When Boycotts Work: Khashoggi Murder Awakes the CSR Sleeping Giant

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Top U.S. companies have been taking concrete action on climate change, gun control, police violence and other key national issues. As horrific details about the murder of journalist Jamal Khashoggi emerge, more American companies are now raising the CSR bar to respond to an international outrage -- with a boycott.

The question is, will this boycott work? And what will success look like?

When boycotts work


Triple Pundit has been following boycott issues since the #grabyourwallet campaign launched in the run-up to the 2016 presidential election, and two patterns have clearly emerged.

 

One is that consumer boycotts are notoriously ineffective and difficult to sustain, unless the target is a company that is already suffering reputational issues.

The other is that business-to-business boycotts have a very good chance of succeeding, in that they highlight CSR issues that force the target to change its behavior.

The business-to-business factor is clearly at work in the Khashoggi case.

Media companies were among the first to drop out. By October, 13, CNN was reporting that "most of the news outlets that had agreed to sponsor a high-profile business conference in Saudi Arabia have now pulled out," and the sponsor list was scrubbed from the conference website.

That doesn't mean the conference will suffer a news blackout -- Bloomberg, for example, will still cover the event. However, Bloomberg has dropped its "media partner" status (CNN also notes that Bloomberg has no comment on the status of its recent deal for an Arabic-language news network).

Several top U.S. journalists will also no longer participate in the conference, including New York Times columnist and CNBC anchor Andrew Ross Sorkin, Economist editor-in-chief Zanny Minton Beddoes and Los Angeles Times owner Patrick Soon-Shiong have also canceled plans to speak.

CNN has compiled a running list of other businesses that are ditching the conference in response to the Khashoggi murder. The latest update comes under the headline, "Business is boycotting Saudi Arabia's big conference. Here's who's still going."

It's unclear if some of those on the not-going list will provide a lower level of representation at the conference, but there will be no high level presence from key several players.

That includes U.S. businesses JPMorgan Chase CEO Jamie Dimon, Ford Executive Chairman Bill Ford, Uber CEO Dara Khosrowshahi, Blackstone CEO Stephen Schwarzman, BlackRock CEO Larry Fink, MasterCard CEO Ajay Banga and Google Cloud CEO Diane Greene.

In addition, CNN reports that the chief executives of three top European bankers have pulled out (HSBC, Credit Suisse and Standard Chartered), as well as the heads of the IMF and the London Stock Exchange.

The Jamal Khashoggi murder


For those of you new to the topic, Jamal Khashoggi was a Saudi Arabian citizen, U.S. resident and columnist for The Washington Post. He left his home country after his situation as an activist and journalist became unsafe. He was critical of Saudi Arabia’s powerful Crown Prince and First Deputy Prime Minister Mohammed bin Salman.

 

Two weeks ago, Khashoggi entered the Saudi consulate in Istanbul, Turkey, and never emerged.

Saudi officials at first denied knowledge of his whereabouts, but they have been forced to revise their story as evidence grows that Khashoggi was tortured, murdered and cut into pieces within the consulate.

The Saudi government is reportedly preparing to describe the murder as an unsanctioned, “rogue” operation.

A high profile CSR opportunity for U.S. and global leaders


Other repressive regimes have been linked to the murder of journalists, so it's fair to ask why this one has sparked such an extreme outburst of condemnation.

 

Aside from the particularly revolting circumstances of the Khashoggi case, one circumstantial factor has provided the business community with a clear and immediate way to broadcast outrage: Saudi Arabia's Future Investment Initiative, a high level conference dubbed "Davos in the Desert," to be held later this month in Riyadh.

Here's the pitch from FII (break added for readability):

Hosted under the leadership of HRH Prince Mohammad bin Salman bin Abdulaziz Al-Saud, Crown Prince, Chairman of the Council for Economic and Development Affairs and Chairman of the Public Investment Fund (PIF), the second-annual Future Investment Initiative (FII) will serve as a platform to drive expert-led debate, discussion, and partnerships among the world’s most visionary and influential leaders in business, government, and civil society.

FII will continue to shape the future of global investment through an immersive three-day program featuring interactive conversations with global leaders, private meetings, curated roundtables, world-class entertainment, unparalleled CEO networking, and deep engagement with global media.


Well, that was then.

Will this boycott work?


With the media spotlight on Saudi Arabia now turned up to an 11 on a scale of 10, it's little wonder that top U.S. business leaders, and others around the world, do not want their names attached to the Saudi vision for the future of global investment.

 

However, until something more concrete takes shape -- a divestment movement, for example -- it's difficult to see how boycotting one financial conference will have any long term impact on Saudi stakeholders.

That's even more likely if you flip the common wisdom on the Khashoggi case. The accepted wisdom is that the Saudi government is directly responsible for the murder and that it was deliberately planned, including plans for covering up the crime and enabling the murderers to escape from Turkey.

Considering how many damning details have quickly leaked out, it's beginning to look more like there was no real intention to cover up the murder from the beginning. It was intended to send a message to the world, in advance of the conference.

The message is a simple one: We are very powerful and we can get away with anything, even murder.

If that sounds familiar, you may be thinking of a statement that then-candidate Donald Trump made in January 23, 2016, as the primary election season was heating up:

"I could stand in the middle of 5th Avenue and shoot somebody and I wouldn't lose voters."


Indeed. If that was the intended message, then the Saudi government has achieved its aim, boycott or no boycott.

 

It's also worth noting that Trump himself has cultivated a culture of violence against journalists and media organizations here in the U.S.

So far Trump has defended the Saudi government, which appears to have reciprocated by depositing $100 million in American bank accounts.

As of this writing, the Trump administration also still plans to send a top official, Treasury, Secretary Steven Mnuchin, to represent the U.S. and potential investors at the conference.

All of this adds yet more fuel to the multiple scandals enveloping the Trump administration, including his (and his family's) financial ties to Saudi Arabia.

With the U.S. midterm elections approaching, the Future Investment boycott may not have much of an impact on the Saudi government, but blowback from the Khashoggi murder could play a role in the future of the Trump presidency.

Photo: Future Investment Initiative.

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Lidl Pledges to Make Soy Supply Chain More Sustainable

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The giant discount European supermarket chain Lidl has lent its considerable influence to the growing movement by supermarket retailers and soy producers towards developing a sustainable global supply chain.

In the United Kingdom, Lidl has promised to ensure its entire soy supply comes from sustainable, deforestation-free certified sources. The company’s British division claims this is the most responsible sourcing policy for soy of any supermarket chain. Lidl also says it is the first retailer in the U.K. to purchase 100 percent sustainably-sourced soy.

Lidl is a division of Schwarz Group, one of Europe’s largest retailers, with 10,500 stores in 30 countries. The company said it will work with all its U.K. suppliers to "achieve physically traceable, sustainable, zero-deforestation soy in the long term.”

More soy, less forest

Soybean oil is already the second most widely used oil in the world. And global soy production is predicted to continue to grow significantly, to provide both edible oil and livestock protein feed. Demand for soy is also being driven by the biofuel sector using the crop to produce alternatives to fossil fuels.

But expanding soy production comes with a cost for the environment and for local communities—leading to the loss of forests and other native vegetation in the Amazon and cerrado across South America.

Pushing for market transformation

This new policy will take effect this month, Lidl said, with the firm purchasing credits from the Roundtable for Responsible Soy (RTRS) to ensure soy farmers are paid extra for producing soy sustainably. 

Lidl insists it wants to act as a catalyst for change. “We recognize the need to take immediate action in our own supply chains and stimulate market demand for sustainable, zero-deforestation soy,” the company announced in a public statement.

During the first phase, which started in September 2018, Lidl will purchase RTRS certificates on an annual basis through a “Book and Claim Direct Trade” approach to cover 100 percent of its soy footprint, creating what the company says is a clear market signal for sustainable soy.

The second phase aims for market transformation, with supply chains of responsibly sourced soy finding its way in both the U.K. and the European continent. Through the U.K. Roundtable of Sustainable Soy, Lidl says it intends to define “sustainable, zero-deforestation” soy and work with its suppliers and the entire soy industry to develop a range of mechanisms to achieve its goal, including strengthening standards beyond RTRS.

Joining a growing movement

Lidl is one of a number of companies, including manufacturers and retailers such as Unilever, Tesco and Marks and Spencer (M&S), that has signed the Cerrado Manifesto, which calls for zero-deforestation in Brazil’s cerrado region, where around 50 percent of the natural landscape is believed to have been lost since 2000. 

Soy giant Louis Dreyfus Company (LDC) also said earlier this year that it would move towards zero-deforestation across its supply chain by embedding the Sustainable Development Goals (SDGs) into its updated raw materials strategy.

As it strives to attain this goal, LDC has committed to publish information on all soy plantations it sources from - either directly or indirectly - as it already does with palm oil.

Campaigners such as Mighty Earth are applauding the industry’s actions. “There’s now no reason for McDonald’s and other companies to continue doing business with deforesters,” the group’s chief executive, Glenn Hurowitz, said after LDL’s announcement in July.

Image credit: Bambizoe/Flickr

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Changing the World Is Good Business

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By Jennifer Weston-Murphy


The Fortune 2018 Change the World list features 57 companies that are doing well by doing good. These businesses are trying to fix big problems and make money while doing it. That’s right, it’s not a list about charity (though many of these companies also have charitable efforts). It’s about how business—one of the most scalable and sustainable engines we know of—is using its resources and expertise to tackle the biggest challenges. In recent years, more companies are taking steps to try to solve large-scale social issues; it’s a trend that’s not likely to slow down.

 

And people increasingly want and expect to see business playing this role. According to the 2018 Edelman Trust Barometer, the annual trust and credibility survey by PR firm Edelman, “By nearly a two-to-one margin, a company is trusted to take specific actions that both increase profits and improve economic and social conditions.” In other words, making money and doing good are no longer at odds, and it’s not just the people who work in business who believe this anymore. The public now believes it, too.

The 57 companies on the Change the World list, of which 22 are part of CECP’s coalition, come from 19 countries. Reliance Jio is headquartered in India and first on the list. The telecom company has made owning a smartphone a lot more affordable for millions of people in India and beyond, dropping the average cost of one gigabyte of data from $2.88 to as low as 4¢ per GB. The business is growing at a fast clip. Reliance Jio has gained 215 million subscribers in just 22 months. Nothing short of impressive is the fact that Reliance Jio has found a way to get internet access into the hands of millions who can now finally engage in the virtual economy. People are tapping into digital resources and a marketplace that will almost certainly change their lives and that of future generations.

Also in the top five is Chinese tech company Alibaba Group, whose “poverty alleviation map” feature draws travelers into rural towns and lets them know which facilities are operating. The tool helps local shops establish an online presence and attract customers. Creative solutions like this one make business sense, and it’s in line with what we’ve seen at CECP. We speak with more than 100 companies per quarter, and we’ve seen many innovative examples of how companies are using their business expertise to address social challenges—so much so that we’ve started to track those stories in our annual Investing in Society data release.

CECP has been capturing how big companies address social problems for nearly two decades. Since 2001, our annual Giving in Numbers research has focused on what, when, where, and how companies are investing in their communities. The 2018 edition will be released later this month. Our hope from the beginning was for people—those inside and outside of companies—to see the momentum developing among companies to address social problems through their business and to grow our understanding of how we could use those insights to harness the power of business to do even more for society.

Doing well and doing good are not mutually exclusive, and the companies on the Change the World list prove that.

Previously posted on CECP's blog and 3BL Media news.

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Resilience in the Face of Global Warming

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By Erik Mohn, Scheider Electric


Organizations need resilience in the face of an increasingly broad and unpredictable risk landscape. This is especially true when it comes to energy and sustainability. Investors and customers alike recognize the effects of climate change and related weather events. And the pressure these and other groups are applying to drive change can no longer be ignored.

 

One risk that is particularity salient for companies is global warming and resource scarcity, as environmental changes inevitably affect some facet of every business’s operations.

What’s the risk?

Global warming, extreme weather events, and resource scarcity trends are interconnected. They combine to amplify risks for future food, water and energy demands. Consider:


  • Extreme weather caused by climate change impacts the seasonal availability of water and intensifies both flood cycles and droughts. This, in turn, reduces agricultural productivity and causes global food production to decrease by 2% for every decade of warming.

  • The energy needs and costs of raw material extraction are becoming more acute. Consequently, price volatility levels for metals, food and non-food agricultural output in the first decade of the 21st century were higher than any single decade in the 20th century.


These pressures are set to intensify over the decade as the impacts from global warming and resource scarcity increase, and the demand for food, water and energy grows. Investors and consumers are also demanding more transparency from companies. Global asset manager Aviva Investors recently warned more than 1,000 companies that they face shareholder backlash if they fail to publicly disclose the risks climate change poses to their business models.

What’s the impact?


Global warming and resource scarcity will affect companies in many ways:


  • Physical impacts, such as an increase in raw material costs, resource scarcity or asset damage caused by extreme weather. These impacts can also affect company employees and consumers, because of the potential for loss of life or property from fires and floods, or through increased rates of disease. Physical impacts often carry direct financial implications that can be significant.

  • Systemic impacts, such as required changes in governance, policies, technology, regulations, organizational design, organizational purpose or the marketplace to address climate change mitigation and adaptation.

  • Behavioral impacts, such as changes in consumer demand and buying behavior, employee and community health and well-being, and population fluctuations caused by human migration.

What’s the solution?


There are pragmatic, tangible strategies organizations can deploy, such as scenario modeling, to help evaluate climate-related risks across the value chain. The Task Force on Climate-related Financial Disclosures (TCFD) has developed a framework to help organizations identify and disclose those risks that are most material to their business.

 

 

TCFD recommendations have already been integrated into the CDP climate questionnaires, and companies that disclose to CDP will be expected to respond. These questions include new examinations of the resilience of an organization in different climate-related scenarios, including a “2 degrees Celsius or lower” scenario.

Recommendations to build resilience against the effects of climate change and resource scarcity:


  • Embrace Active Energy Management (AEM). Align energy efficiency, sustainability and energy supply goals, data and strategies to increase collaboration across teams.

  • Make sustainability core to business strategy and reduce global resource consumption by:

    1. Implementing efficiency measures and software to maximize and measure reductions in resource consumption.

    2. Committing to, and implementing, a carbon reduction target through the Science-Based Targets Initiative.

    3. Actively disclosing emissions and water consumption data to CDP.

    4. Setting an aggressive target for renewable energy purchasing, such as 100% renewable electricity, and using large-scale procurement to rapidly advance towards this goal.

    5. Integrating circular economy practices that reduce waste and maximize use of raw materials.

    6. Exploring distributed energy resources, such as battery storage, CHP and microgrids to increase power resiliency.

  • Use a climate model like the one available from TCFD to identify potential business risks and increase transparency. Of note: TCFD recommendations are now incorporated in the credit scores of S&P Global Ratings.

  • Watch changing legislation in global markets. For instance, France’s Article 173 climate-reporting law requires institutional investors and asset managers to disclose how their business strategies cover climate change.
Read 4 more risks affecting your business in the eBook Don’t Risk Resilience: Download now.

 

Previously posted on Schneider Electric's blog and 3BL Media news.

 

 

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Companies Are Saying No to ‘Davos in the Desert’

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In the wake of reports suggesting that the government of Saudi Arabia is close to admitting that Washington Post columnist Jamal Khashoggi was somehow killed at the kingdom’s consulate in Istanbul, and ongoing criticism of the action, or non-action, taken by the Trump White House, U.S. companies are responding to the global outcry with far more rigor than the federal government.

Companies are taking a stand on how they feel about Khashoggi’s death by pulling out of the Future Investment Initiative (FII), or as many prefer to call it, “Davos in the Desert.” This is a quick reversal in fortune for Crown Prince Mohammed bin Salman, who had been seen by many foreign policy experts and business leaders as a reformer. But now, the focus is not on his vision for a prosperous Saudi Arabia fully weaned off of oil by 2030 – instead, global leaders are shaken by the latest volatile chapter in Middle East politics.

“If last year’s conference served as a grand coming-out party for Crown Prince Mohammed, this year’s gathering is a symbol of the West’s deepening disillusionment with the young leader,” wrote reporters Mark Landler and Kate Kelly for the New York Times on October 13.

Companies are now deciding not to attend the Future Investment Initiative, an exodus started by the likes of JPMorgan Chase’s Jamie Dimon, Ford’s executive chairman Bill Ford and MasterCard’s Ajay Banga. Those companies shed little light on why those executives decided to change their plans for the October 23-25 event, but the message was clear. Leaders of Blackstone, BlackRock and Bain Capital also announced they decided against attending.

Other executives were far more direct about why they decided not to attend the glitzy event in Riyadh. According to the Times, Dara Khosrowshahi, Uber’s CEO, described the events surrounding Khashoggi’s sudden disappearance as “terrible,” and told the FII’s sponsor he would not attend the conference unless questions about the journalist’s fate were answered. That same sponsor, Yasir Al Rumayyan, runs a fund that has invested $3.5 billion in Uber and has a seat on the ridesharing company’s board. Al Rumayyan reportedly assured Khosrowshahi that the Saudi government had nothing to do with what occurred in Istanbul – nevertheless, as of press time Uber will not have any representation at the event, either.

Meanwhile, according to the Financial Times, the heads of the private investment firm EL Rothschild; Arianna Huffington, the chief of Thrive Global who also sits with Al Rumayyan on Uber’s board; and Virgin Group’s Richard Branson, who was not scheduled to attend FII but suspended his involvement with his directorships of two Red Sea tourism projects, also distanced themselves from the event.

As the list of those declining to go to Riyadh next week continues to grow, media partners such as the Times, Bloomberg and Financial Times have also announced they will be no-shows.

While news sites including Axios are keeping tabs on who is spurning the event, and who still plans on attending (including U.S. Treasury Secretary Steve Mnuchin), the fallout from Khashoggi’s disappearance reaches far beyond FII. Many companies, for example, are nixing their involvement with Saudi projects such as Neom, a $500 billion smart city initiative.

Will we see more companies begin to draw a line in the sand on foreign policy and stand up when Washington, DC is perceived as moving too slow or looking the other way at atrocities committed abroad? We’ve been seeing brands taking stands on political and social issues, and now the same is starting to happen with economic and foreign policy – namely, over the China tariffs that have put many U.S. companies on edge.

True, the Khashoggi case is a tragic, and in the grand scheme of things, an extreme case. But as consumers become even more vocal of where they stand on the issues and demand that companies follow their lead, we could very well see more episodes like this unfold in the near future.

Stay informed about ongoing cases of corporate activism in the weekly Brands Taking Stands newsletter.

Image credit: U.S. Department of State/Flickr

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5 Ways Companies Can Act on the Latest Dire Climate Warnings

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Oh what a last few weeks it’s been!

Trying to turn away from the political polarization and fracturing civility in this country, I looked elsewhere in the news and found something even worse…dire warnings for our planet.

Two reports in the news last week ring the alarm bell on climate change. The first report is from the Intergovernmental Panel on Climate Change (IPCC), written and edited by 91 scientists from 40 countries. As the New York Times reports, it “describes a world of worsening food shortages and wildfires, and a mass die-off of coral reefs as soon as 2040 — a period well within the lifetime of much of the global population.”

A second report out last week by the International Energy Agency (IEA) showed that a dramatic increase in greenhouse gas emissions from the petrochemical industry – which includes companies that make fertilizer, plastic and pharmaceuticals – threatens to erode climate benefits from reductions in other sectors. The main driver of the petrochemical industry’s growing climate footprint will be plastics. Petrochemicals are set to account for over a third of the growth in oil demand to 2030, and nearly half to 2050, even ahead of trucks, airplanes and shipping.

So, the news from the past week shows me that not only do we have to worry about the 18 billion pounds of plastic that end up in the ocean every year harming marine life; we have to deal with the massive climate impact that the exploding production of plastics will cause. And, according to scientists who authored the IPCC, “avoiding the damage requires transforming the world economy at a speed and scale that has ‘no documented historic precedent.’”

This news is frankly depressing and overwhelming.  But I’m here to tell you that we can do it. We have to do it. What makes me feel optimistic is that we at EDF+Business know the path forward for companies, which are going to be key to solving this challenge. We’ve been walking this road for over 25 years now, ever since we created the model of environmentalists working with business, when we first partnered with McDonald’s to reduce packaging waste.

Why are companies needed? It’s simple and it’s never been more apparent. Our federal government has stepped backwards on this existential issue of our time. Since the U.S. is the world’s largest economy and second-largest greenhouse gas emitter behind China, U.S. companies have an opportunity – and a need to – fill this large gap. Companies must lead the way, and they must lead now.

The good news for companies is that doing good for the environment creates business value, whether it’s cost savings, risk reduction, new product innovation, or employee and customer engagement. As Kevin Rabinovitch, global vice president of sustainability at Mars Inc. said to a reporter this week, “You can’t run a successful business in a failing economy or a failing environment.” We fully agree with Kevin.

Here’s how companies can step up:


  1. Measure and report. Evaluate your operations and your supply chain to figure out your environmental impact and find the quickest wins and biggest opportunities to reduce that impact. Use tools like The Sustainability Consortium or CDP, to report publicly.

  2. Set public science-based targets for greenhouse gas emissions that address the impact of your operations (i.e., buildings, fleets and electricity) and that include rigorous engagement of the supply chain to address your products’ life cycle and your suppliers’ impact. Commit the resources and engage executives and employees to put your goals into action.

  3. You can’t do this alone. Work with others – including NGOs like EDF, other companies and governments – in strategic and selective ways to create change beyond your boundary of control. A great recent example of this is Walmart and Unilever’s announcement on deforestation that uses place-based or jurisdictional approaches, which means that the companies are collaborating with local governments, communities, and producers in their sourcing region.

  4. Support smart policy. Publicly support smart climate and environmental policy and ensure long-term competitiveness, innovation and bottom-line efficiencies. We can’t get where we need to go without driving large-scale change and we cannot do that without policy.

  5. Accelerate environmental innovation. 21st century problems require 21st century solutions. Using technology, data analytics and visualization, companies and investors can make environmental problems visible and actionable – and even profitable.

Now, it’s time to take action and get started. We can’t wait any longer.

Previously published on EDF+Business and 3BL Media news.

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Tetra Pak Launches “Plant Secure” to Boost Productivity in the Global Food and Beverage Industry

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Food and beverage companies can make use of cutting-edge operational solutions and technology to improve quality and delivery performance while minimizing waste and reducing costs across their supply chains. Companies can also implement strategic plant-wide changes to optimize productivity and boost their sustainability efforts.  

To that end, Tetra Pak has introduced Plant Secure, a total plant management service designed specifically for the food and beverage sector. Plant Secure could enable manufacturers to adopt a structured and systematic business-wide approach to identify areas of improvement and create targeted plans to boost performance and deliver savings across their operations.

Comprehensive Plant Management

Meeting the demands of both consumers and investors requires an efficient and seamless business operation for food and beverage manufacturers that is aligned from the boardroom to the factory floor. Tetra Pak’s says its Plant Secure service will help manufacturers assess the entire plant and sharpen focus on the activities that increase operational and financial impact.

From plant-wide cost modeling to improved daily management, Plant Secure encompasses recommendations that will enable companies to meet their delivery targets while lowering their costs.

How does Plant Secure Work?

The service begins with a comprehensive audit of all the systems and equipment across the company’s value chain. Tetra Pak combines its benchmark data on food manufacturing and industry knowledge with what the company says is an objective analysis of the client’s business systems to identify new opportunities and implement strategic improvements across the operations.

Clear targets are set regarding capital expenditure optimization and operational cost reduction in each Tetra Pak Plant Secure contract. The service is being rolled out across all major food and beverage companies worldwide. The goal is to leverage Tetra Pak’s investments in Industry 4.0 technologies, along with data-driven analytics, to come up with greater operational efficiencies.

Pilot projects have already been carried out across the Americas and in Europe, producing results that have exceeded customer expectations. (For instance, Tetra Pak claims a dairy producer managed to reduce operational costs by more than 10 percent within the first year of implementation).

Enhanced Food Safety and Quality

Tetra Pak insists that it equips the food and beverage industry with advanced food safety and quality technologies, such as traceability solutions and aseptic performance. The company conducts site audits and training programs for operators, and provides swift issue resolution.

The company's services also seek to optimize food safety and quality from the production line to the store shelf. It is continuously developing and advancing services and solutions to support manufacturers in four key areas:


  • Designing an efficient food quality management system

  • Implementing an accurate food quality measurement system

  • Recommending appropriate measures and measurement techniques for food quality

  • Identifying and resolving specific issues with food quality
“Our investment in Industry 4.0 technologies such as artificial intelligence, automation and data velocity has enabled us to better-support our customers in the digital era,” said Dennis Jönsson, President and CEO of Tetra Pak Group. “Tetra Pak Plant Secure is a great example of how we use new technology to broaden our perspective and deliver bottom-line benefits for our customers,” he added.

Source and Image: Tetra Pak

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New Tool Aims to Unlock Natural Capital Integration for Financial Institutions

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Natural capital accounting has for years been heralded as the next big thing in sustainability, championed by the UN, the World Bank, and a number of finance-sector led and business groups. These and other organizations have long insisted that banks, investors and insurers who ignore their dependencies on natural capital such as clean air and oceans do so at great risk.

Yet financial institutions’ embrace of natural capital risk assessment has been underwhelming. With the latest Special Report from the UN Intergovernmental Panel on Climate Change (IPCC) warning of the negative consequences of climate change to the natural systems that underpin the global economy, the tide may be turning.

Now one of those leading platforms for natural capital, The Natural Capital Finance Alliance (NFCA) has released new guidance for the finance sector on natural capital risks. The organization’s latest report,  “Connecting Finance and Natural Capital: A Supplement to the Natural Capital Protocol,” provides a framework for financial institutions to assess the natural capital impacts and dependencies of their investments and portfolios.

Case for action grows stronger

“Over the past year we have seen a notable upsurge in interest from financial institutions in natural capital risk assessment,”Niki Mardas, a member of the NCFA Steering Committee, told TriplePundit.

“We suspect this is partly a result of the Paris Agreement and the UN's Sustainable Development Goals [SDGs], which have shown a clear sense of direction for government policy around the world,” Mardas said, “and partly due to an increasing understanding of the links between climate, natural capital and profitability as we see more companies materially affected by events such as droughts, floods, heatwaves and supply chain disruption.”

The NCFA,  which developed the framework with the Natural Capital Coalition and the Dutch SIF VBDO, claims that natural systems are deteriorating past the point of effective service provision. This, they say, will have potentially significant consequences for many businesses, and subsequently, for those who have financed or insured them.

“It is clear from the IPCC report that there will be huge disruptions over the coming years and that the entire business models of some sectors will need to change,” Mardas said. “This presents both risks and opportunities for the finance sector.”

New tool delivers “heat map”

Understanding and accounting for natural capital risk has not always been straightforward. To address this stumbling block, the NFCA will launch in November its Natural Capital Explorer (NCE), calling it “the world's first comprehensive knowledge base and tool enabling banks, asset managers and insurers to screen their portfolios for natural capital risks.”

The tool will deliver a simple “heat map” to financial institutions, detailing how companies they lend to or invest in, across 167 business sectors, depend on nature to enable their production processes, what the associated risks may be, and the data that can be used to qualify and quantify risk exposure at a global and national-level.

According to Mardas, the tool, together with its supporting database, will enable financial institutions to understand the effects all economic sectors on natural capital.

“This means they can identify the highest risk sectors in their portfolios and better manage that risk, either by redeploying capital or by engaging with those companies. It will also help them to align their portfolios with the SDGs, many of which are natural capital-related,” he said.

Making the case for natural capital

Much of the financial institutions’ understanding of natural capital has centered on specific issues – such as forests, water, climate change or energy – and on the impacts that their portfolios are having on the health of natural capital stocks.

However, Mardas argues their attention should be focused on their dependency on natural capital and ecosystem service flows. These are more directly material to investment risk and returns.

To test out the NFCA’s guidance, a number of companies undertook case studies, including ASN Bank, which set a goal to have a positive impact on biodiversity.

“Institutions which have undertaken natural capital assessments have noted how integral natural capital is to business models,” Mardas said. “For some, it has been an obvious extension of work they are already undertaking on climate change, especially to look at biodiversity. 

“Most of the organizations have gone on to set specific targets around natural capital, which will involve integrating this into their risk processes. They have shown that natural capital can be measured, it can be managed and it makes business sense to do so,” he said.

Image credit: Skoeber/Flickr

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Educating a Generation of Syrian Children

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Watch the film here

Every day begins the same for Marah, a 12-year-old girl living in Beirut. “At 8 o'clock, I have my breakfast. I spend some time with my family, while they are having their coffee. Then I prepare myself for school and I prepare my bag,” she says.

It’s a daily schedule typical by school children the world over, and yet to Marah it feels more like a privilege.

Life, interrupted


Four years ago, her family were uprooted by the warfare that has ravaged Syria, sending five million refugees over that country’s borders in search of safety and creating one of the largest humanitarian crises on the planet. Nearly one million Syrian refugees now live in neighboring Lebanon — including  the current 130,000 school-aged children with no school to go to or lack the transportation needed to get them to one.

Marah was among a generation of Syrian children whose education was interrupted by war. “I missed going to school so much,” she says. “My Lebanese friends were going to school, and I wasn't going. I felt that there was something wrong with my life.”

All across the refugee settlements of Lebanon, Syrian parents shared the same worry. It takes many years before those in a major, protracted refugee situations are repatriated to their country of origin, and a generation of young Syrians are at risk of growing up without the basic human right of an education.

“I was worried that she would waste years without education,” says Marah’s father, Kassam Al-Othman.

But now Marah and thousands of students like her are back in the classroom. Lebanon's Ministry of Education and Higher Education (MEHE), along with the support of institutional donors and foreign governmental aid, extended the school day and last year were able enroll 200,000 non-Lebanese students in both morning and "second" shifts at school. An innovative partnership between HP, Clooney Foundation for Justice (CFJ), UNICEF and Google.org provides additional support for public schools and students across Lebanon, from Beirut to the Beqaa Valley. Currently, HP technology is being used in nine schools and will reach around 3,500 Syrian refugee students, as well as thousands of Lebanese students and teachers in the first year of the program.

“We at HP believe education is the foundation of a better future, particularly for those in underserved communities," said Alex Cho, president of HP's Personal Systems Business Group. "With this program, we saw children, parents, teachers and families for whom access to education meant not only rediscovering a sense of normalcy in their everyday lives, but also the opportunity to build a brighter future.”

“Our goal is to get them back in school and to equip them with the necessary skills,” adds Michele Malejki, HP’s global head of strategic programs for sustainability and social innovation. “By using a second-shift classroom model, Syrian and Lebanese children and their teachers all benefit from an improved learning experience."

From refugee to student


HP has provided thousands of state-of-the-art Education Edition PC laptops and technology training to the Lebanese schools, while the Clooney Foundation for Justice and UNICEF are supporting the work of the MEHE to extend the schools’ second shifts by helping with the enrollment, education fees and transportation of the influx of Syrian students.

"These children have fled violence and their homes seeking some semblance of safety,” says Ambassador David Pressman, executive director of the Clooney Foundation for Justice. “It is incumbent upon all of us to do all that we can to enhance and protect their ability to live with dignity. We’re committed to advancing justice for the most vulnerable, and we recognize that advancing justice is about more than what happens in courtrooms; it is about giving children like these the stability and skills they need to have a chance to realize their rights.”

At the Official First Middle School in rural Riyaq, dozens of Syrian students are now studying math, geography, English and Arabic using HP Education Edition PCs. In many cases, it’s the first time the children have ever used a computer — and the first time their teachers have taught with them. For the instructors, the computers open up opportunities for new ways of teaching, and HP offered specialized training and coaching, so that they could make the most of the available technology.

"Everybody recognized the need that these children should not, as the term goes, be a lost generation, that they should continue to be educated, they should continue to be protected, and they should continue to be given opportunities," says UNICEF Lebanon representative Tanya Chapuisat.

Teaching the next generation


Rawaa, a 12-year-old second grader, was living with her family in the countryside near the southern Syrian city of Aleppo when fighting broke out. “We left our home because of the shelling from the militant opposition and the army. They were bombing each other and we were caught in the middle,” says her father, Khleif.

In Lebanon, their home is a tent erected in one of the informal settlements filled with refugees that dot the Beqaa Valley. During the morning, the local public school is open for Lebanese students, who leave after lunch, when the “second shift” for Syrians begins.

“When I first came to school, I saw a computer and I was surprised. I thought it would be a difficult thing but it turned out to be quite easy,” Rawaa says. “I learned how to draw and color on it. I learned how to type.”

Built for durability, the rugged computers have a long battery life that lasts the entire school day and are equipped with a dual camera system that allows students to Skype and connect with pupils in other countries. As Gus Schmedlen, HP’s VP for worldwide education, notes,“It’s a PC designed around collaboration and building global competencies that these students are going to need to participate and thrive.”

HP and its partners are providing new ways of learning for not just the second-shift students, but for every student who attends the schools — they are helping support the entire educational ecosystem across Lebanon. “If we can bring in great technology that helps the Lebanese students who use it as well, and empowers their teachers, then all the better,” says HP’s Malejki.

“The existence of technology in the classroom helps the teacher a lot, to convey the information to the student in a better and faster way,” says Dr. Nada Oweijane, president of Lebanon’s Center for Educational & Research Development, an organization that develops curricula and training in the country’s public schools. “It motivates the student.”

It’s already happening. Ask fourth-grader Marah in Beirut what tomorrow holds for her and the other members of her generation, and she answers with conviction. “I want to become a doctor when I grow up to help people.” And its ambitions like that — and the opportunity to fulfill them — that give hope that Syria’s next generation will one day return to their country equipped to rebuild a just and stable society.

Learn more about HP's program in Lebanon.

Watch A Generation, Found.

Previously posted on the HP Garage Blog and 3BL Media news.

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Regulators Are Taking a Tougher Stance on ESG Disclosures, Report Finds

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Regulators are taking a tougher stance on environmental, social and governance (ESG) disclosures, according to a study released this week.

Datamaran, a software as a service (SaaS) company with a focus on non-financial risk management, analyzed the growth of ESG regulations back to 2012. Researchers focused on three sectors—financial services, utilities and pharmaceuticals—across the United States, Canada and the United Kingdom. Their findings indicate an evolving regulatory landscape that increasingly favors more non-financial information from public companies.

In the last three years alone, ESG-related regulations grew by more than 100 percent across the U.S., Canada and the U.K., the study revealed. Regulators imposed new disclosure standards on topics like business ethics, energy use and product safety, a trend Datamaran researchers expect to continue.

“Business needs to be aware of emerging ESG regulation,” said Marjella Alma, co-founder and CEO of Datamaran. “The tougher stance taken by regulators means that companies who are not integrating ESG issues into their strategy and their risk analysis will have a harder time navigating the complex and evolving regulatory landscape.”

The sharp rise in ESG regulations over the past six years, together with a tougher hand from policymakers, should make business stand up and take notice, Alma said. “The message is clear,” she insisted, “non-financial issues are a ‘must have,’ not a ‘nice to have.’” Datamaran’s researchers expect business ethics, as well as supply chain management, to be a key focus for regulators moving forward.

As the regulatory landscape continues to tighten, institutional investors are also calling on companies to increase their non-financial disclosures. At the start of this year, the CEO of the world’s largest asset manager said he expects companies to demonstrate their long-term value to society, as well as healthy financials. “I want to reiterate our request, outlined in past letters, that you publicly articulate your company’s strategic framework for long-term value creation,” BlackRock CEO Larry Fink wrote in an open letter to the CEOs of all publicly-traded companies.

“Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends—from slow wage growth to rising automation to climate change—affect your potential for growth.”

In other words: as issues like wealth disparity, resource scarcity and climate change continue to pose risk to the way companies do business, investors—as well as regulators—want assurance that these companies are planning ahead.

“Business has to think beyond the one- and two-year perspective to a much longer term as it evaluates the potential impacts of ESG risks,” advised Paul Sobel, chairman of ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​the Committee of Sponsoring Organizations of the Treadway Commission (COSO), a multi-stakeholder risk management initiative. “These risks are mainstream, and they have to be part of the overall risk assessment and monitoring.”

European markets in particular are looking to tighten their ESG reporting standards. In May, the European Commission proposed a new regulation to clarify how how institutional investors—including pension funds and insurance companies—should integrate ESG into their investment decision-making.

In the U.S., however, it’s two steps forward and one step back. In April, the U.S. Department of Labor published a guidance cautioning financial managers that investments based on ESG issues may not always be a “prudent choice.” The guidance stands in stark contrast to best practices advised under the Barack Obama administration—which encouraged investors to consider ESG factors, Compliance Week reported.

Still, ESG regulations for the American pharmaceutical sector doubled over the past six years, according to the Datamaran study, while those impacting financial services companies increased by 87 percent since 2015. And, for their part, decision-makers seem unconvinced by the Labor guidance. "Markets are in no doubt of the materiality of ESG considerations," Fiona Reynolds, CEO of Principles for Responsible Investment, which represents investors with more than $70 trillion in assets, told Investment News.

Image credit: Rawpixel via Unsplash

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