Supply chain issues, green finance, reporting standards and AI were in focus on the second day of Ethical Corporation͛s high-octane event in the Big Apple. Here are eight of the highlights
1 Pascal Baltussen, global vice-president of procurement for Mars Inc, said the role of procurement has changed “beyond recognition” over his 25-year career. As Mars has faced into some of the big issues in its extended agricultural supply chain, such as poverty and human rights, it has had to engage in “uncommon collaboration, working with partners we haven’t worked with before.”
While Mars had made “phenomenal progress” on tackling climate change in its $1bn Sustainable in a Generation plan, with its US operations almost fully renewable, lifting smallholder farmers out of poverty, as Mars is trying to do with its Income Labs, is far more complicated. Baltussen said it can only be done working as part of an ecosystem “where you have the right experts in the room.”.
What is driving the family-owned business is a group-wide belief that it will benefit from “making sure the weakest in our supply chain can thrive.”
2 Roel Nieuwenkamp, chair of the OECD working party on responsible business conduct, pointed out that there is often a misalignment between companies’ sustainability targets and the incentives given to suppliers. He gave the example of a buying officer telling a supplier that he has to cut his prices by 20%, while a CSR officer from the same company says he has to raise wages because he isn’t paying a living wage. “If incentives aren’t aligned with sustainability targets, then meeting those targets will remain an illusion,” Nieuwenkamp said.
3 Bennett Freeman, chair of the advisory board of the Responsible Sourcing Network, said he has seen a much greater willingness among companies to be transparent, particularly in the cocoa and palm oil supply chains, as well as around conflict minerals. He noted the focus on transparency in the cobalt supply chain, a key ingredient for electric vehicles, by car manufacturers.
But he said society shouldn’t be “overly reliant” on companies acting responsibly, and companies should devote resources to helping governments in legislating, as France has with its due diligence laws.
4 In the keynote on climate finance, Ashley Schulten, head of responsible investing, global fixed income, at Black Rock, said that four years ago, when the green bond principles were created, she would never have thought that today there would be $300bn in issuance.
What is driving growth, she said is the fact that green bonds allow mainstream investors to take an expressly environmentally friendly investment in companies that sit in traditional portfolio.
She noted that investors are also showing increasing interest in the SDGs, despite it being an area that has far few metrics than climate risk. “I get questions all the time: ‘how do my investments map against the SDGs,” she said.
Earlier this month the World Bank launched the first-ever bonds directly linked to the SDGs, arranged by BNP Paribas. The Solactive Sustainable Development Goals World Index includes 50 companies that dedicate at least 20% of their activities to sustainable products, including Danone, Nestle, and SAP.
5 Rakhi Kumar, head of ESG investments and asset stewardship at State Street Global Advisors, which has $200bn in ESG assets, pointed out that ESG used to be of interest to investors who wanted to exclude asset classes, like tobacco, fossil fuels and armaments. But there has been a big change. “We’re seeing a growth in client questions saying they want to integrate ESG information into the investment process.”
The wake-up moment was the Dodd-Frank reforms introduced by the Obama administration in 2010. “What started as a comp [compliance] issue, became a governance issue and is now a sustainability and environmental issue.”
6 Bennett Freeman, who was formerly head of sustainability research at Calvert Investments, said that the last dozen years has seen a “growing awareness among investors of the financial implications, and indeed the materiality, of social issues in general, and human rights issues in particular”. This is seen, among other things, in the huge drop in the valuation of Facebook in the wake of the Cambridge Analytica revelations.
7 It's rare that the top reporting frameworks share a platform. But the Matthew Welch of the Sustainability Accounting Standards Board, Richard Howitt of the International Integrated Reporting Council, Simon Messenger of the Carbon Disclosure Standards Board and Tim Mohin of the Global Reporting Initiative took to the stage in an effort to dispel confusion about the alphabet soup of standards now crowding the reporting landscape
Welch, president of the SASB Foundation, the San Francisco-based newcomer on the reporting scene, said SASB is complementary to other standards. It focuses on investors and is industry-specific, looking at what is likely to be material at a company level rather than a societal or stakeholder level.
He said SASB doesn’t go far enough for socially minded investors, who might want to consult GRI or CDSB. “But it’s an important solution because we can help cross the bridge to investors who won’t look at the entire universe of ESG issues, but will look at a small number of material factors that … can be tied to company performance from a financial perspective.”
Mohin, CEO of 20-year-old GRI, agreed that the two standards were complementary, and said the idea that there is competition is a myth. "I think it's more a matter of confusion [over what the standards do] rather than that there is a problem in the marketplace."
Howitt of IIRC pointed to the Corporate Reporting Dialogue, which was set up two years by the IIRC to help companies navigate materiality definitions across eight different reporting regulations, standards and frameworks. "We aren't just talking about harmonisation and collaboration; we are actually doing it .... And this year we are on the verge of putting together a joint project to align different frameworks, starting with the TCFD [Taskforce on Climate-related Financial Disclosure], which we will be announcing in the next couple of weeks. It will be the biggest signal back to the market that this alignment is taking place."
8 Al Naqvi, president of the American Institute of Artificial Intelligence, told a session on the impact of AI on business and society that up to half of existing jobs could be lost as AI revolutionises workplaces. Companies and policy-makers should start preparing now for the coming disruption, he said. "What we don't want is a huge part of our population to be left behind in this revolution."
Education can fill the gap, he said, but only if business people and social scientists are given training in AI as well as the tech people. He added: "I see it as a big CSR opportunity to train people and bring them along instead of avoiding the issue of job losses."