A raft of firms set science-based targets to cut emissions, CEOs see business benefits of CSR, supply chains pose reputational risk, food companies failing to tackle water issues and ethnically diverse firms outperform
OUT WITH the hot air; it’s time to get down to the nuts and bolts of managing carbon emissions. That’s the growing message from big business as an increasing number of corporations sign up to exacting, evidence-led carbon targets. This month BT added its name to the list, as the UK telecoms company committed to reduce its emissions by 87% by 2030, against a 2016/17 baseline. The target marks an update of BT’s previous 80% goal for 2020, which is set in 2008 against a 1996 baseline and has now achieved. The revised figure represents a so-called “science-based target", denoting the relationship between the path of the company’s emissions and the achievement of the 1.5C cap on global temperature rises set by the Paris Agreement.
Helping build momentum for science-based targets is the RE100 initiative, led by the Climate Group, a not-for-profit business alliance. Corporate signatories to the scheme, which now counts 106 participants, commit to move towards 100% use of renewable power. This month has seen beauty firm Estée Lauder, US food giant Kellogg’s, Singaporean bank DBS, and organic food and drinks brand Clif Bar add their names to the campaign. RE100 has now taken total demand for renewable electricity to 150 terawatt hours annually – more than the power demand of New York State. The date that companies set for going 100% renewable varies: Kellogg's has a 2050 goal, with an interim target of 40% by 2020, while DBS Bank has pinpointed 2030 as its cut-off date for using non-renewable power. RE100 hopes to reach 500 signatories by 2020.
The ambitious moves fuel a growing sense of optimism around the future stabilisation of global temperatures. A new recalculation of climate change projections by Oxford University suggests that the planet’s average temperature is not increasing as quickly as initially calculated. Even so, emissions will still need to be reduced to zero over the next 40 years for a two-in-three chance of keeping temperatures within 1.5C, according to the paper, published in Nature Geoscience.
Taking heart from the news will be the 64% of global citizens who believe that addressing climate change is possible if action is taken without delay. People in emerging economies are especially upbeat (71% believe the above statement), according to a recent survey by polling firm Ipsos-Mori on behalf of the Climate Group and consultancy firm Futerra. The most optimistic nations are Brazil, Chile, China, Colombia, Mexico, India, Peru and South Africa. Established economies tend to be a little more pessimistic than average, with 41% opining that the 1.5C threshold will probably occur. Most pessimistic is Russia, where 76% believe the writing is on the wall for global warming. Women tend to be more optimistic than men about the prospect of addressing climate change (66% versus 63%).
CEOs seeing the business benefits of CSR
FOR A WHILE now, corporate social responsibility has had a toe in the boardroom door of big business, but the subject at last appears to be winning the full attention of chief executives. According to a series of in-depth interviews of corporate leaders, the message that CSR and sustainability can add to a company’s bottom-line is finally getting through. Moreover, corporate leaders are increasingly viewed as “both directors and models of society’s moral compass”, the research by leadership advisory firm Boyden reveals. In an accompanying survey of UK adults, Boyden finds that 88% believe a company’s CEO should play an active role in CSR and “act as a spokesperson” for their company’s CSR activities. The trend is substantiated by a new survey by the UN Global Compact’s 9,500 business members, which states that 69% of CEOs are involved in “developing and evaluating sustainability policies and strategies”.
Boyden cites the increase in CSR disclosure as evidence of business leadership. From only about a dozen Fortune 500 companies issuing CSR or sustainability reports in the early 2000s, the majority do today. Welcome though this trend is, CEOs need to step up their game. According to new research from Accenture, Hermes Investment Management and non-profit disclosure advocate CDP, 42% of telecommunications and consumer goods companies fail to report any financial value from strong environmental performance. The combined financial cost of environmental impacts to the two sectors amounts to an estimated $699bn. This suggests huge potential for savings through the application of sustainable, low-carbon products and services, as well as new business opportunities. Only 30% of the largest 100 emitters reporting to CDP report revenues realised through such eco-applications. As a group, this netted them $1.1tr in 2016, with around half ($528bn) captured by just 19% of these reporting businesses. This is despite the payback period for environmental investments being three years or less for 65% of cases (and 86% over 10 years).
It is possible that those reporting to CDP are simply failing to register savings being made. Anecdotal data is certainly positive. UK telecoms company BT, for instance, recently revealed that carbon-abating products and services such as broadband and tele-conferencing represented 22% (£5.3bn) of its total revenue last year. It said its customers had cut their carbon emissions by 10 million tonnes using these technologies, up by 32% from last year. Dutch electronics conglomerate Phillips provides another example, with 64% of its total revenues (worth €15.7bn) coming from green products and services last year.
Chief executives with a good story to tell might find investors reappraising them, too. A new evaluation of more than 2,200 studies into the relationship between CSR management and financial performance finds a 90% positive correlation over time. The study, undertaken by University of Hamburg, brings together nearly half a century of academic research into the financial effects of integrating environmental, social, and governance (ESG) criteria into investment decisions. The landmark report shows an overwhelmingly positive link across all assets classes, including equities (52.2%), bonds (63.9%) and real estate (71.4%). The only major question mark centres on portfolio investments, which show a close split between positive (15.5%) and negative (11%) studies. In terms of developed versus developing nations, meanwhile, the positive ratio stands at 65%, versus 38% (with negative impacts amounting to 5.8% versus 7.7%), respectively. The findings are also borne out by the performance of the Clean 200 list of top clean energy firms, which finished its inaugural year up 16.5%.
Supply chains 'biggest reputational risk for business'
FORGET FINANCIAL performance, leadership, vision, purpose or any number of other tropes that business executives cite when considering the future resilience of the companies they run. What corporate leaders believe really sets them apart in the long-term is reputation. Yet 43% of the 1,250 business leaders surveyed around the world for the inaugural Organizational Resilience Index worry that their companies may be susceptible to high reputational risk going forward. This is despite 62% of respondents saying their reputation is currently excellent or very good, an 75% in the case of the US.
The research, which was carried out by BSI (the British Standards Institute), provides an insight into what might be causing such perturbation. Asked to rank 16 separate areas of corporate activity, business leaders consistently identified the supply chain as the worst-performing and least resilient aspect of their companies. They are right to worry, mounting research suggests. Take water-related risks in the supply chain. According to a new report by US environment organization Ceres, only six of the world’s largest 42 food companies have set sustainable water-sourcing targets for the majority of their agricultural inputs. This oversight seems careless at best when one considers that the sector has an estimated $459bn in revenue risk from water scarcity for irrigation and animal consumption, according to Ceres. To date this year, more than 90 food sector companies have flagged water risks in their earnings calls with investors.
Similar overlooked vulnerabilities are evident on labour issues. Companies in the UK, for instance, could well find trafficked workers in their extended supply chains without knowing it, concludes recent research by the University of Bath's School of Management. Layers of outsourcing, subcontracting and informal hiring of temporary staff occlude victims of slavery and human trafficking, the researchers find. Even so, half of the UK companies (50.6%) now required to issue an annual report on their exposure to modern day slavery are overdue in doing so, figures from the Transparency in Supply Chains database indicate. A similar disjunction is apparent among signatories to the UN Global Compact: 90% have policies on labour rights but only 53% of monitor or evaluate them. New figures on global slavery released at the UN General Assembly suggest 89 million people have been victim of the crime over the last five years. Seven in 10 (71%) are women or girls, while children make up 25%.
As well as managerial oversight, companies risk being accused of double-standards in their supply chain management too. A recent study of German companies’ international supply chains, for instance, finds that environmental impacts are often much higher abroad than at home. The investigation by German think tank Adelphi and the sustainability consultancy Systain, reveals that the greenhouse gas emissions and pollutants produced in the supply chains of Germany’s machinery industry are nine times worse among companies’ overseas suppliers than in their domestic facilities. Much of this negative footprint is among direct suppliers and not among firms further down the supply chain. For the German electronics’ industry, meanwhile, air pollution among its direct suppliers is three times higher than in its own domestic facilities.
Ethnically diverse companies outperform
UK PLC NEEDS to take a hard look in the mirror. And when it does, it will see an avalanche of white faces staring back at it. Although 14% of the working-age population are from black, Asian or minority ethnic backgrounds (BAME), only 6% of top management come from the same group. Admittedly, the business world is not alone here. A new study by Operation Black Vote, in association with The Guardian newspaper, reveals that barely 3% of UK’s top 1,000 political, financial, judicial, cultural and security posts are held by individuals from BAME backgrounds. Just seven (0.7%) were BAME women, the Colour of Power report finds. This does not excuse the lack of equality in the UK’s private sector, however, which is banned from any kind of racial or ethnic discrimination under the 2010 Equality Act, among other laws.
Discrimination isn’t just about pay, of course. A new study from the Trades Union Congress finds that over one third (37%) of BAME workers in the UK have faced workplace bullying, abuse or other non-pay related discrimination (such as the denial of training or promotion) by their employer as a consequence of their ethnicity. Of these, over two fifths (43%) did not feel able to report their experience of discrimination to their employers. This is not surprising: fewer than one fifth (19%) of BAME worker who have reported discriminatory behaviour to their employers in the past feel their complaint was taken seriously or dealt with satisfactorily.
According to research from McKinsey, the most ethnically diverse companies are 35% more likely to financially outperform the least diverse organisations. One reason for this is the extra ambition that BAME employees have over their white counterparts, research by Business in the Community suggests. Its 2015 Race at Work report finds that over four-fifths (84%) of BAME employees place importance on progressing at work, compared to less than two-thirds (63%) of white employees.
One company taking stock is PWC. The global professional services firm recently revealed that BAME employees in its UK operations earn 12.8% less than other employees on average. Bad though this gap is, the breach is at least down from 15.3% last year. The discrepancy is caused by an under-representation of BAME employees in senior positions, the company says. Just one in 12 managers and one in 16 senior managers comes from a BAME background. PWC hopes that revealing the pay gap will help accelerate improvements by drawing attention to the issue. The professional services firm points to a similar tactic with gender pay, something it has been publishing data on since 2014.