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COP21 – 190 nations gathering in Paris to find a new global agreement on climate change. Were they the success everyone hoped they would be? asks Claudine Blamey. Or did the final judgement feel more like a replay of Copenhagen?

Even without the benefit of foresight however, one thing is clear – whatever commitments were made in December, they will not by themselves be enough to hold the world below 2°C of warming.

That will require a concerted effort beyond the confines of any UN agreement. It will need businesses, governments and civic society working together to find ways of contributing to the reductions necessary to avoid potentially catastrophic and irreversible warming.

What next?
The conditions certainly appear ripe for change. With a fast growing fossil fuel divestment movement reflecting mounting concerns among long-term investors about stranded assets, we’re already seeing the political and technological landscapes shifting away from coal and oil. This is being mirrored by an upswing in investment in clean technology, which is driving a strong innovation agenda. The question now is, ‘what next?’

For corporate responsibility and sustainability professionals, I believe that the next step is to help businesses to understand what the outcome of the talks mean for them. With potentially significant policy implications in the pipeline, there are inherent risks and costs for those who find themselves behind the curve when it comes to addressing climate change as part of their business strategy.

However, there are of course opportunities, especially for those companies who have not yet looked beyond their own emissions to their value chains. 

This is where the role of the corporate responsibility and sustainability professional comes into its own. Acting as a bridge between worlds, our role is often to help translate and relate social and environmental issues to the organisations we work within.
Working closely with leaders to help them understand the implications and opportunities for the business and its stakeholders, helping to shape strategy accordingly and then supporting colleagues throughout the organisation with deployment.

Progress
When the first Conference of the Parties (COP 1) was held in Berlin in 1995, I’m sure the delegates attending had hoped for a swifter route to decisive action. But whatever the outcome of Paris, we have come a long way in the past 20 years – a fact that we need to keep in mind if only to provide the encouragement we need as individuals to continue our pursuit of positive change.
Despite concerted efforts to discredit the science, climate change is now firmly back on the world’s agenda and there are signs that a decarbonised world is within reach.

As a profession, we have a key role to play in supporting this transition.

There is, of course, still a mountain to climb to turn ambition into action, but as we welcome a new year, I’d like to think that we will do so with a new-found sense of optimism and determination.

Claudine Blamey is chair of the ICRS and head of sustainability and stewardship at The Crown Estate 

Negotiators at the COP21 climate summit in Paris made slow, if steady progress. Bob Siegel reports on what it could achieve

At the COP21 talks in Paris, officials from 196 nations convened to address the looming threat of global warming. In preparation, French President François Hollande laid out four desired outcomes: a universal international agreement; national commitments from governments; climate finance to build the low-carbon economy; and the “Action Agenda” from businesses, cities, and civil society.

By the time the conference opened, the Intended Nationally Determined Contributions (INDCs) had been submitted from 184 countries accounting for 95% of today’s warming. A great deal of activity in both finance and among the “non-state actors,” had also been organized in the run-up to the event.

As David Wei, BSR’s Associate Director, Climate Change noted, this formulation set the stage for success. “It’s a very clever framing because now that we’ve arrived in Paris, the agreement is the only pillar left.” Indeed, while most of the attention has been on the agreement, the other three are equally, if not more, important.

The agreement is likely to come through in some form. It’s good to remember a bit of wisdom shared by Peder Holk Nielsen, CEO of Novozymes, who attended: “Don’t let the perfect get in the way of the good.”

Here are the facts. The world is currently on course for a global temperature rise in the range of 3.8 to 4.8 degrees Celsius, an amount that even Exxon admits would be “catastrophic.” Previous attempts at an international agreement have failed for political reasons. The last round called for voluntary commitments rather than mandates.

Indeed, the impact of voluntary commitments, while good, is far from perfect. They are projected to bring the expected warming down to 2.7 Celsius by 2100. That is clearly an improvement. However the target, which is still being debated is somewhere between 1.5 degrees and 2.0. There are significant levels of pain built into achieving and not achieving those numbers.

For most of the world, the higher number is a challenging enough target. For those more vulnerable to the whims of nature, especially those in low-lying or drought prone areas, the lower number could mean the difference between life and death. This could include half a billion people.

What seems too much to ask today, may not seem so in five years’ time. Additional meetings will likely be needed, to continue to check on collective progress, and also to “ratchet up” ambitions. Indeed the US submission shows a rate of decarbonization that increases in 2020, to twice the earlier rate. It’s not clear whether other countries have built this into their projections.

There are reasons to question the temperature that collective INDCs might lead to. The science, given accurate emissions levels will be close, assuming there aren’t any tipping points, which are harder to predict. More in doubt, is the ability of 184 countries to actually know what they can achieve, and if so, what the impacts will be on emissions?

While a great deal of analysis may have gone into these policy measures, there is still much that they don’t include. They don’t know, for example, whether people plan to put solar panels on their roofs, or when someone might trade in their SUV for a hybrid.
That’s why the current estimate is more than likely conservative. It is not possible to have included all of the thousands of efforts, approaches, advances and schemes that will effectively and affordably reduce GHG emissions.

Here are a few examples. Kevin Rabinovitch, Global Director of Sustainability for Mars described his company’s commitment of reducing emissions this year by 25% compared to 2007, and to be totally carbon neutral by 2040. Truly remarkable, that’s one of the best out there. Yet, even he said he was learning from other companies in Paris. Might he take what he’s learned in Paris and find a way to hit that goal even sooner? Certainly possible. Were their specific numbers captured in the US delegation’s INDC? Not sure.

BSR CEO Aron Cramer spoke at COP21 about “radical collaboration” as a key way for companies to disrupt climate change. A striking example can be found in Kalundborg, Denmark. The Kalundborg Symbiosis, is a unique “industrial park” where a several companies have established a circular economy wherein waste products generated by one company become inputs for another. Not only is money saved all around, but the carbon footprint of the whole is 240,000 tons smaller than the sum of the parts.

Rabinovitch also shared that there is a “really good dynamic amongst the food and beverage companies.” He called it “a race to the top,” with companies “competing to outdo each other, in an absolutely friendly competition.” He cited the World Cocoa Foundation as well as RE100: “When it gets to actually trying to fix the problems, the fastest way to make progress, is to collaborate.”
Cities are another source of great innovation, much of which has escaped notice. A team of US mayors called Local Climate Leaders Circle attended to learn and to share. Many of these city innovations, can be replicated around the world, given the will and the financial support.

The world’s richest man, Bill Gates, along with a group of fellow billionaires, announced a Breakthrough Energy Coalition, pledging to commit funds towards the development of “overlooked” low-carbon energy technologies, such as artificial photosynthesis, or travelling wave nuclear reactors. Says Gates, who put in $2 billion of his own: “We need to move faster than the energy sector ever has.” This not-so-little push was not included in anyone’s projections.

Consider a just-released study by Yale University’s Data Driven Environmental Solutions initiative. They collected data on climate commitments from 1,192 cities and regions who promised to deliver 2.7 gigatons of carbon dioxide emission reductions. Responding to the report, Laurent Fabius, President of COP21 commented: “It is evident that this wonderful set of recorded climate actions is only a part of much wider, broader action towards a sustainable future. I know there are many tens of thousands of other climate initiatives out there and I welcome all who can to put their efforts, pledges and commitments on the record with us.”

So even the head of COP21 acknowledges the many efforts that have not yet been included.

BSR’s Wei believes that potential hasn’t yet been tapped, “but it’s there for us to take.” A report from the New Climate Economy, called Seizing the Global Opportunity, supports his view. It states that partnerships between businesses and cities, with investors, state and regional governments and communities can deliver up to 96% of the current gap in achieving the 2 degree goal.

Then there is the Deep Decarbonization Pathways Project, a massive research study undertaken in the US National Laboratories, which developed four scenarios to attempt the 80% emissions reduction targets. They found that, in each case, with sufficient commitment, the goal could be achieved.

Climate scientists talk about positive feedback mechanisms, and how, if triggered, they harbour substantial hidden threats that could disastrously increase the rate of warming.

This is true. But there are even more positive feedback loops in the solution space that are certain to activate repeatedly as collaboration, learning and technological progress combine with an increased sense of urgency as, unfortunately additional climate-related disasters will continue to occur. A completed agreement in Paris will only make this more true. 

To shape tomorrow’s sustainable economy business’ innovative capacity is essential. However the public trust in business innovations is dwindling and that is a problem for all. Ernst Ligteringen explores what could be done

Carbon pricing and the establishment of a wind energy park have in common that their success depends on widespread buy-in. But this is difficult to achieve in a world where social trust is becoming as scarce as clean air. Positions on climate change are deeply divided as is illustrated by the gap between Bank of England Governor Mark Carney’s advocacy for action on stranded carbon assets and Donald Trump’s belief in variable weather. Sceptics often raise doubts about the foundations of climate science, but what appears to be a discussion about the strength of scientific evidence is actually is more about sceptics’ distrust of proposed climate action. 

Innovators should be aware that climate sceptics won’t be convinced by science or technology alone. It is a lesson that Monsanto had to learn in its defence of GMOs; people on the whole are more persuaded by their friends and peers’ perception of a company’s interest than by technical or scientific reasoning. Low trust in underlying motives hinders the acceptance of change and innovation; the very social asset we will need a lot of to come to an effective energy mix able needed to set the world on a 2C degree pathway.
That public trust in business is dwindling should be of concern to all because business has by far the most capacity to develop practical solutions to our climate challenge at scale. However, in its 2015 Trust Barometer PR firm Edelman noted that consumers are growing more sceptical of business’ innovations, which they believe to be driven more often by companies’ self-interest than any intention of making the world a better place.

Companies that want to put large scale innovations to market would do well to consider what causes this public wariness of business. The spread of public misgivings about business seem to be driven by its focus on profit maximisation. The pursuit of individual advantage has been the cornerstone of capitalism for over a century and the main operating principle of the market economy. Belief in the rationality of individual choice had its heydays in the 1990’s when market champions were boasting that greed was good (for all). However two factors have caused public perceptions to change.

First, growth in income inequality between shareholders and executives on the one hand and wage earners and the self-employed on the other. Income inequality has increased continuously since the mid-1970s and its effects on the economy and society has caused many to raise the alarm from the head of the IMF Christine Lagarde to campaigners of the 1% movement.

Secondly, the historic idea that natural resources are boundless is now accepted as obsolete but most companies are failing to assimilate this insight in their business models. Climate change, oil exploration threatening artic wildlife and the destruction of forests for palm oil production are just a few examples where business is seen to generate profit at the expense of vital natural resources and of poorer people whose livelihoods depend on them.

While wealthier consumers around the world benefit from related products, the growing inequality is generating the feeling that business is working principally for its own benefit. It is also affecting levels of trust in the relations between wealthy consumer countries and low income countries where poorly paid workers feed the supplies chains of global food, apparel and electronics companies, often under unhealthy and unsafe conditions.

The combination of growing inequality and the extent of business’ social and environmental externalities is generating this generalised scepticism about business’ intent. Companies working to put innovative sustainability solutions to market needed need to be mindful of that their innovations will not be judged just on the basis of their technical and scientific quality but also on the perceived purpose of the innovation.

A new social licence
The social licence to operate is a concept used in the field of Corporate Social Responsibility represents the public’s tacit acceptance or approval of a company’s operations. An absence of a social licence to operate can affect a company’s operations in a material way through the number of stoppages or the stability of supplies.

The social licence idea captures the public’s view on the compatibility of the company’s operations with the public interest. It can usefully be extended beyond the realms of the extractive industry where it is mostly applied to capture the public trust in the compatibility of company’s innovations with our common interest in a different economy generating wealth equitably and sustainably for all.

The millennial generation in particular is increasingly judging companies by their sense of purpose rather than their current impacts. In their vision sustainability is about changing lifestyles that integrate prosperity, health and wellbeing. Millennials are more oriented towards the total value proposition a company and its products offer for their future than to risk mitigation aimed at reducing social and environmental harm of conventional industry in the short term.

Implicitly millennials apply a social licence to innovate principle. They expect innovation and want it to be positive for the economy, society and nature. Major companies that have most successfully introduced green innovations achieved this by offering products that offer environmental benefit and social equity integrally. In her recent book Green Giants, Freya Williams describes how companies ranging from GE and Tesla to Unilever and Natura Cosmeticos have seen the market share of product with such an integrated value proposition grow significantly. Their social licence to innovate results from the integrated quality of their products and perceived purpose of the business.

However, industries whose innovations require consumers to change their daily habits beyond the choice of one product over another face a tougher challenge, particularly among the climate sceptics.

A social licence to innovate depends more on the public perception whether a company’s purpose is fitting a more equitable and sustainable future. Companies introducing innovations that are seen prioritise shareholders’ and executives’ benefits will have a low social licence to innovate. They can expect their innovations, however technically sound, to be met with scepticism. Companies that are seen to operate inclusively and compatibly with our common interest will have a stronger social licence to innovate.

Companies that want to lead change and be relevant to a vision of a sustainable and equitable future will acquire a strong social licence to innovate by evolving their corporate social responsibility focus from reducing harm of the conventional short-term profit internalisation model to a future fit business model generating equitable and sustainable value for the company, its principal stakeholders and nature. Government should do two things to promote this transformation.

Firstly, it should promote the UN Sustainable Development Goals as a relevant benchmark against which a business’ value for our common interest in a sustainable future can be assessed. Secondly, it should ensure public transparency on business performance as it is the only way for consumers and investors to distinguish companies trusted to innovate from those that persist with business models that caused the current low trust in the first place. 

 

Ernst Ligteringen, the former CE of GRI, is an advisor and consultant on business and sustainability

Recent events in Paris brought to mind children’s author Natalie Lloyds’ description of the Eiffel Tower, the city’s instantly recognizable landmark, which she admired because it looks like ‘steel and lace’. It struck me how accurate a description of the country’s resilience it was too: a beautiful city with a metal ‘core’, that core being its national spirit of liberté, fraternité and egalité.

Of course the French capital was also the location of COP21, the United Nations climate change conference which was expected to be the last chance to ink a global commitment to halt climate change. Hopes were indeed high – more country leaders attended than Copenhagen(following the terrorist atrocities), both in a bid to show a united front and as a statement to somehow make the world a better place.

President Obama set the bar high, saying: “Our generation may not even live to see the full realization of what we do here. But the knowledge that the next generation will be better off for what we do here – can we imagine a more worthy reward than that?”
Hmmn. That’s all very noble and altruistic but one of the big problems of convincing people about the necessity for action on climate change now is that a lot of its devasting impacts are in the future.

In the UK mid-COP21 certain areas of the country were devastated by Storm Desmond (yes, we’ve succumbed to the ridiculous habit of naming our storms).

Cumbria received 30cm in 24 hours and 6,000+ homes were flooded. If ever we needed a wake up call to climate change, surely this was it? For many, climate change impacts are always so distant and gradual that it’s difficult to people to buy into. Many think of climate change as hotter summers, failing to connect the fact that a warmer climate means more energy in the system and therefore more moisture in the atmosphere. And who doesn’t like a hot summer?

So will the latest batch of devastating floods actually trigger any real action? Maybe there’ll be a mindset change in Cumbria but for the rest of the country? It’s a bit like trying to encourage a young child to save up his pocket money for something worthwhile instead of frittering it away. Trying to argue that sacrificing that chocolate bar now for a new skateboard in a month or two is always a hard sell.

Indeed, global public concern about climate change has declined over the past six years, especially in industrialized countries, finds a new 21-country poll from GlobeScan. Less than half (48%) of citizens living in industrialized countries (OECD members) now rate climate as a “very serious” problem, down from 63% in 2009. Interestingly, a higher percentage of citizens in non-OECD countries (54%) now rate climate as a “very serious” problem.

Only 8% of citizens across 21 countries polled wanted their government to oppose any climate deal being reached in Paris. An average of 43% want their government to play a leadership role in setting ambitious targets, while another 40% want their government to take a more moderate approach and support only gradual action.

So will COP21 trigger any real action? In her guest column on p4, Claudine Blamey proposes that post-COP21 CR and sustainability professionals act as a bridge between the worlds of sustainability and business, helping translate and relate social and environmental issues to the organisations they work in. I like that idea. And it’s a great thought to kick off the new year!

liz.jones@ethicalperformance.com 

The necessity to engage everyone in the CSR agenda isn’t always an easy path to tread, writes William Buist. Generational divides in the workplace seem to be getting wider down to the advent of an ever-ageing workforce and the ever-changing, fast pace of the technological age. It’s a wicked combination.

That’s why new ideas on how to build influence and persuasion in the space are always welcome. One way experienced CR executives can learn something from the not so experienced is possibly through reverse mentoring.

Reverse mentoring flips the traditional mentor-protégé model on its head as younger professionals “mentor” their older colleagues. By injecting fresh ideas and a new perspective, reverse mentoring counteracts the inaccurate assumptions, inane biases and business blind spots that come from being in an industry, or a role, for too long.

First popularised by former GE CEO Jack Welch, reverse mentoring acknowledges everyone within an organisation has something to bring to the table. By pairing a younger, less-experienced professional with an older executive, reverse mentoring helps young professionals gain confidence and strengthen their leadership skills while helping older executives stay up-to-date on the latest business technologies and strengthen a business’s competitive edge.

 Reverse mentorship is also beneficial for fostering positive attitudes and managing generational diversity. There are clear differences in how employees from each generation work and reverse mentoring reduces these generational tensions by allowing discussion and the sharing of insights in a non-confrontational setting. Of course, as an added bonus, executives can better identify, evaluate and cultivate new talent.

 Key reverse mentorship benefits include: reducing intra-generational tensions; encouraging frank discussion on current issues; driving workplace innovation; getting up-to-date on new technologies and enhancing leadership, conflict management and coaching skills.

 The goal for both mentor and protégé is to push one another outside their comfort zones in order to try new ways of working, thinking and being.
 1. Play matchmaker. Consider what elements in the individuals background could create a common bond. For example, are they both alumni of the same university? Do they share a passion for cycling? While these commonalities may seem superficial, they can help foster a shared sense of identity and commitment to the mentorship.
2. Keep the relationship casual. Traditional mentor-protégé relationships typically have a clear, structured objective with regular monthly meetings. While it is still important to meet consistently, this relationship can be more casual. I recommend committing to the time needed, but not fixing when that time is used.
3. Set an initial goal. The first few meetings can be a bit awkward if neither party are sure what to discuss – so set an initial goal. What starts as a basic tutorial, can then blossom into a relationship of respect. .
When each party commits to giving and receiving constructive insight, both will develop valuable leadership skills, gain behavioural insights, and build strong intra-generational relationships that are key to workplace success.

William Buist is founder of xTEN

This year the first directive mandating non-financial corporate disclosures is due to take effect across the EU which breaks new ground in corporate reporting requirements. Elisabeth Jeffries reports

It has been described as historic. The first directive mandating non-financial corporate disclosures, due to take effect across the EU next year, breaks new ground in corporate reporting requirements. A cynic might describe it as fodder for European paper mills. Yet there is a case for lauding its introduction.

Firstly, it extends the CSR probe to Europe’s furthest boundaries. Mandatory reporting on some environmental, social and governance (ESG) issues already exists in major economies. The UK’s 2006 Companies Act, for example, requires UK quoted companies to report greenhouse gas emissions in their directors’ reports. France’s Grenelle II law obliges many companies listed on French stock exchange to incorporate information on the social and environmental consequences of their activities into their annual reports. In Germany, a Sustainability Code known as DNK covers many of the directive’s obligations.

But many of the EU’s newer members or less developed countries will need to integrate the directive into their statute to introduce their first non-financial reporting rules. At the same time, companies that have withheld information will need to supply it. “It will require 6,000 companies across Europe to disclose certain ESG information, and many of these companies have never done so before,” says Elaine Cohen, Sustainability Reporting Consultant at CSR consultancy Beyond Business.

The new law also makes a major leap from previous ESG reporting rules, which mainly targeted the extractive industries as part of a clampdown on corruption and bribery. Companies in the sector had to disclose more information about payments to governments. One implicit aim was to stop EU businesses from trying to bribe officials in resource-rich developing countries. The illegal sale of hardwood, for example, would then be used to fund civil conflict within that country. “In some countries, this might be the only way the local population could find out what their government was up to,” observes an executive at a professional accounting organisation.

The directive broadens and strengthens the existing accounting law, which set quite high-level conditions open to interpretation. It covers a far wider range of corporate responsibility concerns than the previous legislation, as well as much national legislation. This includes bribery, human rights, employee diversity and environment.

But as a tool for greater transparency to guarantee accountability to the general public, its merit will take many years to prove. The directive originally proposed to cover a far wider spectrum of business activity, aimed at around 20,000 companies, but this intention was diluted during the legislative process.

Meanwhile, accounting processes continue to be dissatisfactory. Social or environmental impacts are most commonly buried in the hard numbers in the financial statements. Typically, those numbers only indicate responsibility when misconduct is exposed. “The costs associated with being found out relate perhaps to general loss of reputation, reduced sales and potential litigation. Litigation risk can later turn into contingent liabilities or recognised provisions,” points out Peter Pope, professor of accounting at the London School of Economics.

Bad news may leave a financial scar on the company’s profit and loss account despite a clean CSR report, as the recent emissions debacle at Volkswagen shows. Sales in some countries fell while the company’s share price halved. Not surprisingly, the underlying software use was not revealed in the company’s 2014 sustainability report. Any investor reading it might have found it impressive.
Dense pages printed in a literary style and interesting font suggest thought leadership and Germanic introspection. “It’s not about growth at all costs,” states one heading. An article entitled “SUVs – where emotion meets reason?” justifies its role in the SUV market through lightweighting and electric vehicle innovation.

As Elaine Cohen points out, the report set high standards. The Global Reporting Initiative, a standards organisation, confirmed it included material disclosures. “Volkswagen disclosures have been consistently in line with reporting expectations and the company received recognition from many ranking and rating organizations including the Dow Jones Sustainability Index”, she says.

Clearly, the new legislation in itself will not put a stop to commercial conjuring tricks or pollution incidents. Mainstream auditing procedures may shine a bright beam on particular activity while failing to detect dark matter surrounding it. They may focus on final sales, for example, rather than operational decisions supporting them. As Pope explains, a sustainability report can well be accurate while presenting the company through a particular lens.

“CSR reports may sometimes reflect the perceptions of the board of directors, whose perspective on actual business practices might not correspond to reality because they don’t know the fine detail. Management control in complex organisations can be problematic,” he says.

The transparency and reliability of the non-financial statement in the management report, when it becomes mandatory, is thus likely to be compromised. The record of previous laws on disclosure also suggests compliance may be limited. The adoption of the International Financial Reporting Standards (IFRS), made obligatory by the EU in 2005, is a case in point. “Enforcement of IFRS in financial reporting is much patchier than policy makers had intended. It is a major problem,” notes Peter Pope. Meanwhile, miscreant directors rarely suffer severe penalties or imprisonment.

The influence of the law is likely to be indirect, nudging companies to improve their corporate culture, creating a level playing field and raising the standards of member states with lower requirements. “The European Commission’s motivation for a directive of this kind is to protect the single market and improve its rationalisation and harmonisation,” comments an executive from a professional accounting organisation. A single accounting code will help support that objective now that CSR reporting has become commonplace.

At present, CSR analysts perceive poorer performers through unsubstantiated numbers or shifting methodologies from one year to the next.

“A company has many ways of communicating its activities, not just a sustainability report. In general, however, there are certain frameworks and expectations of sustainability reporting at a global level, and it’s fairly easy to note if a company is not achieving this expected level of transparency,” says Cohen. Now that non-financial reporting is to become law across the EU, it is reasonable to expect those failings to become more evident.

Activists have high hopes for methodology guidelines published in December 2015. By embedding a consistent approach, they will help investment analysts detect poor performance more easily. However, non-financial reporting is unlikely to grow full teeth unless ESG matters are fully recognised as material to the business and ESG externalities incorporated into the accounting system. 

‘Transformational’ improvements at its distilleries stand the global drinks giant Diageo in good stead in the face of ongoing carbon and water issues. But securing its long-term supply chain is front of mind for David Croft, the company’s global sustainable development director, finds Tom Idle

Just 10 months into the job and David Croft is fully aware of both the challenges and opportunities for a company like Diageo to be a positive global citizen in the 21st century.

The company is a drinks behemoth, which owns brands such as Guinness, Smirnoff, Bailey’s and Johnnie Walker. And with manufacturing sites the world over – from Australia to Ypióca in Brazil – and supply chain tentacles that reach far down to thousands of smallholder farmers in the developing world, it has a scale and reach that brings, what Croft says, is extra responsibility to not only significantly reduce its own socio-environmental impacts, but to help those it so relies on to bring its products to market.

Speaking from Paris – where he was engaged in the UN COP21 debate and finding ways to work with partner organisations in the fight against the impacts of a changing climate – Croft says the business is running out of the so-called ‘low-hanging fruit’ of water and energy efficiency opportunities across sites, depots, distilleries and plants. As has been well-documented, it has invested heavily in new technologies and processes and implemented “transformational” improvements at a number of sites.

For example, as part of its climate change mitigation strategy – which is reported on quarterly – a £40m investment in renewable energy at its Roseisle Scotch whisky distillery in Speyside, Scotland in 2010, set new standards for producing Scotch in a responsible fashion. Around £17m of that money went towards a state-of-the-art, on-site bioenergy plant which makes use of by-products from the distilling process as a feed source of renewable energy for the plant. Half of the plant’s energy needs are delivered by this renewable source, more than 10,000 tonnes of CO2 is now not entering the atmosphere. It was the first new major distillery to be built in Scotland for 30 years and it has, quite rightly, won plaudits from some quarters.

Investments like this will continue as the business case gets stronger and the drive to generate greener energy increases, says Croft. Of course, the technology and process at Roseisle, while unique to the site, can be adapted and applied to other sites too.

But there is also a recognition that small and medium-sized companies throughout Diageo’s extensive supply chain have barely started their own resource efficiency journeys. “We have been continuing to improve our performance on carbon and water – and have created some transformational improvements, particularly on carbon with our investments in alternative energy,” he says. “But we also have to look at how we can help activate the same improvements through our supply chain.”

And this “responsibility to show leadership” is not necessarily about helping Diageo’s 30 biggest suppliers – who are no doubt already making good progress. It is about supporting the smaller companies to become more efficient – something Croft says will help to secure Diageo’s future supply chain.

In Ethiopia, the Diageo-owned Meta Abo Brewery has a direct relationship with more than 6,000 farmers which supply the business with barley to produce its beer. By helping to train the farmers in the best agronomic production techniques, and providing them with a package of seeds, fertiliser and crop insurance, productivity has been improved by between 50-100%, resulting in better incomes for farming communities. It’s a strategy that works and Diageo plans to source 80% of all raw materials locally in the same way across Africa by 2020.

Croft’s thinking is that if we can help smallholder farmers in this way, “perhaps we can do the same for our small and medium-sized suppliers which we are also dependent upon as a business”.

“We already work with CDP to map carbon and water risks in our supply chain. But we can do more, particularly in facilitating improvements in energy and water for those hard-to-reach small companies so that they can go through the same process we have been through,” he says. “The business case we apply is the same for them. But they don’t have the resource. So, we want to look at how we can leverage our role in the supply network to help make that happen.”

Of most pressing concern – as reinforced by the company’s latest materiality assessment – is water use. It is an issue exacerbated by the climate change impacts being felt most acutely in water-starved parts of the world, some of which play host to Diageo’s fairly water-intensive manufacturing operations. It is a challenge that will only be effectively solved through collective effort, says Croft.
Working up water stewardship plans across specific catchment areas demands a range of organisations – from big, water-consuming businesses, to governments and NGOs – working together.

“It’s not easy,” he says. “As with any successful relationship, each party needs to accept that in order to create a common-good outcome, there has to be some compromise on all sides.” Collaboration – building the right partnerships, having the right conversations, finding out what compromises Diageo and others are willing to make – is what’s keeping Croft busiest right now, hence his trip to Paris and what sounds like a choc-a-bloc diary ahead of the Christmas break.

So, what sort of business will Diageo be ten years from now, with consumers increasingly antsy about the social impact of alcohol abuse, the water issue not likely to go away any time soon and ambitious global growth plans? “Our aspirations are very clear,” says Croft. “We want to make a positive social and economic contribution. And, maybe not in 10 years time but not long after, we want to have a net positive environmental impact.

“For us, sustainability is not about our licence to operate. It’s a platform for growth.” 

The latest annual report on ethical, green and social funds at the retail level across Europe from Vigeo, the leading European rating agency evaluating corporate responsibility, reveals that the SRI retail fund market continued to grow in 2015 and posted an 8% increase to almost €136 billion (c.$149bn) in assets in management (AUM) over the previous year.

While the European market continued to display “rapid growth” according to Vigeo Italy, which produced the findings for socially responsible investing in conjunction with fund analyst and data provider Morningstar, the figure represents just 1.7% of the overall retail funds market. Still, growth revealed in Vigeo’s last three annual studies since 2013 has ranged between 8% and 18%.

Fouad Benseddik, Vigeo’s Director of Methodology, commenting said: “SRI continues to represent a form of investment that is dynamic and a forward looking solution. The number of funds, AUM and players engaged continue to show growth, which confirms the capacity of SRI to resist to the crisis.”

Titled ‘Green Social and Ethical Funds in Europe’, the 15th edition of Vigeo’s study reveals that AUM for the SRI retail funds market rose from €€127bn in 2014 - and is up around €€9bn this year. The number of funds increased by around a quarter (+25.8%) and reached a new record of 1,204 funds versus 957 funds over the corresponding period last year.

Illustrating the trend, the 957 funds reported in the 12 months to June 2014 was an increase of 35 funds (c.3.8%) over 922 funds in 2013 when retail funds’ assets reached a then peak of of €€108 billion (c.£90bn) as at the end of June 2013. That performance was a 14% increase over the preceding year according to Vigeo’s 13th annual study.

Interestingly, while the number of SRI funds available expanded significantly much more in the latest annual period under review, the value of the market increased 18% in 2014 to €€127bn (equivalent at the time to $162bn). That percentage is over twice the figure for the 12 months to June 2015.

In terms of European countries, France and the Netherlands showed growth rates this year of +4% and +7%, respectively. By contrast other leading countries experienced declines: Belgium (-10%), Germany (-5%) and the UK (-7%). Last year’s findings revealed the market share of SRI funds had increased in all markets surveyed.

The four largest markets - France, UK, Switzerland, and the Netherlands - confirmed their leadership this year and collectively account for 68% of European assets in SRI retail funds. Among the smaller European markets, all gained new assets: Spain witnessed +19% growth, Austria showed +17% and Italy posted +2.5%.

France is confirmed as the largest European SRI retail market accounting for 35% of the total and characterised by a high proportion of fixed-income funds. The UK remained in second place on 15% of the total. Vigeo points out that “the potential for the development of sustainable savings appears high in France” where this type of fund represents only 6% of assets.

The Netherlands retains the highest country market share for SRI retail funds even though it decreased this year compared to 2014, while Belgium ranked second (9.3%) in terms of SRI retail funds’ penetration.

Equity funds, which represented 52% of the total, still outweigh fixed-income funds (27%) and balanced funds (21%). However, their share has not yet again reached the record of 67% from 2007. Amongst the top 5 highest performing SRI funds this year, four were French.
 

Among UK Registered funds over the past one year to 30 November 2015, the £2,343.66m Pictet-Water USD fund was top ranked in Morningstar’s analysis of 251 sector funds with a cumulative return of +21.15%. It headed the £252.31m SLI UK Ethical Ret Acc fund on +16.27% in the second spot (+52.45%/16th and +87.91%7th over past three and five years, respectively) and Kempen (Lux) Sustainable Eur Small Cap I third from top on +15.77% over the past year.

Managed by fund managers Hans Peter Portner, Philippe Rohner, Arnaud Bisschop and Alina Donets, the Pictet-Water USD fund has been a consistent performer over recent years too. It posted performances of +64.40%/6th ranked and +78.74%/12th over the past three and five years, respectively.

 The investment objectives of this fund and its sub-funds as of December 2015 were to pursue and achieve capital growth by investing “at least two-thirds of its total assets” in shares of companies operating in the water sector worldwide. The sub-fund favours companies operating in water supply, water technology, environmental and processing services.

 In terms of sector breakdown and asset allocation, Water Technology accounted for 46.8% of the fund, followed by Water Supply & Treatment (40.7%) and Environmental Services (10.3%). On geographic breakdown, the US represented 44.0%, UK (15.5%), France (9.3%), China (8.1%) and Japan (6.3%). Elsewhere, Austria, Canada, Netherlands, South Korea and Switzerland collectively represented 10%.

Of the fund’s 10 largest holdings, the top five are currently Veolia Environnement (5.0%), Suez Environnement, United Utilities Group, Danaher and Pennon Group and represented 20.8% of the overall investment exposure. Xylem, Aqua America, Severn Trent, American Water Works and A.O. Smith Corp make up the remaining top 10 holdings - collectively amounting to 16.5%.

Within the European funds sector, the €195.93m DNB Sweden MicroCap fund again took the yellow jersey over the past one year with an improving cumulative return of +46.06% over its performance a month before (+37.68%). It was equally impressive in ranking second top over the last three years (+147.26%) and third (+164.39%) over past five.

It was followed in second place in the sector over the latest 12-month period by the €376.99m Delphi Nordic fund, which posted a return of +37.41% (+126.57%/3rd and +121.65%/18th over the past three and five years, respectively).

UK Individual Pensions posted the best peer group sector average over both the last one (+27.37%) and three years (+38.43%).
 

Ed. note: This is an entry in Masdar's 2016 Blog Contest.

A lot of proposals have been put forth in recent years on how the world community can jump start a green economy and, in effect, transition away from fossil fuel dependence. Steering many of those proposals is the recognition that change is most successful when it has the support of both governments and private citizens. And as history has proved, public-private partnerships don't just increase access to funding for startups, but they also incentivize dialogue, cooperation and new ideas.

Since the late 18th century, North America has benefited from technology that has helped mechanize the Western economy. It not only built cars, but also an entire way of thinking about what the world's standard of living should look like. It lifted cities out of poverty, lit schools and businesses, and revamped the way we looked at our food industry. This past technology, while often thought of as the bane to a greener economy, holds at least part of the key to how we find the new technology for a renewable energy revolution.

Any public-private partnership must take into consideration the benefits of that now-antiquated technology, and the financial investments that have not only maintained industries that benefit from fossil fuels, but also the global economy as a whole. But just as importantly, it requires a change of mindset in how we source energy and its interrelationship to how we survive on the planet.

The following steps would be applied nationally, with global benchmarks that would help ensure a transition away from international dependence on fossil fuels by 2030:

1. Establish subsidies for the coal, natural gas and other fossil fuel-source industries to redirect their technology and investments into renewable energy. The incentives would be generous but specifically targeted to support the migration and phase-out of carbon-based fuels. Applicants would be expected to submit detailed business plans outlining their strategies for a successful transition to one or more renewable energy sectors, including exploratory technologies.
2. Set benchmarks for research and development with incremental subsidies for each phase of the development portion of the program.
3. At the same time, introduce deadlines for gradual phase-out of fossil fuel supply, These changes would be mandated by gradual tax code changes and other legislation that favor renewable energy investment.
4. Since many of the affected fossil fuel industries benefit from international investment, the above deadlines and benchmarks could be established through global consensus.
5. Encourage partnerships in research that help promote changes across the board in the affected industries like transportation, power generation, communications on both the national and local level.
6. Partnerships could include educational networking that help inspire changes at the social level, such as a) elementary and secondary school programs, competitions or tours for students in local industries or b) scholarships to bolster research and training in renewable energy industries.

The recent COP21 conference took the first of many steps to spur a global phase-out of fossil fuel development. But constructing a viable path toward its replacement most likely will need to be implemented on a national or regional level. The lessons learned and the benefits gained along the way, however, can be shared through mutual partnerships that ensure the world's transition to cleaner and more effective energy technologies.

 Image: Floris Oosterveld