Social media thrives on compelling storytelling, and chances are that your sustainability efforts have the capacity to pull on your audience’s heartstrings better than another post promoting your product or service.
When planning your sustainability messaging strategy, social media might not be top of mind. After all, social media is inherently fun and friendly, whereas sustainability is traditionally dry, corporate and nuanced. However, as consumers, employees and investors are increasingly understanding the value of sustainability, the appetite for these stories — as well as the platforms from which they are shared — have grown and evolved. Publishing a dense and technical report that’s buried somewhere on your corporate website is no longer enough — you must seek out new communication channels and new ways of telling your story to reach your growing audience, and that includes social media.
We all know that B2C companies can find success in the world of likes and shares, but what about B2Bs? While B2B companies are a bit late to the game, a survey by Omobono revealed that 79 percent of B2B marketers rated social media as their most effective marketing channel. Still, one of the greatest challenges B2B companies face on social media is developing rich, engaging content. Without an interesting, sexy product to sell, how can a B2B company compete against the Coca-Colas and Patagonias of the world in the over-saturated social media space?
This is where sustainability content comes into play. For B2B companies, in particular, sharing your sustainability story on social media is an opportunity to share compelling content and create an emotional connection with your audience. It pushes your social media narrative from what you’re doing to why you’re doing it — which is the story your audiences really want to hear.
Social media thrives on compelling storytelling, and chances are that your sustainability efforts have the capacity to pull on your audience’s heartstrings better than another post promoting your product or service. Social media also gives you a platform to cherry-pick those inspiring stories from your dense sustainability report and put them in front of an audience who cares. Finally, talking about your sustainability priorities on social media allows you to join a larger conversation about the issue at hand, while positioning your company as a thought leader.
Below are some tips for creating a social media strategy that sticks.
Start with social listening.Don’t just blast your initiatives all over social media and hope it resonates. Seek out discussions that are already happening surrounding your broader cause and determine how your company fits into the larger conversation. This will also allow you to make connections with people who are already engaged.
Ladder up to a singular, overarching focus, connected to business goals. Just as you should take a holistic approach to your sustainability strategy with each initiative supporting an overarching goal, every social media message you publish should ultimately help address a broader issue you are aiming to solve that is material to your business. A good place to start is by leveraging your communications framework, which can help define your content pillars and help you hone in on how they all fit together under one focus. Be clear with your overall focus, as wavering between causes and using non-committal language will weaken your narrative. In this era of transparency, audiences are quick to pick up on — and call out — inauthentic content.
Don’t showboat your efforts or publish self-serving content. Follow the 80/20 rule, in which 80 percent of your content inspires, educates or entertains your audience, while the remaining 20 percent directly promotes your business. Instead of focusing only on your own initiatives, share inspirational stories aligned with your cause, which will help position you as a thought leader. When you do share your efforts, avoid being boastful and tie it back to the broader cause. Always remember to communicate the why instead of the what.
Incorporate sustainability messaging with overall content. While there some exceptions, we typically do not recommend creating separate social media handles for your sustainability content as this fragments your messaging and may leave your audience with the impression that it’s not an important topic. Instead, integrate sustainability with your primary social media accounts and ultimately, your overall brand narrative. Always remember that your sustainability strategy should align with your existing business strategy.
Showcase human stories and build upon emotions. Save the statistics and data for your sustainability report. Social media is an opportunity to humanize your business by delivering compelling, human-centered stories that demonstrate your impact. Emotions trigger engagement, which increases your reach and strengthens the connection with your audience. The key is to share authentic content and reflect your true emotions.
Use social media as a platform for positive change. Social media is all too often perceived as a force for negativity, but it also presents businesses with a tremendous opportunity to use their influence to catalyze positive change. Instead of using social media solely as a platform to promote your efforts, be a leader and seize the chance to inspire a movement and rally others behind your cause.
Social media and sustainability are both ongoing projects that depend on the values of community, transparency and collaboration, making them a natural fit.
Sustainability addresses global issues and social media addresses a global audience, simultaneously allowing companies to share their progress in real-time and engage directly with those affected. When used effectively and ethically, social media and sustainability have a collective ability to empower a company to drive substantial change through garnered stakeholder support.
Sustainability reporting and ESG disclosures are evolving at an accelerating pace around the globe, and investors are increasingly using this information to inform their decisions. The Task Force on Climate-related Financial Disclosures (TCFD) recommendations, the codification of the Sustainability Accounting Standards Board (SASB) Standards, and a new draft standard from the Global Reporting Initiative (GRI) on tax and payments to governments are increasing the reporting demands on companies.
According to the Financial Times, there are at least 230 corporate sustainability standards initiatives across more than 80 sectors. Some believe this is way too many and that it’s leading to confusion for investors, stakeholders and companies alike. Hans Hoogervorst, Chair of the International Accounting Standards Board (IASB) cites the example of Tesla, which is ranked highest on the sustainability index of MSCI, while FTSE ranks it as the worst carmaker globally on ESG issues.
Indeed, with growing evidence small and medium sized companies are struggling to understand and adopt sustainability reporting, Christine Lundberg Larsen, CEO of Regnskap Norge said, “We really need to develop the accounting standards on non-financial reporting so that it’s not just the bigger companies reporting, but everyone.”
Calum Revfem, Executive Director of Proxima and New Zealand’s leading sustainability and integrated reporting specialist, gave reporting newcomers the advice, “If you’re new to sustainability reporting, don't try to reinvent the wheel – look to the leaders and model best practice. Then ask the fundamental question: why are we doing sustainability reporting? Hopefully it’s to be accountable and drive systemic change – if not, it's just another communications exercise.”
Hanne Thornam, Head of Climate Change and Sustainability Services at EY Norway, told the gathering, “Sustainability reporting is evolving rapidly. During the last few years, we’ve seen an increasing focus on a company’s impact irrespective of its effect on the bottom line,” and advised the gathering to “Get a complete view of your impact and assess it in perspective of the SDGs and planetary boundaries, and then do the strategic assessment with this as the starting point.”
You must materialize to sustainalize
The opening session of Sustainability Hub's Sustainability Reporting 2019 explored materiality and stakeholder dialogue. Materiality assessment is the process of identifying, refining and assessing potential environmental, social and governance issues that could affect your business and/or stakeholders, and condensing them into a shortlist that informs company strategy, targets, and reporting.
KPMG’s publication, The essentials of materiality assessment provides some valuable tips for conducting a materiality assessment and describes the seven key steps shown in the figure below.
Anette Rønnov, Director Sustainability Services, explained how at KPMG Norway, “We believe that the companies which fully consider how sustainability topics interrelate with their business strategy, and develop sustainability materiality processes that link with the wider enterprise risk management process, will be in a better position to inform investors, regulators and other stakeholders on their environmental, social and governance impacts, risks and opportunities.”
Energy giant Equinor is an example of this. Its Principal Sustainability Analyst, Øystein Kolstad, explained how “Equinor has sustainability embedded in our values, business model, strategy and governance,” and also revealed how, “According to CDP (formerly known as the Carbon Disclosure Project), we are the oil & gas company best prepared for a low carbon future.”
Broadening the conversation, Anette Rønnov said, "Materiality assessment should be used as a strategic business tool, with implications beyond corporate responsibility (CR) or sustainability reporting. Organizations can get most benefit from their materiality process by using it as an opportunity to apply a sustainability lens to business risk, opportunity, trend-spotting and enterprise risk management processes.”
Similarly, Hanne Thornam, explained that “Materiality assessment needs to be a strategic exercise too, and you can’t just use GRI to find strategic risks and opportunities. Assess what stakeholders will care about in the future, which regulations can affect your business model, how technology and markets will change, and how you can be part of a low-carbon future.”
Hydro and Equinor are among the sustainability reporting leaders in corporate Norway. Kirsten M Hovi, Vice President and Head of Extra-Financial Reporting at Hydro, underlined how “A sound materiality analysis reveals what is most relevant to report and as such is fundamental to any financial and extra-financial reporting.”
Øystein Kolstad described how “Thorough materiality analyses involving all our stakeholders concluded that safety and climate change are the two most material sustainability aspects for Equinor. In addition, human rights became an increasingly important issue in our 2018 sustainability report.”
Purpose and people
With discussions flowing into the subjects of purpose and stakeholder engagement, Astrid Thommessen Sæbø, Chief Financial Officer at SAP Norway, presented how SAP works with sustainability and integrated reporting based on SDGs and the GRI G4 financial reporting guidelines. SAP conducts semi-structured interviews with multiple stakeholders to determine which efforts to prioritize to increase employee engagement and customer loyalty.
Thommessen Sæbø said “To assess and monetize the interdependency between non-financial factors including sustainability, business health and employee retention, SAP constantly refines its approach to materiality.” Suggesting that “The new materiality revolves around how to build customer loyalty and employee engagement,” she mentioned how “Our research indicates that particularly for the younger generations in the workforce, purpose is key for their willingness to engage in a business relationship with SAP.”
Having measured that a 1% increase in its employee engagement will mean a EUR 50-60 million increase in operating profit, SAP has quarterly sustainability targets for all employees and makes local impacts visible to them, stimulating engagement and providing insights they can act upon.
Tech, tools and thresholds
The following session looked at fundamental changes in reporting technologies and frameworks. Alexandra Pittman, Founder and CEO of the B Corp ImpactMapper, described how this online tool helps donors, nonprofits and impact companies to track and visualize their social impact. “To move the world towards achieving the SDGs, and assess our progress along the way, we need a crystal clear impact framework and metrics. The same can be said for sound strategic decision-making and reporting,” she suggested.
Pittman said "Corporates and impact investors are showing increasing interest in intelligence from sources other than KPIs, quantitative and financial data,” going on to explain how, “Insights from philanthropic enterprises and impact conversations can inform corporate business and catalyze vital conversations around sustainability.”
Astrid Fellingham, Development Manager at the Future-Fit Foundation, suggested “To be a truly sustainable company, you must understand the social and environmental thresholds you need to reach and have a reporting and management framework to track progress towards them.”…
Future-Fit Foundation is best known for its Future-Fit Business Benchmark, a free tool to help companies and investors transform how they create long-term value, for themselves and society. Fellingham described how the benchmark can “enable companies to talk about both positive and negative impacts in a credible, concise, holistic and comparable way which reveals the whole picture.”
Reading between the lines
The final panel discussion, moderated by Anette Rønnov, introduced perspectives from readers of sustainability reports. Those of us who have ploughed through reports to drill down into materiality and performance would agree with a participant who urged companies to “Focus on what is material! Otherwise it is easy for the reader to not see the forest for the trees.”
Kjell Kristian Dørum, Senior Advisor at the Norwegian Pension Fund Global’s Ethics Council, said “From our perspective, the most important issue for corporate reporting is being open about sustainability-associated risks and challenges and being concrete and transparent about how they are handled.”
Analyst Laura Natumi McTavish explained how DNB Asset Management assesses a business for positive impact using four pillars: standard setting, exclusions, active ownership and ESG integration.
Anette Rønnov described how, “Rather than creating a separate, isolated process, leading companies embed sustainability within existing core processes,” and suggested Equinor and Hydro as examples of companies that have sustainability cemented in their corporate strategy, something which is reflected in both their annual reports and their reporting on strategic goals — as the illustrations below show.
Kirsten M Hovi, Vice President and Head of Extra-Financial Reporting at Hydro, said "The correct reporting tools are essential. Hydro uses the GRI Standards, and through the GRI Index we show how our performance is linked to the Sustainable Development Goals, the UN Guiding Principles on Business and Human Rights (UNGPs) and various industry initiatives, etc.”
Despite Hydro’s lengthy experience -- sustainability reporting since 1989; first materiality analysis in 2004; used GRI guidelines (now GRI Standards) since 2003 – they are still learning.
“We are a signatory of the Task Force on Climate-related Financial Disclosures (TCFD) and have been reporting using their guidelines since 2017. An important step forward for us now is to develop relevant scenario analyses,” Hovi explained.
If TCFD scenario analysis is a stretch goal for Hydro, a general development point for Norwegian business was suggested by Dan Jakob Wangen, Senior Consultant Climate Change and Sustainability Services at EY Norway: “In Norway, first time reporters are generally good on doing thorough materiality assessments. The development point is making reporting an iterative process, revisiting it yearly as factors change: materiality is not fixed but evolves as you change focus or strategy.”
2019: a good year
Reflecting upon Sustainability Hub's second Sustainability Reporting Seminar, its Executive Director, Andreas Friis, concluded, “The discussion was much more advanced than 2018, suggesting that the experienced players are maturing fast, but there is still room for improvements. We are particularly pleased to see that sustainability has become more important for CFOs and C-level executives and to see more integrated reporting that goes beyond focusing on a few specific indicators.”
Calum Revfem, Executive Director, Proxima, who was also impressed by the knowledge of the Norwegian gathering, rounded off with, “Many companies approach sustainability reporting and strategy as modular, singular tasks, but this doesn't address the interconnectivity of the core challenges. You need an overarching model of sustainability to go beyond piecemeal, do-less-harm actions to a vision of ‘how can we create abundance and value?’”
Overview of reporting in New Zealand here
S-HUB hosted its third annual Sustainability Reporting Seminar 2019 on 24 April. This sold out half-day conference was a deep dive into sustainability reporting in Norway covering the following topics:
Below are the presentations and the photos from the seminar. Click here for an article about the key takeaways.
Session 1 - Materiality and stakeholder dialogues
Introduction to materiality and stakeholder dialogue - trends and best practices
Hanne Thornam, Head of Climate Change and Sustainability Services, EY Norway and Dan Jakob Wangen, Manager - Climate Change and Sustainability Services, EY Norway
Calum Revfem, Executive Director, Proxima
Presentations of companies' reporting on materiality
Kirsten M Hovi, Vice President and Head of Extra-Financial Reporting, Hydro
Øystein Kolstad, Project Manager Sustainability Reporting, Equinor
Astrid Thomessen Sæbø, Chief Financial Officer, SAP Norway
Session 2 - Fundamental changes to reporting - technologies and frameworks
Alexandra Pittman, PhD, Founder and CEO, ImpactMapper
Astrid Fellingham, Development Manager, Future-Fit Foundation
Session 3 - Readers' perspectives of sustainability reports
Kjell Kristian Dørum, Senior Advisor, Etikkrådet for Statens Pensjonsfond Utland
Laura Natumi McTavish, Analytiker, DNB Asset Management
Design has been and still is, a part of the problem when it comes to the state of our planet and lack of sustainability in business. Do you know that the choices made during the design phase of a product or service account for 80% of the sustainable impact of the solution during the solutions life cycle?
It’s our responsibility to act
As designers, we have a moral and ethical obligation to question the sustainable impact of the business offerings, products and services we craft. If the future of business and society is to be more sustainable, we as designers must step up and take responsibility for the products and services that we are involved in crafting.
Waste and pollution are not accidents, but the consequences of decisions made at the design stage, where around 80% of environmental impacts are determined. - Ellen Macarthur Foundation
Perfectly positioned to influence for a triple bottom line
The beauty is that as designers we hold the key to a more sustainable future! As we are an active contributor during the innovation phase of a product or service life cycle, we are perfectly positioned to inform, inspire and support our clients in making choices that support a circular economy and are favourable for the triple bottom line; for business, people and the planet.
We as designers must infuse our knowledge, our motivation and design-thinking skills using sustainability as a driver for innovation.
My colleagues in EGGS Design have contributed to the design of Loadsmart, a US-based tech company that offers full truckload shipping by connecting shippers with carriers through their online platform. Their efficient service has resulted in the reduction of empty miles (empty trucks) the equivalent of 700 000 tons of CO2 emissions annually. Moreover, the business is thriving! That's the triple bottom line for you.
People-centric to design sustainable use-cycles
Being user-centric at heart we can use design thinking to craft solutions that cater for sustainable use. We can craft solutions and systems that inform and empower people to live more sustainable lives, incorporating nudging to influence their behaviour to more often choosing the more sustainable option. Incorporating feedback on sustainable action will further encourage users on their quest for a more sustainable lifestyle.
Our friends in Ducky.Eco delivers a range of climate mitigation tools in the form of an app that educates and mobilise employees in organisations to take direct action on carbon targets. Based on world-leading climate and behavioural data, Ducky’s set of live climate competitions influence user-behaviour in realtime, providing immediate feedback for the users. Check it out.
The tools to get you designing for a sustainable future
Do you want to contribute to a more sustainable future through more sustainable business strategies? A good start can be to explore the free resources on The Circular Design Guide created by the Ellen Macarthur Foundation and IDEO.
The resources will help you embed circular design thinking, enabling you to re-think value creation to develop more circular products, services and resilient, feedback-rich organisations. The excellent workshop material will get your conversation started.
Remember, to contribute to a real longterm shift towards a better future you must integrate sustainability as a driver for innovation.
Circular business strategies
How can you find better ways to meet user needs that are also better for the planet, people and society? Download the 1-hour workshop material for Circular Strategies and reflect with your client how they can find different or better ways to meet user needs by applying a circular approach.
Sustainability is not only good for business. It is good business
What about spending a couple of hours looking at the opportunities that lie between organisations? Collaboration in a new circular joint venture can be so much more impactful than for a business to be advancing on their own. Design a sustainable business from scratch!
Materials fit for a circular economy
Doing product design? Take your current design project and spend an hour or so assessing if the materials you have suggested are suitable for a circular economy. What more sustainable options can you recommend to your client? Help them make the right choices!
For Henning Olsen Is, my colleagues have designed their new ice-cream packaging. They’ve focused on reducing the material thickness and overall plastic usage and contributing to better logistics (reduce CO2 emission) by increasing the number of cartons on each Euro pallet by 30. Also, they've improved stacking in commercial freezers increasing the utilisation by 18% and enabling 10% more visible to customers.
We can’t keep wasting resources. Products and materials must be kept in the economy. We can design some products and components so they can be reused, repaired, and remanufactured. However, making things last forever is not the only solution. When it comes to products like food or packaging, we should be able to get the materials back, so they don’t end up in a landfill. - Ellen MacArthur Foundation
We’ve taken a stand on sustainability
At my work, in EGGS Design we have taken a stand on sustainability. By 2022 our goal is to be able to document positive, sustainable effects for 80% of our projects. We don’t hold the answers to all the big questions, and we certainly have a long way to go. However, we have some directions that we know are right and some that we know are wrong.
Taking action – a project at a time
It's all about embracing the mindset and goals of a sustainable future, asking the questions, participating in the conversations, taking on projects and exploring the possibilities of designing for a better circular economy and a triple bottom line. One a step at a time.
Please join us on this movement - Let’s craft lovable futures!
Congratulations on the International Design Day on April 27!
This article originally was published on the EGGS Design website. You can access it here.
Is sustainable, purposeful and profitable business possible? What are the strategies and business models that deliver it?
If you want to be a future-fit organization or company, these should be burning questions. They certainly are for the 70 executives, entrepreneurs, consultants and academics from leading private sector and civil society players who recently attended Sustainability Hub's Sustainability Strategy Summit.
The Summit’s opening session explored how, although sustainability remains a hot topic in business and many organizations strive to integrate it into their operations, others reduce it to a PR campaign or the marketing of a new product line and are sometimes met with accusations of green-washing.
Purpose as a strategy for a sustainable future
Micael Johnstone and Adam Lowenstein, from the EY Beacon Institute (EY's corporate purpose strategy hub) shared some of their knowledge of purpose-driven strategy, decision-making and innovation and the links with sustainability.
Micael both underlined that “to realize purpose and sustainability you have to accommodate and integrate a broad spectrum of potentially conflicting agendas and take a holistic helicopter view,” and warned against "purpose and sustainability being often high on the priority list but low on the to-do list.”
Adam urged us to be aware of the ‘say-do-gap’ between visions in the C-suite and implementation in the organization: “You need leadership at the top and buy-in throughout the organization. Every member of the workforce should see purpose in their day-to-day experience.” He also reminded us not to expect purpose and sustainability to always create win-wins: “To do the right thing, you may sometimes have to sacrifice profit and growth in the short-term!"
Their colleague and Supervising Associate at EY Beacon, Allison Dunne, added, “To implement purpose, strategy and sustainability in an organization you have to engage internally across the board, in addition to addressing stakeholders such as governmental and educational institutions.”
Sustainability champions as change-makers
The following session looked at sustainability champions and how they make change happen in their organizations. Erlend Aas Gulbrandsen from the Inland Norway University of Applied Sciences revealed findings from his PhD on sustainable business model innovation.
It was startling to hear an academic tell the gathering “In our current situation, we must move from the pursuit of knowledge through hard science to unapologetically tinkering and experimenting in order to generate know-how in the field of sustainability.” Erlend urged all to support and learn from “sustainability champions who make change happen by improvising and innovating their way to everyday best practices.”
How to integrate sustainability with strategy?
The final session focused on two companies that work with sustainability as a strategic priority. The food industry is fast becoming a hotspot for sustainable business and product innovation, as was demonstrated by a lively keynote from Kaj Török, Chief Reputation Officer and Chief Sustainability Officer at MAX Burgers, a fast-food chain committed to developing climate-positive operations -- and burgers.
MAX Burgers investigation into the carbon footprint of its entire supply chain impressed the gathering and produced some surprising results. Kaj quipped that the company “has ‘a beef’ with our own beef, even though it’s our ‘cash cow’, because it accounted for 53% of our carbon footprint in 2017!”
Emphasizing that “Humanity has already emitted so much carbon into the atmosphere that reducing emissions is no longer enough,” Kaj explained how MAX Burgers not only strives to reduce its carbon footprint but also offsets the CO2 equivalents of 110 % of all its greenhouse gas emissions. To the surprise of many, he revealed that the cost of this ambitious goal is “just 0.25% of our turnover.”
Recently appointed as Sustainability Manager Norway and Iceland at fashion giant H&M, Ina Vikøren came from positions in the World Wildlife Fund and the Norwegian Environment Agency. She described herself as a “corporate hippie” who used to boycott H&M until realizing how much it works with sustainability and how ambitious its strategies are. Consequently, Ina is keenly aware that “We experience a considerable perception gap regarding our sustainability performance. The corporate world recognizes our initiatives and leadership, but Norwegian consumers generally do not.”
There can be no doubt regarding H&M’s ambitious goals, with it aiming to be 100% circular, 100% renewable and 100% leading the change towards a completely sustainable fashion industry. Ina, who explains, “H&M considers sustainability as just good business, which is why we are innovating our entire business model around it,” describes a dual strategy aimed at moving the fashion industry towards sustainability: “You need positive and negative incentives, so we support both collaboration to increase the ‘size of the cake’ and transparency to reveal each players performance.”
After a half-day program of keynotes, panel debates and interactive dialogue, there was a real sense of urgency. Many present supported a speaker’s hypothesis that sustainability people are the “canaries in the coal mine” that organizations seeking sustainable operations urgently need to listen to in order to change their practices.
Likewise, after diving into the latest research on the relationship between purpose, strategy and sustainability and discussing sustainable business models from industries as diverse as fashion and food, the buzz of optimism was palpable.
Adam Lowenstein concluded, “We are all trying to create a better way of doing business. Whether you call it sustainability, long-term value or purpose, it’s about serving and being responsive to the needs of society.
Check out this fantastic EY long-read on how integrating sustainability into a company’s core strategy can future-proof business.
See presentations from the Sustainability Strategy Summit here.
While sustainability remains a hot topic in business in Norway and abroad, it is often reduced to a communication effort or the marketing of a new product line. Although many companies are making valiant efforts in integrating sustainability into their strategy, accusations of greenwashing abound, and satisfying explanations of how companies can become sustainable while remaining profitable remain elusive.
The first-annual S-HUB Sustainability Strategy Summit sought to address these questions, and at present the latest research on the nexus of purpose, strategy and sustainability, several leading company examples, and be involved in interactive problem solving together with the other participants.
Below you will find a summary of the event hosted on March 13 at Litteraturhuset.
Purpose as strategy – How do leading companies embrace purpose for a sustainable future?
Sustainability as practice. On sustainability champions and how they make change happen in their own organizations
Erlend Aas Gulbrandsen, PhD candidate, Inland Norway University of Applied Sciences.
What challenges do companies face when integrating sustainability in their strategies?
Kaj Török, Chief Sustainability Officer, Max Burgers
Group discussions on applying new approaches to sustainability strategy to concrete case examples
Learnings from some of the event's participants.
We’re barely one month into 2019, but it certainly feels like more than that. Between the U.S. government shutdown, a viral and controversial new Gillette ad inviting men to work on toxic masculinity, the EU passing a ban on a range of single-use plastics, the mind-blowing and thought-provoking glimpses of the future at the annual Consumer Electronics Show, a major new study finding that that oceans are warming 40 percent faster than many scientists had previously estimated, the now-brilliant-now-stuck-in-outdated-thinking dynamics in Davos, never-ending Brexit drama, the Ocean Cleanup system breaking down and being towed back to port for repair, humanity sitting at “2 minutes to midnight” on the symbolic Doomsday Clock, the 10-year challenge on social media, a series of reports on breakthrough new biomaterials, and many other stories big and small — a lot has happened in just a few short weeks after we rang in the new year. And a TON more will no doubt unfold before our eyes over the coming months, given the VUCA (volatile, uncertain, complex and ambiguous) world we now live in.
In the midst of all the good, bad and ugly types of news, 2019 is also the year the global Sustainable Brands community is entering the 3rd phase of our Good Life initiative – the courageously optimistic quest to understand how society defines the Good Life of tomorrow and then pull together the best existing know-how and leadership carving the way forward toward redesigning business practices, products and services to actually deliver the Good Life in question. To that end, and given the context set above, we are dissecting a number of big open questions that could either speed up or slow down this quest toward Delivering the Good Life. Here are the 3 questions I would place at the top of that list:
1. Will companies move fast enough on climate and make the most of new partnership opportunities?
The most recent scientific studies on this have clearly indicated that the next 12 years will be critical in terms of getting our collective act together on climate. Given the political gridlock in the U.S. and other government ineffectiveness in many places around the world, business must lead on climate. And while 515 companies have already joined the Science Based Targets Initiative, and some have committed to doing their part in other ways, thousands of businesses haven’t yet stepped up to the appropriate level of action. This is why it’s critical for all corporate sustainability leaders to clearly understand how to set and reach science-based goals, and then share best practices with their peers, suppliers and partners. In 2019 we expect to see increasing pressure up and down the value chain in many industries – downstream brands incentivizing or even pushing their supplier to decarbonize faster, for example – along with a variety of new opportunities to collaborate across sectors toward the common goal. It’s encouraging to see the progress of initiatives like District 2030, in which cities are taking bold steps, often in partnership with or financially supported by big brands. We hope to see a lot more decisive action and creative collaboration.
2. Will brand purpose continue to rise and thrive, in light of persistent challenges and misconceptions?
Positive brand purpose has been trending for a few years now, but it’s reaching qualitatively new highs and tipping points lately. With a majority of business leaders agreeing that purpose is an essential factor for business success going forward, Millennials and Gen Z overwhelmingly naming it as a must-have for a meaningful job and life, and some of the biggest investors demanding it, it is no longer seen as a rebellious act, a privilege or an isolated phenomenon for a select few ‘Unilever types.’ A number of Fortune 500 brands have gracefully defined or re-defined a positive-impact purpose and are now working to embed it properly within their entire organizations and activate it through innovation and storytelling. Others are scrambling to catch up and ‘bolt it on’, often not so gracefully, in need of appropriate leadership and partners to improve. And of course, there is an ever-growing wave of next-generation social and environmental entrepreneurs, from B Corps to craft brands of all sorts, boasting breakthrough business models and leadership from day one. We’re also seeing growing connectedness and collaboration between old and new, with the old guard increasingly supporting their purpose journeys by acquiring, incubating and accelerating the new generation.
All is not well and good for brand purpose, however, seeing as there are certain persistent challenges and misconceptions about it. This became particularly evident through the backlash that Gillette’s message on toxic masculinity is experiencing – it’s surfacing a lot of cynicism and suspicion from consumers and media pundits alike. At the center of this thread of criticism are questions around the suspected conflict between purpose and profit, ‘gotcha’ attitudes using past or current company missteps as a predictor for future behavior, as well as guilty-until-proven-innocent views based on historical lack of trust. This brings us to…
3. Will business leaders improve current perceptions around authenticity, ethics, and transparency?
It cannot be overstated how critical authenticity, ethics and transparency are to purpose-driven leadership. New research studies on this are finding a lot to be desired with respect to existing gaps in transparency and companies’ perceived moral compass, which unsurprisingly fuels some of the skepticism and lack of trust described above. For example, new research by HIP Investor reveals that many major corporations are not reporting on categories as basic as GHG emissions and gender equality – only 53% of S&P 500 companies are currently fully disclosing GHG emissions and just 31% are reporting on the share of women in managerial positions. A GlobeScan survey across 23 countries ranked honesty at the bottom of the list for how companies perform, with just 14% approval of current levels of corporate honesty.
Understanding who your business affects and how they affect your business is key to long-term success. If you only focus on customers, you are falling way short. To truly take your business from local to national and on to global levels, you have to consider all the ways your company interacts with the world around it and, most importantly, what stories you are telling.
Stakeholders and sustainability
Stakeholders are looking to invest (whatever that investment might look like) into a well-run, profitable company that is ambitious and moving forward. Sustainable investing is on the rise and more than that, companies that invest in managing their resources show higher investment returns.
When we take a step back from the ‘feel-good factor’ of sustainability and think about it from a governance perspective, we can see what is so obviously true. We know that good governance leads to higher performance in a company and by demonstrating that you are able to run your company with solid, integrated reporting on your financial and non-financial KPIs, you can demonstrate to your stakeholders just how well-positioned and efficient you are.
With a new wave of financially independent millennials on the rise, we have to accept that they are going to be controlling the wealth of future generations. When they’re looking to invest in companies, those that show a clear consideration of their impact on the environment and society around them will be more attractive.
A business case can be made for sustainability, not just from a future-proofing standpoint:
“Investors engaging in sustainable, responsible and impact investing . . . rely on information like a company's energy emissions, employee policies or executive pay structure to better evaluate the long-term health and future financial performance of their investments. Many are broadening their focus to include corporate governance, invoking investing's fundamental tenant — diversification — as one measure of a board's ability to minimize risk and maximize shareholder returns.”
— Peter T. Grauer, chairman of Bloomberg LP and co-founder of the U.S. 30% Club, excerpted from Investment News
What do your stakeholders want to know?
Ultimately, stakeholders want to know what kind of company they are doing business with. One of the key indicators for a public company's success is their quarterly earnings reports. These only measure one thing, though: bottom-line profit. The reports don’t show how the company got its revenues, or just how much it affects the share price.
In 1994, when John Elkington coined the phrase 'Triple Bottom Line,' it kickstarted a revolution of business owners that didn’t want to be held hostage by a 90-day profit cycle. Instead, those who wanted to consider the environmental and social impacts of their work could add a ‘bottom line’ figure to report on.
Today, we see many different ways this has developed, from advances in reporting by organizations such as the Global Reporting Initiative or Integrated Reporting, all the way to the growing movement of companies becoming certified B Corporations.
With the planet running out of resources, it has never been more important that we start to look at new ways of doing business. We are investing more than ever in reporting our sustainability efforts and we know that it’s what our stakeholders want, as well.
The question now is how you take all of the data you use to create your reports and make it accessible — and meaningful — to your stakeholders.
How to tell your story
The ability to control the narrative of your company in the eyes of your stakeholders is incredibly important for efficient operations, investment potential and growth plans. We recommend a very simple process for ensuring that you are using the right stories from within your company to drive conversations:
Sustainability, put simply, is the ability to manage your resources so that you don’t use more than you put back. If you are doing great work towards a more sustainable future for your company, then why not tell the world? Be part of a wider conversation that will drive more revenue to your bottom line while carefully managing our shared resources.
The investing landscape is evolving, and asset managers must adapt their practices in response to a general trend toward passive management.
Active management holds a significant market share of assets invested, a total market value of approximately US$10 trillion, compared to the close to US$6 trillion in passive management, according to Morningstar.1 However, the investing landscape continues to change rapidly, and the trend toward passive management is accelerating. In fact, “in the past four years, passive investments have gone from one-fifth of long-only assets under management (AUM) to one-third today,” according to Bloomberg.2
Environmental, social and governance (ESG) investing can help active managers differentiate their offerings, and ultimately offer greater value to investors. As the investment landscape continues to evolve, institutional shares, retirement shares and platform/wrap-up programs are expected to surge. Given these predictions, active managers should consider ESG as a means of creating wealth for their investors. By incorporating ESG strategies into their mix, asset managers can differentiate from passive management strategies by enabling clients to customize their portfolios based on their needs and preferences.
The rise of ESG investing
Sustainable investing has experienced remarkable growth over the past half-decade. Almost US$9 trillion, or one-fifth of all AUM in the United States, is now invested with ESG considerations, according to the US SIF.3 This number represents a 33% increase since 2014. A study by Calvert Research and Management found a positive link between corporate sustainability efforts and financial performance, which suggests that adoption and implementation of sustainable business practices can create efficiencies that increase shareholder value and mitigate risks.4
Several trends have emerged as a result of the continual growth of sustainable investing and the shifts in the investing landscape:
There is more than one way sustainable investing can be integrated into a portfolio, so active managers may benefit from greater flexibility in meeting individual investment goals. ESG-focused passive investment products exist, but they cannot be tailored specifically to meet investors’ values. Through adoption of sustainable investing practices, active managers have the opportunity to both mutually enhance returns and increase rigor in risk management.
Adopting an individual ESG product or tool alone will not suffice to future-proof against the rise of passive investment. A holistic go-to-market offering will allow active managers to use their unique position of understanding investor needs to create a robust investment strategy. A robust offering should embed sustainability throughout the business practice, including: (1) leadership governance; (2) an ESG-focused investing strategy; (3) tools; and (4) reporting.
1. Promoting ESG investing through leadership governance
Delivering any effective and successful go-to-market offering requires a well-established framework and leadership governance. An individual ESG product or tool may provide an investor access to the market, but a new go-to-market offering with a leadership-driven strategic vision will enable active managers to meet investors’ needs and drive an increase in AUM.
Understanding the importance of a clear strategy and vision, JP Morgan Asset Management formed a leadership framework to develop a sustainable investing strategy and help investors achieve their ESG investment goals. This framework is called the Sustainable Investment Leadership Team (SILT), consisting of “senior leaders, portfolio managers and client advisers at JP Morgan AM and led by the joint head of strategic product management and ESG lead for global investment management.”6
Large active managers can capitalize on establishing a strategic leadership framework by bringing leading practices across investment capabilities and asset classes, and cross-departmental collaboration. With the rapid growth within the sustainable investing sector, active managers will benefit from a clear vision outlined by a strategic ESG approach. As a result, active managers can deliver the ideal mix of ESG data reporting, tools and asset classes to continually grow their AUM and establish themselves as premier players in the industry.
2. Introducing an ESG-focused investing strategy
In the past few years, different asset classes and investment vehicles have been engineered with the aim of providing greater customization. With this increased availability of products, an ESG-focused investment strategy can be constructed while also considering investor goals and risk profiles. Additionally, active managers may use the private markets to access products that generate a higher impact, while passive ESG instruments lack this flexibility.
There is a range of asset classes and investment vehicles available to asset managers seeking to structure an ESG-focused investment portfolio. The list below highlights some examples:
Asset managers should re-engineer the traditional risk profile questionnaires provided to investors, to include questions relating to ESG-specific preferences and goals. As evidenced above, asset managers may choose from numerous asset classes and investment vehicles to shape their investors’ ESG investing strategies, depending on their goals and risk profiles.
Crucially, asset managers can work with prevalent industry players such as MSCI and Sustainalytics to target the issues most demanded by investors and differentiate their offering. Asset managers can also provide individualized vehicles to meet the needs of investors through launching unique indexes or ETFs. MSCI allows clients to create thematic indexes to enable investing based on a demographic trend.7 Similarly, Sustainalytics allows the creation of ESG and sustainability indexes with the backing of their sustainability research and support services.8
3. Enhancing tools
Digital innovation has evolved clients’ expectations of financial services and investing. Investors are demanding more tools and educational materials, in addition to an enhanced user experience. Institutional and retail investors are demanding better tools within sustainable investing to enable them to make more informed investment decisions. Some players in the industry have already rolled out products, but with the continual growth of ESG investing, more tools and educational materials will continue to emerge to satisfy this increased demand.
State Street recently announced its launch of a new set of analytical tools aimed at capitalizing on the appetite for responsible investing. To help in its effort, the Boston-based bank has facilitated discussions with more than 15 research firms, including MSCI, Sustainalytics and TruValue Labs, to license their data. State Street plans to add those companies’ research and ESG ratings alongside its existing risk-management and analytics systems for approximately 300 investors. The plans follow efforts by State Street’s money-management division, State Street Global Advisors, to add several ETFs and other offerings that invest in assets that screen stocks for environmental and social-justice criteria.9
In 2017, Scotia iTRADE rolled out Canada’s first sustainable investing tools for direct investors. The new tools provide detailed ESG data. The ESG research and ratings underpinning Scotia iTRADE’s sustainable investing tools are provided by Sustainalytics, a global independent provider of ESG research and ratings to asset owners and investment managers. This tool also enables investors to access a holistic view of a company and easily identify ESG leaders and laggards within an industry group.10
4. Providing ESG reporting
Recent studies show that, in the long term, investments with ESG considerations tend to outperform those without, and prove to be a more effective way to manage risk. With performance concerns dissipating, the current obstacle impeding ESG integration is the lack of ESG data and reporting. According to a study by State Street,
60% note a lack of industry standards for measuring ESG performance as a significant barrier to full integration. 46% of retail investors want to see more companies reporting ESG performance-related data and 46% say they need more ESG data from other sources to make educated decisions.”
Governmental and regulatory agencies have not yet established a gold standard reporting framework, but several players, such as MSCI, have recently released “good practice” guidelines aimed at creating a more consistent approach. In 2017, the London Stock Exchange also issued guidance which sets out recommendations for “good practice” in ESG reporting. The guide responds to “demand from investors” for a more consistent approach to reporting that is now a core part of the investment decision process and enables investors to make more informed investment decisions. The creation of ESG indexes will “support common approaches to ESG investing, and help institutional investors more effectively benchmark ESG investment performance.”12 ESG indexes combined with “good practice” guidelines will not only standardize, but scale the ESG movement.
As reporting and data standards mature and achieve standardization, asset managers should invest in this space to provide the ESG considerations demanded by investors. In the next decade, the expectation from the industry is that institutional investors will be pushing ESG reporting to become part of the regulatory agenda, and that firms will be mandated to include this data in their public financial reports. Therefore, asset managers will be better positioned to face changes in reporting standards by regulatory agencies.
Large managers are putting ESG reporting into practice by reporting on performance from various sustainable investing lenses. Reporting at both a granular, securities level and an aggregated, portfolio level provides clients with a full understanding of their returns and the impact of their investing.
Active managers must react to the realities of the evolving investing landscape. Sustainable investing products and services provide asset management firms access to a previously untapped 18% of the market, equating to an over US$4t market. In order to capitalize on this ever-growing demand for ESG products, asset managers need to establish a strategy to offer clients with enhanced customization that meets their needs and objectives.
Through a holistic go-to-market offering — encompassing leadership, an ESG-focused investing strategy, tools and reporting — active managers have the opportunity to offer clients improved portfolio customization based on their preferences and can more effectively serve an industry that will only continue to evolve.
1 Morningstar Direct Asset Flows Commentary: United States,” Morningstar, April 2017.
2 “These Charts Show the Astounding Rise in Passive Management,” Bloomberg, December 2015.
3 “Report on UN Sustainable, Responsible and Impact Investing Trends,” US SIF, 2016.
4 “The Financial and Societal Benefits of ESG Integration: Focus on Materiality,” Calvert Research and Management, 2017.
5 “Asset Managers Yield to Pressure on Fees,” Institutional Investor, May 2013.
6 “JPMAM creates sustainable investing team following ESG fund launch,” Investment Week, March 2017.
7 “Global Indexes, Delivering the Modern Index Strategy,” MSCI, 2016.
8 “Index Research Services,” Sustainalytics, 2016.
9 "State Street Offers New Tool to Gauge Environmental, Other Social Risks,” Morningstar, March 2017.
10 “Scotia iTRADE announces Canada's first sustainable investing tools for direct investors,” Yahoo Finance, March 2017.
11 “State Street’s Center for Applied Research Reveals Industry-Wide Shift as Investors Find Sustainable Value through ESG,” State Street Newsroom, March 2017.
12 “MSCI ESG Indexes,” MSCI, 2017.
How can company boards tip the corporate scales towards equitable, sustainable and inclusive leadership? The recent FutureBoards Corporate Governance Summit explored some of the answers.
Corporate business is under fire from shareholders, under pressure from legislation and (seemingly) under-engaged with sustainability and the SDGs. However, whereas the credibility of top management has dropped to an all-time low, boards have fared better, retaining the trust of the public to a much higher degree.
Consequently, there is an increasing call for boards to step up in promoting equitable, sustainable and inclusive leadership, and in doing so to make their companies “future-fit”.
It is this opportunity that the FutureBoards Corporate Governance Summit chose to address at Chitra House in Oslo recently. Sustainability Hub was invited to observe the session on how investors and boards can contribute to achieving the UN Sustainability Development Goals (SDGs).
Long-term value creation.
The Summit brought together leaders, investors, CEOs, board chairs, politicians, regulators and academics to exchange insights and explore cases and best practices on how business owners and governing bodies can best respond to expectations and scrutiny from stakeholders.
The delegates agreed that the scope of the challenges boards face requires changes to both their composition and the way they work. Moreover, they seemed to reflect a wider stakeholder consensus that emerging governance principles, such as purpose, corporate citizenship, responsibility and sustainability, all point to a renewed focus on ensuring long-term value creation.
“How and by whom should companies be governed in the future?”
Turid Solvang, Founder & CEO of Future Boards, emphasized the importance of arriving at a common understanding of how, and by whom, companies should be governed in the future.
Sven Mollekleiv, Senior Vice President and Head of Corporate Social Responsibility at DNV GL, underlined the importance of business addressing this together, defining roles, and turning risks into opportunities. Citing Paul Polman, CEO of consumer goods multinational Unilever, he said that in order to create long-term shared value, boards need to understand how ensuring social prosperity and dignity is good business and how the SDGs can support that work.
Chief Corporate Governance Officer Carine Smith Ihenacho explained how Norges Bank Investment Management (NBIM), which invests in 9000 companies across 70 countries, works with boards to encourage focus on long-term value creation. NBIM actively engages in board composition and develops expectation documents on issues such as climate change, human rights and anti-corruption, which are used for dialog with companies and for mapping progress against the SDGs.
“Convert words into numbers, and focus on reporting.”
Carine urged the delegates to help boards convert words into numbers and to focus on reporting. She suggested that a better reporting framework with meaningful criteria for individual issues is needed, mentioning both the OECD guidelines on corporate governance and the Carbon Disclosure Project’s reporting platform as good examples.
Quoting chairman of the international integrated reporting council Professor Mervyn King’s comments about the “plague of short-term capitalism,” Turid Solvang reminded delegates how boards make final judgment calls that affect all of us, and how vital ESG (environmental, social, and governance) reporting is for informing investors of a company's impact on the world.
Engaging with the Sustainable Development Goals
The delegates also took a close look at how investors and boards can engage with the United Nation’ SDGs. Sustainability, is one of the new perspectives on the purpose of companies that re-define their role in society and pose fundamental questions about the future work of boards.
Per Heggenes, CEO of the IKEA Foundation, explained how its vision of a “better everyday life for people” seen through the filter of the SDGs had resulted in a focus on children/youth in crisis in Sub-Saharan Africa. The Foundation now engages with the worst impacts of climate change and population growth by investing in Sub-Saharan Africa, where most population growth will happen. It has also initiated a process with the top seven global climate change NGOs to co-create an agenda for engaging with business and climate change.
“Demonstrate the clear alignment between doing good and good profits!” Johann Olav Koss, President, Waratah Impact.
President of Right to Play, Johann Olav Koss, now also heads investor fund Waratah Impact, which provides good returns by making “externalities” such as climate change, into internalities/company costs and reducing risk through a fully integrated ESG strategy.
He suggests that “green/SDG washing” happens without agreed reporting frameworks and standards and supports hard law obligations, as incentives are not enough. Citing a Goldman Sachs study showing that companies whose ESG policies lack KPIs perform badly, Johann Olav encouraged investors to influence companies by discussion and engagement and to demonstrate the clear alignment between doing good and good profits.
Text: Kevin Reeder