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Global consumer goods giant Unilever is leading the reporting way yet again with the publication of a first-of-its-kind Human Rights Report.

The report outlines Unilever’s goal not only to respect human rights but to actively advance them across all areas of its business. It documents areas where the company has taken significant steps forward, and assesses some of the challenges ahead. 

Paul Polman, ceo, Unilever said: “Business can only flourish in societies in which human rights are respected, upheld and advanced. People are our greatest asset, and empowering them across our supply chain is not only the right thing to do, but also ensures a sustainable future for the business.

“As we look ahead to the agreement of the UN Sustainable Development Goals in September and to the prospect of a global climate agreement in Paris at the end of the year, it is a fitting time to open an honest discussion about human rights.

“The effects of climate change threaten us all, with expected impacts hitting the poorest people and communities the hardest. They are often also those most at risk from negative human rights impacts. It is no longer enough for business to merely respect human rights. Our role must be far more active to ensure we succeed in our commitment.”

Marcela Manubens, Global Vice President, Social Impact, Unilever added: “Our ambition is to embed the promotion of human rights into every function, every role, and every corner of our organization.

“We have 172 000 employees, 76 000 suppliers and sales in more than 190 countries across the globe, with varying cultural norms and socio-economic challenges. We will know that we have been successful when all of these 172 000 people around the world understand what this agenda means in their job, and are empowered into action. We have a long way to go and we cannot do this alone - but being honest about the challenge we face is crucial to making progress.”

The report highlights key areas of progress, including Unilever’s work to empower women, its progress in the fight against sexual harassment, and addressing health and safety issues across the supply chain.

Traditionalists, Baby Boomers, Generation X, Millennials have all developed their own ethical standards and understanding of what is right and wrong in the workplace, according to a new briefing from the Institute of Business Ethics. 

For example, only approximately one in ten (12%) of Traditionalists agree that they would turn a blind eye on witnessed misconduct to help save jobs, compared to over a third (35%) of Millennials.

The free-to-download briefing outlines some of the differences in assumptions, personalities and management characteristics across the generational divide. These idiosyncrasies should encourage organisations to tailor their approach to business ethics, says the IBE, rather than adopting a one-size-fits-all policy.

The IBE suggests the use of ethics ambassadors as an example to achieve cross generational buy-in. Indeed, it can be argued that Millennials can make good ethics ambassadors as they are natural networkers and familiar with new technologies, but at the same time older employees may have a more established reputation for integrity.

Download the briefing here.

 

Corporations, like individuals, are never truly altruistic – in a capitalist society, individual benefit is incentivised, writes Doug Flynn of global consultancy North Highland.

It is unrealistic, and much more importantly, unhelpful to expect global corporations to be truly selfless in their approach to corporate and social responsibility. It is time to stop being ashamed of this, and time to stop awkwardly shuffling the board room chairs around this inconveniently large elephant. There is huge power in forms of social responsibility that are also self-interested. This is a reality to be acknowledged, faced and indeed embraced.

Admittedly, this approach may at first seem counter-intuitive, cold or even contradictory. Surely corporations should be expected, or even forced, to have an environmental and social conscience, regardless of whether it is in their own interests or not? Wrong. Human nature, economic theory and real world experience belie this. Corporations that truly approach CSR as an investment and an opportunity, rather than a burden, actually generate significantly superior outcomes – for the cause being supported, and for the company itself. Accept this and the possibilities become enormous for both.

Profitability and integrity can go hand in hand. Look at the Tom’s ‘one-for-one’ model (which sees a pair of shoes provided to a person in need for every pair of shoes sold) that catapulted this embryonic shoe business to global success. Then look at Paul Polman, CEO of Unilever, who staked the fate of one of the world’s largest CPG companies, and his own career, on a relentless belief that leading CSR can deliver leading results. And ever since he oversaw a doubling of Unilever’s global share price in 5 years, it’s hard to argue with him. Approaching CSR with a business mind-set actually yields superior outcomes - for everyone. Like it or not, there are limitations to ad-hoc outings of well-meaning volunteers painting the village hall once a year, or weeding the grounds of the local old people’s home. It is not to say that volunteering in this way does not have a place - it certainly does - but surely this is not always the most effective way for corporations to contribute? Volunteering should be targeted, deliberate, and skills-led. Not as random and ephemeral as those proverbial splashes of paint.

Corporate volunteering should be about professionals using their core skill-sets to make the biggest impact in the shortest amount of time - Doctors giving medical assistance, accountants providing financial advice, vets administering care. So at North Highland we have applied this approach to consulting. The model we have developed uses professionals who have skills and experience in a certain area, and combines them with causes that need those specific, specialist skills. When our consultants are not on billable client engagements, we allocate individuals or teams to work on meaningful consulting projects for the charity we are supporting at that time. These are full consulting engagements, and treated with exactly the same rigour, professionalism and enthusiasm as any other assignment. The only difference being is that the firm is not paid.

But we are not donating our time to this charity. We are not ‘giving’. This is a conscious decision, and one we have assessed and taken based on the benefit it will bring for the charity, and for us. We are incredibly excited about the difference we feel we can make to the cause we are supporting. And we are similarly enthused about the benefits this relationship can bring for us as a firm. We are supporting an extraordinary organisation this year, Regenerate, and their irrepressible social enterprise – The Feel Good Bakery (TFGB). TFGB is a fledgling business, with all the hope, expectation and trepidation that this entails. We are determined to use our consulting expertise to support TFGB in developing their strategy, growing their business and delivering what this is ultimately all about - better outcomes for the vulnerable young people Regenerate supports.

This is real, raw consulting. It brings with it enticing, motivating, stimulating experience for our consultants. It builds experience, it deepens skills, it nurtures and strengthens their sense of purpose at work. We think we can build a business where social conscience isn't an add-on, an after-thought, but is fully integrated into the way we work. And we think we can deliver meaningful, lasting impacts for our partner charity.

If my DIY skills are representative of the Consulting population, then as a profession we should never be allowed within 100 metres of a drill or a bandsaw. So although my shelves at home remain gratingly mis-aligned and my drawers, infuriatingly, don’t quite shut, we hope that our support will help our charitable partners to achieve even more than they already do.

Now, has anyone seen my hammer?

Doug Flynn is a consultant in North Highland’s London office with experience in the retail, travel and public sectors. Doug is working with his team at North Highland to build up the portfolio of pro bono consulting to support charities and small businesses.

The views of shareholders have never ranked high in the concerns of Japan’s corporate management. They are rewarded by long-term capital appreciation in the value of their stocks and expected wait quietly for that to occur. Transparency, accountability are not on any agenda.

Now a new code requires Japanese companies to appoint at least two independent directors to their board. These firms will also have to talk about executive succession plans and procedures for remuneration – something that has never happened in Japan before.

The governance code, which came into effect on June 1, is the latest in a raft of changes. The government introduced a stewardship code last year – calling on investors to seek greater dialogue with Japanese firms in which they are invested – and has also amended the Company Act.

This is the first time any Japanese government has laid down detailed rules on how firms should conduct their affairs.
In future, the details of all that’s required by the corporate governance code will normally be published right after the AGM. But because so much change is taking place in a short time – and such so many independent directors must be found – the Tokyo Stock Exchange has allowed companies to either comply or explain why they haven’t done so by the end of the year.

Japanese firms fall into two schools. Leading multinational Japanese companies with operations spanning many countries, particularly the USA, are generally aware of what’s required by foreign investors in terms of corporate governance. A second, larger group of companies, are usually domestic, very often much smaller, and quite possibly run by the founder’s family. These are comfortable with the existing system and see little need for greater transparency, accountability, or engagement with investors.

The Tokyo Stock Exchange is seeking to shame the laggards into action, with a new index of well-behaved firms. The reforms have captured the public mood: books with titles like “Changing Japan, the Poorest Nation for Return-on-Equity” grace the shelves of booksellers.

The pressure for change comes directly from Japan’s Prime Minister, Shinzaro Abe. He reckons that getting companies to change their traditional ways is a key element of his grand plan to restore vigour to the Japanese economy.

The corporate reforms, along with monetary easing by the Bank of Japan, are the most tangible elements so far of the prime minister’s programme. 

Picture credit: &nbsp © Tarokichi | Dreamstime.com

Renewable power is good for business and should be a priority for governments taking climate action, senior business executives and energy experts urged at the recent FIA Formula E eprix in London.

The group of sustainability and energy leaders included Formula E, IKEA, Infosys and Marks & Spencer – all partners of RE100, the global initiative led by The Climate Group in partnership with CDP to engage, showcase and support the world’s most influential companies committed to using 100% renewable power.

Speaking ahead of the final race of the season, Alejandro Agag, ceo of Formula E and recent recipient of the Individual Outstanding Leadership award at this year’s National CSR Awards, said: “Formula E is the first ever all electric cars racing series and it is extremely important to us that the cars are powered cleanly thanks to glycerine - an innovative zero emission fuel - because we know that to reach the full potential of electric vehicle benefits we need to use renewable energy. This is why it is important for us to be part of RE100.”

Mohamed Anis, head of energy and services for Europe, Infosys, which recently became the first Indian company to join RE100, said: “We’ve taken great strides in the past seven years to become sustainable across our operations, and with the renewable energy market opening up now in India, we aim to source all our electricity from renewables by 2018.”

Phil Levermore, Chairman of The Climate Group added: “We need to secure a strong agreement at the climate talks in Paris later this year, but even if we do, it won’t kick in till 2020 – which leaves us with a gap. This is an opportunity for business to show real leadership on climate by joining RE100. With more than half the world’s electricity being used by the industrial and commercial sectors, this is our chance to shift the global energy market in favour of renewable power – helping us transition to a prosperous, low-carbon future.”

There are now 20 members of RE100, including Autodesk, BT Group, Commerzbank, Elion Resources Group, Formula E, H&M, IKEA, Infosys, KPN, Marks & Spencer, Mars Incorporated, Nestlé, Philips, Reed Elsevier Group, J. Safra Sarasin Bank, SAP, SGS, Swiss Re, Unilever and Yoox Group.

The RE100 initiative launches in China this month.

George Davies, head of environmental strategy and assessment, Heathrow, talks to Ethical Performance about the crucial role he and his team play in keeping the airport safe

You’d think that with the noise of the planes and the number of human beings at an airport, wildlife would be in short supply at one of the world’s biggest airports. But you’d be surprised: Heathrow is teeming with both travelers and wildlife.

George Davies, head of environmental strategy and assessment, says that what’s a particular achievement is the variety of species the land is now attracting with the area - over 100 hectares - now boasting an established population of stoats. “As a predator, having this mammal present reflects how strong the ecology of the area has. It’s a very good indicator of biodiversity,” he says.
This year the airport has counted a record number of moths as well as a number of rare and notable species such as: Bee Orchids, Cetti’s Warblers and Nathusius’ Pipistrelle Bats.

The airport has recently won its Biodiversity Benchmark Award for the 7th year running too, in recognition of the sustainable management of its land and the four reserve areas open for local people to enjoy, as well as the protection of over 2,000 species of flora and fauna on its grounds.??

“Winning the award shows we’re doing the right thing,” said Davies. “We’re proactively managing the green spaces and the benchmark is not easy to get. They raise the bar year on year.”

The airport’s success is not only restricted to the furry, scaly or feathery: Heathrow also holds the last known wild population of Water Avens, a flowering plant with a distinctive purple colour, in Greater London. In addition, following on a successful trial last year, Heathrow has extended its wildflower planting areas this year, a move which will not only promote further biodiversity at the airport, and a visual treat to passengers, but also reduce the risk of bird strikes and increase safety.

Davies emphasizes that it’s important to maintain a balance across the sites because it’s important for the safety of the airport. For example, it’s not in the airport’s best interests to cultivate any bird populations. “Birds and aviation are not a good combination. We have a very clear policy of what is possible and what isn’t when it comes to creating wildlife habitats.”

Managing the green spaces at Heathrow is also primarily about safety. “It’s about maintaining the accessibility of the footpaths that cross the airport’s land as well as maintaining the perimeter fence. It’s also about managing invasive species – for example Japanese knotweed – and removing it,” Davies points out.

A lot of Davies’ time currently is focused on the sustainability aspects of the airport’s expansion proposals. While some may consider the expansion to be a rather negative environmental move, Davies believes that the proposed plan gives the airport a huge opportunity to enhance the green spaces it currently manages.

While the area Heathrow manages and owns is large, a lot of it is quite fragmented, explains Davies. Part of the new proposals have identified a corridor of green spaces that they could link. “It would be the equivalent of linking four Hyde Parks where people could walk, cycle and ride horses,” he said. The development of open water swimming pools have also been mooted as a possibility.

Water features on Davies’ agenda too. “We are reliant on an airfield free of water,” he explains. Drainage is therefore key and keeping water clean has resulted in thriving biodiversity in all three of the airport’s water catchment areas. These are to the south, former gravel extraction sites, to the west with the River Colne and to the east with the River Crane.

“We are an integral part of the environment and take our responsibilities seriously, monitoring pollution risks and supporting habitats,” Davies emphasised.

A good example of what the team at Heathrow has done is Fowles Yard, which was a former flood meadow turned concrete and aggregate storage site. This has now been returned to nature. It’s located to the west of the airport, around 500m from Terminal 5 and is open to the public – and once again now a meadow.

Davies and the team at Heathrow work collaboratively with local communities. “We use a lot of volunteers to do surveys of the land. One group we work with is the friends of the River Crane, a group of highly motivated individuals who we talk to them on a regular basis. This stretch of river is managed in line with their objectives. Water quality is very important for a semi-urban water course,” he explains.

Heathrow is also a founding supporter of the Colne Valley Park Community Interest Company, providing valuable habitats for protected wildlife as well as important community facilities. Heathrow’s work also involves encouraging community volunteering and environmental education.

While nothing is confirmed with regards to the airport’s expansion plans, it’s clear that Davies and the Heathrow team would be keen to establish another regional park if they could. A government announcement is expected later this year.
 

I’ve heard a lot about trust in business so far this year. I have been heartened by the ever wise words of Business in the Community’s Stephen Howard – “authentic business leaders inspire trust because they understand the wider purpose of business”– and dismayed by the attitudes shown at a CBI business forum where CSR was still regarded as a greenwashing/whitewashing, tick-box exercise (“How can a business pillage Monday to Friday and then paint a school at the weekend? was the answer to one of my questions about the value of CSR to the trust equation.)

Given this experience and ever more ‘bad news’ recently from the banking sector, it didn’t really come as a huge surprise to hear a new study has found the term ‘trust’ increasingly misused by companies, despite its increase in use.

Apparently, companies’ use of the word ‘trust’ has risen by a factor of eight in the past decade, indicating an increasing corporate obsession with trustworthiness, according to a study by the Chartered Institute of Management Accountants (CIMA) and co-authored by Robert Phillips.

The study maintains the focus on trust is not always backed up by corporate action. “Trust often spoken is trust rarely earned,” commented Phillips.

An analysis of the use of ‘trust’ – when referring to the concept, not the legal structure – in annual reports of FTSE 100 companies over the last decade, found that the word was mentioned just 38 times in 2005, but has climbed steadily since, appearing on 317 occasions in 2014.

Tony Manwaring, CIMA’s executive director of external affairs, said: “The concept of ‘trust’ has always been misused by companies, but the past ten years has seen it achieve staggering growth as a corporate buzzword.

“This is bizarre, because ‘trust’ is not something companies can directly control – it is an outcome. It does not work as a message. Endlessly repeat the word ‘trust’ if you want, but it will not make people trust you.”

Likewise, the phrase “building trust” appeared just once in a single 2005 annual report; in 2013 it was mentioned 18 times.
Robert Phillips said: “I would happily retire the t-word from the English language for a decade or two, allowing us time to reflect on what it really means to be trusted or trustworthy. It has been used and abused to the point of exhaustion.”

Phillips argues that to be more trusted, companies need to create “public value” as well as shareholder value, and focus on profit optimisation rather than profit maximisation. He cites banking, arguing that if a bank were to make radical changes including copying the John Lewis Partnership employee ownership model, ceasing extravagant bonuses, and levying a small charge to its retail banking customers rather than claiming to offer ‘free banking’, it would begin to earn genuine consumer trust, “and quickly address the challenge of being socially useless.”

He said: “If a firm wishes to become trustworthy, the answer does not lie with crafting narratives, managing messages or meaningless platitudes. We need actions, not words.”

And so another reporting season staggers to a close. Having worked with many clients to help them through this sometimes painful time, I know that this season is not always the easiest. From data collection and validation, ESOS energy audits, emission factor updates, giant analysis spreadsheets, filling data gaps and QA/QC, there’s often a lot of work and manual processing which goes into producing a few numbers in a flashy report.

But once you have done all this data collection and analysis, you should use it - and not just in reporting. You should be able to dig into the results to identify hotspots, track the performance of your energy saving initiatives and develop new strategies for innovation.

What we are increasingly finding is that, in many cases, spreadsheet solutions are not up to this task. As soon as a business has more than a handful of separate facilities and wants to calculate the impacts of more than a couple of metrics, this becomes incredibly complex. The required spreadsheets make it overly time consuming, error prone, and give little more insight than just getting to the final answer.

This effect has only been augmented by the new GHG Protocol Scope 2 Guidance . The revised Guidance now means that we all need to start using supplier and tariff specific electricity emission factors and including savings for contractual instruments (like Guarantee of Origin certificates). The outcome of this is that we now have to produce two numbers for our own emissions where previously we were calculating one.

The alternative to Excel solutions are web-based enterprise software. These tools attempt to harness the power of big-data using cutting-edge analytics. They have their drawbacks however: many of the tools have expensive licenses; can be inflexible to the specific data collection requirements of businesses, and are restrictive over outputs.

The advantages of taking this leap can be significant though. In building the business case for and deploying the FootprinterTM data collection and analysis system, the Total Cost of Ownership of the tool and analysis has consistently been found to be significantly less than Excel alternatives. Additionally, the results deliver a lot more value. The big-data technology turns distributed data collection into formulaic reporting templates like CDP and into simple, interpretable charts and tables which can be used to identify hotspots, track initiatives and forecast performance.

A recent FootprinterTM deployment enabled the senior director for global EHS at a pharmaceutical company to have a report of carbon and waste performance, which he can drop straight into a slide for the leadership team on a monthly basis. Previously, he used to find this a monthly headache because it was impossible for him to collect and calculate at this frequency using their Excel tool.

So, what to do next?

Three things which I think we should all have on our minds as we slump into our chairs at the end of this season are:
1. Don’t stop now – you’ve collected all the data and done all the analysis. You should use the results!
2. Improvement and innovation should be the focus – if your method for calculating your impacts doesn’t let you track initiatives and identify the key areas for innovation, or takes so long that you can only deliver the total and move on, there may be a better way.
3. Scope 2 is getting harder – the new guidance means more detailed data collection and a lot more analysis. This is going to push a lot of Excel models to the brink.

Alan Spray is a senior analyst at sustainability consultancy group Anthesis

Why is it that inherently unsustainable oil and gas companies rank so well in sustainability indices, such as the Dow Jones Sustainability Index? Tom Idle explores a new approach to benchmarking - one that better understands how fit companies are to flourish in the future

Followers of solar pioneer and environmental activist Jeremy Leggett’s ongoing e-book serial, ‘The Winning of the Carbon War’, will be aware of the trends emerging on the frontline of the said-war against traditional fossil fuels.

The “tipping point in the demise of fossil fuel industries” that Leggett describes is certainly compelling. First, the cost of deploying renewable energy systems is falling. In fact, clean energy generation overtook conventional fossil fuel and nuclear installations globally in 2013.

At the same time, the cost of delivering hydrocarbons is rising. Drilling for shale is losing its appeal, with US shale companies going bankrupt, drillers losing money and assets being written off by the multiple billions. Last year saw the lowest rate of discovery of new oil and gas reserves in 20 years.

And then there’s the politics of climate abatement, which are showing signs of alignment. More than 100 countries now have a 2050 target to reach zero net greenhouse gas emissions. Even China has, for the first time, committed to cap its carbon output by 2030 while generating at least 20% of its energy needs using clean energy sources, such as solar and wind.

“Imagine yourself as the CEO of a big energy company, with these mega-trends playing out around you right now,” says Leggett. “Any one of these challenges would be bad enough to confront and face on their own. Facing them all at once is going to be tough and could trigger the downfall of the industry.”

Even the less avid followers of this shifting landscape will have struggled avoid the news that the heirs to the fabled Rockefeller oil fortune, who control around $860m in assets, withdrew their funds from fossil fuel investments last year as part of a wider divestment movement involving 800 global investors promising to remove $50bn worth of support over the next five years.

These waves of change serve up significant challenges for businesses to overcome - even if only a fraction of Leggett’s hoped-for future becomes a reality. Progressive organisations will ride these waves and flourish by creating new business models, reducing their dependence on natural resources and becoming energy-independent.

But many will collapse under the weight and sink.

So, how do investors assess which companies will sink or swim? As Carbon Tracker Initiative has spent the last few years pointing out, plenty of these assets could be left ‘stranded’, a term it uses to describe fossil fuel energy and generation resources which “at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return…as a result of changes in the market and regulatory environment associated with the transition to a low-carbon economy”.

Currently, stakeholders are at the mercy of numerous non-financial ratings and rankings systems, designed to give a better understanding as to which companies are performing best when it comes to managing their social and environmental impacts.
Amongst the best-known are Dow Jones Sustainability Index, the Carbon Disclosure Project and FTSE4Good Index Series. But the list of organisations - from media agencies and consultants, to asset managers and publishers - attempting to compare the sustainability performance of companies is long and wide. It includes the likes of The Global 100 Most Sustainable Corporations in the World, CR Magazine’s 100 Best Corporate Citizens List and Ethisphere’s World’s Most Ethical Companies list, to name just a few.

But how credible are these benchmarking exercises? And do people pay any attention to them?

According to research produced by SustainAbility and Globescan as part of its ‘Rate the Raters’ project - designed to shed some light on the universe of corporate sustainability ratings, and ultimately improve their quality and transparency - the answer is ‘yes’. When asked how much trust they place in certain players to accurately judge a company’s sustainability performance, rankings organisations are only beaten by NGOs in the perceived credibility stakes - and that trust has been steadily increasing.
Rankings and ratings clearly have a role to play. More than 60% of respondents said that ratings will be more important three years from now in driving improved corporate sustainability performance.

But not everybody is convinced. Geoff Kendall, a former director at SustainAbility, is one of them. “Of course, there is value in external validation; and companies pay attention to the likes of DJSI.

“But most of them focus on current best practice, and often at the level of individual sectors. You can get a very good score if you are performing better than others in your sector, even if you have a business model that is doomed to fail.”

Kendall points to the example of Thai Oil plc which achieved an 85% score on last year’s DJSI rankings. “I’m sure they are progressive within their sector. But in a world where we are needing to wean ourselves off fossil fuels, is it right that we are telling them they are 85% sustainable? Will that score encourage them to change their business model?

“It’s the very definition of ‘thinking inside the box’ and not thinking about whether that box is being slammed against the wall.”
The problem, as Kendall sees it, is the continued focus on “today’s best practice in favour of tomorrow’s required practice”. And it is a concern raised by the SustainAbility/Globescan research, with most respondents claiming that ranking credibility could be best be improved by focusing on the right issues. “You won’t get the full picture if all you look at is where you are relative to the unsustainable status quo. You need to benchmark yourself against a sustainable future.”

But what does this sustainable future look like - and how can companies understand how far away they are from being safe and secure in the knowledge that they will be a part of it? Kendall’s new Future-Fit Business Benchmark (FFBB) is designed to answer these questions.

Using the four basic principles of sustainable development originally devised by The Natural Step, the FFBB has created a series of 21 goals that companies can use to track their true sustainability progress. These include things like making sure all product and packaging materials are repurposed at end of life, and all staff are paid at least a living wage. A second public draft of the goals will be published this summer, along with a new online wiki inviting feedback that might lead for a refined final list. Then, by the end of the year, the goals will be supported by a list of KPIs that companies can use to assess how they are getting on in achieving them.
“It’s a line in the sand that any company, regardless of size and sector, must reach if it is to get an entry ticket into the future,” says Kendall. “Some of the goals might seem impossible to some companies. But they are only ‘impossible’ in the context of current business models.”

This line of thinking is not new; Wayne Visser’s Kaleidoscope Five-S Future-Fitness Framework, for example, is similar in scope. But the FFBB is a tool designed to be used on a wide scale. Companies won’t be charged to use the FFBB, but they will need to get third party assurance if they want to talk publicly about their progress (with Kendall happy to train up any consultant that wants to play the role of assurer). “We want 1,000 companies to use the FFBB within three years.”

So, what does the future hold for the well-established sustainability ratings organisations? Well, there’s nothing stopping them adopting the FFBB goals and KPIs, says Kendall, while acknowledging the struggle ahead in encouraging companies to transition to a new sustainability scoring methodology. “If a company has consistently been scoring an 80% sustainability score and another organisation comes along and paints a truer picture that says it is more like 20%, they might want to stick with their original ratings organisation.

“But you only have to look at the wave of unacceptability that is beginning to break, with the divestment movement and talk of stranded assets. This can only help investors get ahead and ride the waves too.”
 

A white paper published from Generation Foundation (‘Foundation’), the advocacy initiative of Generation Investment Management (‘Generation IM’), a boutique investment firm with public equity, growth equity and global credit investing strategies founded in 2004, reasserted this summer the “ever-stronger business” case for Sustainable Capitalism. It’s not just a nice thing to pursue but fundamental to investment returns, which a raft of research supports.

Building on their previous report on Sustainable Capital in 2012, Foundation’s latest 24-page paper titled ‘Allocating Capital for Long-Term Returns: The Strengthened Case For Sustainable Capitalism’ (May 2015), makes a number of recommendations on how both the business and financial community can “better allocate capital to ensure long-term growth and outperformance”.
The Foundation, which was established alongside Generation IM, has been pursuing a strategy over a many years to “mobilise” asset owners, asset managers, companies and other financial market participants in “support of the business case for Sustainable Capitalism and to persuade them to allocate capital accordingly”.

Al Gore, former US Vice-President under Bill Clinton and Generation IM chairman, commenting at a briefing in London to accompany publication of this latest paper said: “The importance of sustainability to business and investing has intensified as financial markets are forced to address challenges posed by the realities of natural resource scarcity, the effects of unabated carbon emissions, rapid urbanisation and widening wealth inequality - to name just a few.”

The paper sets out to demonstrate how an “evolved model for capitalism”, in which business and capital seek to maximise long-term value creation, has gained significant momentum, and is increasingly supported by new research and performance metrics. Indeed, both the academic and real-world evidence increasingly demonstrates how the full inclusion of sustainability factors in economic decisions translates into better outcomes.

Evidencing this, Harvard Business School’s recent investigation (Corporate Sustainability: First Evidence on Materiality (Working Paper, 2015) has shown a “tangible link” between a firm’s integration of material sustainability issues and enhanced shareholder-value. Elsewhere, a meta-study from the University of Oxford (Sept 2014) in partnership with Arabesque Partners, collated findings in the area from over 190 of the premier academic papers, industry reports, newspaper articles and books.

The paper also highlights three core integrated ideas that investors, asset owners, corporate executives and boards will need to adopt in order to successfully allocate capital for long- term success. These ideas cover: (1) Price carbon in all capital allocation decisions; (2) Use sustainability analysis to enhance investment frameworks; and (3) Upholding the full remit of fiduciary duty whereby investors and companies have a “fiduciary duty to include sustainability into decisions”.

They are also strongly connected to the themes forming the “bedrock of Sustainable Capitalism”, which include decoupling prosperity from resource-intensive growth; revising investment time-horizons to target sustained value creation beyond quarterly profits; and, integrating sustainability factors into strategic decisions and asset valuations.

David Blood, Senior Partner at Generation IM sitting alongside Mr Gore at the briefing said: “Implementing the recommendations outlined in this report could radically transform the global economy by 2020. Financial markets would incorporate the price of externalities that are currently treated as nearly free resources, like unabated carbon emissions and water, and allocate capital accordingly.”

He added: “Asset owners, asset managers and companies would, in the process, adopt a more holistic definition of fiduciary duty - one which incorporates sustainability and shapes investment frameworks as a result. In so doing, investors should successfully build profitable investment positions for long term gain, while helping to mobilise action towards addressing urgent sustainability issues.”