a ToC is a cause-and-effect illustration that makes explicit often implicit beliefs and assumptions about how different actions should generate impacts.

Evaluating impacts then requires collecting data that show how the proposed causal sequence plays out and, if discontinued, where it broke down. On this account, the ToC is necessary because practitioners often rely on tacit knowledge or even guesswork, rarely articulating the conceptual foundations of their actions explicitly.

ISEAL – The Standard for Standards

The ISEAL Alliance has been a key ToC promoter for many major sustainability standards. The organization is in essence a benchmarker for certification systems, working to disseminate better practices across sustainability standards. While the organization has a relatively small membership, its members include prominent standards like the Roundtable on Sustainable Palm Oil (RSPO) and the Forest Stewardship Council (FSC). Its Impact Code strongly encourages, though does not require, a ToC as the foundation for robust Monitoring & Evaluation (M&E).

While couched in an M&E framework, ISEALs’ framing of a ToC as a way to articulate building blocks for long-term goals also links it to strategic planning.  For the organization, a ToC is both product and process. As a product it maps out what to measure to assess a standard’s impact. As a process, it can help define a shared vision of how the standard should be making change, helping get member and observer buy-in on its strategic trajectory.

Case in Point – RSPO

The RSPO is a good example of how ToC procedures can influence organizational operations. Following ISEAL recommendations, the RSPO constructed an elaborate ToC in 2017. While its stated primary goal of making sustainable palm oil the global norm has remained since the standard’s early days, the ToC outlines the strategies deemed necessary to achieve this vision. By explicating the assumptions behind its actions, the RSPO’s ToC is simultaneously an M&E tool and a strategy. Though, like ISEAL, the RSPO introduced the ToC as an impact evaluation tool, the process generated critical discussions on the organization’s shared vision and explicated previously implicit beliefs regarding what making sustainable palm oil the norm actually means and how it could be achieved.

Because ToCs have both M&E and strategic planning components, responsibility for their development and implementation should not reside solely in M&E departments. Rather, effective ToC processes should include the whole organization and external stakeholders, requiring strategic decision-making support. Continuous feedback from all actors implementing elements of the ToC into their daily work can be valuable to highlight shortcomings of the ToC in place and guide future strategy reviews.

The Mechanics of TOC

A ToC process includes two broad phases. In the first, relevant actors develop or refine a shared vision and outline causal sequences necessary to achieve it. In the second, actors must incorporate the ToC into day-to-day routines.

The ToC as it emerges from the first phase is an intermediate outcome, part of a continuous learning loop that can be influenced by other processes surrounding the organization. It also may trigger other processes, as was the case within the RSPO when the ToC heavily informed another strategy document outlining member responsibilities across the value chain. The division between these phases, of course, is blurry, and it is always possible to re-evaluate and re-model the intermediate ToC, making the process iterative. All this work goes far beyond simple M&E, a lesson the RSPO learned the hard way, at first significantly underestimating the effort necessary to develop its ToC, regarding is simply as mapping out what was already there.

The Role of Interactive Adaptivity in Supply Chains Evaluation

Based on the example of their use by ISEAL and the RSPO, ToCs can serve several purposes:

  • First, they can support strategic planning while structuring strategic reconsiderations over time. Their iterativity might make it particularly important for organizations to revisit their ToCs before strategic re-alignments or in times of upheaval.
  • Second, in a complex field that spans multiple stakeholder groups, which as is case with the RSPO, most likely have divergent underlying assumptions, the ToC process can help illuminate blind spots. To be effective, the ToC needs to be inclusive of as many of the actors affected by the organization’s activities as possible.
  • Third and more prosaically, a ToC, while more than impact evaluation, can support evaluative work, serving as the backbone for M&E activities.

About the Authors

Caleb Gallemore is an Assistant Professor in the International Affairs Program at Lafayette College. He holds a Ph.D. in Geography and within his teaching, he focuses on southeast Asia, global land use, sustainability, research methods and geographic information science.

Eileen Ryll graduated from CBS with a degree in MSc. Business, Language and Culture with a focus on Diversity and Change Management. She has previously studied Business and Cultural Studies in Germany and Sweden. Her main interests are organizational strategy and intercultural encounters. 

Kamilla Hvid Andersen studied her bachelor’s and master’s degree at Copenhagen Business School. In June 2020, she graduated from the MSc. in Business, Language and Culture with a specialization in Diversity and Change Management. Her personal interests include sustainability, intercultural communication, and organizational change. 

Kristjan Jespersen is an Assistant Professor at the Copenhagen Business School. He studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.

Photo by Jungwoo Hong on Unsplash

Different pathways to sustainability standard adoption

How local norms may be able to help drive the spread of voluntary programs – the case of the RSPO in Japan.

By Hattaya Rungruengsaowapak, Caleb Gallemore & Kristjan Jespersen

There has been an explosion in voluntary programs targeting value chains’ negative social and environmental impacts (Green, 2013). Working across boundaries, however, is challenging, and requires bridging different business cultures and moral expectations. Tensions and consequential misunderstandings between members from different countries are common.

The Roundtable on Sustainable Palm oil (RSPO) is a good example. It has seen a five-fold jump in Japanese membership in just five years, going from under 40 members in 2016 to more than 200 in 2020. This has happened in the absence of meaningful governmental support or even consumer demand, making it a particularly interesting case.

Source: The RSPO (as of August 9th, 2020)

The RSPO was founded in 2004, led by WWF, Unilever, and some upstream players in the palm oil value chain. Its objective is to incentivize sustainable palm oil production using voluntary certification. Although oil palm is one of the most efficient oil-producing crops, its growing consumption has led smallholders and large agribusiness to convert tropical forests to plantations, causing habitat and biodiversity loss, greenhouse gas emissions, and wildfires.
While the RSPO welcomed its first Japanese members the year of its founding, it only recently saw memberships skyrocket, despite limited concern among Japanese consumers. These developments took place in three main phases.

Phase 1 – Testing the waters (2004 – 2011)

For nearly the first decade of the RSPO’s existence, Japanese membership growth was sluggish. Japanese companies that joined the RSPO early on mostly relied on international markets for a significant part of their business.

These companies included major trading houses like Mitsui & Co., Ltd, and consumer goods manufacturers like Kao. Multinational companies headquartered in the West, such as Unilever and Walmart, also implemented sustainable palm oil commitments in Japan, but these actions had little impact on their Japanese suppliers.

Some smaller Japanese companies also joined the RSPO in this phase, in response to some niche consumer demand. These niche actors, however, did not scale up demand across the country.  

Phase 2 – Setting the groundwork (2012 – 2016)

Between 2012 and 2016, a larger number of Japanese firms joined annually than in the previous period, though never more than ten in any given year. In 2012, when Tokyo became a host city candidate for the ultimately ill-fated 2020 summer Olympics, the RSPO began directing more attention towards the Japanese market.

A central goal was to convince the local Olympic Committee to include the RSPO in their official sourcing code. According to an informant, the World Wildlife Foundation (WWF) began to hold corporate sustainable palm oil workshops the same year. Other events helped boost RSPO recognition during this period. For example, in 2015, the Japanese government officially adopted and started to promote Sustainable Development Goals (SDGs). In the same year, the Consumer Goods Forum, a global network of manufacturers and retailers, issued its Sustainable Sourcing Guideline. T

The period closed with the largest sustainable palm oil event in Japan to date – the RSPO Japan Day 2016 – where RSPO advocates draw on these events and urged more than 350 attendants from major companies in Japan to become members.

Phase 3 – Takeoff (2017 – 2020)

By 2017, many companies using palm oil in their products were aware of the issues associated with oil palm production. Two powerful actors, however, were central in pushing firms from awareness to action. The first was the Tokyo Organising Committee for the Olympics Games (TOCOG), which officially included certified sustainable palm oil in the Games’ sourcing code. The other was AEON, the biggest retailer in Japan and a member of the Consumer Goods Forum, who vowed to procure 100% certified sustainable palm oil for more than 3,500 of its house-brand items by 2020.

These moves forced several suppliers to seek certified sustainable palm oil sources. Thankfully, RSPO advocates ongoing work had led to the creation of various programs to support Japanese firms’ RSPO membership.

The RSPO opened a Japan office in 2019, and at around the same time, the WWF started Japan Sustainable Palm Oil Network (JaSPON). With suppliers already prepared, some downstream firms found it more attractive to join the RSPO at this time. Competitors of existing RSPO members, in turn, started making sustainability commitments for fear of public criticism. 

Throughout the RSPO’s development in Japan, end-product consumers’ pressure has had a limited impact on firms’ decisions to join. The pressure to conform to sustainability standards created by the advocates targeting lead firms with vast supply networks, however, appears to have accelerated RSPO’s market growth. One possible explanation for this phenomenon is the Japanese norm of long-term relationships between firms with buyers-suppliers ties, which, in some cases, include cross-shareholdings between them. Such a group of firms is alternatively known as a keiretsu.

Although keiretsu is not well defined, it is generally referred to as personal, capital, and business relationships in relation to business transactions (Yaginuma, 2014). Collective commitments commonly observed in firms within a keiretsu may have made lead firms more likely to support their suppliers’ efforts to get certified, rather than switching to other suppliers.

Even though RSPO memberships in Japan have increased rapidly, it is unclear whether this will translate into substantial increases in certified sustainable palm oil uptake. Many manufacturers’ suppliers are relatively small. They are often sensitive to any additional costs, and limited bargaining power with which to procure certified oil.

Moreover, since end consumer awareness continues to be low, businesses receive no additional remuneration for their sustainability investments, which may force them to cut costs elsewhere.    

These problems aside, Japan exemplifies an intriguing model of sustainable business practice adoption resulting from the local business norms. Thanks to the strong ties between Japanese firms, the RSPO was able to establish a foothold in the industry despite the lack of demand for sustainable palm oil from the civil society – a sharp contrast to patterns in the West. 

References

Green, J. F. (2013). Rethinking private authority: Agents and entrepreneurs in global environmental governance. Princeton University Press.

RSPO. (n.d.). Members. Retrieved 2020-08-09

Yaginuma, H. (2014). The Keiretsu Issue: A Theoretical Approach. Japanese Economic Studies.

About the authors

Kristjan Jespersen is an Assistant Professor at the Copenhagen Business School. He studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.

Hattaya Rungruengsaowapak is a fresh graduate from Business, Language and Culture at CBS. She has extensive experience in Japan, especially within supply chain and sustainability from a leading consumer goods manufacturer prior to her studies at CBS.

Caleb Gallemore is an Assistant Professor in the International Affairs Program at Lafayette College. He holds a Ph.D. in Geography and within his teaching, he focuses on southeast Asia, global land use, sustainability, research methods and geographic information science.

Photo by Nazarizal Mohammad on Unsplash

Tax havens, COVID-19 and sustainability

By Sara Jespersen

At CBS we will host a workshop and two public events (see below for sign up) on corporate tax and inequality next week 24th – 26th June 2020 – the COVID-19 crisis has underlined the pertinence of this topic in major ways.

Taxation, tax havens and corporate tax have been high on the agenda for a while. Since the outbreak of the global financial crisis of 2008 corporations seeking to minimize their tax payments have been under close watch from the media, civil society and politicians with a focus on ensuring that corporations pay their “fair share”. The OECD and the EU have gone to quite some length to try to stop tax-optimizing behavior through revising and modernizing existing rules and legislation. In collaboration with the IMF and the World Bank they have invested time and resources in strengthening tax systems, governance and improving domestic resource mobilization in low- and middle- income countries. This work is ongoing and corporate taxation is already high on the list of priorities for the world community. But then along came COVID-19.

Taxation is central in two ways when we reflect on the pandemic and what will follow. Firstly, governments have passed historic economic recovery packages to ensure that the private sector stays afloat and to avoid mass lay-offs during the lockdown period in 2020. The question is what can we expect in return? Secondly, the emerging discussion on the disruption caused to national economies should be thought into long-term solutions for sustainability including tax.

“Tax haven free” recovery packages

Poland and Denmark, followed by Italy, Belgium and France have attached an explicit conditionality to their COVID-19 state support that companies cannot be registered in tax havens.

In light of this clear conditionality, there has been a media storm in Denmark, when a journalistic investigation revealed that several companies that government support had an ownership structure that was associated with tax havens and with a consumer outcry on social media. This prompted one of the companies, a well-known bakery “Lagkagehuset”, to take out full-page advertisements in daily newspapers to counter the criticism and explain the company structure. The CEO also did a lengthy interview on the issue of the company’s ownership structure to a major daily newspaper. 

Two immediate takeaways can be drawn from this:

  1. It has revived the discussion about the usefulness of tax haven blacklists (see more on this by CBS professor Leonard Seabrooke in Danish).  Which countries should be on them, and what does it mean if you as a business (or individual) are associated with a tax-haven on such a list? One thing is clear, measures to push countries into greater cooperation will not in itself comprise a substitute for measures to make companies act responsibly.
  2. It has emphasized the importance of corporate governance including a reflected approach to responsible corporate tax practice. The fact that there are so-called tax havens out there warrants companies and individuals to decide how or if they want to be associated with these. If yes, companies must accept that they may be liable to critique and journalistic and even political inquiry into what that association means. It should come as no surprise that association with these jurisdictions may entail suspicion.

Tax havens are not the only concern in relation to companies’ environmental, social and governance (ESG) behavior in this pandemic. The financial times reported how NGOs and investors are challenging shareholder primacy as it leads to growing inequality. Corporate governance and ESG, including tax, is now more than ever one to watch for companies that wish to be part of a sustainable business community in the short-term and the long-term.

Opportunities in the long term

Recovery packages are short-term measures. However, in the long term,  the pandemic offers an opportunity that must not be missed in terms of taking a serious look at which direction our global society is heading.

While the pandemic, in theory, cannot tell the difference between the poor and the rich, it is clear that the existing inequality in our society is all made acutely visible during COVID-19. In the US more than 40 million have lost their jobs during the pandemic.  In Sierra Leone, there is allegedly just 1 available ventilator in the entire country (for a population of 7 million, where Denmark has more than 1000 ventilators for a population of 5.8 million).  As for the gendered impacts even for the better off, there are indications that women are less able to find time to prioritize research and publishing during the crisis than men are (). While big tech companies look to come out of this crisis more profitable and, possibly, powerful than ever.

These are just examples of how inequality is front and center in this crisis and how it offers an important opportunity to consider if the direction we are heading in is where we want to go.

With many countries having been in a complete]  lockdown and economic activity at a standstill, this presents a unique opportunity to truly rethink how well the existing economy has worked for our societies and planet. The city of Amsterdam in the Netherlands has seized the opportunity to embrace the concept of the doughnut economy and the OECD is arguing that it makes discussions about challenges of digitalization of the economy and a minimum level of tax for MNEs more pertinent.

Tax is the central tool for governments to raise revenue and engage in redistribution. However, it is much more than a technical tool in an administrative toolbox.

It is the modern social contract for individuals and businesses as highlighted by the discipline of fiscal sociology. Short term, long term, whichever way, you approach it tax should, and will, play a central role in the debate about where we want to go from here towards a more sustainable, and more equal, future.

It provides a key source of revenue to finance vital public services, it can act as an explicit redistributive tool central to fighting inequality, and if used wisely, it can incentivize the behavior of corporations and individuals including the transition to more sustainable practices. Some of these things will be discussed at CBS in June.

A timely workshop on corporate tax and inequality

At CBS we are hosting a timely interdisciplinary workshop as a collaboration between the department for Management, Society and Communication, CBS center for sustainability, and the Inequality platform on corporate tax and inequality. We are bringing together researchers from around the world to meet (virtually) and discuss different pieces of research emerging on this relationship. We have legal analysis, economic modelling, qualitative analysis of tax administration efforts, and sociological analysis of tax professionals and wider societal tendencies on the agenda.

Our keynote speaker Professor Reuven Avi-Yonah will give a (virtual) public lecture (SIGN UP HERE) on Thursday 25th of June 2020 at 14:15 CET. He will speak to the short, medium and long term revenue options in light of the pandemic including a chance for a Q & A. He is a renowned scholar and has published widely on international tax, history of the corporate form, and CSR and tax among other topics.

 The workshop concludes on June 26th 2020 with a (virtual) practitioner panel to discuss knowledge gaps (SIGN UP HERE) from the perspective of professionals of various disciplines. Bringing together professionals from media, NGOs, tax advisory services, tax administration and business. This is likely to be a lively debate with the aim of furthering the CBS tradition of engaging the private sector on what could be fruitful avenues for further research in this axis of relevance between tax and inequality.

About the author

Sara Jespersen is a PhD Fellow at Copenhagen Business School. Her research is on the emerging relationship between responsible business conduct and corporate tax planning of multinational enterprises. In a complex governance context, there are now signs of corporations’ self-regulation and the emergence of voluntary standards. Sara is interested in what this means for our understanding of corporations as political actors and the notion of political CSR.

Image by pickpik

I Am What I Pledge – The importance of value alignment and crowdfunder behavior

By Kristian Roed Nielsen

Together with my colleague Julia Binder we recently published a paper on the role of values in driving crowdfunding backer behavior. The study found that altruistically framed campaigns have a higher chance for funding as compared to campaigns that emphasize egoistic or environmental motives, but even more importantly, that message framing needs to be aligned with the personal values of the backers. As such, our study highlights important similarities between resource mobilization in social movements and in crowdfunding.

The growth of reward-based crowdfunding as an alternative source of innovative financing has recently triggered great enthusiasm for its potential to enable a greater diversity of entrepreneurs to access to important seed funds (Gerber and Hui, 2013; Sorenson et al., 2016). This enthusiasm is in part related to the fact that – as compared to other forms of innovation capital and indeed other models of crowdfunding, such as lending or equity-based – the consumer plays a central role as a financier of the reward-based innovation. Considering that consumers represent a different kind of investor (Assenova et al., 2016), they are also driven by a wider and distinct range of motivations as compared to traditional investors (Lehner, 2013).

Understanding this new kind of investor has thus been subject to increasing academic debates, especially regarding the success criteria of reward-based campaigns (Mollick, 2014).

However, empirical evidence to date has produced mixed results – while some studies suggest a social- or environmental value orientation of a given reward-based campaign to significantly increase its odds of receiving funding (Calic and Mosakowski, 2016; Lehner and Nicholls, 2014), other studies have found no such effect (Cholakova and Clarysse, 2015; Hörisch, 2015).

Thus, despite enthusiasm from a range of actors, it is unclear under which conditions reward-based crowdfunding campaigns are successful in receiving funding. In this respect, the role of message framing has received little interest, despite its potential for shedding light on the criteria for crowdfunding campaign success. Against this background, we sought to examine how founders’ framing of a reward-based crowdfunding message affect the mobilization of backers and what values are conveyed in successful crowdfunding efforts.

The study in a nutshell

The study draws on framing theory as utilized in the literature of social movement mobilization, which focuses on how messages attract audience attention and in turn plays a pivotal role in securing movement participation (Benford & Snow 2000). Considering that in reward-based crowdfunding entrepreneurs are equally concerned about mobilizing backers for their campaign, we investigate whether entrepreneurs’ framing affects backer’s attention and influences their interpretation and action towards the crowdfunding campaign.

Based on the theoretical literature on human values (Schwartz 1994), we operationalize these linguistic frames as egoistic, altruistic, and biospheric (Axelrod, 1994; Groot & Steg, 2008;  Stern, 2000). These three values respectively reflect considerations on “what is in it for me”, “what is in it for others”, and “what is in it for the environment” when purchasing a given product (de Groot and Steg, 2008). In order to observe causality between these three linguistic value frames and individual pledging behaviour the study employed an experiment which replicated an online crowdfunding platform to better resemble what individuals would see in the real world and thus providing us with what we hope are more external valid observations (Grégoire et al., 2019).

More specifically, we investigated how the framing of reward-based crowdfunding messages as either egoistic, altruistic, or biospheric affected the success of eight hypothetical projects seeking financing in return for the respective product. Especially this designing of a realistic experimental setting represented a huge hurdle, but also a necessary one.

We find that too often experiments lack the realism of what they are seeking to study which we believe is a real detriment to results they yield. We thus wanted to move outside not only the lab but also create a user experience that best captured what an actually crowdfunding platform looks like.

For researchers entering with minimal programming experience it was a steep, but really rewarding learning curve. If a professional programmer saw our work, they would likely have a meltdown over the messy coding, but it worked and inspired many new ideas. 

Fresh insights

The results provide fresh insights into an emerging debate relating to the potential of crowdfunding to support entrepreneurship.

Firstly, our findings show that while some consumers respond positively to campaigns emphasizing intrinsic benefits, an emphasis on such collective benefits cannot be seen as a silver bullet for crowdfunding success. Indeed, while we find that an emphasis on altruistic benefits leads to an overall higher willingness to support the campaign, we find no such effect in the case of products emphasizing the benefits for the environment, but rather that the attractiveness of a crowdfunding campaign is dependent on the alignment with the values of the respective target audience.

Secondly, when seeking to garner funding via a crowd, the importance of customer segmentation and a thorough understanding of these customers’ values and expectations remains the most relevant task before designing and launching the crowdfunding campaign.

Our results clearly show that the willingness to invest in a campaign largely depends on the alignment between backers’ values with the values transmitted in the campaign.

Finally, the findings provide implications for sustainable entrepreneurs, for whom crowdfunding has been emphasized to provide a relevant fundraising opportunity (Testa, Nielsen, et al. 2019).

On the one hand, the fact that crowdfunding is driven largely by consumers rather than professional investors does not in itself change consumer demands; demands which more often than not fail to correlate with sustainable behavior (Sheeran 2002; Webb & Sheeran 2006). While one may argue that the motivations of funders for pledging towards a campaign may be different from those of a professional investor, our results seem to confirm that consumers seek to satisfy their own values when deciding to invest in a crowdfunding campaign. On the other hand, this does not imply a lack of significant potential for sustainable entrepreneurs’ success in reward-based crowdfunding.

Considering the increasing concern for sustainability and because of our finding that value alignment has a particularly high potential in a crowdfunding context, sustainable campaigns focusing on a clearly delineated target group have a high likelihood to reach their aspired funding goal.

About the author

Kristian Roed Nielsen is Assistant Professor at the Department of Management, Society and Communication at Copenhagen Business School. His research strives to examine what, if any, potential role the “crowd” could have in driving, financing and enabling sustainable entrepreneurship and innovation. Kristian’s Twitter: @RoedNielsen

References

Assenova, V., Best, J., Cagney, M., Ellenoff, D., Karas, K., Moon, J., Neiss, S., Suber, R., Sorenson, O., 2016. The Present and Future of Crowdfunding. Calif. Manage. Rev. 58, 125–135.

Axelrod, L., 1994. Balancing Personal Needs with Environmental Preservation: Identifying the Values that Guide Decisions in Ecological Dilemmas. J. Soc. Issues 50, 85–104. https://doi.org/10.1111/j.1540-4560.1994.tb02421.x

Benford, R.D. & Snow, D.A., 2000. Framing Processes and Social Movements: An Overview and Assessment. Annual Review of Sociology, 26, pp.611–639. Available at: http://www.jstor.org/stable/223459.

Calic, G., Mosakowski, E., 2016. Kicking Off Social Entrepreneurship: How A Sustainability Orientation Influences Crowdfunding Success. J. Manag. Stud. 53, 738–767. https://doi.org/10.1111/joms.12201

Cholakova, M., Clarysse, B., 2015. Does the Possibility to Make Equity Investments in Crowdfunding Projects Crowd Out Reward-based Investments? Entrep. Theory Pract. 39, 145–172.

de Groot, J.I.M., Steg, L., 2008. Value Orientations to Explain Beliefs Related to Environmental Significant Behavior: How to Measure Egoistic, Altruistic, and Biospheric Value Orientations. Environ. Behav. 40, 330–354. https://doi.org/10.1177/0013916506297831

Gerber, E.M., Hui, J., 2013. Crowdfunding : Motivations and Deterrents for Participation. ACM Trans. Comput. Interact. 20, 34–32. https://doi.org/http://dx.doi.org/10.1145/2530540

Grégoire, D.A., Binder, J.K., Rauch, A., 2019. Navigating the validity tradeoffs of entrepreneurship research experiments: A systematic review and best-practice suggestions. J. Bus. Ventur. 34, 284–310. https://doi.org/https://doi.org/10.1016/j.jbusvent.2018.10.002

Hörisch, J., 2015. Crowdfunding for environmental ventures: an empirical analysis of the influence of environmental orientation on the success of crowdfunding initiatives. J. Clean. Prod. 107, 636 – 645. https://doi.org/http://dx.doi.org/10.1016/j.jclepro.2015.05.046

Lehner, O.M., 2013. Crowdfunding social ventures: a model and research agenda. Ventur. Cap. 15, 289–311. https://doi.org/10.1080/13691066.2013.782624

Lehner, O.M., Nicholls, A., 2014. Social finance and crowdfunding for social enterprises: A public-private case study providing legitimacy and leverage. Ventur. Cap. 16, 271–286.

Mollick, E., 2014. The dynamics of crowdfunding: An exploratory study. J. Bus. Ventur. 29, 1–16. https://doi.org/http://dx.doi.org/10.1016/j.jbusvent.2013.06.005

Schwartz, S.H., 1994. Are There Universal Aspects in the Structure and Contents of Human Values? J. Soc. Issues 50, 19–45. https://doi.org/10.1111/j.1540-4560.1994.tb01196.x

Sheeran, P., 2002. Intention—Behavior Relations: A Conceptual and Empirical Review. European Review of Social Psychology, 12(1), pp.1–36. Available at: http://dx.doi.org/10.1080/14792772143000003.

Sorenson, O., Assenova, V., Li, G.-C., Boada, J., Fleming, L., 2016. Expand innovation finance via crowdfunding. Science (80-. ). 354, 1526 LP – 1528.

Stern, P.C., 2000. New Environmental Theories: Toward a Coherent Theory of Environmentally Significant Behavior. J. Soc. Issues 56, 407–424. https://doi.org/10.1111/0022-4537.00175

Testa, S. et al., 2019. The role of crowdfunding in moving towards a sustainable society. Technological Forecasting and Social Change, 141, pp.66–73. Available at: http://www.sciencedirect.com/science/article/pii/S004016251831953X.

Webb, T.L. & Sheeran, P., 2006. Does changing behavioral intentions engender behavior change? A meta-analysis of  the experimental evidence. Psychological bulletin, 132(2), pp.249–268

Photo by Ian Schneider on Unsplash

Supplier perspectives on social responsibility in global value chains

By Peter Lund-Thomsen

Worldwide there is now a search for new ideas, business models, and innovations that can help us in rebounding from the global impact of COVID-19 and bring our planet and world onto a more sustainable future trajectory. One of the areas where this is evident is sustainability in global value chains where we have seen a global disruption of world trade in ways that have affected not only global brands but also suppliers and workers around the world. Some observers argue that this will result in a global backlash against attempts at making global value chains, for instance, the global garments and textile value chains, more sustainable. I.e. that COVID-19 will make brands and suppliers sacrifice long-term sustainability considerations at the expense of short-term business survival.

In my understanding,however, what these recent events demonstrate is not so much the need for new innovations and “thinking out of the box” but rather considering how the current organization of global value chains and thinking around sustainability have overlooked the importance of “supplier perspectives” on what social responsibility actually means in these chains. Amongst many practitioners, especially in the Nordic countries, there has been a tendency to assume that global brands’ adopting corporate codes of conduct and sustainability standards, asking value chain partners (i.e. suppliers) to implement these, and then auditing for compliance as well as helping suppliers to build capacity to enforce these guidelines would be sufficient.

The case of Bangladesh illustrates why this approach is insufficient. First, many brands have cancelled their orders with Bangladeshi garment suppliers, leaving local factories at the verge of bankruptcy, and hundreds of thousands, if not millions of workers at risk, potentially without any income to support themselves and their families. Second, even with orders that have been completed, some brands have refused to honor their contracts and either not paid for the goods received, substantially delayed payments, or asked for discounts on present or future orders from suppliers.

Globally, there has been condemnation of these “unfair” trading practices by both suppliers themselves (particularly in Bangladesh but also highlighted via social media) and also international labor advocacy organizations.

And third, the level of outrage is so strong that the Bangladesh Garment Manufacturers and Exporters Association has allegedly been considering placing a ban on particular brands so that they may not source garments from Bangladesh in the future as they have largely failed to live up to their “buyer” responsibilities towards suppliers and workers in Bangladesh.

To me, a key lesson learned from these events is that global brands, business associations, labor advocacy organizations, NGOs, researchers and students can no longer simply “overlook” supplier perspectives on social responsibility in global value chains.

The only realistic way forward is to take account of the concerns of these suppliers if global value chains are to be more resilient in the long run.

Many of these supplier concerns are already well-documented but tend to be either ignored or discarded by “global North stakeholders” in their policies, practices or discourses more broadly – for instance, in how they conceive and talk of sustainability in sustainability conferences around the world.

Just to recap some of the main points that we have learned from studies of supplier perspectives on social responsibility:

a) The factory manager dilemma – e.g., factory managers and owners – for instance, in the global garment industry – have had been asked for continuous price declines by many of their buyers while the same brands have asked for increased levels of social compliance at the same time.

b) The same dilemma arises when factory managers are asked to provide living wages around the year by their buyers when demand is seasonal and price competition is fierce in the global garment industry. For most suppliers having workers sitting around idle for part of the year is not a viable business option.

c) In addition, there is a general unwillingness amongst most (but not all brands) to co-finance – for instance, 50% – of the necessary social upgrading of factories in countries such as Bangladesh. Hence, brands tend to push “social responsibility” onto their suppliers rather than co-investing in and jointly bearing the costs of these improvements themselves.

d) Profits earned from selling goods sold to end consumers in the global North remain highly unequally shared amongst the (ironically called) value chain partners – often with suppliers winding up with 10-20 percent of the value of final retail price.

e) In addition to this, global North (read: Scandinavian) stakeholders including brands, government representatives, NGOs, students, and others often perceive “sustainability” in value chains as mainly relating to environmental and (to a lesser degree) social responsibility in the value chain. Hence, the general talk often seems to be about how suppliers should make environmental and social investments without considering the need for addressing existing inequalities – i.e. unequal distribution of value in these chains – and the business aspects of running supplier operations. In fact, for many suppliers in countries such as India, Pakistan and Bangladesh, sustainability is first and foremost related to “economic” or “financial” sustainability. Only when suppliers are profit-making can they afford to invest in social and environmental improvements. This is not exactly rocket-science but a point that often seems to be completely overlooked by Scandinavian “sustainability” advocates.

f) Finally, what is sometimes considered “social responsibility in global value chains” in the global North might be narrowly defined as the payment of minimum wages, overtime payment, social insurance, and the implementation of occupational health and safety measures in supplier factories. Of course, I am all for supplier factories implementing these measures. However, I also sympathize with many suppliers, NGOs and other stakeholders in the global South that point to other aspects of social responsibility that may be more contextualized.

For instance, in South Asia, many studies have pointed to factory managers helping to finance the education/school fees of the children of some of their workers. Financing the weddings of young workers or the weddings of the sons/daughters of their workers is another sign of social responsibility amongst many factory owners in South Asia.

From a Scandinavian perspective, this may not be related to “social responsibility”.

However, in the sub-continent, where your wedding day is often considered the most important day in your life, and very important for your family’s wider social standing in society, employers’ financial support may be seen a very valid act of practicing “social responsibility”.

Providing tea to your workers may also be considered an act of “social responsibility”. Again – from a Scandinavian perspective – this may not be considered a big act of social responsibility. However, then again, is it really that difficult to understand? How many of us in Scandinavia do not value it when our own employers provide us with free tea or coffee? It gives us the opportunity to socialize with our colleagues or take a much needed break between different work tasks. Why should it be any different in countries such as India and Pakistan where tea drinking could almost be considered a national sport?

Moreover, some factory managers in South Asia allow especially young mothers or women with even slightly older children the option of either working part-time (when the kids are in school or someone else is at home to take care of them) or engaging in home-working so that they may look after their kids while engaging in for instance (embroidery) whenever there is a free moment. Of course, I do recognize that home-working is also often associated with receiving very low wages and not having any social insurance.

However, during COVID 19, even in the Scandinavian context, homeworking has become an absolutely essential part of keeping private companies and public institutions afloat crisis under such compelling circumstances. It has also involved many challenges for families with young children who had to engage in home-based work (typically computer-based) and taking care of their children simultaneously.

Yet if homeworking is indeed not only allowed but also encouraged by most employers in Scandinavia, why it is that brands in the global North sometimes impose an outright ban on their suppliers outsourcing particular work tasks to “home-based locations”?

No wonder that many factory owners and managers in the global South believe that global brands practice double standards when it comes to their social responsibility requirements (i.e. ‘do as I say but not as I do’).

In conclusion, there seems to a great need in Scandinavia for raising our own levels of awareness about the commercial challenges faced by suppliers and acknowledge the myriad ways in which “social responsibility” may be thought of and practiced – of course, without throwing out the baby with the bathwater. Compliance with core labor standards remains a key concern, but it is not the only way of conceiving of supplier responsibility in global value chains.

About the author

Peter Lund-Thomsen is Professor at the Department of Management, Society and Communication at Copenhagen Business School. His research focuses on sustainable value chains, industrial clusters, and corporate social responsibility with a regional focus on South Asia.

More about Covid-19 pandemic on Business of Society blog:

Building A Better Planet: Toward a Sustainable Post-COVID-19 Society

Small, yet important – and still responsible. Reflections on SMEs and social responsibility in times of Covid-19

How the pandemic can reset cities and transform aspects of urban mobility

The Coronavirus Pandemic – and the Consequentiality of Metaphors

Sustainable Development, Interrupted?

The Political Economy of the Olympics – Misconceptions about Sustainability

Supply Chain Responsibilities in a Global Pandemic

A Green and Fair COVID-19 Recovery Plan

In Movement from Tanzania to Northern Italy to Denmark

How to make food systems more resilient: Try Behavioural Food Policies

Lobbying and the virus – three trends to take note of

Image by International Labour Organization ILO

The rise of social media bots – how do they work, and how can you spot them?

By Daniel Lundgaard

Bots and their impact on online conversations is rapidly becoming an important problem on social media. If we look at the conversation around the current Coronavirus pandemic, somewhere between 45% to 60% of the accounts on Twitter that promoted disinformation were identified as bots, in the anti-vaccine debate researchers have found that bots are used to “weaponize” online health communication and create discord, and in the climate change debate research suggests that about a quarter of all tweets are produced by bots.

These bots are used in a wide range of misinformation “strategies”. Based on findings from my own research and a review of current research on the topic, I have summarized what I perceive as the three main “strategies” where we know that bots have been used:

Amplifying certain opinions. The simplest strategy where bots have been used is in efforts to amplify a specific opinion, often by continuously re-tweeting the same tweet or link, or by only endorsing the shared posts of people with similar interests.

Flooding the discourse. Malicious actors often seek to increase confusion and challenge the current status quo e.g. the scientific consensus that climate change is man-made. In this strategy, bots are used to spread large volumes of information and start multiple conversations (often covering both sides of the debate), which makes it easier to question the current consensus. A similar tactic is as often seen in disinformation campaigns where large amounts of “fake news”-outlets create a new media ecosystem, and because of the increased volume of information, the voice of the validated outlets is “drowned”, which empowers the fake news outlets.

Linking issues to current tensions. Efforts to link debates to current tensions seek to polarize opinions and cause divide as seen within the vaccine debate where a debate was associated with current racial/ethnic divisions. Here bots are mainly used to either explicitly make the connection in their own tweets, or by commenting on content shared by others, suggesting the presence of a link to certain socioeconomic tensions.

With these strategies in mind identifying the users that in reality are bots seems like a crucial task. However, detecting and adequately handling these bots has proven to be a challenge for the major social networking sites such as Facebook and Twitter.

Nonetheless, after reviewing current tools made available for bot detection, current research on the topic and my own findings from an analysis of roughly 5 million tweets about climate change, I have identified a few tips that might help you to spot these bots – and potentially their impact on the conversation. For this list, I have left out bot-detection approaches that are based on reviewing patterns not normally visible to most users e.g. network features detection if the same group of users follow and re-tweet/like another group of users with similar language and message.

The user profile

Reviewing the user profile appears as one of the best ways for “normal” users to detect a bot. The most simple indicators could be a missing profile picture, however sophisticated bots might use stolen photos and here a quick “reverse image search” (right-clicking on the profile image and “search google for image”) might reveal something about the source of the image e.g. that it is taken from someone else. A generic (or poorly worded) profile description might also be an indicator, and in my own research I have found that reviewing the content of user profile descriptions is even better than reviewing the content of the tweets shared on a specific topic for predicting opinions.

Different or “stiff” language

The conversation on Twitter is often informal and people often use abbreviations or structure their sentences differently, which can be difficult to copy. As a result, bots might appear mechanical or rigid in its language – often returning to the same topic, share the same link over and over again, or returning to a topic that should have outlived the rather short life-cycle of some topics on Twitter.

Lack of humor

Granted, everyone misunderstands a joke sometimes and people can have trouble with understanding sarcasm. Because of this, understanding humor, especially sarcasm, also remains one of the major challenges for bots to both understand but also respond accordingly. This is particularly relevant on Twitter, where conversations may refer to shared understandings, inside jokes or memes used in a certain way within a community, which even sophisticated bots may have trouble understanding and adapting to.

Temporal behavior

Reviewing past activity, in particular with focus on patterns in temporal behavior might also be useful e.g. by spotting that a user seems to tweet at the same hour every day if it shares multiple tweets pr. Minute, or if the user immediately retweets or comments on other posts, which can be an indicator of an automated and pre-defined response.

It is important to acknowledge that not all bots are seeking to manipulate political conversations on social media. However, while some bots definitely are created for noble purposes, bots are increasingly becoming an important tool for various (potentially malicious) actors and their efforts to shape conversations on social media – especially Twitter. As a result, we, as a society needs to become better at detecting bots and limiting their power to shape the online debate, and I hope that by reading this blog I might have broadened your understanding of bots – and hopefully you have picked up a few tricks to spot potential bots appearing in your Twitter feed.

About the author

Daniel Lundgaard is a PhD Fellow at the Department of Management, Society and Communication at Copenhagen Business School. His research investigates how communication on social media (e.g. the use of emotions, certain forms of framing or linguistic features) shapes the ways we discuss and think about organizational and societal responsibilities.

Photo by ?? Claudio Schwarz | @purzlbaum on Unsplash

Fresh Air: An Impact Story

By Lara Anne Hale

What do fresh air, canaries, and research all have in common? Academics often humbly conduct and publish research, hoping but not knowing if it had any impact on society (we hope very strongly!). This becomes even more bewildering when it comes to the advent of research impact metrics, such as with the UK’s Research Excellence Framework (REF) (UKRI, 2020). It is a rare and wonderful occasion in which one can not only bear witness to impact but actually physically touch it. As an industrial researcher with CBS and the VELUX Group, I am often moving between theory and practice, but the tale of an innovation process stands out. This impact story is the story of how research became related  — albeit several steps removed — to the development of an innovative product, AirBird®, co-created by GXN, the VELUX Group, and Leapcraft. Moreover, it is the story of inspiration in practice, a breath of fresh air in the academic realm.

The academic story starts with a group of nine researchers. The ‘Smart Buildings and Cities’ research group is composed of nine industrial PhDs and postdocs employed in diverse Danish organizations and universities, housed in the BLOXHUB Science Forum and supported by Realdania and the Danish Innovation Fund. Some of us are social scientists engaging with engineering (that would be me), some are architects engaging with computer science, and yet others are engineers conducting social research. I’ve never seen such a mad mess of transdisciplinarity, and it’s beautiful (and also very much guided by our Science Forum coordinator, Pernille Berg).

The innovation process parallels the fourth research case I have been building to better understand and theorize business model innovation for smart technology in the building industry. This case concerns indoor climate data-driven building renovations as a potential business model and involves collaboration among CBS and the VELUX Group (the research), Kokkedal Skole (the building), and Leapcraft (the technology). Fredensborg Kommune has allotted nearly 1 billion DKK (120 million euro) to the improvement of its schools in a program called ‘Fremtidens Folkeskoler’ (Primary Schools of the Future); and it is kicking off the program with an investment of over 35 million DKK (4 million euro) in renovations at Kokkedal Skole. Prior to renovations, we needed to answer the questions: How is the building being used now? What is the indoor climate like? How do teachers and students interact with space? And then we can compare the data post-renovation. This kind of research, as it turns out, is especially timely, given the Danish government’s commitment of 30 billion DKK for sustainable housing renovations.

Kokkedal Skole
Image by Lara Anne Hale

The Kokkedal Skole project is a fascinating one to discuss with others, given the visionary leadership of their principal Kirsten Birkving and excellent building management of their facilities manager Lars Høgh-Hansen. They have in fact been featured on CNN Business for bringing new technology into the classroom, namely Leapcraft’s AmbiNode sensors and SenseMaking tool, the latter having been developed by VELUX based on the Green Solutions House project. Two of the Science Forum group’s companies, GXN and the VELUX Group, started to take discussions at length about the emerging findings on health in buildings, the invisibility of indoor climate, and the need for a simple alert when the situation is dangerous. They posed the question, is it possible to make an indoor health equivalent of the canary in the coal mine, who would start tweeting to coal miners when in contact with dangerous air?

Early in 2019 these talks came to fruition when Realdania invited applications for seed funding to research group members interested in collaborative innovation. This led to the Smith Innovation-coordinated workshop “The Canary in the Goalmine” with the VELUX Group and GXN working on the goal of defining how the ‘canary’ would look like, and – based on the research at Kokkedal Skole and renovation challenges presented by the Student and Innovation House – how it would function. A year later, I am working with VELUX and Leapcraft to finalize the one-year monitoring report from Kokkedal Skole, and AirBird® is ready to hit the shelves. The concept is simple and beautiful, just like the bird: when the CO2 levels indicate unhealthy air, AirBird sings a bird song to let its users know they should bring in some fresh air; which TV2 Lorry featured at Kokkedal Skole on the 25th of May. The AirBird® has been ideated, designed and developed in co-creation between GXN, VELUX Group and Leapcraft.

Airbird introduction
Image by Lara Anne Hale

Although the development of AirBird® does not tell the story of sustainability dynamics within innovation ecosystems (Oskam et al., 2020), nor the story of smart technology-facilitated business models for health and well being (Laya et al., 2018) – two examples of academic work that resonate with my research – it does challenge the idea that business model innovation precedes product innovation. Nudging tools like AirBird® may stimulate awareness and behavioural changes that anticipate business opportunities for a healthy indoor climate. Further, serendipitous product innovations may serve as artifacts embodying value negotiation, the foundations of business model innovation.

But ultimately, the AirBird® story is attractive because it presents impact that is tangible. And whereas the physical product is the most tangible of all, this innovation has had other impacts as well: collaborative innovation experience among the organizations involved; encouragement within the Science Forum of the value of transdisciplinary research; and the need to face directly the tensions between the academic and practice worlds. For my part, it’s uncomfortably different from the impact implied in academic publications and absolutely refreshing — something fresh air, canaries, and research should all have in common.

References

Laya, A., Markendahl, J., & Lundberg, S. (2018). Network-centric business models for health, social care and wellbeing solutions in the internet of things. Scandinavian Journal of Management, 34(2), 103–116.

Oskam, I., Bossink, B., & de Man, A.-P. (2020). Valuing Value in Innovation Ecosystems: How Cross-Sector Actors Overcome Tensions in Collaborative Sustainable Business Model Development. Business & Society, 000765032090714.

Rafaeli, Anat, & Pratt, Michael G. (2006). Artifacts and Organizations: Beyond Mere Symbolism. Mahwah: Lawrence Erlbaum Associates Inc,US.

UKRI (2020). REF Impact. Accessed 29 May 2020 from: https://re.ukri.org/research/ref-impact/

About the author

Lara Anne Hale – Ph.D., M.Sc., Assistant Professor, Industrial Postdoc Fellow with CBS and VELUX. Lara conducts transdisciplinary research on sustainability in the built environment, including aspects of digital transformations, circularity, user-centered design, and systems thinking. Her current project focuses on business model innovation for smart buildings in the BLOXHUB Science Forum ‘Smart Buildings & Cities’ research group, supported by the Danish Innovation Fund and Realdania.

Photo by Kinga Cichewicz on Unsplash

On the Ground: What CSR and sustainability standards fail to address

By Hannah Elliott

In the fall of 2019, there was a flurry of news stories in the British media about political events in western Kenya which, according to one article, threatened the future of the nation’s beloved cup of tea. In Kericho, the heart of Kenya’s tea-growing country, the local community are reclaiming vast tracts of land obtained under British colonialism for the large-scale cultivation of tea. Faced with a land shortage that hinders possibilities for sustainable development, local activists are challenging the extensive land acquisitions that took place under colonial rule, many of which constitute the premises of multinational agri-business today. CSR initiatives and the sustainability standards that are increasingly ubiquitous in Kenya’s tea industry fail to address or acknowledge a sustainability issue that is of major concern to local communities on the ground: land.

During the early 20th century, while trying to create an export economy in eastern Africa, the British government identified the highlands of Kericho in Kenya’s fertile Rift Valley as a place of high agricultural potential and gave out land to European settlers. The area was identified as an ideal place for growing tea, a commodity that was already thriving elsewhere in the British Empire. With the entry of two major companies engaged in tea production in India and Sri Lanka, further land allocations were made, providing the premises for the expansive tea plantations that dominate Kericho’s landscape today.  

Colonial laws enabled these land allocations: the British government could acquire land and relocate the ‘natives’ who were occupying and cultivating it. The Kipsigis community living in the Kericho area lost large amounts of land, only to be compensated with smaller areas of less agriculturally conducive land in designated ‘native reserves’. Others remained in their home areas but were rendered ‘squatters’ required to work for settlers in return for their continued occupation.

Many today struggle to make a living from diminishing farms in the former native reserve areas as family land is subdivided among children, while others remain landless or forced to purchase land at high prices. Land shortage poses a direct challenge to sustainable livelihoods in Kericho.

These grievances are what the Kericho County Governor seeks to address. Identifying as a victim of historical land injustices himself whose ancestral land lies within the vast tea plantation owned by the multinational giant Unilever, he advocates for reparations that acknowledge the forceful acquisition of his community’s land. This implicates multinational tea companies directly. For the Governor and Kipsigis community activists campaigning for justice, these companies are operating on stolen property that rightfully belongs to the community.

Tea plantations employ large numbers of locals in roles that range from tea plucking to top management and offer opportunities and bursaries for adult and child education. While much of the British media coverage of Kericho’s land politics, including an article in The Economist, has envisaged Zimbabwe-like evictions of British companies in Kenya, the Kericho Governor made clear when I met with him earlier this year that it is not in anybody’s interests for the tea companies to hand over the land and leave.

Rather, following recommendations made by Kenya’s National Land Commission, the Governor asks that tea companies apply to the county government for new land leases, following which the land can be resurveyed.  Undeclared acreage, he argues, should then be reverted back to the county government. In addition, the Governor seeks to increase land rent so that the county government is more adequately remunerated for the land.

This, along with demanding mesne profits from multinationals for the use of the land since 1902, is intended to enable more equitable redistribution of the wealth generated from large-scale tea production.

One Kipsigis community activist whom I met envisaged a new model of business: a continuation of plantations’ management and operations, but with the local community, the ‘rightful landowners’, as the major shareholders. This is not to say that all of these proposals are wholly feasible or realistic for tea companies, but to envisage other ways of doing business whereby local communities and authorities are rendered more equal partners.

This goes beyond CSR initiatives which, while valued in Kericho, can be seen as a continuation of colonial paternalism rather than rethinking the very premises of companies’ local engagement. It also goes beyond the certified sustainability standards provided by organisations such as the Rainforest Alliance and Fair Trade that seek to ensure economic, environmental and social sustainability in the tea supply chain yet are generic, driven more by the demands of distant buyers in Europe and North America than those of local communities on the ground.

Undoubtedly, community land claims in Kericho are entangled in local politics. The Kericho Governor’s campaigns are part of a populist political strategy that has seen him win two terms in office. Furthermore, judging by Kenya’s postcolonial history, there is no guarantee that relinquished land or funds would be equitably rolled out to the community should he succeed. Another caveat relates to major challenges facing the tea business in recent years with regard to profitability: at the time of my fieldwork earlier this year, the price of tea hit an all-time low.

The coronavirus pandemic will surely further threaten the industry. In this context, local political challenges of the kind we see in Kericho might push companies to reconsider their operations entirely.  

However, this shouldn’t preclude reimagining the terms of companies’ engagement, not only in Kenya but across Britain’s former settler economies. If large-scale agri-business is to face up to the challenges of sustainability in the places it operates, it must acknowledge the historical grievances attached to the ground beneath it and engage with local communities beyond the confines of CSR and sustainability standards.    

About the Author

Hannah Elliott is a Postdoctoral Research Fellow at CBS’ Department of Management, Society and Communication. Her research on the SUSTEIN project critically examines the production of certified sustainable Kenyan tea.

Image by ©2010CIAT/NeilPalmer

The problem with CSR: why companies need to listen to their activist employees

By Luda Svystunova and Verena Girschik

The current pandemic has exposed blatant social injustices and inequalities around the world, prompting businesses to face their societal impact. Before the crisis, however, a rising wave of employee activism had already started to call into question the extent to which companies had managed to meet their moral obligations. Employees at Wayfair, Microsoft, Google, Twitter and Amazon have protested against their employers’ stance on issues ranging from climate change to migration, pushing them to deliver on public commitments or refusing to contribute to morally dubious projects, such as Amazon’s facial recognition software that had potential to contribute to racial discrimination.

As the crisis has provided ample opportunities to reflect on and reconsider the role of business in society, we believe that this is the time to learn from employee activism – and to learn to embrace it as a force for change.

The problem with CSR

Virtually all companies today pursue a CSR agenda, strengthened by the global agreement around Sustainable Development Goals (SDGs), the growing power of corporate sustainability rankings, standardization of sustainability reporting and the proliferation of consultancies who offer support to companies pursuing a shared value approach to social responsibility. Aligning business and societal value creation, such approaches promise win-win solutions in addressing social ills. Yet it is the very promise of win-win solutions that undermines critical engagement with companies’ roles in creating or reproducing social ills.

First, CSR has become the corporate worlds’ dominant paradigm for change that is positive and comfortable. If CSR managers want to avoid eyerolls, especially from top managers and shareholders, they need to speak the language of profit and present a measurable business case for addressing social ills. By enabling companies to do well by doing and looking good, however, CSR may also cultivate complacency. This does not mean that CSR has failed to encourage companies to embrace more responsible business conduct. But it is a potent substitute for engaging with the many uncomfortable social problems as to which companies have hitherto failed to do the right thing.

Second, the triumph of CSR is symptomatic of and reproduces social inequalities. CSR is driven by privileged employees and managers often based in the corporate headquarters – members of the organizational elites. The voices of others in the company, as well as the people affected by corporate activities, are seldomly included. Indeed, Kaplan (2020) suggests that the business case alienates employees and does not deliver on promises to stakeholders. Misguided CSR initiatives can actually make things worse for those they aim to help. By limiting attention to win-win solutions, CSR has failed to pay attention to those who lose.

How can employee activism help?

Activist employees are those employees that care about and actively promote social justice in their company. With this, we call upon companies to stop viewing employee activists as antagonists or nuisance and instead invite activism in order to face problems head on. Specifically, we suggest that companies should consider the following:

1 ) Accept activist employees rather than “handle” their dissent.

Activist employees bring to the front the less comfortable social problems that a company creates, reproduces, or in other ways is complicit in. Commonly, companies manage dissent by firing those employees who speak out against corporate misdeeds. Activist employees’ voices may be uncomfortable, but if fired, they will certainly still be heard – if not by management, then certainly by the public.

2 ) Listen to dissenting voices and engage with uncomfortable truths.

Employee activists can help by shedding light onto just such areas where businesses may have missed the mark. Representing social movements inside the company, they generate awareness of problems it may have missed or not taken seriously and even contribute to solutions. Most importantly, the break with the complacency of corporate CSR practice and drive the more radical change that is so badly needed.

3 ) Confront privilege and listen to employee activists

Companies should be mindful of who gets to have a say in the issues that matter. It is easy to overlook issues voiced by activists on the ground – across the operations and especially in distant local offices. Yet they are often the ones with a first-hand understanding of social ills as well as externalities produced by the company.   

4 ) Tackle social injustices within.

Not all employee activism is driven by personal values and compassion for others: alongside staff walkouts for greener business at Google and Amazon, Google’s temporary workers and Amazon’s warehouse employees fight for fair labour conditions. In tackling social ills, companies should never overlook the struggles of their own employees.

CSR is still needed, but we can do even better. What we are proposing is inconvenient, disturbing, and uncomfortable, but it’s time for companies to get things right.

Our critique of CSR is inspired by the following contributions:

de Bakker, F. G., Matten, D., Spence, L. J., & Wickert, C. (2020). The elephant in the room: The nascent research agenda on corporations, social responsibility, and capitalism. Business & Society, in press.

Feix, A., & Philippe, D. (2020). Unpacking the narrative decontestation of CSR: Aspiration for change or defense of the status quo?. Business & Society, 59(1), 129-174.

Kaplan, S. (2020). Beyond the business case for social responsibility. Academy of Management Discoveries, 6(1), 1-4. 

Khan, F. R., Munir, K. A., & Willmott, H. (2007). A dark side of institutional entrepreneurship: Soccer balls, child labour and postcolonial impoverishment. Organization studies, 28(7), 1055-1077.

Schneider, A. (2019). Bound to Fail? Exploring the Systemic Pathologies of CSR and Their Implications for CSR Research. Business & Society, in press.

About the Authors

Luda Svystunova is a Lecturer in International Management at the Institute for International Management, Loughborough University London. Luda’s research examines multinational firms’ interactions with their non-market context through corporate social responsibility and corporate political activity, particularly in non-Western settings. She is also interested in the role individuals within and outside companies play in these interactions. Luda’s Twitter: @LudaSV. 

Verena Girschik is Assistant Professor of CSR, Communication, and Organization at the Department of Management, Society and Communication, Copenhagen Business School. Verena’s research focuses on the responsibilities of companies in the contexts of complex societal problems and humanitarian crises. Interested in relations between companies, governments, NGOs, and other societal actors, her research explores how companies negotiate their roles and responsibilities, how they perform them, and to what consequences. Verena’s Twitter: @verenaCPH

Image by GeekWire Photo / Monica Nickelsburg

Lobbying and the virus – three trends to take note of

By Dieter Zinnbauer

Writing about anything in relation to Covid-19 is rather hopeless. Any attempt to describe current developments has a half-time of 30 minutes. Any attempt to speculate what lies ahead drowns in the flood of near infinite plausible trajectories. And any and every attempt usually ends up with the hammer and nail problem, resulting in the author pushing his favorite pre-existing policy to ask  as an essential ingredient in the crisis response, much as the whole world looks like nails when you hold the proverbial hammer in your hand.

Nevertheless here a foolish attempt to jot down some small observations of how the Covid situation is currently influencing how businesses lobby government, or in jargon corporate political activity. In a nutshell: there are indications that there is more, that it is more conventional and that integrity in lobbying is more in demand than ever.  In detail:

1) A lot to win and a lot loose means a lot to do or: “Everybody is upside down. All the clients are upside down” (US lobbyist)

Lobbying is typically understood as anti-cyclical as it tends to experience an uptick in economic downturns. Yet this time is a difference in scale and a difference in kind. Covid-19 is an essential threat to a vast array of industries and companies that until a few weeks ago looked very solid. At the same time, the scale of financial support and transformational depth of regulatory responses that are being considered and dispersed are absolutely unprecedented in the post WW2 era.

Existential stakes convert into a sharp increase in lobbying. Recent data shows that lobbying spending in the US has climbed to near-record levels already and the centrepiece of legislation, the Coronavirus Aid, Relief and Economic Security Act is the second most lobbied upon a piece of legislation.

There are new clients – that also fuel the lobbying boom – three quarters of lobbying filings in the US that mention COVID issues are by new principals. And there is a flourishing new service line out there helping companies shape new rule-writing and expedite approval for their anti-corona products. Many are desperate, everyone is out to get a piece of the cake and as even the most adept watchdogs have a hard time with tracking all proposed rule-changes and handouts it may also be a good time to slip in this long-coveted, yet unrelated regulatory tweak in one’s own favour that otherwise might have not withstood public scrutiny.

2) Forward to the basics tools, tactics and incumbents.

It seems likely and there are indications that corporate political activity is for the time being concentrating on tried and tested tools and relations. First, the Covid-19 response is the hour of the executive as the first phases of the policy response are firmly driven by the executive in most countries around the world. Emergency powers are being invoked, far-reaching policies are hastily cobbled together in small committee, and implemented qua executive orders. Ex-ante legislative deliberation is compressed, public consultations are limited and judicial reviews are only slowly kicking into gear.  All this means that lobbying is currently heavily focused pragmatically on very tangible outcomes and the executive branch of government as for example, a top German lobbyist has described in a recent interview.

Expected budget cuts and trimmed client accounts for public relation agencies in the first-affected Asia-Pacific also suggest that more sophisticated upstream strategies for framing and influencing public debates in the longer run are being put on the backburner and efforts are shifting towards core government relations work. Add to this that social distancing measures and going virtual makes it difficult to cultivate new relationships. As a result, existing, networks and long-time friends who may have walked through the revolving door between public office and private practice carry the day dealing substantive incumbency advantages to the already well-connected and established players both in terms of in-house lobbying departments and hired firms.

3) An incipient debate about the fundamentals close to home – and high stakes for integrity

Financial distress and zero-sum dynamics in what are ultimately finite support programs demand maximum resolve when making one’s case to the government. Many more interests than usually have come to the fore to compete for the pie and some of these competitors can be expected to act very opportunistically. All this puts enormous stress on integrity in lobbying. But this comes at a time when the integrity of the corporate political activity is perhaps more important than ever. 

Policy-makers enter into uncharted territory with many of their interventions and stabilization efforts. Peak uncertainty means they need accurate information on the situation of different interests and stakeholder groups and how they may be affected by different policy options. Policy-makers need more of this information more urgently than ever. Extreme fragility means that the consequences of mis-judgments are substantive.

All this highlights how important the honest, proportionate, evidence-supported articulation of interests and concerns to government is at this moment in time. In the eye of the public business appears to be largely failing in this area. Less than 40% of respondents in a very recent 11-country survey – the spring update to the 2020 Edelman Trust Barometer –  perceived business to be a reliable source of useful and accurate information during the pandemic, a number that dropped to even more staggering lows of 24% and 15%  in France and Japan respectively.

Yet, the relevance of credibly upholding integrity in lobbying goes even deeper. The specter of special interests hijacking the Covid response looms large as a tremendous PR nightmare. Such a storyline is ready to combine with the bitter aftertaste of the last financial crisis response that many perceived to be undermined by strong industry lobbying. The prospects of a special deal for special interests could thus further inflame the very anti-business sentiments that are already on the rise: in the same survey as referenced above respondents put business CEOs last when thinking which types of professions and leaders do a good job in meeting the demands the pandemic puts on them, while only 38% thought business did a good job in putting people before profits.

Pushing public opinion that is already at the edge further into the negative territory through reckless corporate political activity looks like a bad idea even from a narrow tactical perspective. This is because another fallout from Covid is an emerging public debate about the basic bargain between business and the public and the increasing readiness to consider options for a fairer settlement that until recently seemed to have difficult to find acceptance in the mainstream.

The 11-country Edelman survey again captures some of these sentiments: a remarkable 64% of people agreed with this statement:

“This pandemic has made me realize how big the gap in this country is between the rich and the working class, and that something must be done to more fairly distribute our country’s wealth and prosperity”

Massive public financial support is a great lever for updating the social licence to operate for the corporate world. This is not a theoretical possibility but has already become a reality. Widely discussed provisions to bar companies that engage in overly aggressive tax planning or pay out dividends in times of crisis from benefiting from post-Covid support is one example. So is the observation that a debate about the legitimacy of share buy-backs that despite its policy relevance was more or less confined to the fringe of experts and specialized advocates all of a sudden features prominently in the policy mainstream. It has even prompted the European Commission to require a ban on share buybacks as a central condition when government prop up companies by acquiring equity ownership.

This public limelight for a seemingly arcane issue is well deserved considering that for example the top airlines in the US that are currently clamoring for public support are estimated to have spent 96% of their free cash flow during the last decade on share buybacks and built no meaningful reserves to weather a major crisis, a strategy termed by a banker from a top firm as “a staple arrow in the quiver of companies… to optimize how they drive the most value for their shareholders”. From a corporate lobbying view not particularly productive narratives to feed any more.

Many, including this author, view this as a much needed and welcome conversation about how to refresh the principal compact between business and society in view of sharing the benefits and costs from business activity fairly and within planetary boundaries. Business will not do itself a favor when flexing its lobbying muscle too hard for special treatment at this point in time when the public is increasingly prepared to doubt and revisit the basic tenets of this compact.

Responsible corporate activity, transparent, well-governed and aligned with purpose, planetary boundaries and broader regards for all stakeholders is not a nice add on for good times. It is essential to protect the public trust in functioning institutions, functioning crisis response and a functioning societal bargain with business. This is not the time to call in special favours and push a narrow agenda. This is the time to do act as a responsible corporate citizen on all fronts and particularly when it comes to government engagement.

Now there it is:  my policy agenda framed as essential in Covid times. The whole world looks like nails when you have a hammer in the hand.  But in this instance, of course, it is for real.

About the author

Dieter Zinnbauer is a Marie-Skłodowska-Curie Fellow at CBS’ Department of Management, Society and Communication. His CBS research focuses on business as political actor in the context of big data, populism and “corporate purpose fatigue”.

Twitter: @Dzinnbauer

Essays: https://medium.com/@Dzinnbauer

Working papers:  https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1588618

More about coronavirus pandemic on Business of Society blog:

The Coronavirus Pandemic – and the Consequentiality of Metaphors

Sustainable Development, Interrupted?

The Political Economy of the Olympics – Misconceptions about Sustainability

Supply Chain Responsibilities in a Global Pandemic

A Green and Fair COVID-19 Recovery Plan

In Movement from Tanzania to Northern Italy to Denmark

How to make food systems more resilient: Try Behavioural Food Policies

Photo by Dieter Zinnbauer

The Coronavirus Pandemic – and the Consequentiality of Metaphors

By Dennis Schoeneborn

Language is a reef of dead metaphors (Guy Deutscher)

We are in the midst of an unfolding crisis that humanity is struggling to understand. To make sense of the unknown, humans tend to rely on metaphors, analogies, or other rhetorical figures. What do metaphors do? They allow for giving meaning to a (rather unknown) target domain by projecting and transferring insights from a (presumably better known) source domain.

For instance, in the public discourse about the current Coronavirus pandemic, the sensemaking process includes analogies within the same domain (e.g., Trump stating at the beginning of the pandemic: “It’s just like a regular flu”; Bolsonaro maintaining for a long time that it’s just a “little flu”) –  or metaphors that tap into the source domain of natural disasters (e.g., the “tsunami” metaphor used by various medical professionals) or of human warfare (e.g., Trump’s more recent framing of coronavirus to be an “invisible enemy”; Macron’s insistence that “we’re at war”).

World leaders, journalists, social media influencers, epidemiologists and other contributors to the public debate can be presumed to mobilize such metaphors not only to foster sensemaking but ultimately also to steer citizens’ behavior.

For all that we know, metaphors tend to “have profound influences on how we conceptualize and act with respect to important societal issues”.

(Thibodeau & Boroditsky, 2011, p. 1)

Accordingly, it is worthwhile studying how and to what extent the use of different metaphors can inspire, influence and “organize” individual and collective behavior.

As the work by Joep Cornelissen reminds us, the fruitfulness of a metaphor depends on (1) its aptness (i.e. whether a metaphor ‘fits’ and it’s meaningful) as well as (2) its heuristic value (i.e. the extent to which a metaphor offers new insights into an unfamiliar domain; see Cornelissen, 2004).

However, aptness and heuristic value tend to be in a trade-off relation: While close proximity between source and target domain can help strengthen the aptness of a metaphor, it tends to diminish the metaphor’s heuristic value, at the same time. The latter problem also occurs when the metaphorical connection between two domain becomes so well-established (e.g., the link between epidemics and warfare) that the metaphor loses its ability to lend new meaning to the target domain (i.e. a term’s metaphorical quality “dies” so-to-speak; e.g., the term World Wide Web, where hardly anybody today would think of spider webs). In contrast, metaphors can be kept vivid and alive via the power of dissimilarity: the greater the contextual distance between two domains, the better the chance of a metaphor to be insightful.

This may be one of the reasons why novel and unusual combinations of metaphors, such as Tomas Pueyo’s notion of “The Hammer and the Dance” (while being aptly chosen in that case, as well) may have better prospects to lend new meaning to the pandemic and thus inspire new and desirable modes of behavior.

Taken together, the current crisis situation is also a crisis of collective imagination and sensemaking. Hence, in these turbulent and worrisome times it is more important than ever that contributors to the public debate think twice before mobilizing metaphorical imaginations – and to consider not only their aptness, heuristic value, or “retweetability” but also their potential (and sometimes unintended) consequences for individual, collective, and organizational behavior. Ultimately, it is not only the “brute fact” (Searle) of the pandemic that can severely harm us – but also the meanings that are ascribed to it (e.g., via metaphors) and that can materialize in very concrete actions.

For instance, individuals and collectives are likely to act less careful if they believe the Coronavirus to be “just like a flu” – and more careful if they grasp the virus to have chameleon-like features that make it hard to detect (e.g. recent evidence that the virus can also surface in damages to the heart and brain).

To conclude, the current pandemic serves as painful evidence for the importance of theories that highlight the constitutive role of communication for phenomena of orga­nization and organizing. In other words, communication in forms of metaphors, narratives, or other rhetorical means, especially if voiced by opinion leaders, tends to be not just “cheap talk” but can be highly consequential (as also powerfully shown by recent studies on “Narrative Economics” by Nobel Prize winner Robert Shiller).

About the author

Dennis Schoeneborn is Professor of Organization, Communication, and CSR at Copenhagen Business School, and Visiting Professor of Organization Studies at Leuphana University of Lüneburg. He serves as head coordinator of the Standing Working Group “Organization as Communication” at the European Group of Organizational Studies (EGOS). He furthermore serves as Associate Editor of the journal Business and Society.

More about coronavirus pandemic:

Sustainable Development, Interrupted?

The Political Economy of the Olympics – Misconceptions about Sustainability

Supply Chain Responsibilities in a Global Pandemic

Illustration by Dan Page

Sustainable Consumer Behavior: Go Big or Go Home?

By Laura Krumm

In recent years, news on issues such as climate change, environmental degradation and plastic pollution was almost inescapable. At least in Europe, newspapers reported on environmental topics regularly, political discussions often revolved around greenhouse gas emissions or environmental policy, and sustainability content creators gained large numbers of followers on social media with tips on package-free grocery shopping and vegan recipes. Additionally, with Fridays for Future, environmental issues inspired one of the largest youth movements to date. It is fair to say that almost everyone is talking about the environmental issues we are currently facing.

The role of consumption

With almost everyone talking about environmental issues, most have understood that our consumption behavior in the industrialized world is a major cause of environmental problems. After all, the issue of climate change is an issue of consumption. Almost three-quarters of greenhouse gas emissions originate from household consumption (1). A change in consumption behavior, therefore, is deemed necessary to have a chance of mitigating climate change.

Even though environmental beliefs and values are increasing, consumers often do not follow through and translate their attitudes into environmental behavior. Many scholars are concerned with this phenomenon, often termed attitude-behavior gap or value-action gap (2, 3). This gap is frequently calculated by subtracting the market share of sustainable goods, e.g., organic produce, from the percentage of consumers having an intention to buy those products. The estimated size of the gap ranges mostly around the 30% mark (4, 5).

If consumers acted according to their attitudes, the market share of sustainable products would, therefore, increase by 30 %, which would certainly have a substantial environmental impact. Is it, however, enough to focus on closing the attitude-behavior gap? Unfortunately, no.

How sustainable are we really?

Behaviors commonly considered as sustainable, such as bringing our own reusable shopping bag instead of using the plastic bags provided by the store, might not have the big environmental influence we think they have. Bilharz and Schmitt have termed such actions as the “peanuts of sustainable consumption” (6). Often, consumers that identify themselves as “green” have similar ecological footprints to consumers who do not identify themselves as “green” (6, 7).

A green self-image, although associated with higher rates of some environmental behaviors, is therefore often misleading.

This can be problematic. If consumers with high attitudes towards sustainable consumption overestimate their own positive impact and already perceive themselves as sustainable after performing relatively low-impact sustainable behaviors, such as stopping the water while brushing their teeth or using a reusable tote bag for shopping, the motivation for bigger steps might be reduced. While these small behaviors are important actions and first steps in the right direction, they are only that: first steps. To mitigate climate change and solve other environmental issues, more drastic measures will be necessary.

Focus on high-impact behaviors instead of low-hanging fruits

Some researchers, therefore, suggest to reduce the focus on the intent-based view of sustainable behavior (e.g., environmental attitudes or motivations) and rather take a more impact-based perspective (8). In that case, the actual environmental effects of certain behaviors and actions are assessed in the form of, e.g., emitted greenhouse gases or ecological footprint calculations. An impact ranking of sustainable behaviors can then give insightful information, which behaviors to give priority.

A recent study found, e.g., that a change towards a vegan diet has the potential to mitigate up to 14% of European carbon emissions, whereas a change towards exclusively purchasing organic food has the potential to mitigate 2% (9). While this certainly does not mean that organic food products are not important and we should stop buying them, a focus on them will not suffice to reduce our greenhouse gas emissions significantly.

This change in perspective is not only important for consumers themselves, but also for companies, research and policy. While, e.g., an EU-wide ban of single-use plastic or company initiatives to eliminate plastic bags in some supermarkets have a considerable positive impact on the problem of plastic pollution, it is by far not enough.

Even though the probable consequences of climate change are well known and already start to become apparent, countries and governments still fail to adopt effective measures to reduce greenhouse gas emissions (10).

An enhanced focus on high-impact behaviors and actions can help political institutions, research organizations and consumer education strategies achieve their sustainability goals. While it is certainly necessary to address small and easily implementable changes, they should not distract us from tackling the big consumption challenges (11).

About the author

Laura Krumm is a PhD fellow at the Department of Management, Society and Communication and part of the Consumer & Behavioural Insights Group at CBS Sustainability. Her research interests lie in the fields of sustainable consumption behaviour and policy.

References

(1) Hertwich, E.G. and Peters, G.P., 2009 – Carbon Footprint of Nations: A Global, Trade-Linked Analysis, in: Environmental Science and Technology, 43(16), 6414-6420.

(2) Kollmuss, A. and Agyeman, J., 2002 – Mind the Gap: Why Do People Act Environmentally and What are the Barriers to Pro-Environmental Behavior?, in: Environmental Education Research, 8(3), 239-260.

(3) Huddart Kennedy, E., Beckley, T.M., McFarlane, B.L. and Nadeau, S., 2009 – Why We Don’t “Walk the Talk”: Understanding the Environmental Values/Behaviour Gap in Canada, in: Human Ecology Review, 16(2), 151-160.

(4) Carrington, M.J., Neville, B.A. and Whitwell, G.J., 2010 – Why Ethical Consumers Don’t Walk Their Talk: Towards a Framework for Understanding the Gap Between the Ethical Purchase Intentions and Actual Buying Behaviour of Ethically Minded Consumers, in: Journal of Business Ethics, 97(1), 139-158.

(5) Young, W., Hwang, K., McDonald, S. and Oates C.J., 2010 – Sustainable Consumption: Green Consumer Behaviour when Purchasing Products, in: Sustainable Development, 18(1), 20-31.

(6) Bilharz, M. and Schmitt, K., 2011 – Going Big with Big Matters, in: GAIA, 20(4), 232-235.

(7) Gatersleben, B., Steg, L. and Vlek C., 2002 – Measurement and Determinants of Environmentally Significant Consumer Behavior, in: Environment and Behavior, 34(3), 335-362.

(8) Moser, S. and Kleinhückelkotten, S., 2018 – Good Intents, but Low Impacts: Diverging Importance of Motivational and Socioeconomic Determinants Explaining Pro-Environmental Behavior, Energy Use, and Carbon Footprint

(9) Vita, G., Lundström, J.R., Hertwich, E.G., Quist, J., Ivanova, D., Stadler, K. and Wood, R.,  2019 – The Environmental Impact of Green Consumption and Sufficiency Lifestyles Scenarios in Europe: Connecting Local Sustainability Visions to Global Consequences, in: Ecological Economics, 164, 106322.

(10) UN Environment Programme, 2019 – Emissions Gap Report

(11) Centre for Behavior & the Environment, 2018 – Climate Change Needs Behavior Change: Making the Case For Behavioral Solutions to Reduce Global Warming

Photo by Markus Spiske on Unsplash

Just announced: And the world’s worst company is …. Really?

Why naming a hardly known German company as the world’s most controversial company inadvertently makes a lot of sense

By Dieter Zinnbauer

Business bashing is a popular spectator sport in some quarters – sometimes justified, sometimes not. So there is certainly no shortage of strong contenders for the most controversial company contest. Who would be your pick for the 2019 shortlist? Perhaps one of the companies that led millions of people into opioid addiction? The biggest carbon dioxide emitter? Or someone from the big tech side that as many believe has ushered in a new, toxic era of surveillance capitalism?

Picking the unlucky winner is as difficult as it is subjective.  But as is always the case these days big data and AI are riding to the rescue. They are claimed to power an evidence-infused attempt by a boutique ESG consultancy to identify the most controversial company in the world. According to the inevitable marketing pitch, a secret-sauce algorithm churns through a proprietary database of millions of new and old media mentions for more than 140,00 companies to bring science to the art of naming and shaming and to reveal the 2019 most controversial company in the world.

And as just announced last week, the winner is:

Tuev Sued!

?

Tuev Sued?

If you are not a German car owner (the company is best known there for carrying out the obligatory and feared periodic car inspections) or an expert in technical certification issues you may have never come across this name before.

Tuev Sued is one of the big players in the global certification-of-everything business. Born as the Duev (“Dampfkesselueberwachsungsverein” – steam boiler inspection association) in 1800 to bring technical oversight to the issue of exploding steam boilers during the industrial revolution, the Tuev Sued (and its brother) Tuev Nord have grown into multinational enterprises that provide technical audits and certification services for an ever-growing number of products, processes and service across industries and across the world.

Arguably the main reason why Tue Sued was picked as the most controversial company (besides a weighing in favor of novel entries that guarantees sustainable newsworthiness to an annual ranking now in its 10th edition) is that it is implicated in the infamous 2019 Brumadinhu dam disaster in Brazil. A collapse of a dam erected by a mining company unleashed a toxic mudflow on the downstream communities that killed more than 250 people. Tuev Sued had carried out technical inspections of the dam and allegedly assessed it as safe. The case is still in court, no conclusive verdicts have been reached.

So is it fair to put the spotlight so fully on a comparatively small technical certification outfit, rather than say the big mining company that built and ran the dam?

Irrespective of what one thinks about the merits of this choice,  the case highlights what I would submit is one of the most fundamental and unresolved drivers of corporate irresponsibility: the persistent challenge to make all kinds of certification and assurance processes that are so essential to functioning markets and economies work as intended.

From the never-ending string of accounting and auditing scandals to the crucial role of rating agencies in the 2007+ financial crisis to emerging examples of greenwashing in the carbon market certification business, there as common thread: certification and assurance often fail to provide the independent, effective vetting that it is supposed to deliver.

Issues involved include:

  • the under-resourcing of the inspection process as neither principal nor agent have strong interests in overly strict and deep inspections,
  • pitching certification as loss leaders to open the door for upselling into other lucrative consulting services;
  • borderline rubberstamping of certifications to secure repeat business and avoid being viewed as difficult in the industry and thus putting off other potential clients.

Strengthening liability, setting more stringent standards for the standards watchdogs, tightening compliance measures and building public reputational pressure go some way to rework incentives towards more credible certifications.

But at the end of the day they are more ameliorative than tackling the root problem:

As long as certification services are selected by and directly paid for by the very clients that are meant to be certified, assured, rated or audited and as long as certification is strictly a for-profit business there are fundamental conflicts of interests at the root of these services that put their efficacy and independence at risk.

Ideas of how to rewire these markets and business models abound yet so far the problem of thin political markets seems to hold: both certifiers and certified have strong interests to preserve the status quo and formidable lobbying power to advocate for this, while the dull technical nature of the issues at stake and the dispersed group of beneficiaries from alternative solutions prevent a forceful, concerted push for better arrangements.

Yet there is hope that this fundamental conflict of interest issue will gain more prominence in the policy and public debates very soon. The emerging transformational push to de-carbonize businesses and economies relies in part heavily on carbon credits, carbon offsets and other green-impact instruments whose efficacy and the very reason for existence relies on proper certification and assurance.

 How to move beyond and away from issuer-directly-pays certification services will have to be an important part of the policy designs in the making.

Tuev Sued is a symptom of the problem – it is the systemic issue at the root of the case that justifies putting it into the spotlight – although it is unclear of the secret-sauce algorithm at work had this in mind when making the selection. 

Let’s hope that in twenty years’ time the idea of a rating agency, a dam examiner, a medical device inspector or a carbon credit certifier being selected by and paid directly by the people they are supposed to pass an independent judgment on appears as strange as the notion that a pharmaceutical company would be able to choose between different agencies to get its drugs approved and directly funds large parts of their budgets.

About the author

Dr. Dieter Zinnbauer is a Marie-Skłodowska-Curie Fellow at CBS’ Department of Management, Society and Communication. His CBS researches focus on business as political actor in the context of big data, populism and “corporate purpose fatigue”.

Twitter: @Dzinnbauer

Essays: https://medium.com/@Dzinnbauer

Working papers:  https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1588618

Photo by Icons8 Team on Unsplash

Better than nothing but still “exSASBerating”!

By Dieter Zinnbauer.

Why a powerful push by the world’s top asset manager towards more sustainability reporting still falls pretty short.

Great news

BlackRock, the world’s largest asset manager promises to leverage its weight and voting power for more consistent and comprehensive corporate reporting on sustainability. And this includes corporate lobbying.

Good news

The Sustainability Accounting Standards Board (SASB) standard that BlackRock backs also includes a reporting dimension on what it calls “Management of the Legal & Regulatory Environment”. According to the SASB this category “addresses a company’s approach to engaging with regulators in cases where conflicting corporate and public interests may have the potential for long-term adverse direct or indirect environmental and social impacts.” 

Now, this sounds quite promising.

It really seems to recognize the urgent imperative for business to align corporate political activity with its social and environmental responsibility and to assure all stakeholders in your reporting that this is the case.

Or to take a plain language and not entirely hypothetical example: as a responsible corporate citizen show everyone that you are not a hypocrite and that you do not lobby against improved fuel efficiency standards while at the same time celebrating your green credentials by supporting smart transport initiatives.

As the SASB further elaborates on this reporting dimension, the category addresses among other “a company’s level of reliance upon regulatory policy…  actions to influence industry policy (such as through lobbying) … [and ] it may relate to the alignment of management and investor views of regulatory engagement and compliance at large”[1]. And the related accounting metric mandates a “discussion of corporate positions related to government regulations and/or policy proposals that address environmental and social factors affecting the industry.”

One could be a stickler and criticize that this is not comprehensive and specific enough, as it, for example, does not require to disclose how much money is spent on specific lobbying issues or what other of the growing repertoire of corporate influencing and communication strategies beyond lobbying are deployed to shape the public policy debate on these issues.

But let’s be pragmatic, the fact that the world’s largest asset manager has chosen to explicitly demand reporting on lobbying from the many companies it invests in and also threatens openly to vote against boards of companies that do not play along is a great step forward.

But then the really not so good news

The SASB only requires companies to report on corporate political activity in sectors where this category is judged to be material. And quite startlingly corporate political activity is only viewed as material for some segments of the oil & gas sector, biofuels, and chemicals. That’s it.

How can this be? No mention of air freight & logistics, airlines, marine transportation or the car industry  – sectors in which many (but not all) companies are out in force to lobby against green taxes and/or higher resource efficiency standards, thus delaying much-needed investments in future-proof technologies and creating a regulatory backlog that all but exacerbates the material risks of stranded assets and failing business models further down the road.

How about construction materials or the steel industry whose future trajectories in energy efficiency or recycling and the rules and regulations that will apply are material to global sustainability and corporate success alike?

How about the meat, poultry and dairy sector? I have not researched their lobbying activities but would imagine that they are very much engaged around evolving rules for methane emissions as one of the most potent climate gasses in a world of growing appetite for meat. No need for investors to know how corporate strategy, public policy engagement and sustainability dynamics line up?

Or how about coal and electricity & power generation? Are these sectors viewed as a lost cause where corporate political action will simply be assumed to be misaligned with societal sustainability goals and thus not worthwhile accounting for? Does this do justice to and incentivize responsible corporate political engagement where it is perhaps more material and needed more than in many other areas?

These are just some examples with regard to climate change. Corporate political engagement is plausibly a material issues for many other sectors as well, for example when thinking about social aspects of sustainability, e.g. how platform economies craft business models and lobby on the rules that apply to gig work, how big tech seeks to shape privacy rules that are closely linked to their advertising-based business models…

Corporate political activity is a highly cross-cutting material issue. Expecting corporate reporting on it is urgent and most welcome. Yet, limiting this push to only five of overall more than seventy business sectors is more than unfortunate. Trailblazing trustees of our savings and investments and the reporting standards that they promote must and can do better.

About the author

Dr. Dieter Zinnbauer is a Marie-Skłodowska-Curie Fellow at CBS’ Department of Management, Society and Communication. His CBS researches focus on business as political actor in the context of big data, populism and “corporate purpose fatigue”.

Twitter: @Dzinnbauer

Essays: https://medium.com/@Dzinnbauer

Working papers:  https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1588618

References:

[1] Annotations as extracted from SASB materiality map https://materiality.sasb.org/

Photo by Guido Jansen on Unsplash

When is a banking scandal a corporate social responsibility scandal?

By Jeremy Moon

I arrived in Australia to discuss and research corporate social responsibility (CSR) with colleagues at RMIT University and the University of Melbourne to see the papers covered in … a banking scandal.

The Westpac Bank product ‘Litepay’, designed to enable customers to transfer small amounts of money overseas, is alleged to have enabled money-laundering on 23 million occasions. It is alleged that 12 customers used this service to transfer $500,000 to child exploitation criminals in the Philippines.

There is the usual background that senior management was aware of the failures but did nothing.  There is the usual foreground that the bank’s leadership made light of the problems, and was strangely slow to accept responsibility.  So far so depressingly familiar.

I also noticed Johannes Leak’s cartoon published in The Australian newspaper (27.XI.2019). OK, it is a caricature with the CSR consisting of activities that seem trivial and causes that, notwithstanding their social significance, are adjacent to the legality and ethics of Westpac’s main business!

But caricature is part of the cartoonist’s craft and it highlights the main message: the way that Westpac went about its business appeared untouched by the department ostensibly standing for its social responsibility. 

So what lies behind this contradiction? 

CSR professionals may well be educated, trained and experienced in other society-related issues.  But as the cartoon suggests they were unable to address some key social impacts of the bank’s business models.  This may be no accident.  It may well suit corporate leadership to have a CSR department to focus on ‘the worthy causes’ and to distract from the business of money-making.  So whilst the CSR staff engage in legitimation activities, the main CSR message (i.e. to serve societal good) is disconnected from conducting the core business. 

So we need to construe CSR as something more pervasive and robust such that it addresses the core business in all its complexity and technicality.  This may mean corporations re-thinking how their products are evaluated, who is around the table at strategy meetings, who leaders listen to, who they collaborate with, what sort of qualifications and capabilities are expected of senior managers and board members.

One positive

One positive in the Westpac story is that the triggers of social sanction operated.  Whistleblowers within Westpac (who advised the media), governmental leaders (who expressed grave disquiet and suspended Westpac from a public policy initiative), and major investors (who threatened exit), brought immense pressure on Westpac’s leadership for more proportionate responses. 

This is a belated success for the main message of CSR: that business needs to be responsible, and that failure here will be very costly. 

Sadly, it comes at a price that investors and customers may have to share. The bank needs to ensure that it has sufficient and appropriate CSR capacity to build the message into the practices of business as usual.

About the author

Jeremy Moon – Director of CBS Sustainability, professor of Sustainability Governance at Copenhagen Business School and BOS blog editor. Jeremy has written widely about the rise, context, dynamics and impact of CSR.  He is particularly interested in corporations’ political roles and in the regulation of CSR and corporate sustainability.

By the same author: Wonder Tech and the Institution of Gender

Cartoon’s author

Johannes Leak

How SDGs help us see buildings through a different lens

By Ingrid Reumert

Despite a lot of focus on climate change recently, the impact of one ‘hidden climate’ on people’s lives often goes unnoticed – the indoor climate. And the indoor climates in the buildings that we normally feel most comfortable in – our homes – are much worse than we are aware of.

Safe and sound at home?

Our homes are traditionally seen as places where we recharge our batteries. They are where we seek shelter and refuge from the hustle and bustle that we often experience in our everyday lives when away from them. As we wind down at the end of a busy day in the comfort of our homes, we take it for granted that we can relax, knowing that our health is not at risk when inside.

However, there’s increasing evidence that although we might arrive home safe and sound, the time we spend at home might not be safe and sound after all.

As ‘safe as houses’?

The saying ‘it’s safe as houses’, which is used to describe things as being completely safe, cannot be used about many homes in Europe. We know from our Healthy Homes Barometers, an annual research-based report designed to take stock of Europe’s buildings, that one out of six Europeans lives in unhealthy homes. For children in Europe, it’s worse, with one out of three being exposed to health risks in their homes. And the health risks are not just isolated to our homes. The same also goes for the environments inside buildings where we work and learn.

Furthermore, we know that people spend 90 percent of their time indoors, where the air can be up to five times more polluted than outside. The potential risks to people’s health and wider society are not insignificant, with poor indoor climates directly leading to conditions such as asthma or allergies, due to dampness and mould.

Ongoing dialogue and modified solutions

For years we have been using such well-documented research to engage in dialogues with legislators, housing professionals, building owners and industry representatives to push for steps to make buildings healthier. In recent years, we have also modified our solutions, which bring daylight and fresh air through roofs, to be more automated and also compatible with digital technologies and the internet of things, and thereby make creating healthy indoor climates hassle-free.

Using SDGs to push harder for healthier indoor climates

At VELUX Group, it is our strong belief that if indoor climates are not good for our health, then we’ll see problems for individuals and for society. Now, with the help of the United Nations Sustainable Development Goals, we have an extra toolbox to support our efforts to address this.

We believe that by embracing this common global language of SDGs, we can leverage our efforts to make buildings healthier.

More specifically, we use three SDG goals to help people see the world through a different lens and to reveal the possible negative effects on their health from the ‘hidden climate’ – the indoor climate. We do this by showing how good indoor climates and healthy buildings can safeguard good health and well-being (SDG 3) and also how this can contribute to more sustainable cities and communities (SDG 11), with the help of partnerships for the goals (SDG 17).

Revealing what’s right under our noses for a more sustainable future

With much of the current climate change and sustainability focus on natural renewable energy sources or companies’ steps to reduce their carbon footprints, the climates inside our homes and other buildings, and their potential negative effects on our health and well-being continue to be ignored. That’s why the VELUX Group will persist with research and activities to boost indoor climate awareness and continually improve our products, to address what’s right under our noses but often overlooked – the indoor or hidden climate. By improving indoor climates to help make buildings healthier, we are confident that we will contribute to a more sustainable future.

About the Author

Ingrid Reumert – VP, Global Stakeholder Communications & Sustainability at VELUX Group

Photo by Timothy Buck on Unsplash

Further reading: Researchers in BLOXHUB seeking to improve indoor climate

Regulating 300,000 Years – Nuclear Waste, Sustainability and the Need to Talk to the Distant Future

By Andreas Rasche

Whenever we think about regulating sustainability problems, we usually think about the here and now or at least about the not too distant future. Even with regard to climate change, which clearly is a problem for future generations, regulators have a time horizon of not more than 30 or 40 years. The Paris Accord is a case in point – it sets targets for 2050. Also, the European Union’s climate strategy sets goals until 2050. But, what happens if regulators need to think about a very distant future?

Consider the example of nuclear waste. The challenge is not only to find a secure location to store the byproducts of burning uranium. The challenge is also, and maybe most of all, to prevent future generations to disturb the deep underground storage facilities, be it intentional or not. This requires “talking to” distant future generations. Chlorine-36 (one of the byproducts) has a half-life of approximately 300,000 years. Compare this to the roughly 40,000 years that the behavioral homo sapiens is supposed to be around – i.e. human beings which engaged in the development of language and early forms of religion – and you get an idea about the scope and scale of the underlying challenge.

Deep underground storage is, at least as of now, the only option to deal with nuclear waste. In the 1980s, some governments considered the idea of simply firing nuclear waste into space. This idea was rejected due to security concerns. Right now, there are few final repository sites for nuclear waste, such as the US-based Waste Isolation Plant in New Mexico.

>>How do we secure these sites from future human intervention? What is needed is a way to communicate with future generations. <<

By definition, the future is unknown and we do not know whether future generations may try to dig at the sites where nuclear waste is disposed. There are many reasons why such underground storage sites could be interesting for future generations, ranging from pure curiosity to a danger that they misread/misinterpret warning signs or other artifacts. What will be a symbol of danger in, say, 150,000 years from now? How does memory survive?

Governments around the world have developed different approaches to talk to the future. One possible US solution includes giant granite markers that are supposed to prevent human intervention (see picture). The US Department of Energy writes:

“Regulations require that waste disposal sites use markers and other controls to indicate dangers and locations of waste.”

One problem with these giant markers is exactly that they are giant and that they are supposed to signal fear and danger. What, however, if signals of fear and danger incite curiosity? The US facility will not be closed until 2050, so there is still time to decide otherwise.

Source: US Department of Energy (Concept: Mike Brill, Drawing: Safdar Abidi, Image courtesy of BOSTI)

If a written message were to be attached to any warning markers, how would such a message look like? One current proposal is to use the message (see below) which is then to be translated into every written UN language. Although there is no consensus on the content and nature of the message among members of the Nuclear Energy Agency (NEA), it is clear that such a message needs to be developed.

“This place is a message… and part of a system of messages …pay attention to it! 
Sending this message was important to us. We considered ourselves to be a powerful culture. 
This place is not a place of honor … no highly esteemed deed is commemorated here… nothing valued is here. 
What is here was dangerous and repulsive to us. This message is a warning about danger. 
The danger is in a particular location… it increases towards a center… the center of danger is here… of a particular size and shape, and below us. 
The danger is still present, in your time, as it was in ours. 
The danger is to the body, and it can kill. 
The form of the danger is an emanation of energy. 
The danger is unleashed only if you substantially disturb this place physically. This place is best shunned and left uninhabited.”

Trauth, K.M., Hora, S.C., & Guzowski, R.V. Expert judgment on markers to deter inadvertent human intrusion into the Waste Isolation Pilot Plant. United States. doi:10.2172/10117359, pp. F49-F50

Alternative?

An alternative solution would be to adopt a more evolutionary approach. Such an approach would not put the message into granite (or other materials). Rather, it would create “an enduring culture around the nuclear waste depositories.” (Financial Times, 14 July 2016) Keeping the memory alive, then, would be an accomplishment that is passed from generation to generation (e.g., via stories, exhibitions, songs, art). As language and symbols change over time, this evolutionary approach would adapt the message to the contextual particularities that evolve in the future. Such a community-based approach would then rely on locals, who live around a waste storage site, to warn others.

There are pros and cons for both approaches and it is uncertain what regulators will do. However, what this example shows is that thinking about regulating actions in the distant future requires drawing on insights from multiple disciplines, ranging from linguistics to nuclear scientists and anthropologists.

Does all of this have something to do with sustainability? Just think about a world in which we cannot securely seal nuclear waste…

About the Author

Andreas Rasche is Professor of Business in Society at CBS and Associate Dean for the CBS Full-Time MBA Program. He is also Visiting Professor at Stockholm School of Economics. More at: www.arasche.com.

By the same author:

Why Corporate Sustainability is Bullshit (And Why This is a Good Thing)

The Ethical Blindness of Corporate Sustainability

Photo by Ra Dragon on Unsplash

Business + purpose = big trouble. But wait, here is one surprising point of agreement

By Dieter Zinnbauer.

Reactions to the recent statement by the Business Roundtable that recognizes a regard for stakeholders rather than a narrow focus on shareholders as a pillar of corporate purpose have been swift, strong and predictably diverse.

They run the entire gamut from enthusiastic embrace (a landmark shift towards a new form of capitalism) to sarcastic dismissal (the usual PR stunt to parry bad press and imminent regulation). Adding to this cacophony is the fact that the frontlines in this longstanding debate do not closely align with political or disciplinary dispositions but criss-cross ideological and scholarly camps.

Some corporate governance experts see just another blatant power grab of unaccountable CEOs, while others believe to witness a much-overdue assertion of responsible corporate leadership and holistic thinking in a complex world. Similarly, stark disagreements run through the advocacy community: some sense an opening for a constructive conversation, while others reject the statements as a distraction and cul-de-sac on the path towards building the economic governance that we really need for a sustainable and inclusive future.

So all has been said and we are left with the usual trenches and irreconcilable viewpoints?

Maybe. But wait – amidst all the quarrels and soliloquies here is one astoundingly consensual point that lots of commentators from very different backgrounds have been making:

>> if companies are serious about good corporate conduct strengthening transparency, responsibility and accountability of their lobbying and other corporate political activity is an essential piece of the puzzle. <<

Consider as illustrative examples these five quotes from influential commentators/organisations:

A corporate governance expert in favour of more, not less shareholder influence:

“If the top executives were serious about improving the way their companies are run, what about a commitment to reduce their lobbying and making it more transparent?”

Luigi Zingales in Wall Street Journal, August 20, 2019

A non-profit group working closely with progressive corporations:

“the statement skirts the issue of the private sector’s role in our societies… Poll after poll shows that the public is deeply upset about the role lobbying plays in Washington… The critiques of capitalism which are being heard across the political spectrum are a natural consequence of the sense by many that the system is deeply unfair and manipulated to benefit the few. This statement does little to address that, and to the degree it is intended to respond to the public challenge to capitalism, it is unlikely to succeed.”

Business for Social Responsibility, website, August 22, 2019

An eminent economist and former senior US government official / chief economist of the World Bank:

“What obligation are roundtable companies now under not to subvert American democracy with campaign contributions or extensive lobbying operations?”

Larry Summers in Washington Post, September 2, 2019

An environmental NGO proposes the following as one of “three crucial additions” to move the BRT statement from rhetoric to meaningful action:

“Using corporate brands and political influence to support systemic changes that ensure equitable opportunities for all. This means lobbying for climate-positive legislation and increasing corporate transparency; driving change to move trade associations from lowest common denominator to highest common factor”

World Resources Institute, website, August 22, 2019

 Finally, the assessment of an eminent commentator on business and economics

“Members of the Business Roundtable and their peers have tough questions to ask themselves…. They must, not least, consider their activities in the public arena. What are they doing to ensure better laws governing the structure of the corporation… a fair and effective tax system, … and a democracy responsive to the wishes of a broad majority?”

Martin Wolf in Financial Times, September 18, 2019

Perhaps it is just me and a very selective reading of the flood of reactions – as I am just embarking on a European Union-funded research project on corporate political activity and non-market strategy. But I cannot help thinking that this time is perhaps really a bit different. A bewilderingly diverse bunch of opinions from very different backgrounds and perspective appear to hone in on a very specific point of convergence with remarkable regularity: The road towards good and perhaps even better corporate conduct will have to lead through more accountable, transparent and responsible exercise of corporate political activity – irrespective of the model of the corporation and its role in society you subscribe to. Such an unexpected, cross-cutting agreement bodes well for a broad coalition of change and actual shifts in norms, policies and practice.

Back at the Business Roundtable.

The position on corporate political activity has already shown signs of evolving. In 2013 it’s then-president still campaigned on an unrelenting stance that corporations do not and should not even support disclosure of corporate lobbying activities. By 2016 it had begun to acknowledge that the board should assume an oversight role of political activities within the firm and also have the say on disclosure. Still, a long way to go for developing a substantive and meaningful position on responsible corporate political activity attuned to the times. But it will be very exciting to track how this conversation that is so central to any notion of corporate purpose and the role of business in society evolves, both at the Business Roundtable and in the business community more broadly.

About the author

Dr. Dieter Zinnbauer is a Marie-Skłodowska-Curie Fellow at CBS’ Department of Management, Society and Communication. His CBS researches focus on business as political actor in the context of big data, populism and “corporate purpose fatigue”.

Twitter: @Dzinnbauer

Essays: https://medium.com/@Dzinnbauer

Working papers:  https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1588618

Photo by Octavian Rosca on Unsplash

Thinking outside the box on corporate tax practice

By Sara Jespersen.

Multinational corporate tax payments – a persistent conundrum.

Corporate tax practice of multinational corporations (MNC) have been the topic of intense debate in the media and among policy makers in recent years. Most recently the news broke that Amazon would pay zero tax on their more than 11 billion profit in 2018. The OECD have coordinated a large project on the topic and involved countries around the world in discussing attempted solutions to the issue of “base erosion and profit shifting” which is the technical term for states finding it challenging to tax the profits of MNCs.

Not only policy makers and media have taken an interest in the topic. NGOs have played a large part in agenda setting and mobilizing citizens’ concern in the topic of MNCs tax payments. Last year an interesting book was published on the topic of “The “new” politics of Tax Justice” edited by Richard Eccleston and Ainsley Elbra.

However, the issue is far from resolved. A few weeks ago, at a seminar here at Copenhagen Business School renowned tax law scholar Rita De la Feria confirmed that when it comes to MNCs and the creation of economic value – we simply do not know where it actually takes place geographically. Which under the current rules and norms for international taxation makes it very difficult to ensure an appropriate taxation of MNCs corporate profit as this is closely linked to economic value creation. At the same time, research tells us that MNCs are increasing responsible for the global profits (see table F3 in the Appendix tables here). This is a challenge for policy makers, but highlights the relevance and importance of tax research.

Still much to gain from rethinking corporate tax as a social and institutional practice

Maybe we can learn something from rethinking the boundaries of the topic? Move it beyond a technical/legal debate about the formulas and boundaries of corporate accounting practices to identify economic value on paper. Lynne Oats already reconceived “tax as a social and institutional practice” building on the work done in the related field of accounting challenging its mere technical nature. Further interesting work in this vein can be mentioned the book “the new fiscal sociology” edited by Isaac William Martin highlighting the importance of context for the tax phenomenon. Much more is to be learned about notably the role of corporate taxation in relation to business in society, the fiscal contract between business and the state, and the institutions and social structures that embed the economic activities of MNCs. For example how the notion of corporate social responsibility relates to corporate tax practice.

A recent integrative review by Whait, Christ, Ortas and Burritt (2018) of the literature on CSR and tax aggressiveness find that little research approach the topic from a historical, theoretical or qualitative approach. Further very little research exist on the MNCs that do not consider themselves particularly “aggressive” in their tax affairs, but rather would perceive themselves as responsible. Fortunately, there appear to be developments in practice that indicate that we also have more material available to engage in this type of research.

Developments in practice

Just in the past year, three interesting developments are worth mentioning that express how corporations, the media and policy makers approach the topic of corporate tax practice from different angles:

In 2018 a grouping of MNCs developed and endorsed the B-team’s “Principles for responsible tax”. The B-team is “is a not-for-profit initiative formed by a global group of business leaders to catalyse a better way of doing business, for the wellbeing of people and the planet”. The founding and endorsing companies count just over ten at the moment, but with a call for further business to join the conversation and sign up to the principles. This appears as an example of multinational corporations expressing their willingness to appear more responsible and linking their tax practices to issue of ensuring stable and sustainable societies.

In Denmark, a survey of Danish top 100 companies’ performance on tax governance published for the second year released this month . Findings show only relatively small progress in the picture overall and more than half score zero points on the rating that this journal has developed for the purpose. The fact that the survey publishes the second year in a row is interesting in itself. It appears as a part of the increasing interest from a variety of stakeholders in the topic of corporate tax governance. It indicates a more mainstream interest in the topic from a corporate governance perspective. Corporate tax is traditionally viewed as a cost to be minimized. However, this survey and the demonstration that there is movement in the practice related to tax governance gives relevance to conceiving corporate tax as a social and institutional practice. Group Tax Directors are experiencing increased interest in their work and area of responsibility and this translates into new practices and ways of communicating corporate tax policy.

On the international front, the OECD public consultation on the topic of tax morale closed this month. What was particularly interesting from the OECD’s presentation of the topic at a conference in January this year is that they find that we know very little about business tax morale. How important it is in what situations. We know more about individuals’ tax morale. For example, that it appears to be higher in countries that tax more. Findings from OECD’s consultation will be interesting to follow. I for one will be looking out for how the OECD, as primarily a forum for policy makers, will make use of this input.

A promising research agenda:

Investigating the emerging relationship between corporate tax practice and CSR holds much potential for learning more about MNCs and their relation to society. It might not solve the conundrum of how to ensure their effective and fair taxation at first sight, but being open to conceiving corporate tax as a social and institutional practice might deliver valuable insights and move us towards a more sustainable relationship between business and society.

About the author

Sara Jespersen is a PhD fellow at Copenhagen Business School. Her research is on the emerging relationship between responsible business conduct and corporate tax planning of multinational enterprises. In a complex governance context there are now signs of corporations’ self-regulation and the emergence of voluntary standards. She is interested in what this means for our understanding of corporations as political actors and the notion of political CSR.

Articles by the same author

Investigating Emerging Responsible Corporate Tax Practice

Photo

Photo by TJ Dragotta on Unsplash.

The year of corporate acting—does business need a new approach to palm oil?

By Amanda Williams, Steve Kennedy and Gail Whiteman.

2018 went down as the ‘year of corporate caring’ about the palm oil controversy. A banned TV advertisement promoting a Palm Oil free Christmas by the UK supermarket Iceland went viral on social media with over 5 million views in merely a couple of weeks. Shortly after, on the south bank in London, Iceland responded to the ban with a displaced Orangutan hanging from a Christmas tree surprising tourists and drawing attention to the loss of biodiversity due to the clearing of virgin rainforests. Debates about palm oil in Malaysia and Indonesia are far from new. But recent events are surely stirring up the conversation and attention to the issue is at an all time high.

Proponents are reacting to the complete ban of palm oil with statistics on the efficiency yields from the fruit of oil palm trees and claim boycotting palm oil would simply shift demand to other types of vegetable oil to meet demand. Palm oil has climbed the charts in popularity because it is cheap, versatile and efficient. While others argue that despite the efficiency benefits of the crop, new approaches are needed to tackle this pressing humanitarian and environmental issue.

Business and Palm Oil

CEOs of multi-national corporations that depend on palm oil and tropical timber in their supply chains are well aware of their impacts and the consequences of deforestation. Outgoing Unilever CEO Paul Polman already stated back in 2015:

“We are seeing the effect of climate change in our own business. Shipping routes cancelled because of hurricanes in the Philippines. Factories closing because of extreme cold weather in the United States. Distribution networks in disarray because of floods in the UK. Reduced productivity on our tea plantations in Kenya because of weather changes linked to deforestation of the Mau forest. We estimate that geo-political and climate related factors cost Unilever currently up to €300 million a year.”

Many companies are working hard to address the issue. The Roundtable on Sustainable Palm Oil, established in 2004, brings together palm oil producers, traders, consumer goods manufacturers, retailers and NGOs to improve environmental and social criteria for the certification of sustainable palm oil. The roundtable boasts that 13.20 million tons of palm oil is RSPO certified, amounting to 19% of the global volume. Palm oil certification is expensive for farmers to obtain and has yet to solve issues of deforestation or poverty.

Yet, ambitious corporate targets are not translating into concrete results on the ground.

Beyond certification, companies are setting ambitious targets. Unilever’s touchstone Sustainable Living Plan aims to become carbon positive by 2030 and halt deforestation by 2020. And Nestle is ‘striving for zero’ environmental impact including emissions and deforestation. Yet, ambitious corporate targets are not translating into concrete results on the ground. Recent reports demonstrate that emissions and deforestation rates are still rising. In advance of 2020, at the Consumer Good Forum, brands admitted that reaching zero deforestation targets by the end of the decade is unlikely. The head of sustainability and procurement at Mars, Barry Parkin, is calling for strategies that go beyond certification that consider “new theories of change.”

Current efforts aren’t cutting it

Despite these ambitious efforts, the situation in Malaysia and Indonesia remains bleak and deforestation continues at alarming rates. In Borneo, only 43 percent of its original lowland rainforests remained by 2015. Lowland rainforests are optimal for palm oil production plants but are also home to many rare species. The consequences of deforestation extend beyond biodiversity loss to land degradation, droughts and forest fires, which interact to further increase emissions.

Even if companies successfully meet ambitious zero deforestation targets, halting deforestation may prevent further increases in emissions, but is unlikely to restore societal and environmental resilience to future shocks. If certification and deforestation targets are not the solution, then what is?

Lessons for business

How can business leaders approach palm oil production differently? Based on our latest article, we offer several suggestions:

  1. Focus on a different scale. Firm-centric approaches, such as mitigation and adaptation to the effects of climate change, may keep companies afloat in the meantime, but are unlikely to offer a long-term solution. Mitigation and adaptation aim to enhance firm performance and respond to the effects of the problem, but do little to consider the eco-systems on which the companies depend. Complex interactions in local societies and ecosystems go unnoticed and leave companies vulnerable to future disturbances. New approaches should consider how to develop healthy ecosystems that can continue to provide services for the local community and companies for decades to come.
  2. Look closer. When considering the intricacies of ecosystems, managers can monitor slow variables and feedbacks. Slow variables such as the amount of soil organic matter, insect populations or the level of rainfall can control how an ecosystem functions. Managers can identify the slow variables that govern how ecosystems behave and what levels of these variables puts the ecosystem at danger. Feedbacks offer managers warning signals that changes are occurring and allow to detect when ecosystems may be at risk. Managers can seek to tighten their recognition and action to feedback loops in order to minimize time delays and improve chances of avoiding ecosystem collapse.
  3. Manage ecosystem diversity and redundancy. Moderate levels of diversity and redundancy allow ecosystems to thrive. When a disturbance strikes, response diversity allows ecosystems to react in numerous ways. Redundancy provides substitute functions when elements that preform similar functions fail. When diversity and redundancy are compromised, ecosystems become brittle and vulnerable to even small disturbances. Firms can move beyond halting deforestation by actively building viable business models for land restoration. For example, effective cropping system diversification can lead to landscape restoration, increased economic viability and enhanced ecosystem resilience.

As companies such as Mars are calling for an overhaul in corporate efforts to tackle deforestation, we hope these lessons offer some inspiration.

Authors

Amanda Williams is a Senior Researcher at ETH Zurich in the Sustainability and Technology Group. She recently completed her PhD from Rotterdam School of Management, Erasmus University. Currently, she is a part of Copenhagen Business School’s Governing Responsible Business (GRB) World Class Research Environment Fellowship program. With Steve Kennedy (Rotterdam School of Management) and Gail Whiteman (Lancaster University) she wrote this blog post and an article on cross-scale perspective for studies of organizational resilience (see below).

Citation:

Williams, A., Whiteman, G., & Kennedy, S. (2019). Cross-Scale Systemic Resilience: Implications for Organization Studies. Business & Society. https://doi.org/10.1177/0007650319825870

By the same author

In November 2018, Amanda Williams has written an article about Corporate contributions to United Nations’ Sustainable Development Goals. Find it right here.

Photo by Marufish on flickr.

The Academic Smarts in the Smart City

By Lara Anne Hale.

Smart Cities 101

Last week I had the pleasure of being one of eight students to join the University of Aalborg course “Smart Cities – Technologies and Institutions” led by Professor Anders Henten and Associate Professor Reza Tadayoni. I applied for this course in May 2018, and then promptly forgot about it again. I can’t even find any remnants of a confirmation in my mailbox; and I’m only able to figure out when I had actually applied because of a Facebook chat that took place around it.

Yet, when the acceptance pinged into the mail lineup a few weeks ago, I made sure to cancel all previous obligations to open up the time for this three-day course. This is because – although it may not be obvious – there is a shortage of educational opportunities concerning what a smart city is, who is involved, how they are working to put the pieces together, when we can realistically transition, and why this even makes sense to pursue.

There are a number of reasons for this, not least of all because most of the projects bringing forth the Internet of Things (IoT) that smart cities are founded on, are detailed somewhere between (occasionally accessible) engineering papers, such as [1], and the (overly simplified) ‘government-slash-consultancy’ reports, such as [2] and [3]. Which, while comforting to know governments are investing in this kind of research, also create discomfort over who might have the language and knowledge with which to discuss, or even influence, smart cities development.

This brings me to one of the other major reasons for the lack of academic representation: smart cities involve such a conglomeration of disciplines, skills, languages, and theories that it would seem almost impossible to embody its understandings in one scholar. And it could be seen in our group: the teachers were from political economics and engineering; and the students represented organizational studies (myself), civil engineering, architecture, IT, anthropology, and more. It reminded me of a course I took in my bachelor studies “Bioethics of the 21st Century”, requiring both a Professor of Microbiology and a Professor of Philosophy and constituted of seemingly disparate discourses merging in the reality of our bioethics challenges.

From Science Fiction to Society

At that time, anyone who believed that bioethics was unnecessary needed only to look at the mass abuse of antibiotics or the explorations into stem-cell research. And anyone who now believes that the smart city is a feature of the future had better take a look around at the present. Just consider the kind of political affiliation conclusions (otherwise known as “profiling”) that can be extrapolated from Twitter data [4]. Even WIRED Magazine recently released an article detailing how governments are bringing together the sophistication of interconnectivity and the maturation of artificial intelligence (AI). This, paired with the overly optimistic intentions for social media and the willful blindness of the West’s superpowers, could result in a new-found political war over the control of not just data, but also the city- (even nation- or internation-) wide imposition of government, industrial, and freedom controls [5]. As they call it, the “AI Cold War”.

More on the day-to-day practical side of things, the devices primed to share data to the bigger cloud for smart city processing start making themselves cozy on our shelves, sockets, and even wrists. Postscapes, an organization specializing in organizational efficiency and waste reduction through IoT and machine-learning technologies, identifies the top 2018 IoT devices as centering around convenience (e.g. smart locks, smart home hubs) and energy savings (e.g. smart thermostats, smart lights) [6]. Embedded in the banality of these literal black boxes are the governance and democratic implications set forth in the aforementioned articles; but it is the nature of technology to develop towards ease-of-use, and eventually, invisibility. Yet, where there is change, there is also opportunity.

Organizational Smarts

Certainly, building organizations are keenly aware that digitization and smart buildings are no longer a negligible aspect of the business. Rather, there is the question of how they should engage with these changes, and most importantly, how this novel connection with end-users (through the little black boxes) might change (or – more cautiously – improve) the way they do business.
One of the most prominent ways such a consideration is voiced is in the terminology of nudging, referring to a “relatively subtle policy shift that encourages people to make decisions that are in their broad self-interest” [7]; the catch being that in a smart city, it is not the policy that does the encouraging, but the technology, be it technological infrastructure, application design, or signals from devices.

For example, simply communicating electricity consumption compared to one’s neighbours changes people’s use of electricity (for better, or for worse) [8]. And so, building organizations have embarked upon a journey to apply understandings of how people behave, how smart buildings can connect with behaviour, and how it makes good business sense to digitize buildings; but they cannot do it alone. Half of the organizational smarts are about the business ecosystems and partnerships being formed in order to bring smart spaces to reality.

And despite having my hands full examining this scale of organizational work, it’s been enlightening to go from the organizational perspective on the building level (as I research about smart buildings and healthy indoor climate) to the city level. Previously I would have thought of this as being more relevant for those working with mobility or utilities; but after this course I better understand that the playing field for intention, business, and power in the communication technologies and protocols that enable smart cities (and also smart buildings) is much broader and nuanced than I had previously understood. Just learning about the communication technology forms was enough to blow this little biologist-environmentalist-organizational-sociologist’s mind. Even knowing their names and relative differences [9], I’m still not sure how this will meet expectations of a better world.

The 5Gs and 5Ds of Smart

One thing is for sure, standards matter, and standards will be made. Before this course, I had never even heard of 5G, and yet the European Commission identifies it as “the most critical building block of our digital society in the next decade” [10]. The Commission has been polishing the EU standards for 5G since 2016 [11] and has earmarked €700 million in funding, with initial rollouts planned for 2018 and followed by another, broader wave in 2020.

The concept of 5G extends well beyond an acceleration of mobile service into a virtual “stacking” of data incoming from the other communication technology forms (such as WiFi and LPWAN) in order to create a synergetic cloud-network, from which it would (hypothetically) be possible to analyze and improve upon the city system (otherwise known as us, our lives, and our environment). From what I understand, the most part of such an analysis is planned to be done by AI.

Okay, so the little black boxes track and communicate our data over these various communication systems, which are compiled into the 5G cloud, where AI interprets the Big Data into meaningful action, executed again, by the little black boxes. No wonder experts are writing articles about an eminent AI Cold War. Luckily “privacy” is not the last word in the sentence. Rather, researchers are working hard to outline what types of privacy can be protected in the various angles of the smart city. Already in 2013, Martínez-Ballesté et al. identified the 5D (five dimensions) of smart city privacy as: identity privacy, query privacy, location privacy, footprint privacy, and owner privacy [12].

The 5 dimensions of smart city privacy:

identity, query, location, footprint and owner privacy.

Martínez-Ballesté et al.

These authors also point to the necessity for further security efforts within digital infrastructures and the transportation of data; a finger which has trouble settling its point due to the vast number of parties involved in bringing smart cities to life. Which one of these organizations is responsible for guaranteeing security? And is this a public or a private organizational responsibility?

Academic Smarts

No, those were not rhetorical questions. They were academic ones. And in discussing the 5G and the 5D, I’m reminded of another 5D. During the 6th Active House Symposium workshop “Digital Design Meets Digital Use: Active House principles in BIM and smart buildings” that I co-organized with PhD fellow Federica Brunone, Federica highlighted that Building Information Modeling (BIM) technology enables planning for the built environment beyond the Height, Width, and Depth; that the 5D adds Time and Sustainability. I suppose that the latter of these five, Sustainability, is the one that we are still struggling to incorporate into the standardized practices of life.

Building Information Modeling technology enables planning for another 5D:

Height, Width, Depth, Time and Sustainability.

Although I’ve been told during my research that Sustainability was the past, and Smart is the future, I have to question if that conclusion is not a dismissal driven by the challenges that Sustainability poses to Smart. How can we be smart without being sustainable? And better yet, if we can study, research, teach, practice, policy-make, and live in a sustainable way, won’t that pave the way for smart cities? Those were not academic questions. I think you know the answer.

References

  1. Maha Saadeh, Azzam Sleit, Khair Eddin Sabri, and Wesam Almobaideen. (2018). Hierarchical architecture and protocol for mobile object authentication in the context of IoT smart cities, Journal of Network and Computer Applications, 121: 1-19.
  2. Danish Ministry of Housing, Urban and Rural Affairs. (2015). Tomorrow’s Cities are Digital and Human – Smart City methods: from ideas to action. Anders Nørskov, Kristoffer Nilaus Olsen, Lukas Beraki, and CEDI (Eds.). The Ministry of Housing, Urban and Rural Affairs, Denmark 2015. ISBN: 978-87-7134-136-2. Accessed 18 November 2018 from: https://erhvervsstyrelsen.dk/sites/default/files/smart_city_2015_english_0.pdf
  3. Doody, L., Walt, N., Dimireva, I., and Nørskov, A. (2016). Growing Smart Cities in Denmark: Digital Technology for Urban Improvement and National Prosperity. Arup and CEDI, Denmark 2016. Accessed 18 November 2018 from: http://um.dk/da/nyheder-fra-udenrigsministeriet/newsdisplaypage/~/media/UM/Markedsinformation%20Publications/Growing_Smart_Cities_in_Denmark.pdf
  4. Mathias, C., Storey, S., and Hooper, A. (2016). We the Tweeple. Huffington Post, 19 October 2016. Accessed 18 November 2018 from: http://data.huffingtonpost.com/2016/we-the-tweeple
  5. Thompson, N. and Bremmer, I. (2018). The AI Cold War that Threatens Us All. WIRED Magazine, 23 October 2018. Accessed 18 November 2018 from: https://www.wired.com/story/ai-cold-war-china-could-doom-us-all/
  6. Postscapes. (2018). IoT Devices and Products. Retrieved 18 November 2018 from: https://www.postscapes.com/internet-of-things-award/winners/
  7. Chu, B. (2017). What is ‘nudge theory’ and why should we care? Explaining Richard Thaler’s Nobel economics prize-winning concept: How subtle policy shifts can be in everyone’s best interest. Independent, 9 October 2017. Accessed 18 November 2018 from: https://www.independent.co.uk/news/business/analysis-and-features/nudge-theory-richard-thaler-meaning-explanation-what-is-it-nobel-economics-prize-winner-2017-a7990461.html
  8. Holmes, B. (2018). Nudging grows up (and now has a government job). Knowable Magazine, 1 February 2018. Accessed 18 November 2018 from: https://www.knowablemagazine.org/article/society/2018/nudging-grows-and-now-has-government-job
  9. Ledger, D. (2016). Making sense of the myriad of IoT standards and protocols. Medium Corportation, 10 June 2016. Accessed 18 November 2018 from: https://medium.com/@dledge/making-sense-of-the-myriad-of-iot-standards-and-protocols-88dc4792ba1f
  10. The European Commission. (2018). Digital Single Market: Towards 5G. Accessed 18 November 2018 from: https://ec.europa.eu/digital-single-market/en/towards-5g
  11. The European Commission. (2018). Digital Single Market: Research and Standards. Accessed 18 November 2018 from: https://ec.europa.eu/digital-single-market/en/research-standards
  12. Martínez-Ballesté, A., Pérez-Martínez, P.A., and Solanas, A. (2013). The Pursuit of Citizens’ Privacy: A Privacy-Aware Smart City Is Possible. IEEE Communications Magazine, June 2013. Accessed 18 November 2018 from: https://ieeexplore.ieee.org/document/6525606/

Author

Lara Anne Hale is an industrial postdoc fellow with VELUX and Copenhagen Business School’s Governing Responsible Business World Class Research Environment. The 3-year project is part of Realdania’s Smart Buildings & Cities cluster within BLOXHUB’s Science Forum. It builds upon her PhD work on experimental standards for sustainable building to look at the business model innovation process in organizations’ adaptation to the smart building business. Follow her on Twitter.

Photo by Kristian Egelund on Unsplash.

Sustainability’s Infrastructure

Ethnographies of the global value chain of certified tea (SUSTEIN)

By Hannah Elliott, Martin Skrydstrup and Matthew Archer.

Why SUSTEIN?

Currently, the world’s tea industry is on a race with time to source tea sustainably before 2020. But what is “sustainable tea” and how do we know if tea is sustainable or not? This project entitled SUSTEIN (SUStainable TEa INfrastructure) will focus on this question by way of looking at localized translations of transnational sustainability standards in Kenya, United Arab Emirates and corporate headquarters in Europe. We aim to advance our understanding of the global value chain of certified tea.

3 Research lines

The theoretical objective is to venture beyond the notion of global value chain by reinterpreting sustainable supply chain management through the concept of infrastructure, a notion anthropologists and other social scientists have deployed in recent years to emphasize the political and temporal aspects of networks such as transnational supply chains. We hope that this concept will allow us to better comprehend how sustainable certification schemes manifest in global value chains.
SUSTEIN consists of three sub projects, which each address a core question posed by the project:

  • How does certification shape agrarian production in the form of cultivation and factory processing, and vice versa? Who benefits from which sustainability standards? (Line A)
  • How does certification influence the valuation of tea, assessed in terms of taste, grade and price? How is the value of certification performed and capitalized? (Line B)
  • How do corporate professionals and independent auditors distinguish between “sustainable/unsustainable”? What lines of evidence are recognized? (Line C)

Each of these questions will be answered by the corresponding research line:

tea plantation
Tea plantage in Kericho; one of SUSTEIN’s field sites.

Research line A

explores agrarian questions, enquiring into the ways contemporary drives towards sustainability shape and are shaped by modes of tea production in Kenya. The research focuses on the institution of the tea plantation and its associated factories and outgrower farms, all key components of the infrastructure of sustainable tea. The tea plantation has been described as having a “dual character” (Besky 2008: 1); it has its roots in British colonialism while being contemporarily positioned in international markets for certified sustainable commodities. This research line enquires into what ‘sustainability’ comes to mean and materialise within this apparently contradictory setting. How do contemporary measures seeking to ensure sustainable tea production, such as certified standards, affect the way tea is produced in the context of the plantation? And to what extent do longer-standing modes of plantation production endure through the present, in turn shaping contemporary sustainability ideologies and practices? The research line addresses these questions through ethnographic inquiry. The researcher will spend time with the people working on tea plantations and in factories certified by different certification bodies and on the farms of outgrowers contracted to supply the companies owning plantations with supplementary sustainable tea. Through interviews and participant observation, the ethnographer will enquire into the social, political and ethical worlds surrounding sustainable tea production in contemporary Kenya.

Research line B

will follow through on the plantation and factory sites to the auction sites in Mombasa and Dubai. Ethnographic fieldwork will be conducted in the Jebel Ali Free Zone in Dubai with no tax regulations, no strict labor laws nor import/export duties, making it the perfect infrastructural hub to blend and pack tea according to corporate logic. Likely as an outcome of this, the Dubai Tea Trading Centre has since its establishment in 2005 risen to re-export 60% of the world’s tea production. These volumes are predominantly traded on virtual platforms.
In contrast, the Mombasa Tea Auction holds two weekly auctions under the auspices of the East African Tea Trade Association (EATTA), which conforms to national regulations (Tea Act of Kenya & Tea Board of Kenya). Recently, this auction site voted “against the mouse and for the hammer,” maintaining the tradition of the Dutch auction style vs. virtual trading. The ethnography for this research line will move between these two sites, following tea blenders who purchase in Mombasa vs. Dubai and investigating tea expertise and technologies as it pertains to the valuation of certified tea.

Research line C

builds on these ethnographies of production and exchange to try and understand the relationship between corporations and standards/certification regimes. There is a tension between these groups of actors whereby standards organizations such as the Rainforest Alliance and Fairtrade International need to appear independent in order for their certifications to remain credible while at the same time remaining sensitive to the financial obligations of for-profit corporations in order to promote “buy-in.”
This research line will draw on interviews with people working in these organizations and participant observation at sites where they interact, including industry conferences and trade fairs. These are the sites where sustainability is negotiated as both a concept and as a set of practices. With that in mind, interview questions will focus on, among other things, the extent to which specific agricultural and trading practices are integrated into broader definitions of sustainability and their manifestation in different certification regimes, the challenges of maintaining a critical distance between certifiers and corporations, and the way standards govern markets and, crucially, vice versa.

The grant

SUSTEIN is made possible by the Sapere Aude Starting Grant (meaning “dare to know”), awarded by the Danish Council for Independent Research (DFF). The Sapere Aude program “is aimed at younger, very talented researchers, who at the time of the application deadline and within the last eight years have obtained their PhD”. The Sapere Aude program targets “top researchers who intend to gather a group of researchers, in order to carry out a research project at a high, international level.”

Reference

Besky, S. (2008) ‘Can a plantation be fair? Paradoxes and possibilities in Fair Trade Darjeeling tea certification’. Anthropology of Work, XXIX: 1, pp. 1-9.

Hannah Elliott is a post-doc in the Department of Management, Society, and Communication at Copenhagen Business School, having recently finished her PhD at the University of Copenhagen. She is responsible for research line A.

Martin Skrydstrup is an associate professor in the Department of Management, Society, and Communication at Copenhagen Business School and is the principal investigator of SUSTEIN. He is also responsible for research line B.

Matthew Archer is an assistant professor in the Department of Management, Society, and Communication at Copenhagen Business School and is responsible for research line C. He recently completed his PhD in environmental studies at Yale University and is interested in corporate sustainability and sustainable finance.

Closing remarks

In a year we hope to update BOS readers about how far we are with answering our research questions. In the meantime, we invite you to swing by our offices at Dalgas Have for a cup of tea.
The SUSTEIN project runs from 1 July 2018 to 30 June 2020.
For further information about the project, please contact the principal investigator, Martin Skrydstrup, at msk.msc@cbs.dk.

A framework for assessing the potential of behaviour change for global decarbonisation

By Kristian Steensen Nielsen

Addressing climate change requires an urgent implementation of far-reaching solutions. Policy-makers and natural scientists have mainly offered supply-side solutions to solving the climate problem, such as widespread adoption of new or innovative technologies. While of critical importance, strictly prioritising supply-side solutions is unlikely to deliver the necessary greenhouse gas (GHG) emissions reductions within the desired time frame. An often-overlooked demand-side solution is behaviour change, which can offer both immediate and long-term reductions in GHG emissions.

There is an urgent need for rapid decarbonisation to reduce the magnitude of climate change. The Paris Agreement reflected this urgency in its formulation of ambitious goals to keep the global temperature increase below 2°C and preferably 1.5°C. Since the Paris Agreement, researchers—often affiliated with the Intergovernmental Panel on Climate Change (IPCC)—have with accelerated frequency been building scenarios for potential pathways to reach the temperature goals.[1] These far-reaching—and arguably radical—pathways involve urgent transitions to renewable energy sources and the majority assumes the use of carbon dioxide removal (CDR) technologies, such as afforestation or bio energy with carbon capture and storage (BECCS). Neither of the pathway scenarios take behavioral changes into account despite the fact that studies have shown its potential to reduce GHG emissions. For example, Thomas Dietz and colleagues (2009) found that a national implementation of behavioural changes in the United States could reduce U.S. households’ direct emissions by 20% within 10 years (representing 123 million tons of CO2). Although not sufficient single-handedly, behaviour change can help speed up the decarbonisation of societies.

 

Three dimensions of behaviour change

To identify the potential of behavioural changes to reduce GHG emissions, it is critical to consider three dimensions[2]:

  1. the technical potential (TP) of a behaviour, or the emissions reduction achieved if an individual or a target population collectively adopted the behaviour;
  2. behavioural plasticity (BP), or the proportion of the technical potential achievable through the most effective behavioural interventions; and
  3. feasibility of initiatives (IF) to induce change, which refers to the likelihood that the most effective interventions are achievable within a target population.

Focusing exclusively on either of the three dimensions will result in skewed analyses from which only imperfect interventions can be developed. For example, substituting a GHG-intensive behaviour with a less GHG-intensive alternative (e.g., flying to Bermuda on vacation versus vacationing in one’s own country) will promise a high TP but the extent to which people are willing to make such a behavioural substitution may be less promising (BP) and so might the feasibility of achieving the behavioural change across a large population (IF). Conversely, a behaviour could be easy to change (e.g., getting people to shut off lights in unoccupied rooms) and feasibly be implemented in a large population, yet hold a very low TP and therefore even in the aggregate fail to reduce emissions by much.

Identifying the most promising target behaviours

The task of researchers (across disciplines) in collaboration with policy-makers and companies is to identify the behaviours with the highest potential to reduce GHG emissions while considering all three dimensions in cohesion. Making such calculations is no easy task—as the dimensions may vary substantially between and within countries—but neither is adopting innovative technologies at a massive scale. However, focusing on both supply- and demand-side solutions will heighten the likelihood of achieving the Paris goals.

[1] Rogelj et al., 2018.

[2] Dietz et al., 2009; Vandenbergh & Gilligan, 2017.

 

References

Dietz, T., Gardner, G. T., Gilligan, J., Stern, P. C., & Vandenbergh, M. P. (2009). Household actions can provide a behavioral wedge to rapidly reduce US carbon emissions. Proceedings of the National Academy of Sciences, 106(44), 18452-18456.

Rogelj, J., Popp, A., Calvin, K. V., Luderer, G., Emmerling, J., Gernaat, D., … & Krey, V. (2018). Scenarios towards limiting global mean temperature increase below 1.5° C. Nature Climate Change, 8(4), 325.

Vandenbergh, M. P., & Gilligan, J. M. (2017). Beyond Politics. Cambridge University Press.

Kristian Steensen Nielsen is a PhD Fellow in environmental behaviour change at Copenhagen Business School. His research interests are self-control, behaviour change, and environmentally significant behaviour.

 

Pic by Duncan Harris, Flickr.

A Taxonomy of Sustainable Business Model Patterns

By Florian Lüdeke-Freund & Sarah Carroux.

In recent years, so-called “sustainable business models” are increasingly gaining in importance in both practice and research.[1] There is hope that business models and business model innovation could, for instance, support the diffusion of ecologically and socially-beneficial products and services in the market.[2] Despite the growing interest, there still exists a lack of systematically-generated knowledge about the different shapes (or “patterns”) such business models can take. Hence, our research project aims to provide a comprehensive and up-to-date overview of presently known business model patterns that can contribute to the diffusion of ecologically and socially beneficial innovations. We developed a structured patterns system, a new taxonomy, of 45 patterns organized into 11 groups, including experts’ expectations for their contributions to sustainable value creation.

Key Objectives of the Study

A broad range of business models are being discussed in current scientific and applied literature. These are often identified as “patterns”.[3] Following Christopher Alexander, a pattern theory pioneer from the field of architecture, a pattern basically represents a solution to a reoccurring problem.[4] What makes patterns so special is that their solutions can be applied in different contexts. For instance, a window is a universal solution for the problem of a lack of lighting in a room. A window exists in different variations and can be applied in various contexts (e.g., for residential buildings, skyscrapers, small windows, large windows etc.). Similarly, business model patterns can be understood as replicable and modifiable solutions to reoccurring business challenges. For instance, the “freemium” business model can not only be used for online services such as Spotify, but also to market high-quality medical services that, depending on patient type, are offered either for “free” or for a “premium” (e.g. Aravind, an eye-care service provider in India).[5] The key objectives of this study are (i) to consolidate the current knowledge about business model patterns with the potential to support sustainable innovations, i.e. to develop a new taxonomy, and (ii) to prepare the foundations for a “sustainable business model pattern language”.[6]

Methodology

We identified a total of 102 potential business model patterns in the relevant literature. These were critically assessed and duplicates or irrelevant items were eliminated, resulting in a sample of 45 patterns. These were reviewed and organized into groups by 10 international experts to condense the large number of patterns in a way that allowed recognizing a systematic order. In the second survey round, the international experts were asked to assess the patterns with respect to their potential contributions to ecological, social, and economic value creation. This enabled us to develop a structured patterns system, a taxonomy, of 45 patterns organized into 11 groups, including experts’ expectations for their contributions to sustainable value creation.

 

Results and Practical Implications

The patterns system is comprised of 45 patterns that were each allocated to one out of the 11 identified groups according to their problem-solution combination. The following groups of sustainable business model patterns were found:

  1. Pricing & revenue patterns
  2. Financing patterns
  3. Eco-design patterns
  4. Closing-the-loop patterns
  5. Supply chain patterns
  6. Giving patterns
  7. Access provision patterns
  8. Social mission patterns
  9. Service & performance patterns
  10. Cooperative patterns
  11. Community platform patterns

These groups can be characterized based on (i) their specific problem-solution combinations (e.g., solving the problem of limited access to health care through a specific pricing model), and (ii) their expected ecological, social, or economic effects (i.e. their expected contribution to sustainable value creation). The patterns system is highly practice-oriented, given the input provided by the experts. For instance, it could be used as an instrument in innovation workshops. Furthermore, our patterns system could be used in combination with business model innovation tools such as the Business Model Canvas, the Business Innovation Kit, or the Smart Business Modeler. Our pattern taxonomy is based on an essential principle in business and innovation: “learning by example”. Companies that want to integrate sustainability into their business models can refer to our taxonomy for guidance and inspiration and use it as a catalogue that also includes practical examples. This means that companies do not have to start from scratch and, instead, can learn from the experiences of others and use these to progress towards sustainability. All-in-all, our sustainable business pattern taxonomy is an efficient and effective instrument that enables practitioners and scholars alike to benefit from vast years of experience. The sustainable business model pattern taxonomy is dynamic in nature and can be easily expanded with new patterns and examples. It can already be used for online business modelling by using the Smart Business Modeler.

[1] Lüdeke-Freund, F. & Dembek, K. (2017): Sustainable Business Model Research and Practice: Emerging Field or Passing Fancy?, Journal of Cleaner Production, Vol. 168, 1668-1678. [ DOI | ResearchGate ]

[2] Boons, F. & Lüdeke-Freund, F. (2013): Business Models for Sustainable Innovation: State of the Art and Steps Towards a Research Agenda, Journal of Cleaner Production, Vol. 45, 9-19. [ DOI | ResearchGate ]

[3] E.g., Remane, G.; Hanelt, A.; Tesch, J. & Kolbe, L. M. (2017): The Business Model Pattern Database — A Tool for Systematic Business Model Innovation, International Journal of Innovation Management, Vol. 21, No. 1, Article No. 1750004. [ DOI ]

[4] Alexander, C.; Ishikawa, S.; Silverstein, M.; Jacobson, M.; Fiksdahl-King, I. & Angel, S. (1977): A Pattern Language: Towns, Buildings, Construction. Cambridge, MA: Oxford University Press. [ Website ]

[5] Breuer, H. & Lüdeke-Freund, F. (2017): Values-Based Innovation Management: Innovating by What We Care About. Houndmills: Palgrave Macmillan. [ Website ]

[6] Lüdeke-Freund, F.; Bohnsack, R.; Breuer, H. & Massa, L. (forthcoming): Research on Sustainable Business Model Patterns – Status quo, Methodological Issues, and a Research Agenda, in: Aagaard, A. (ed.): Sustainable Business Models. Houndmills: Palgrave.

Florian Lüdeke-Freund is a Lecturer at ESCP Europe Business School, Berlin, where he also holds the Chair for Corporate Sustainability. Since 2013, Florian facilitates the research hub www.SustainableBusinessModel.org.

Sarah Carroux is a research associate and doctoral candidate at the University of Hamburg. As member of the Chair of Management and Sustainability, lead by Prof. Timo Busch, Sarah researches topics related to sustainable finance with a strong focus on impact investing, as well as the business case for sustainability and sustainable business models

 

Pic by Eli Duke, Flickr.

Multi-Stakeholder Initiatives and Legitimacy

By Mikkel Kruuse.

  • Which groups of actors typically drive the standard development within Multi-Stakeholder Initiatives (MSIs) and why?
  • Power imbalances between actors within MSIs go beyond the global North/South dichotomy.
  • There seems to be a trade-off between input legitimacy (via equal participation) and output legitimacy (outcomes) of MSIs.

Approximate Reading Time: 2-3 minutes.

Private governance in a globalized economy
While it is difficult to dispute the benefits of globalization, the integration of production and trade has made it increasingly difficult for even highly developed nations to regulate activities that extend beyond their borders. For example, how do we decide who is responsible for the negative externalities of global production, such as emission of greenhouse gasses, when considering that goods often pass through several countries before reaching their final destination? Some of these issues can potentially be resolved through cooperation in intergovernmental organizations that are able to establish extraterritorial jurisdiction, but it is important to keep in mind that the implementation relies on the individual governments that in some cases may not be able or willing to do so.

Resulting from the absence of legally enforceable regulation, there has emerged a great number of non-state market-driven governance systems since the 1980s. However, unlike democracies where the government derives its legitimacy through public elections, this is not an inherent part of private governance. As such, a particular concern is that private governance could essentially be equivalent to corporate self-regulation. In order to avoid this issue, non-governmental organizations are increasingly encouraging companies to participate in so-called multi-stakeholder initiatives (MSIs), in which different types of stakeholders work together to achieve a common goal, such as the implementation of social and environmental standards for global production.

Stakeholder Participation and Distribution of Power
Some of the more well-known examples of MSIs include the Forest Stewardship Council (FSC) and the Marine Stewardship Council (MSC), which have both grown considerably since they were established in 1993 and 1996, respectively. Although the membership diversity ideally helps to ensure that MSIs are not being controlled by a single type of actor, this may not always be the case in practice. In particular, it has been suggested in the academic literature that this form of civil regulation is primarily being driven by actors from the global North, while values and knowledge originating in the global South are often marginalized.

Notwithstanding this naturally questions the legitimacy of MSIs, it still seems appropriate to ask why this tendency persists. First, there is a significant cost associated with creating a new initiative and the individual actors must therefore possess sufficient resources to do so. However, as resources are finite there is a trade-off between where to best apply them, and as such it appears reasonable to want something in return. In other words, there must be an opportunity to realize highly valued interests for an actor to spend the resource required to create and maintain an MSI. To be sure, this is not to say that the global South does not share an interest in solving the various social and environmental issues, but when viewed as a single group they have fewer total resources compared to the North. This may offer a partial explanation of why MSIs appears to be dominated by Northern interests, yet it is highly unlikely that there are no actors within the global South group that have the required resources to participate in the various standards-development activities.

Input and Output Legitimacy
Returning to the question of legitimacy, it does not really improve the situation to replace the commonly remarked North/South divide with a big/small distinction. Even so, it may help to better understand why actors behave in a certain way and how MSIs function. As noted above, the purpose of MSIs is to provide for a common good when national governments are unable or unwilling to do so, but at the same time it is not free to create and maintain these initiatives. Thus, while all parties may benefit from the common good, the associated cost renders it implausible that actors would be willing to carry the burden of providing it – that is, unless the reward is considered to be proportional.

In summary, it can be argued that having a small group of actors responsible for the majority of standards development will question the input legitimacy of an MSI, in terms of who participates in the process. But at the same time, the issue at hand is likely to remain unresolved if no one is willing to allocate the necessary resources, which ultimately lowers the output legitimacy of the MSI. In this way, some MSIs may present a trade-off between input and output legitimacy when it comes to regulating global production, where some actors gain increased influence over the decision-making in exchange for spending additional resources.

Finally, it is important to mention that there are a great many different MSIs in existence, and that the contents of this post do not apply to every single one. Instead, the purpose is to help advance the discussion of MSI and legitimacy in general, where these insights will hopefully prove beneficial.

Mikkel is a MSc Candidate in International Business and Politics at Copenhagen Business School and research assistant at the Department of Management, Society and Communication. 

Pic by Margarida CSilva, Unsplash.

Where is the Space for Ethics in Rule Governed Organizations?

By Anna Kirkebæk Gosovic.

Imagine that you work in an organization where your choices, your knowledge and your thoroughness in your work could potentially impact the lives and health of people; for the better, yes, but also for the worse, if you make a mistake. Imagine then, that at any moment, someone could come and go through all your work, ask for all the details of your choices and demand proof that you made the right decision according to all the rules that you need to know. And then imagine that large investments are at stake and that the failure or success of these investments depend, partly, on the thoroughness of your work.

Strict rules and procedures
This is the reality that many employees in pharmaceutical companies operate in. Many organizations today are governed by policies and procedures to make things run smoothly but some organizations are – to a larger extent – characterized by strict monitoring and reporting procedures, high preoccupation with failure and commitment to organizational resilience. Weick and Sutcliffe name such organizations “High Reliability Organizations” (HRO) (Weick & Sutcliffe, 2007). HROs are organizations working in fields where mistakes can have severe consequences and which, as a result of this, have strict procedures for ensuring compliance with processes and policies.

Studying HROs, scholars have focused on organizations such as air craft carriers (Weick & Roberts, 1993), nuclear power plants (Schulman, 1993), hospitals (Chassin & Loeb, 2013) and military units (Bierly & Spender, 1995; Demchak, 1996); all of which operate in environments rich with potential for error but where the consequences of such are too severe to allow them to happen (Cf. Weick, Sutcliffe, & Obstfeld, 1999, p. 32).

With their close attention to monitoring, following procedures and regimes for registering data, actions and decisions, pharmaceutical companies can be defined as HROs.

Is following the rules enough?
Organizations preoccupied with reliability may spend more time and effort organizing for controlled information processing, mindful attention and action than other organizations. Weick and Roberts call this “mindful organizing” (Weick & Roberts, 1993, p. 357). But with such elaborate legislative frameworks in place as in the pharmaceutical industry, how do employees experience their room for maneuvering and for acting ethically? And how do staff and managers perceive the ethical dilemmas they meet? Is it enough to have followed the rules? And what happens in situations when there is a wider space for interpretation of such rules? How does moral reasoning take place at the intersection between legislative frameworks, financial considerations, scientific possibilities and human lives? And what domain outweighs the others at which points in time?

These are the questions that I hope to answer by studying within – and in partnership with – a pharmaceutical company. The project only started in January, so if you are interested in the answers to this, be patient, and stay tuned!

Anna Kirkebæk Gosovic is a PhD student at the Department for Management, Society and Communication at Copenhagen Business School. She is working on business ethics within a multinational pharmaceutical corporation.

Pic by G. Crescoli, Unsplash.

 

The Sustainable Development Goals: Elite Pluralism, not Democratic Governance

By Daniel Esser.

  • Was the process leading up to the SDGs really an exercise in global democratic policy making?
  • Although broad consultation efforts shaped the process, these alone were not able to alter the power structures undergirding the political economy of aid.
  • In the end, UN members states finalized the agenda behind closed doors and civil society organisations were once again relegated to serving as commentators and claqueurs.

Approximate reading time: 3-4 minutes.

The MDGs: An exercise in top-down development planning
Almost twenty years ago, a small group of white men sat together and dreamed up the Millennium Development Goals (MDGs). Soon after, the United Nations (UN) deployed them as carrot and stick to halve extreme poverty and hunger, reduce infant mortality, and put all girls and boys into primary education, all by 2015. There was real confidence that the MDGs’ top-down programming would eventually reach the farthest and most destitute corners of the globe, and that national as well as global resources would finally be spent on well-coordinated and effective projects. Listening to UN technocrats pontificate about the MDGs’ indispensability, one could have almost believed that old-fashioned development planning had finally been put on the right tracks. By the end of the exercise, thousands of new jobs in the international development industry had been created, yet most of the goals had been missed. The MDGs had begotten a hyperactive global network of goodwill ambassadors, faithful implementers and intrepid evaluators staff while billions in the global South continued to suffer.

The SDGs: Consultations as the end of procedural elitism?
The Sustainable Development Goals (SDGs) were supposed to end the MDGs’ dual legacy of procedural elitism and edentulism. Framed by the UN as the world’s foremost post-2015 development agenda, the new goals were designed to be more comprehensive in both scope and impact. Crucially, the UN also launched considerable efforts to incorporate voices from outside of the UN system. Thematic consultations took place around eleven areas selected by the UN Development Group (UNDG). They were complemented by web consultations, national consultations in 88 countries, and global high-level meetings. In addition, the UN created two websites to allow for direct consultation by inviting users to submit proposals and vote for challenges they considered most pressing. Moreover, a UN-sponsored civil society organization (CSO), ‘Beyond 2015’, brought together another 1,000 CSOs participating in national consultations.

Global democratic policy making – high aspirations, sobering facts
Undeniably, these efforts marked a clear departure from the MDGs’ backroom fecundation. But have they been sufficient to justify senior UN staffers’ praise of the SDGs as an exercise in global democratic policy making? Broad consultation alone does not alter the power structures undergirding the political economy of aid. Instead, it creates a thin layer of legitimacy that fades away as soon as accountability in invoked. The process leading up to the SDGs was rooted in an assumption that a goal-based framework was the only viable option; alternatives to such goals were never considered publicly. Countries were selected by UNDG and UN Resident Coordinators, and the breadth and depth of national consultations varied starkly. And although UNDG’s final report listed crowd-sourced issue rankings, it did not provide any rationale for excluding issues from subsequent high-level negotiations.

Closed doors, revisited
In the end, UN members states finalized the agenda behind closed doors. CSOs were once again relegated to serving as commentators and claqueurs. When push came to shove, the UN leadership thus followed its half-century-old practice of elitist international governance. Even though the UN leadership has been relentless in praising the virtues of accountability for post-2015 development cooperation, it has so far shied away from institutionalizing accountability in a way that would really make a difference: between the UN system and its powerful national agenda setters on one side, and CSOs, taxpayers, and intended beneficiaries on the other. If the SDGs demonstrate anything, it is that the UN remain unlikely to usher genuine global democratic governance into being.

Daniel E. Esser is Associate Professor of International Development at American University’s School of International Service in Washington, DC. His research on local governance amid violence, organizational management, and global health politics is widely cited. A former staff member of the United Nations in New York and Bangkok, he follows the organization’s continuous struggle to make a difference in the world from a safe academic distance. He can be reached at esser@american.edu.

Pic by UN Ukraine, edited by BOS.

License to Critique: Inoculating Standards against Closure

By Lars Thøger Christensen.

  • Sustainability and responsibility standards entail a danger of organizational actors stopping to reflect about what these values could or should entail in each particular situation and setting.
  • Rather than passive compliance, standards should produce participation, involvement and contestation.
  • Several communication principles need to be respected for a license to critique approach to have its desired effects.

Approximate reading time: 3-4 minutes.

Fixed, clear and authoritative standards able to discipline and regulate organizational behavior are often called for on the sustainability and responsibility arenas. This makes perfect sense. Standards that are loose, vague or open-ended allow organizations to subscribe to the values of sustainability and responsibility without changing their behaviors significantly. In such cases, standards may be criticized for being simply “lofty pronouncements” disconnected from other organizational practices. Yet, if standards become too strict and rigid they may end up working against their original purposes.

Standards are voluntary and predefined norms and procedures that specify desirable organizational behavior in particular social or environmental contexts.

Most standards in sustainability and responsibility are developed, designed and assessed by international organizations, governments, or multi-stakeholder initiatives outside the adopting organization, often with the intent of prescribing and shaping the dos and don’ts in a particular context. Their ability to generate compliance is usually considered an important success criterion. Passive compliance, however, may not serve the social and environmental interests at play. Strict standards tend to produce mechanical and unreflective “ticking the box” exercises where the main concern is to appear good and be let “off the hook” by critical stakeholders.

Compliance is not necessarily the best measure for responsibility and sustainability.

When responsibility and sustainability are prespecified in detail, there is a great danger that organizational actors stop reflecting about what these values could or should entail in each particular situation and setting. Such “closure” is detrimental to both the environment and to society. Under conditions of closure, curiosity and argument about values are replaced by attempts to manage the standards, to transform their ideals into technical measures, and to document their impacts on organizational practices. By naturalizing the standard as the “normal thing to do”, closure transfers responsibility from the organization to the standard itself in a way that allows the organization to demonstrate responsiveness without responsibility: “It is not our fault. We are complying with the standard”.

 Strict and closed standards produce organizational responsiveness without responsibility.

Rather than passive compliance, standards should produce participation, involvement and contestation. Involvement, critique and contestation are vital dimensions in processes of testing, fine-tuning and improving standards to fit changing social and environmental problems. To facilitate such processes, organizations would be better off embracing – rather than repudiating – critical voices. Such attitude may be described as a “license to critique”. License to critique is a managerial philosophy designed to involve managers and employees, draw on their insights and stimulate their critical thinking while avoiding a premature closing down of discussions along with a potential to improve organizational practices. Critique in the shape of criticisms, appraisals, examinations, opinions, argumentations, or the suggestion of alternatives is recognized as an important and necessary dimension of organizational development and learning.

A license to critique approach welcomes and encourages constructive input from all corners of the organization.

Several communication principles need to be respected for a license to critique approach to have its desired effects. The most important are these:

  • Confronting alternatives. The licence to critique approach invites alternatives by regarding the standard as a “lens” through which managers as well as employees are expected to observe and challenge existing ideals, assumptions and practices.
  • Authorizing participation. The license to critique approach invites participation with a focus on openness, mutuality, and trust, as well as a tolerance for difference and variety. This invitation calls on organizational members to act constructively in shaping organisational ideas and practices. Simultaneously, they call on managers to allow for intensive boundary spanning and to draw actively and systematically on the day-to-day experiences, ideas and enactments of standard users.
  • Talking to learn. Since sustainability and responsibility are complex issues without finite answers and solutions, the role of communication is not simply to convey prepackaged ideals and explain necessary practices. Rather, participants, including managers, need to hear themselves talk about sustainability in order to understand what the ideal means to their particular organizations and to discover the possibilities and limitations of the ideal in specific contexts.

In sum, contestation of values and assumptions and their implied practices in contested contexts such as sustainability and responsibility is necessary to cultivate a variety of perspectives, ensure commitment among involved parties and stimulate creative solutions.

 

See further: Christensen, L.T., Morsing, M., & Thyssen, O. (2017). License to Critique: A Communication Perspective on Sustainability Standards. Business Ethics Quarterly, 27(2): 239-262.

Lars Thøger Christensen is Professor of Communication and Organization at the Copenhagen Business School, Denmark. 

Pic by alphaspirit, Fotolia.

Seeing Like a Standard: Sustainable Palm Oil and the Coasian Challenge

By Kristjan Jespersen & Caleb Gallemore.

Approximate reading time: 3-4 minutes.

Go to any supermarket and you’ll see labels, so many labels. Some of them seem reputable: the Marine Stewardship Council, the Forest Stewardship Council. Some of them seem less so, such as Bob’s House of Sustainability standard, which we just created five minutes ago.

One challenge – countless standards
 Credible or not, these standards, developed mostly by the private sector and civil society, are growing in number. In Jessica Green’s 2014 book, Rethinking Private Authority, she counts 119 such environmental standards as of 2009, 90% of them created after 1990 – and this without considering Bob’s House of Sustainability. In a way, all these standards attempt something economist Ronald Coase imagined virtually impossible: to convey information about the true social costs and benefits of actions via pricing mechanisms. In this way, complex social and ecological interactions could be made intelligible to stakeholders like customers at the corner store.

The Roundtable on Sustainable Palm Oil – A Case Study
So how are such illustrious standards as Bob’s House of Sustainability put together in the first place? Like James Scott in his 1995 book Seeing like a State, we are interested in how social systems require the production of certain kinds of information. But we suspect that because the pressures on private standards for sustainability are different from the pressures on state governments, the types of phenomena standards make intelligible will be different. In other words, we are interested in what it means to see not like a state, but like a standard, using a detailed case study of the Roundtable on Sustainable Palm Oil (RSPO). Working with support from Copenhagen Business School’s Governing Responsible Business Research Environment, we are in the process of collecting data on the internal processes of the RSPO from a range of sources that include webscraping, document analysis, and interviews.

Various Adverse Effects of Palm Oil Production
There are certainly plenty harrowing problems posed by palm oil production that ideally should be readily legible to consumers: palm oil production causes deforestation and attendant greenhouse gas emissions and biodiversity loss, particularly affecting orangutan populations. Because land clearance to plant oil palm often is undertaken with the use of fire, it contributes to local air pollution and the notorious Southeast Asian haze problem. What is more, oil palm plantations often engage in exploitative labor practices, promote tenurial conflict, and can benefit local elites at the expense of others.

Lead by conservation and social justice NGOs, there have been numerous brand attacks against unsustainable and exploitative palm oil production. These have lead to such notable episodes as the successful campaign by two American girl scouts to get the manufacturer of Girl Scout Cookies to purchase certified sustainable palm oil, and the recent awareness campaign launched in Denmark by Freja Bruun, also a successful teenage environmental activist.

Reputation is Key
The founders of the RSPO intended to respond to these challenges by managing a private standard certifying sustainable palm oil production. Because initiatives like the RSPO are private rather than public, decisions about what information needs to be made intelligible are driven primarily by branding concerns. The RSPO’s reputation is critical, as it is the validity of the standard that allows it to differentiate itself from the likes of Bob’s House of Sustainability. While there have been vociferous debates about the RSPO’s on-the-ground requirements, another key concern is the traceability of certified palm oil across the supply chain. Within the standard, certified sustainable palm oil prices tend to be differentiated by the level of traceability, ranging from the Book & Claim mechanism, which acts like an offset, to the RSPO-Next system, which envisions traceability to the source plantation.

Shift in Power Balance within the RSPO
Working with several Master’s students at CBS, we have found that the RSPO has, over time, undergone a noticeable shift in the balance of power between upstream members (consumer-goods manufacturers, investors, and retailers), and downstream members (oil palm growers and palm oil refiners), as the number of downstream voting members has grown considerably (see Figure 1).

Figure 1: Composition of RSPO membership, by year (RSPO Website Data). Credit: Mikkel Kruuse and Kaspar Tangbaek.

As downstream members have become a stronger bloc, the RSPO’s intelligibility efforts have shifted from on-the-ground impacts to the traceability of the supply chain. While separate, traceable supply chains have been a stated goal since the RSPO’s founding, a noted shift is apparent. The share of total certified sustainable palm oil sold on the offset-like Book & Claim (B&C) system, for example, is declining rapidly (see Figure 2), and even B&C’s name has been rebranded to PalmTrace.

Figure 2: Percentage of total RSPO CSPO sold via the B&C system, by year (RSPO, various years).

Benefits of RSPO Membership only so good as the Label
Faced with concerted brand attacks, downstream members of the RSPO, in particular, have to overcome a public goods problem. The benefits of RSPO membership are only so good as the label, and downstream firms are understandably nervous about buying from suppliers who are cheating, exposing them to brand attacks. Faced with that risk, raising traceability requirements is one straightforward way to maintain the brand’s integrity. While enhanced traceability encourages downstream firms to police their supply chains, and geographic information systems and remote sensing are making traceability more robust, there is a monetary and policy cost to cutting through the supply-chain haze. The more traceable tiers of certification – which, with the exception of the newly minted RSPO-Next, do not involve more stringent on-the-ground requirements – are prohibitively expensive for smallholders and small businesses that must push those costs onto consumers. The desire for intelligibility, in other words, can strengthen standards, but has its own costs: first, it may focus intelligibility efforts in unproductive directions, and, second, when being intelligible involves transaction costs, only bigger players have the wherewithal to stand up and be counted.

Kristjan Jespersen primary research focus is the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

Follow Kristjan on Twitter.

Caleb Gallemore is an Assistant Professor in the International Affairs Program at Lafayette College. A geographer by training, Caleb’s research focuses on land-use teleconnections and international environmental policy and politics.

Pic by JAM Project, edited by BOS.

CBS new Knowledge Partner of the OECD

By Karin Buhmann.

In early 2017 CBS accepted an invitation from the Organisation of Economic Collaboration and Development (OECD) to become an OECD Knowledge Partner. As an OECD Knowledge Partner, CBS joins a small group of prestigious universities – including the University of Geneva, the University of Sydney, London School of Economics and SciencesPo (Institut d’études politiques de Paris) – that are invited to share and discuss research based knowledge with the OECD, thus enhancing its ability to deliver on regional and global challenges related to economic collaboration and development. For 2017 CBS was invited to participate in two key ways: scholarly interaction at the annual political OECD Global Forum, and contributing an article to the OECD Yearbook. Both were connected to the topic at this year’s Global Forum: Bridging Divides, with particular focus on inclusive growth, digitalization, and trust.

Three CBS professors (Karin Buhmann (MSC), Kim Andersen (DIG), and Christian Asmussen (SMG) and the CBS Vice-President for International Affairs (Dorte Salskov-Iversen, who is also Head of Department of MSC) participated in the OECD Global Forum, which took place at the OECD Headquarters in Paris on 6-8 June 2017. Presenting and moderating at an ‘Idea Factory’, Professor Kim Andersen shared views on artificial intelligence. Professors Christian Geisler Rasmussen and Karin Buhmann interacted with OECD experts on issues of Inclusive Growth and the Location Choices of Multinational Firms (Geisler Rasmussen) and The role and challenges of OECD’s Guidelines for Multinational Enterprises for building trust through Responsible Business Conduct in a context of global competition (Buhmann).

With permission from the OECD, the CBS contribution to OECD’s 2017 Yearbook  is reproduced in the following.

Responsible Business Conduct and Competition: OECD’s Guidelines for Multinational Enterprises and responsible supply chain management

By Karin Buhmann, Copenhagen Business School

Surprised looks with colleagues or students are commonplace when I observe that the OECD plays an important part for the promotion of responsible business conduct (RBC), not just in OECD countries but globally. RBC is OECD ‘speak’ for corporate social responsibility, corporate sustainability and other terms indicating an expectation that businesses take responsibility for their impact on society. The OECD’s key normative instrument for RBC, the Guidelines for Multinational Enterprises, and the remedy institution that adhering states commit to establishing, the National Contact Points (NCPs), are relevant to help offset some of the social cost that competition causes to employees and communities. The Guidelines provide norms of conduct for MNEs and for how they should act to avoid harmful impact caused by their supply chains. Revised several times since first adopted in 1976, the Guidelines provide normative standards in regard to human rights, labour/employment and industrial relations, environment, bribery, consumer concerns, science and technology, competition and technology. The Guidelines also apply to institutional investors, including minority shareholders.[1] Jurisprudence (‘case law’) emerging through complaints (‘specific instances’) handled by NCPs elaborates the practical implications of the Guidelines for companies and investors, within and beyond the sector and country concerned by each case. Like the Guidelines have extraterritorial reach beyond MNE home states, NCPs may also deal with business conduct arising in non-OECD states or other states having acceded to the Guidelines (provided a connection to that state).

A case[2] that was recently handled by the Danish NCP highlights the pertinence of OECD’s Guidelines at a time when SMEs too have transnational operations, as well as of the evolving guidance developed by NCPs. The case concerned a Danish textile company that sourced from a supplier in the Rana Plaza building at the time of its collapse in 2013.

The Guidelines are recommendations from governments to companies operating in or out of states (whether or not OECD-Members) adhering to the Guidelines. With the 2011 revision, the Guidelines adopted the risk-based due diligence approach.[3] This is a process for companies to identify, prevent, mitigate and account for their impact on society. Whereas corporate legal or financial liability due diligence aims at protecting the company against harm, risk-based due diligence is about protecting society against harm caused by the company or its business relations. Of course, if done well it also protects the company against liability or reputational harm.

The case on the Danish textile company concerned the adequacy of the company’s due diligence to prevent harm directly linked to its operations by a business relationship. The NCP found that the company did not apply processes for due diligence in compliance with OECD’s MNE Guidelines. In particular, the company failed to make demands that its supplier ensure employees’ human and labour rights, including through adequate steps to ensure occupational health and safety. As to whether the company had acted consistent with what it argued to be buyer practice in regard to building inspection, the NCP observed that practice by itself may be indicative, but not conclusive regarding the scope of risk-based due diligence. In other words, a company must think and act for itself in regard to demands on suppliers to take ap­propriate measures to ensure health and safety in the workplace. Thus, the NCP statement elaborates on the practical implications of the Guidelines and due diligence for companies in the textile and other sectors for the future, in regards to building safety and supply chain management.

The collapse of the Rana Plaza building was a wake-up call in many OECD countries concerning the human and social cost that can be the price for the quest for economic gain that drives much competition. Global companies have long taken advantage of wage differentials and weak regulation to keep costs low.[4] Concerns with labour and human rights have been strong if too often ineffective drivers for corporate change and the conditions for competition.[5] The textile sector is not unique in competition causing adverse social or environmental impacts. Agri-industry and mining are among sectors in which adverse social and environmental impacts of business activity are regularly reported. Enhanced knowledge of OECDs MNE Guidelines may contribute to promoting RBC in such transnational economic activities.

 

[1] OECD (2014) Scope and application of ‘Business Relationships’ in the financial sector under OECD’s Guidelines for Multinational Enterprises, Paris: OECD Global Forum on Responsible Business Conduct.

[2] Final Statement on Specific Instance notified by Clean Clothes Campaign Denmark and Active Consumers regarding the activities of PWT Group.

[3] The term was adopted from the United Nations Guiding Principles on Business and Human Rights (UNGPs), United Nations Human Rights Council (2011) UN Doc. A/HRC/17/31.

[4] Krugman P, Obstfeld M, and Melitz M (2014). International Economics: Theory and Policy, Global Edition. 10th ed. Online: Pearson.

[5] Ruggie J (2013) Just Business – Multinational Corporations and Human Rights. Boston: W.W. Norton.

Karin Buhmann is professor at Copenhagen Business School (CBS) where she is charged with special responsibilities for Business & Human Rights, and a part-time member of the Danish National Contact Point (NCP) under OECD’s Guidelines for Multinational Enterprises. Her academic background is in international human rights law.

Pic by Solidarity Center, edited by BOS.

In Tribute: Malcolm McIntosh

 

‘Have fun and laugh. I had a ball. Sorry to go early. Laugh a lot, it oxygenizes the brain just as well as yoga. Malcolm McIntosh

Malcolm McIntosh’s words, quoted in an announcement of his passing on June 7, 2017, sent out by his family, epitomize how he lived his life. I first met Malcolm in the late 1990s when he was forwarding the then-new conversation about corporate citizenship through conferences and a center at the University of Warwick and later at Coventry. He came to academia non-traditionally, through careers in TV production and journalism with the BBC, with a PhD and lifelong interest in peace research that spread out to understanding corporate responsibility and citizenship and, more recently, political economy. In the early 2000s, he founded the Journal of Corporate Citizenship and served as its editor multiple times over the years, including several stints as part of team of guest editors, guiding it to be an outlet for big ideas that bridge from theory to practice, from empiricism to thought leadership. He was the founding director and Professor at Griffith University’s Asia Pacific Centre for Sustainable Enterprise in, Brisbane, Australia, where he served for five years.

Malcolm was a wonderful thinker, a polymath who followed his own path towards making the world a better place. A global citizen of the first order, there was little that he didn’t know about—from music to philosophy to sustainability to how the world actually works. He was a true intellectual shaman, and a serial social entrepreneur, who was always thinking forward to the next big thing that could serve—or perhaps save—the world. He was a pioneer in the conversation about corporate citizenship, political economy, sustainability, and human rights, who pulled few punches in telling it like he saw it, yet always did so with the most amazing sense of human and personal insight.

Malcolm fully embodied the three tasks of the intellectual shaman: healing, connecting, and sensemaking the service of a better world. As a healer, he was profoundly concerned about the state of the world, ecological, politically, and socially, and worked tirelessly to make a difference through his teaching, writing, and consulting. As a connector and global citizen, he bridged across boundaries of all sort, bringing people together in conversations and convenings that informed and enlightened. As a sensemaker and prolific author of more than 25 books and numerous articles, he engaged ideas and shared his insights as a public intellectual. And all of this work aimed at making the world a better place for all.

Malcolm recognized early on the potential of the UN’s Global Compact and, later, the Principles for Responsible Management Education, as levers for positive change in the world, engaging with those initiatives in a variety of ways. He always ‘thought forward,’ systemically, and with a keen sense of the need to bring about change in the world for the better. He brought many of his ideas to fruition in two of his last books Thinking the Twenty-First Century, and The Good Society, which will be published posthumously by Greenleaf.

What I will most remember about him, I suspect, is his spirit, his sense of life, his philosophy that we should, as his website says, ‘Love life, love the plant.’ Most of all I will remember his sense of humor, his prototypical intelligent British wit, his ability to laugh at his own situation, including facing his illness over the last years of his life. He was not afraid to die and he approached that possibility with the same wit he approached everything else. He was not afraid to die because he lived fully and enjoyed every minute of it, including his long marriage to Lou and his wonderful daughters Cleo and Sophie, the work that he did, and his many, many friends around the world. I will miss his spirit, his energy, and his healing presence in our world and also know that the good work that he did will live on.

Words by Sandra Waddock, Boston College, June 2017

If at first you don’t succeed, build, build again

By Lara Hale.

It is already challenging to make small changes to buildings – painting the window panels, upgrading the kitchen, or even (as many Copenhageners are familiar with) installing a shower. But there is a pressing need for more extensive change – we need to learn how to build again and build more sustainably. As part of the EU Marie Curie project “Innovation for Sustainability (I4S)”, my PhD dissertation investigates how the Active House Alliance and their co-founder, VELUX, experiment with demonstration houses in order to develop a sustainable building standard for a trifecta: environment, energy, and comfort. In other words, it examines how they use experiments (building, then building again) to best synergize the three and holistically improve building practice.

The third dimension “comfort” has been particularly challenging to develop in that there has not historically been a formal definition or measurement of comfort in buildings. The PhD’s first article delves into how Active House goes about legitimating technical specifications (i.e. measurable parameters) for comfort in buildings. Not least of all, this has involved revisiting basic elements like light exposure, air exchange, and indoor human health (see for example the Circadian House Report). The research finds a reciprocal relationship between commensuration (conversion of qualities into comparable quantities, see Espeland & Stevens, 1998 and 2008) processes and legitimacy building – both among other professionals internationally and locally in the context of the projects.

The second article addresses structurally influencing the building users towards sustainable consumption – so that by design, people may behave more sustainably in buildings. Buildings are made with default rules: the rules for which infrastructural set-ups come ready-made. We know that default rules can affect sustainability-related behaviors (Mont et al., 2014; Sunstein & Reisch, 2013; Dolan et al., 2011; Brown et al., 2013). For example, the space orientation determines how much light a living room receives, and thus when and how for how long one uses lights. The literature holds that default rules work, in part, because they do not engage people’s awareness. However, this research finds that, in relation to sustainable consumption, that there are further nuances. Where at first people are unaware of how the defaults are affecting their behavior, after they leave the experimental buildings and live in their former, non-sustainably designed structures, the contrast makes them aware. It is this change that gears them towards making more sustainability-oriented consumption choices in the future.

Lastly, the third paper delves into the development of sensor-based building technology systems, such as WindowMaster, NetAtmo, Nest, and so forth. In an era of pressure for technologies that can decide for or replace the actions of people (McIntyre-Mills, 2013), building systems can manage entire households – from running grocery lists and scheduling exercise to adjusting electricity usage and changing temperature. At the same time, the building industry grapples with the performance gap, wherein the planned energy performance of buildings does not match reality, largely explained by failures to grasp how people will behave (Frankel et al., 2015). Rather design needs both technical and social considerations (Maguire, 2014). This article uses the Active House building demonstrations to show how these experiments have helped standards makers to learn from too much focus on technological automation – as it leads to an overshoot, wherein people feel too controlled by technology and either submit or tamper with it, akin to technological interaction highlights in the works of Rip and Kemp (1998) and Shove (2003). The paper argues that the pendulum can swing too far towards technological reliance, and that co-design, a balance between human and technological development is needed – especially under seeking sustainable solutions to societal challenges.

Altogether, the idea is: that which is built can be rebuilt, our norms and practices are fluid and constantly under development. In the case of sustainable building, governance projects and experiments must tackle challenges of measurement, consumer base, and rapidly evolving technologies. It is an era of uncertainty, wherein there are no clear trajectories for sustainability transitions; but when experimenting within the frame of learning and adapting for the next steps, we can lay the first building blocks.

Lara Anne Hale, MSc, is Marie Curie PhD Fellow at Copenhagen Business School at the Department of Management, Society, and Communication. Her research areas explore experimental governance, standards, innovation, green building, sustainability transitions, sustainable production and consumption. You can follow her on Twitter.

Pic by Open Buildings, showing LichtAktiv Haus.

Who’s responsibility is it, anyway?

By Erin Leitheiser.

Workers and companies from across the globe each play a part in creating our clothes.  Yet, it’s unclear who is responsible for addressing the myriad of social and environmental sustainability issues in these global supply chains. 

Who is responsible for the social and environmental sustainability of the denims that you’re wearing? 

Chances are that when you check the tag you’ll see the name of a country like Bangladesh, China or Turkey.  While global sourcing from these and other textile hubs has been common practice for decades, we still face major issues related to child labor, poor and unsafe working conditions, modern slavery, gender inequality, pollution, and many more.  Partnerships and collaborations have sprung up across the board to address supply chain issues, with just a few examples including an initiative to remedy the safety of ready-made garment (RMG) factories in Bangladesh, attempts to raise the standards and traceability of extractive industries, and Ethical Trading Initiative’s recent launch of a platform for ethical trade in Turkey. 

While partnership and collaboration form the foundation of many of these efforts, there remains great confusion about who is and should be responsible for what in supply chains.  Looking specifically at ready-made apparel (RMG) supply chains, here’s a glimpse into some of the murky roles and responsibilities. 

  • Consumers.  Consumers are held up as king in the world of retail, and may indeed have great (collective) power through purchasing behavior.  Yet, it is difficult if not impossible for consumers to make informed choices about how and where a product was made.  (Side note: a relatively new NGO has been established to create a consumer-facing scoring system to help combat this issue.)  And, even ethically-minded consumers are rarely willing to sacrifice style or price for sustainability.  Therefore, consumers often point to the brands and retailers who put product on the shelves as responsible for ensuring the social and environmental sustainability of all of their offerings. 
  • Brands and Retailers.  The giants of the RMG world, brands and retailers demand high volumes, quick turn-around times, and low prices in their industry of fast fashion.  Even large brands and retailers don’t own many – if any – of their own factories, so instead, opt to purchase goods from a vast network of third-party suppliers.  While virtually all buying companies have codes of conduct governing things like child labor and basic safety practices, any one company’s orders may only constitute a small fraction of a factory’s production, making leverage with the supplier to make changes and upgrades difficult at best.  This may be even more problematic for small brands and retailers whom may depend upon agents (the industry’s equivalent of your friend who “knows a guy”) to find and contract with suppliers. 
  • Suppliers (Factories).  Suppliers simultaneously face downward price pressure and increasing compliance requirements.  First, suppliers must be able to produce a quality product within a short period of time for the right (low) price.  Then, they must comply with each and every buyer’s code of conduct, some of which include additional third party certification (e.g. Oeko-Tex certification on harmful chemicals and substances, a virtual requirement for any producer of maternity or children’s wear).  At the same time they often need to rely upon sub-suppliers to complete orders on time since particularly small factories (under 300 workers) employ enough people to be able to quickly deliver orders for 5,000, 10,000 or more pieces, which adds an additional layer of complexity and transparency. Suppliers often resist worker unionization or other process improvements beyond what is demanded by buyers, in part fearing soaring costs that will make them uncompetitive in the marketplace. 
  • Local Governments.  Governments in supplying countries are responsible for setting and enforcing the laws governing the industry.  While most countries with significant production levels have reasonable laws in place regarding human rights, child labor, and environmental impact, those countries also often suffer from a great lack of enforcement of said laws for a myriad of reasons: lack of financial resources, insufficient staffing levels, inadequate processes and capabilities, and bribery and corruption, to name a few. 
  • UN and ILO.  The UN Guiding Principles on Business and Human Rights and ILO’s Decent Work agenda provide standards and a framework from which businesses can formulate and evaluate their human rights and labor policies.  While crucially important tools, neither have the purview or power to compel uptake or compliance. 

This brief overview of just the major players in global textile supply chains shows how blurred the responsibilities are for social and environmental sustainability.  No one person or party is responsible for or can solve the challenges we face.  But, if we can all be open to change and accept that we each bear some responsibility for solving the issues, we have a fighting chance to make systemic and meaningful change in the industry.  Indeed, in the words of Andrew Carnegie, “do your duty and a little more and the future will take care of itself.”

Erin Leitheiser is a PhD Fellow in Corporate Social Responsibility and Sustainability at Copenhagen Business School.  Her research interests revolve around the changing role and expectations of business in society.  Prior to pursuing her PhD she worked as a CSR manager in a U.S. Fortune-50 company, as well as a public policy consultant with a focus on convening and facilitating of multi-stakeholder initiatives.  She is supported by the Velux Foundation and is on Twitter @erinleit.

Pic by Unicef, found on Flickr

Stimulating subsidiaries’ learning processes: why one size-fits all approaches do not work

By Dr Gabriela Gutierrez-Huerter O.

Globalisation has intensified calls for multi-national corporations (MNCs) to engage in social initiatives ranging from community outreach and environmental protection, to ethical business practices. Alongside the rise of CSR there has been a demand for the accountability and the transparency on CSR issues.

To report or not to report is no longer a question for MNCs

The latest KPMG corporate responsibility reporting survey shows that 92% of the largest world’s MNCs annually report information about their environmental and social impacts mainly through the publication of stand-alone CSR reports or as part of their annual reports following recognised reporting standards. The Global Reporting Initiative is widely regarded as the de factor standard of sustainability reporting for companies operating internationally. In order to prepare these accounts, MNCs’ head-offices transfer ‘technical’ knowledge (i.e. use of management information systems centralising the collection of data, calculation of KPIs) and ‘know-how’ knowledge (i.e. meaning of the data collected, the organisational implications of the data collected and how to respond to social and environmental issues) to their subsidiaries. As part of a collection of studies providing new perspectives on headquarters-subsidiary relationships in the context of the contemporary MNC, Jeremy Moon, Stefan Gold, Wendy Chapple and I investigate the mechanisms that enable the transfer social and environmental accountability and reporting (SEAR) knowledge across MNCs’ subsidiaries.

Quality over quantity and why sometimes it is the medium that matters

Similar to what one would expect in a classroom scenario, we argue that the benefit created from a knowledge flow does not reside on how much an organisational unit receives knowledge but rather on the means used to diffuse it that will trigger the capabilities to filter (i.e. exploratory learning), assimilate (i.e. transformative learning) and apply the transferred knowledge (exploitative learning). Some of the key findings of this research are:

  • Social mechanisms such as communications, visits, and corporate socialization practices are significant predictors of the capability to assimilate ‘know-how’ knowledge.
  • In the absence of face to face interaction and expatriate managers, experienced liaison personnel interpret the meaning of SEAR, enhance the credibility of the transfer and the potential to apply the transferred knowledge.
  • Integration mechanisms and visits from the head-office (contingent on the time of the visit) can trigger the three learning processes (exploratory, transformative and exploitative) and dissipate the ‘top-down’ and ‘distant’ perceptions of the transfer
  • The absence of financial incentives and lack of specification of performance criteria sends a signal to employees that SEAR was neither a ‘business priority’ nor ‘strategic’, contrary to the head-office’s intention to make SEAR a competitive advantage.
  • Budget controls inhibit the way in which subsidiaries apply SEAR knowledge since subsidiaries are dependent on resources from the HQ

One-size fits all? Not in the transfer of CSR-related knowledge

Our findings thus suggest that head-offices aiming at increasing the learning processes of subsidiaries need to manage their foreign subsidiaries so as to stimulate the development of capabilities of recognition, assimilation and application through a mix of control, social and integration mechanisms that complement their repository stocks of knowledge.

The case study exposes the risks of MNCs’ ‘one-size fits all’ approaches in the transfer of knowledge and on the paradoxical role of the head-office which considered social and environmental accountability knowledge as ‘strategic” for the development of local competitive advantages to solve social and environmental dilemmas, but used inappropriate mechanisms limiting and damaging subsidiaries capabilities to identify, assimilate and exploit knowledge. In light of the increased standardization of CSR processes across MNCs, our study thus raises the question on whether the diffusion of knowledge underpinning ‘best practices’ is in fact triggering substantive change towards sustainability at the local level.

Dr Gabriela Gutierrez-Huerter O is Fellow in Management (CSR) at King’s College, London. Her research interests center on the cross-national transfer of CSR practices within MNCs and the determinants of subsidiary adaptation in the context of international acquisitions. Additionally, she has a keen interest in comparative CSR particularly in the study of the influence of national institutions on CSR practices.

Picture: primelearninggroup.com