Tag: #CorporateSustainability

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.

Photo by Guillaume Périgois on Unsplash

To stay or to go: Corporate complicity in human rights abuses after the coup d’état in Myanmar

By Verena Girschik & Htwe Htwe Thein

◦ 2 min read ◦

Foreign investors in Myanmar have come under increasingly intense pressure to cut ties with the Myanmar military since the military coup on 1st February 2021. Immediately after the coup, Japan’s Kirin Beer announced its decision to cut ties with its joint venture partner MEHL, i.e. the commercial arm of the military. However, fellow investors did not immediately follow Kirin’s withdrawal. Instead, they appeared to be treading water to rid out the storm. 

Myanmar had been undergoing democratic transition since 2011, promising developments and luring investors’ interests as the last frontier of the Southeast Asian market. Indeed, the democratic transition had pathed the way for economic and developmental achievements, attracted investments in several sectors such as garment manufacturing. Yet then the military took back power, among others to secure its economic interests.

Governments and civil society in their home countries have been calling on companies to act responsible and not to do business with the military. 

The pressure on companies who had been sourcing from Myanmar, including popular fashion brands like H&M and Bestseller, has been mounting. H&M and Bestseller did respond to the call and did suspend their orders from Myanmar before deciding to resume orders in May. Several foreign investors have withdrawn as the military’s attack on the civilians intensified and the international community stepped up their sanctions regime. The latest step was the refusal of the ASEAN not to invite the military leader Senior General Min Aung Hlaing to the summit in October 2021. 

But is leaving the country really “the right thing to do”?

Companies who stay support the military in one way or another, for example by paying taxes directly to the military or paying rent or other fees to one of the military conglomerates (MEHL). Such payments from corporate investors provide a financial lifeline to the continuation of the military rule, hence, funding is a very important aspect of this dilemma for foreign investors and policy makers alike. The governments of the U.S., UK, Canada, the European Union have imposed sanctions targeting military interests. However, those sanctions so far have fallen short of targeting it where it would really hurt the military, in particular in the oil and gas sector that provides a lot of revenue. To weaken the military’s financial lifeline, the shadow government and activists have been calling for companies to stop all kinds of payments to the military. Inside the country, boycotts of military intestates have intensified. For instance, householders have been participating in an electricity bill boycott, thus using the withdrawal of this kind of support as a form of resistance. Not surprisingly, many companies have by now decided to pull out. 

Yet while leaving the country ceases support to the military, it also entails that companies no longer provide goods and services (including essential services) and support to the workers and civil society (e.g. Telenor;  Germany’s food retailer Metro. Companies have been supporting workers by sustaining safe workplaces, thereby securing workers’ incomes and stability.  What is more, their support has enabled and sustained social movements. For example, women union leaders in the garment industry have been a driving force in anti-military protests. 

Given the severity of human rights violations by the military, companies ought not to continue business as usual. Only by leaving can they cut all ties with the military and avert their complicity in atrocious human rights abuses. But by leaving, they also cease support to their most vulnerable stakeholders. The impact on the social contributions (via CSR) and Myanmar civil society, especially their workers, might be devastating. 

About the Authors

Verena Girschik is Assistant Professor of CSR, Communication, and Organization at Copenhagen Business School (Denmark). She adopts a communicative institutionalist perspective to understand how companies negotiate their roles and responsibilities, how they perform them, and with what consequences. Empirically, she is interested in activism in and around multinational companies and in business–humanitarian collaboration. Her research has been published in the Journal of Management Studies, Human Relations, Business & Society, and Critical Perspectives on International Business. She’s on Twitter: @verenacph

Htwe Htwe Thein is an Associate Professor in International Business at Curtin University, Australia. She is internationally known for her work on business and foreign investment in Myanmar and has published in leading journals including Journal of World Business, Journal of Industrial Relations, Journal of Contemporary Asia, International Journal of Cross-Cultural Management and Feminist Economics (and international publishers such as Cambridge University Press, Routledge and Sage). She is also well-known as a commentator in media and press on the Myanmar economy and developments since the military takeover on 1 February 2021.

Are we asking the wrong questions in corporate social responsibility (CSR) research?

By Rikke Rønholt Albertsen

◦ 3 min read ◦

The sustainability contributions of business are under increased scrutiny in society. Observations of greenwashing, blue-washing, corporate hypocrisy, and decoupling suggest the existence of an intentional or unintentional gap between espoused CSR strategies and actual sustainability outcomes at the societal level. In other words, there seems to be more “talking” than “walking”.

This has inspired a growing concern in parts of the CSR research community that maybe we have been asking the wrong questions. Is it possible that in some ways we are contributing to this gap between strategy and impact?

Next year, an entire subtheme of the annual European Group for Organisational Studies (EGOS) conference will be dedicated to “Rethinking the Impact and Performance Implications of CSR”. This subtheme will address the tendency in CSR research to focus on outcomes at the organisational level without analysing impacts at the societal level.

There are valid reasons for limiting the scope of CSR research in this way: from an organisational performance perspective, many of the traditional success criteria for CSR policies—such as strengthening legitimacy, market position, and employee satisfaction—do not require data to be gathered on sustainability impact from a societal perspective.

However, the urgency and magnitude of the current global crisis related to climate, biodiversity, and social inequality fuels the expectation that corporations should acknowledge their role in creating these crises and take decisive action to be part of the solution. From this perspective, one would expect CSR research to provide knowledge of how, when, and why CSR policies and practices truly contribute to solving sustainability challenges. Yet, as a review of current CSR literature shows, this is rarely the case [1].

So what constrains CSR researchers from addressing this impact gap? In the following, I will highlight two interrelated mechanisms that have emerged from my research.

1) Sustainability impact is non-linear, systemic, and complex.

The problem with measuring sustainability impact is that it does not conform to conventional systems of measurement and reporting. Company CSR reports primarily provide key performance indicators linked to resource use per unit of production or list company policies and protocols to ensure compliance with various sustainability standards. In general, companies tend to (self) report on the successful implementation of their (self-imposed) CSR strategy, which happens to align with existing business objectives. However, as dryly noted by former environmental minister and EU commissioner Connie Hedegaard: the need for CO2 reductions is not relative; it is absolute! The melting Arctic poles do not really care that a company has made an effort to reduce its relative emissions if the net result is still more CO2 [2].

The negative impact on ecosystems is subject to irreversible tipping points where effects compound and accelerate. Thus, the societal impact of a sustainability policy or protocol cannot merely be assessed at the organizational level. It must be traced up and down the value chain and checked for unintended systemic consequences and hidden noncompliance [3]. Think of ineffective emission off-set schemes or families impoverished by bans on child labour. Ultimately, being “less bad” does not necessarily amount to being good.

2) Researchers do not have the necessary information.

Analysing the societal impact of corporate CSR policies and practices is a highly resource intensive task, which requires an entirely different set of research skills and data access than traditional organisational research. Instead, researchers most often opt to evaluate sustainability performance through estimations, perceptions, and narratives offered by company staff in surveys and interviews [1]. This data is context specific and prone to subjective biases, making it difficult to draw objective conclusions about societal impact.

Consequently, because there is so little existing knowledge of the link between CSR initiatives and societal impact, the CSR contribution of corporations is primarily assessed based on compliance with reporting standards and commercial rating initiatives such as the Dow Jones Sustainability Index [4]. This, for lack of better options, becomes the go-to objective indicator of CSR performance used by CSR researchers. Through this self-fulfilling circular logic, these indicators are used to identify CSR high performers for research on best practice. CSR research thus potentially perpetuates the perception of what successful CSR policies and practices look like—all without examining the societal impact of these practices.

Is this a problem?

Just as corporations increasingly realise that addressing CSR issues is no longer optional, we as CSR researchers may need to move beyond asking how, when, and why corporations engage with sustainability and begin asking how, when, and why corporations contribute to sustainability. If we do not, we risk losing our relevance when corporations look to academia for guidance on how to design and implement CSR strategies based on maximum impact rather than just maximum compliance and minimal risk.

We are challenged to expand our field of enquiry and be innovative when assessing how the observed means ultimately align with desired ends. This will require forging research alliances with new knowledge fields and establishing relationships with new groups of informants beyond company employees. The first step, however, is to rethink the questions we ask.

Further reading

[1] J.-P. Imbrogiano, “Contingency in Business Sustainability Research and in the Sustainability Service Industry: A Problematization and Research Agenda,” Organization & Environment.

[2] C. Hedegaard, “Farvel til ‘logofasen’ -nu har vi set nok grønne slides,” Berlingske, 2020. [Online].

[3] F. Wijen, “Means Versus Ends In Opaque Institutional Fields: Trading Off Compliance And Achievement In Sustainability Standard Adoption,” The Academy of Management review.

[4] M. Zimek and R. J. Baumgartner, “Corporate sustainability activities and sustainability performance of first and second order,” 18th European Roundtable on Sustainable Consumption and Production Conference (ERSCP 2017).

About the Author

Rikke Rønholt Albertsen is a PhD Fellow at the Department of Management, Society and Communication at Copenhagen Business School and a member of the multidisciplinary CBS Sustainability Centre. Her research focus is on exploring and understanding gaps between the espoused sustainability objectives of corporations, and their actual contribution to sustainability. She has a background in consulting at Implement Consulting Group and in sustainability advocacy as co-founder of Global goals World Cup. 

LinkedIn Profile.

Photo by Emily Morter on Unsplash

Why transparency may not lead straight to CSR paradise

By Dennis Schoeneborn

◦ 2 min read ◦

Business firms worldwide are increasingly engaging in practices of corporate social responsibility (CSR), a trend strongly driven also by the agenda of the UN Sustainable Development Goals. However, when doing CSR, firms tend to face recurrent suspicions by the media, NGOs, and other civil society actors that they would not put the money where their mouth is; in other words, that they would adopt CSR practices only ceremonially rather than substantially (a.k.a. “greenwashing”).

High transparency demands are commonly seen as the main ‘remedy’ that would ‘cure’ firms from mere ceremonial adoption and would drive them towards substantive adoption of CSR practices. However, in recent years we can find increasing evidence that high transparency demands do not always lead straight to CSR paradise. In a Financial Times article from 2020, Jason Mitchell raised the provocative question: Is greenwashing a necessary evil? The author argues that firms often require some leeway to experiment with CSR and sustainability practices to begin with, and without such leeway CSR efforts tend to get cut off too early by too high transparency demands and greenwashing accusations. After all, some decoupling between talk and action can also be due to a time lag between aspirations and the actual implementation of CSR practices within a firm (see here).

In the same context, Patrick Haack (HEC Lausanne), Dirk Martignoni (University of Lugano), and Dennis Schoeneborn (Copenhagen Business School) have recently published an article in the Academy of Management Review that draws on a computer-based simulation to study the dynamic interplay between transparency demands and CSR practice adoptions in a field or industry. By drawing on a probabilistic Markov chain model, the authors demonstrate that under certain conditions a regime of opacity followed by transparency (i.e. intially low and later high transparency demands) “outperforms” a regime of enduring transparency (i.e. high transparency demands right from the start) with regards to maximizing the share of firms in an industry that would adopt CSR practices in a substantive way. But what are such boundary conditions?

In the article, the authors explain that the optimality of the “opacity followed by transparency” regime tends to apply only for practices that are characterized by low adoption rates (i.e. those costly to implement) as well as by low abandonment rates (i.e. once adopted firms tend to stick with the practice, also since they may face public backlash if they abandon a practice after adoption). Interestingly, these are exactly the kinds of conditions that characterize CSR as a practice area.

What to learn from all this? NGOs and other civil society actors can benefit, in the long run, from cutting business firms some slack (i.e. putting rather low transparency demands onto firms), at least in the initial stages of CSR adoption processes. Instead, societal actors should then try to increase transparency demands at later stages in the adoption process to push firms further towards substantive adoption.

Haack et al. (2021) explain this process to work due to what they call a “bait-and-switch” mechanism of CSR practice adoption. Initially lower transparency demands allow for larger numbers of firms to adopt practices, even if they do so for ceremonial reasons to begin with. Importantly, when transparency demands are then increased over time, a number of firms tend to switch from ceremonial towards substantial adoption, thus leading eventually to the desirable outcome (from a societal viewpoint) of rather high rates of substantive CSR adopters in an industry. 

Further reading

Haack, P., Martignoni, D., & Schoeneborn, D. (2021). A bait-and-switch model of corporate social responsibility. Academy of Management Review, 46(3), 440-464. 

You can also access a (non-layouted) version of the same article at ResearchGate. The article has been picked up in a recent story by Forbes magazine. And if you want to learn more about the ‘backstory’ behind the AMR article, you can watch a video interview with two of the authors, Patrick Haack and Dennis Schoeneborn, on YouTube. 

About the author

Dennis Schoeneborn is a Professor of Communication, Organization and CSR at Copenhagen Business School and a Visiting Professor of Organization Studies at Leuphana University of Lüneburg. In his research, he focuses on organization theory, organizational communication, digital media and communication, corporate social responsibility and sustainability, as well as new forms of organizing.

Photo by Joel Filipe on Unsplash

Corporate democratic responsibility – messy and difficult, yet urgent and without alternative

By Dieter Zinnbauer

◦ 4 min read ◦

We live in politically tumultuous times. Authoritarianism is on the rise again across the world. Democratic freedoms have been in decline for 15 years in a row. The share of people living in free societies has shrunk to a meagre 14% of the world population. Meanwhile polarisation and populism, disinformation, mistrust and rising inequality have begun to hollow out the fundaments of even the strongest democracies. Votes for populist parties in mature democracies have risen from 3% in the 1970s to more than 20% today.

With democracy under attack everywhere how does and how should business position itself? What are the democratic responsibilities of companies? A tricky question well beyond the scope of a blog entry, but here some rather random notes and provocations on current trends and gyrations as input to this highly topical conversation.

Inaction is untenable, political neutrality unlikely.

It is less and less of a practical option anymore to hide behind a veneer of political neutrality no matter if rationalized instrumentally  (the Republicans-are-buying-sneakers-too argument), normatively (it’s undemocratic for business to engage in high stakes politics beyond its own narrow business interests) or intuitively (the empirically tenuous claim that business tends to only support moderate, mainstream politics anyway).  Here some reasons why:

For a start, it is not easy to find  real-world contexts, where a principled commitment to free and fair markets and a principled rejection of crony capitalism would not also imply and indeed be predicated upon a commitment to competitive democracy.  Or from a slightly different angle, the normative minimum for business – to respect human rights in its sphere of operation and influence –also entails respect for basic democratic rights and a related duty of care.

Remaining silent on democracy is therefore only an option as long as democracy is not in danger, as long as none of the substantive political forces in a country seek to actively dismantle load-bearing democratic norms and rules.

Yet in many countries this is not the case (any more). From Brazil to the Philippines from Poland or Hungary to the US, formally democratic regimes are under attack from within the political establishment. And in many more other countries fringe groups with dubious democratic credentials and intent often propelled by a toxic mix of populism and nativism are moving closer to becoming part of government. 

Enter corporate democratic responsibility

Corporate responsibility in such contexts entails having a plan for and executing on corporate democratic responsibility on at least three different levels / time horizons. 

  • For a start and most immediately it requires aligning non-market strategies with regard to corporate support for politicians, lobbying, public relations and other business and society interactions with an active stance and role in support of democracy.  E.g. no funding for politicians and parties that have taken to destroying basic tenets of inclusive political participation (not just temporary bans until the PR tempest calms down), no lobbing on issues that corrode the fundaments of political equality, an active promotion of democratic values, for example along the lines of campaigns by German business associations against extremism.
  • In the medium term it calls for a democracy audit – an active interrogation of one’s own operations’ “democracy footprint”, and how one’s business model can best respect, protect and promote democratic values. Big tech platforms, for example, are being pushed to better understand and address their role for a healthy democratic discourse. 
  • In long-term perspective it demands a deeper probing on how corporate conduct is linked to some of the underlying drivers of democratic decline and disillusionment. Growing inequality and declining social mobility, status anxiety and a profound sense of losing out and losing authorship of one’s life are all empirically confirmed to provide fertile ground for populism and creeping authoritarianism. To help restore a sense of individual economic and political efficacy, trust in societal fairness and public as well as private authority companies may wish to interrogate how practices around tax avoidance, regulatory arbitrage, shareholder primacy etc. intersect with these issues. This also includes questions around how reforms and new formats in corporate governance can help resurrect a sense of being in it together and revive the idea of the business organisation as a shared venture, an important venue for exercising citizenship and co-authoring one’s economic life world and, capable of collectively evolving  a strong, responsible corporate purpose.
A rough, but necessary ride ahead

Good corporate democratic responsibility does not come easy. It means wading into a messy terrain and facing up to the perennial tension between defending democracy and curtailing freedom. 

It involves business decisions on whether fitness-bikes should be permitted to spread rumours about voter fraud, whether couches and guest rooms should welcome riot tourists, whether rumour-mongers deserve cloud hosting or whether the president of the United States should be kicked off the world’s largest social network.  Yet, all these things need to be reckoned with one way or the other as doing-nothing only cements a status quo of what is often democratic backsliding.

All these tricky questions around corporate behaviour in the context of democratic countries that are at risk of backsliding will also bring into sharper relief the perennial question of what companies can and should do when operating in outright authoritarian settings – a discussion well beyond the scope of this short blog entry but one that is returning with a vengeance given high-growth prospects in authoritarian settings or military coups in popular foreign investment destinations.

Finally, an honest grappling with corporate democratic responsibility will be agnostic to partisanship in principle and approach. But it is highly likely to be partisan in outcomes. Political incivility and anti-democratic behaviour are unlikely to be evenly distributed across the ideological spectrum in any given setting. So brace yourself for a partisan backlash and for a constant tight-rope walk between supporting democracy and being drawn into day-to-day politics.  Getting this right will require the best of corporate strategy, corporate governance and corporate communication. But ultimately there is no escaping from corporate democratic responsibility. Flourishing economies and flourishing democracies ultimately depend on it.  

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”.

Photo by Fred Moon on Unsplash

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.

Friedman’s critique of CSR at 50: birthday surprises

By Jeremy Moon

Sorry I am late in sending a 50th birthday card for Milton Friedman’s essay “The Social Responsibility of Business Is to Increase Its Profits [1]. Many would say that it is a birthday not worth celebrating. I agree with my colleagues Steen Vallentin (see blog) and Sandra Waddock (see blog) that we should move beyond Friedman’s assumptions and prescriptions. So why do I use a seemingly outdated newspaper article in my introductions to courses on corporate social responsibility (CSR)? In Steen’s terms, should I continue to flog the ‘somewhat dead horse’? As I think this horse still has legs I wouldn’t flog it, but I would continue to take some of the CSR journey with it. And here’s why. 

By reading and thinking about “The Social Responsibility of Business Is to Increase Its Profits” students have gained insights into how business and its context changes, and into some key abiding issues (e.g. the relationship of business responsibility to government, the purpose of business). Friedman packs an awful lot into the essay. Despite my belief that it is anachronistic and misguided in parts, Friedman – sometimes unwittingly – brings a few interesting surprises to the class.

Surprise No. 1 is that it was even worth penning a critique of business social responsibility in 1970. It is sometimes assumed – especially in business schools – that business concerns with responsibility and sustainability are relatively new fads (the sad truth is that many schools have been slow to address these concerns). But, yes, there was a lot of talk about CSR in the late 1960s USA, and Friedman castigates GM Motors for its social initiatives. So CSR is not new but it has its ups and downs. Its focal issues, modes and rationales differ over time and vary among contexts.  

The biggest change to CSR since 1970 is probably globalization bringing with it global supply chains and new corporate agendas of responsibility for labour & human rights and for the natural environment. Friedman envisaged that the only governments relevant for social issues were democratically accountable (i.e. American) and thus did not envisage the difficult responsibility issues for corporations in sourcing from, and selling to, countries which are undemocratically and corruptly governed. 

Surprise No. 2 is for those who know that Milton Friedman had already achieved fame or infamy for his libertarian position. In his book Capitalism and Freedom (1962), he presented government as inefficient and ineffective on key public policy issues. As Sandra Waddock points out, neo-liberalism, of which Friedman is a standard-bearer, generally contends that ‘less government is invariably good’. Yet in “The Social Responsibility of Business” Friedman is positive about government as an accountable and competent actor for resolving societal problems.

Friedman suggests a dichotomous view of the responsibilities of government and business because he assumed that business could best pursue its responsibilities – to increase profits – unencumbered by public policy obligations, and that government could legitimately raise taxes to address social issues. But this dichotomy rather belies the realities, then and now, of business organizations seeking favorable governmental intervention in markets and society… and of governments seeking business contributions to addressing societal challenges.

Surprise No. 3: Friedman acknowledges the virtue of social investments by business … ‘excuse me?’. Yes. In a rather over-looked passage, he comments that: 

It may well be in the long-run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees …or have other worthwhile effects.

M. Friedman (1970). “The Social Responsibility of Business Is to Increase Its Profits”, p. 124 col. 3.

This looks like an early version of the business case for CSR – re-labeled Creating Shared Value by Porter & Kramer [2]? But Friedman just doesn’t want you to call social investments CSR. Like today’s critics of CSR, Friedman sees this cloaking of a business strategy as a form of “window-dressing” and as “approaching fraud”. This introduces the fascinating point of class discussion about whether something can be described as socially responsible if it also benefits the benefactor, and specifically the corporate benefactor?

Surprise No. 4 is for students of business and management.  It lies in Friedman’s misrepresentation of corporate governance. His main argument about CSR constituting misuse or even theft of shareholders’ property is predicated on his contention that shareholders are the legal owners of publicly traded corporations. But in fact the corporation itself owns its assets: indeed the whole point about limited liability is that shareholders are exempted from liabilities that would otherwise rest on owners [3]. Of course, there are duties to shareholders – legal and ethical – but these are tempered in corporate governance regulation and judicial rulings (details vary among jurisdictions).

This is also a surprise for some corporate critics who see the problem of corporate irresponsibility as simply a function of a shareholder model [4].  In other words, they believe Friedman’s myth of the managers simply being the agents of shareholders. That this myth has achieved such standing is, perhaps partly testimony to the appeal that Friedman’s argument has had… and another reason why I like to introduce him to students.  

Surprise No. 5 is one that, in retrospect, Friedman himself may have had to face. It is clear that investors do not conform to his fairly unidimensional assumptions of shareholders’ motivation: not all are interested in short-term profit. Some are motivated by long-term security of their investment and others by values (e.g. avoidance of risky products, preference for products not tested on animals). Today we see evidence of greater mainstreaming of investor concerns with sustainability issues that Friedman would have contended are beyond corporate responsibility and which are properly in the sphere of government (see Rasche blog).  

Of course, much else has changed which students like to ponder, including:

  1. the extent to which corporations adopt the business case for responsible and sustainable goods and services, be it for their own sake, or reflecting changing consumer, employee or investor preferences or, more broadly, reflecting their understanding of the expectations of societies and regulators.
  2. the institutionalization of CSR through private authority (principles, standards, audits, reports) and its intersection with civil society and democratic government.
  3. skepticism about corporate motivation for “promoting desirable social ends” is no longer the sole prerogative of libertarians like Friedman (and Hayek).  I now also comes from the very socialist perspectives that Friedman feared the most.

So yes, we certainly need to move on, but we may move on more assuredly if part of our journey (on horseback or otherwise) is engaged in the conversation he spurred (sorry for flogging these equine metaphors…). 

References

[1] M. Friedman “The Social Responsibility of Business Is to Increase Its Profits”, New York Times Magazine, 13 September 1970.

[2] M. Porter & M. Kramer “Creating Shared Value”  Harvard Business Review, Jan  – Feb 2011.

[3] E.g. Lynn A. Stout. The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public, 2012.

[4] E.g. Not Fit-for-Purpose: The Grand Experiment of Multi-Stakeholder Initiatives in Corporate Accountability, Human Rights and Global Governance (Summary Report), MSI Integrity, 2020.

About the Author

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.

Photo Source: Milton Friedman blowing out the candles on his birthday cake, while his wife Rose and other party attendees look on. 15 July 1987. ©Hoover Institution Archives.

Making Corporate Sustainability More Sustainable

For too many firms corporate sustainability is itself not a sustainable endeavor

By Andreas Rasche

Corporate sustainability initiatives are blossoming around the world. While some firms have built robust infrastructures around their efforts, other firms struggle to do so, making their engagement a short-lived endeavor. In other words, corporate sustainability is itself often not sustainable enough to create lasting change in organizations. While there is hope that firms’ sustainability strategies are becoming more robust (e.g., because basic market conditions have shifted in favor of sustainability and make it difficult to ignore), there is still much work to be done to create sustainable corporate sustainability efforts.

The Challenge of Integration

One important barrier is the belief that “integrating” sustainability is more important than having an own dedicated organizational infrastructure around it. In 2019, the Danish multinational Maersk laid off a significant part of its sustainability team (including the head of the division). The aim of the reorganization was to merge its ongoing sustainability activities with work undertaken in other departments of the company. While integration may sound like a sound strategy and for many years consultants advised firms to make sure that sustainability work is not detached from the core of the firm, it also comes at a price:

In many firms, integration “waters down” sustainability efforts, makes them less visible in the organization and hence easy to neglect.

Don’t get me wrong: I am not arguing against integrating sustainability into organizations. I am arguing against using integration as a cover-up strategy to make sustainability efforts themselves less sustainable. Integration can easily be misused. Take the example of business education. For many years, business schools have struggled with finding the right balance between creating standalone courses on sustainability topics and integrating related content into the regular curriculum. Over time, integration proved to be difficult and only very few schools succeeded with truly embedding sustainability content across their curriculum. The main hurdle was to free up room in otherwise already packed courses and to also move beyond a symbolic adoption of sustainability content in classes.  

Business schools’ experience holds a lesson for corporations. If you integrate, you need to ensure that wherever integration happens enough resources support the journey (e.g., time, knowledge but also interest). Often, this is where integration fails…

The Challenge of Corporate Size

Another barrier to making sustainability more sustainable is corporate size. Recently, I published a paper that analyzed which types of firms are delisted from the UN Global Compact (UNGC). We analyzed over 11,000 firms (both active and inactive participants in the UNGC). One key finding was that small and medium-sized enterprises (SMEs) were much more likely to leave the initiative than larger firms. It would be easy to conclude from this that SMEs are less sustainable than larger firms – but this would be the wrong conclusion.

What it shows is that SMEs struggle to develop lasting organizational structures around their sustainability efforts. UNGC delisting is based on firms’ failure to submit a mandatory annual implementation report. While larger firms usually do not struggle with such reporting, because this task is anchored somewhere in the organization, smaller firms find it more difficult to make reporting a lasting endeavor (e.g., because of resource constraints or lack of knowledge). Often, sustainability commitments by SMEs are based on internal champions who push relevant efforts and also sign the organization up to the initiatives like the UNGC. Once these people leave the organization or assume a different role within the firm, there are little formal structures that could fill the void that is left behind.

SMEs sustainability work is often more implicit and tied towards the communities they operate in. However, in a more transparent world where sustainability is increasingly datafied and benchmarked such implicit efforts may be easily confused with corporate sustainability lacking sustainable implementation.

Sustainable Corporate Sustainability

So, what is the bottom line? Making corporate sustainability itself more sustainable remains a key management challenge, both for larger and smaller firms. Creating durable organizational structures that can withstand the pressures of crisis situations and related cost-cutting efforts is one important way to address this challenge. Such structures have to be integrated with the rest of the organization to be not an add-on, but they also need to have a life on their own. What may even be more important is that corporate leaders and associated Boards need to develop an unambiguous vision for where the firm is supposed to go with its sustainability activities. This puts Board-level engagement with sustainability topics at the very top of the agenda, both for practitioners and academics.

About the Author

Andreas Rasche is Professor of Business in Society at Copenhagen Business School and Visiting Professor at the Stockholm School of Economics. He just released “Sustainable Investing: A Path to a New Horizon” (together with Herman Bril and Georg Kell). More information at: http://www.arasche.com

Photo by Egor Vikhrev on Unsplash

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

By Daniel C. Esty

Covid-19 has dominated policy thinking across the world for several months – highlighting our vulnerability to unexpected threats, the fundamental reality of global interdependence, the critical role of science and data, and the value of collaborative efforts in response to a common challenge. And when the short-term public health crisis abates, the middle-term focus will be on economic recovery. But we should think now about the longer term – and the need to build a sustainable society that steps up to another looming threat: the prospect of destabilizing climate change.  Thus, as we rebuild our economy, we must do so in a way that moves us toward a clean and renewable energy future as well as addressing other pressing sustainability issues including air and water pollution, waste and chemicals management, and our depletion of natural resources.

To help launch the conversation about the pathways to a sustainable future, I offer below 10 key elements to consider. These concepts build on the ideas laid out in the recently released book, A Better Planet: 40 Big Ideas for a Sustainable Future, that emerged from a multi-year research and policy initiative at Yale University, where I teach. For more information on the Yale Environmental Dialogue, please see the website.

1 ) End of externalities

A sustainable future requires that we commit to an end of externalities as the foundational principle for environmental policy.  This starting point would require that we implement the Polluter Pays Principle, which means that those who release air and water pollution or greenhouse gases would have to stop these harms or to pay for their pollution.  Likewise, any user of public natural resources – including water for irrigation, forests for timber, grasslands for grazing, or public lands for the extraction of oil, natural gas, or minerals – would be required to pay full price for the resources they take. 

To be clear, making companies pay for the harms they cause will expose some business models as fundamentally unsustainable and only profitable when externalities are not internalized.  These enterprises will have to remake their business strategies or go under.

2 ) Change in systems thinking

We must acknowledge that we live in a highly integrated world, as COVID-19 has so painfully made clear.  Complex human and ecological systems require moving beyond traditional siloes to systems thinking — and regulatory design that links energy, environmental, and economic policies.  More fundamentally, we must accept the fact that we will need to pursue multiple goals simultaneously and learn to do so in an integrated way that accepts the reality that our goals will sometimes be in tension — and thus need to be traded off and balanced.

3 ) Top-down targets & bottom-up implementation

We must recognize that policy frameworks and structures require both top-down targets and bottom-up implementation. This lesson has become plainly evident in the climate change context, where it is now clear that presidents and prime ministers do not control all the levers of society that must be pulled to deeply decarbonize our economy.

 To achieve a sustainable future, mayors, governors/premiers, and other subnational political leaders – who often control economic development, transportation systems, and other key points of policy leverage — must play a significant role in reducing greenhouse gas emissions and building a more resilient society.

Likewise, business leaders – who also make day-to-day choices that profoundly shape the prospect for moving society onto a sustainable trajectory – must also be included in this conversation.  Fortunately, both the 2015 Paris Climate Change Agreement and the UN Sustainable Development Goals (SDGs) expressly acknowledge the need for broader engagement of exactly this kind.  

4 ) New economic model

New policy tools must replace the 20th Century command-and-control regulatory model with economic incentives and other market mechanisms.  While the government mandates of the past have allowed us to dramatically reduce pollution levels compared to five decades ago, further progress depends on price signals and a commitment to making emitters pay for the harm they cause.

5 ) New roles & various actors

Environmental progress must recognize new roles for various critical actors.  Specifically, in decades past, the business world was seen as the source of pollution problems. But today, most corporate leaders recognize the need to be good environmental stewards so as to maintain their company’s social license to operate. They recognize that old notions about the mission of corporations being centered on shareholder primary and the maximization of profits has given way to a stakeholder model in which businesses have responsibilities not only to shareholders, but also to their customers, suppliers, employees, and the communities in which they operate. 

Individuals are also advancing sustainability in new and important ways that go well beyond their long-recognized role as voters. Specifically, individuals today can make a difference as green consumers who make choices every day about which products to buy and which companies are selling sustainable goods and services. Likewise, a growing set of sustainability-minded investors are tracking environmental, social, and governance (ESG) performance metrics to ensure that their portfolios align with their values – and they hold shares in companies that are showing the way toward deep decarbonization and sustainability more generally. 

And some impact investors are putting money directly into sustainability projects and enterprises with an expectation that their funds will make a difference in society as well as a financial return.

  Finally, all of us with a smartphone can serve as watchdogs — capturing and sharing evidence of environmental wrongdoing on social media.  We are also all positioned to offer comments and participate in public environmental debates in many places and ways that were not possible prior to the Internet era.  This expanded access should deepen public participation and improve the diversity of perspectives that get factored into policy decisions.

6 ) Sustainable markets

We need sustainable markets that incorporate new lessons from various emerging fields of science and other emerging academic disciplines. Industrial ecology, for instance, offers new methodologies for mapping the flows of energy and materials across the economy.  In this regard, as we rebuild business in the many sectors devastated by the Covid-19 pandemic, we should look sector-by-sector for opportunities to create closed loop production processes that generate zero waste.  Such a system would focus on water recapture and the reuse and recycling of other materials.

We might, in this spirit, shift away from plastic packaging that generates greenhouse gas emissions as it is produced and too often accumulates after use in the ocean – and move toward fiber-based materials that can be more easily recycled or composted.

7 ) New tools & Big Data

Policymakers have a set of new tools at their disposal that can be deployed in support of a sustainable future.  Big Data, in particular, has abundant applications that can help us to reduce environmental impacts – tracking emissions, identifying best practices in pollution control and natural resource management, and providing metrics that help us to identify policy leaders to emulate and laggards who should be spurred to do better.  And while 21st information and communications technologies have transformed how sports teams pick players, businesses market to their customers, and all of us make purchases, technological solutions have done rather little to reshape the environmental realm.  But recent advances in data analytics, genomics, artificial intelligence, and machine learning all show significant promise for having important environmental applications.

8 ) Ethical foundation

We must build an ethical foundation for 21st Century sustainability that captures the public’s evolving thinking about core values and fundamental principles. Most notably, the idea of environmental justice and concerns about equity and inequality make it clear that our policy programs must pay attention to who benefits from environmental commitments and who gets ignored.

Indeed, who pays for environmental inaction – including lead exposure from aging water pipes or asthma risk when urban air pollution is not abated – has become a fundamental question. 

As we seek to “build back better” after COVID-19, climate change equity issues need to be given a more prominent role – both the intergenerational burden that the build-up of greenhouse gases in the atmosphere threatens to leave for today’s young people and the reality that movement toward a clean energy future will dislocate some communities, industries, and demographic groups in ways that will require transition assistance.

9 ) New ways of communication

We need a new approach to environmental communications and a commitment to translate expert guidance and science to the public in a manner that makes sense to everyday citizens. Tony Leiserowitz and the Yale Program on Climate Change Communication have demonstrated, for example, that political leaders must learn to distill and effectively translate scientific concepts and results to the public.  And as Thomas Easley makes clear in his Better Planet essay “Hip Hop Sustainability,” we need new strategies that bring the climate change conversation to inner cities and other subsets of society in a way that engages those communities in their own language and on their own terms.

10 ) Innovation

Finally, a spirit of innovation must permeate the push toward a sustainable future.  To create an environmental policy framework that is lighter, faster, and more effective than our regulatory programs of the past, we must harness the entrepreneurial capacity and creativity that exists all across the world.  Innovation broadly-conceived has already brought us technology breakthroughs in wind, solar, tidal, wave, and fuel cell power. But we must seek innovation beyond the technology domain. We need to be equally committed to fresh thinking and new approaches to finance and investments in clean energy, government policies and incentives, public engagement strategies, and public-private partnerships. 

Such innovation can reduce the cost of creating a sustainable future and diminish the perceived tradeoff between environmental progress and economic prosperity.

Despite recent challenges, the promise of a more sustainable society seems ever closer, but still just over the horizon.  Progress thus depends on sustainability pioneers who are willing to run out front, innovate broadly, take on risks, accept failures (and redeploy resources quick when unsuccessful pathways are identified), and redouble their commitment to efforts that show promise.

This commentary builds on Dan Esty’s April 2020 virtual lecture at Copenhagen Business School and the University of Copenhagen.

About the author

Dan Esty is Hillhouse Professor of Environmental Law and Policy, Yale School of Forestry & Environmental Studies and Yale Law School

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

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

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The Ethical Blindness of Corporate Sustainability

By Andreas Rasche.

Corporate sustainability (and related concepts like ESG and materiality) have been reduced to discussions around financial value. This makes these concepts “ethically blind”. We are in need of a resurgence of business ethics, otherwise the endless discussions of the “business case” for sustainability will turn out to be the error at the heart of true leadership for sustainable business practices.

My LinkedIn and Facebook feeds are filled with great stories about how well corporate sustainability aligns with financial measures (be it revenue, profit or another metric). Sustainability practitioners seem to love these research findings. No one can blame them. They are the ones who need to “sell” sustainability efforts to top management, and having evidence that sustainability aligns well with financial goals makes this task a lot easier. I do not necessarily doubt these findings, although any researcher will tell you that results always depend on how a study is built, and also that correlation and causation are often confused in these studies.

What I am concerned about is that research findings are turned into normative prescriptions without much reflection: just because some research finds that corporate sustainability efforts support the financial bottom line of a company, we should not conclude that these efforts should only be undertaken whenever they support the financial bottom line. Corporate sustainability is most urgently needed whenever it does not support the financial bottom line. In those situations, the decision for sustainability is a tough one; it requires courage and, in many cases, ethical reflection.

Future thinking, writing, and speaking about corporate sustainability needs to much better balance the financial gains and the moral dilemmas attached to relevant issues. Otherwise, we risk to become ethically blind. Such blindness is often referred to as the “inability of a decision maker to see the ethical dimension of a decision at stake.” (Palazzo et al., 2012: 325) Practitioners’ and academics’ obsessions with the business case has clearly diminished our ability to turn a problem/issue into a case for moral reflection and imagination.

A good example are materiality assessments. These assessments rank ESG issues according to their influence on a firm’s strategy (incl. financial bottom line) and the interest of the firm’s stakeholders in these issues. The moral need to address an issue, because it is the right thing to do, falls off the agenda. Corporate sustainability becomes a pick and choose exercise, which corporations often frame in whatever way they please.

The field, which we nowadays refer to as corporate sustainability (incl. ESG and materiality etc.), started out with discussions around the moral responsibility of businessmen. Back then the focus was, among other things, on how moral dilemmas can be resolved. I am not saying these are the good old times. But it is clear that the discourse has not only changed label (from ethics to responsibility to sustainability), but also that this very discourse has been hijacked by the belief that corporate sustainability is only a worthwhile endeavour whenever it creates financial value for a company.

All of this is not to say that corporations should not financially profit from their corporate sustainability efforts. It is also not to say that managerial tools like materiality assessment are completely useless – they can be of great help. However, it is to say that we cannot and should not reduce discussions around sustainability to a single dimension: be it the financial one, the moral one, or any other one. Corporate sustainability issues are by design multi-faceted, and so must be our thinking about them.

Former CEO of General Electric, Jack Welch, once famously declared:

On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy …your main constituencies are employees, your customers and your products” (quoted in Moon, 2014, p. 106)

We should extend this argument to the business case for sustainability. The idea of a business case itself is a stupid one; such a case should never be the sole motivation of engaging in corporate sustainability, although it can be an outcome of such engagement.

I prefer morally informed decisions. But it is getting harder to convince practitioners and academics that there is more to corporate sustainability than the financial bottom line. Having a business case for corporate sustainability should never be a precondition for addressing an issue or a problem. Otherwise, we move towards moral mediocrity…

Andreas Rasche is Professor of Business in Society at Copenhagen Business School and Director of CBS’s World-Class Research Environment “Governing Responsible Business”. He is also Visiting Professor at the Stockholm School of Economics. Andreas can be reached at: ar.msc@cbs.dk and @RascheAndreas. More at: http://www.arasche.com

Sources:
Moon, J. (2014). Corporate Social Responsibility: A Very Short Introduction. Oxford et al.: Oxford University Press.
Palazzo, G., Krings, F., & Hoffrage, U. (2012). Ethical Blindness. Journal of Business Ethics, 109(3), 323–338.

Pic by Caleb Jones, Unsplash.