Sustainability analysis: January 2016 magazine extract

CSR technology2016 trends

Paris talksNew era beckons

NGO partnerships Synchronising change

Climate crunchInvestors talk green

January 2016 www.ethicalcorp.com

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Ethical Corporation | September 2014???Contents Ethical Corporation | January 2016

39 NGOWatch China's environmental win

41 Cheatsheet All you need to know

Strategy and management

46 NGO partnerships US retailers collaborate

54 CSR communication Hit the right buttons

Review

60 Report: Diageo

62 Report: Hess

64 Academic news

67 New books

69 People on the move

71 On the web

5 From the editor

EthicsWatch

6 VW Making amends

8 EU circular economy Designs on obsolescence

10 US drug scandal Lessons for business

12 PolicyWatch Climate lawsuit

2016 preview

14 CSR trends Transparency plans

23 Top technology Focus on impact

31 BrandWatch Greenwash sponsors

142016 previewInvestor scrutiny

33COP21 Policy outcomes

Ethical Corporation | January 2016

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Ethical Corporation | September 2014Report reviewFrom the editor

Editor’s letter

Welcome to the January 2016 issue2016 is set to be an eventful year, both politically and economically,

with both the UK's EU referendum and US elections looming, and in light of current stock market volatility. The prominence of CSR issues will undoubtedly be affected by such events, with social concerns most likely to take centre stage.

The promising conclusions of the Paris climate talks in December, however, have set the world on course for fundamental change. Legislation (government permitting) and innovation will both be major drivers in meeting the challenge to manage global emissions.

In our 2016 trends preview, we explore the role of technological innovation in CSR. We also discuss the ways in which investors are becoming key players in pushing companies for more action and information on how they are dealing with climate change.

Greenwash is on its way out and detailed company reporting is here to stay. With the transparency this provides, we can expect greater company scrutiny on all fronts, but also the opportunity for those businesses leading on CSR to gain credit for their actions.

Zara MaungEditor

Editor: Zara Maung

Sub editor: Gareth Overton

Contributors: Oliver Balch, Ellen R. Delisio, Stephen Gardner, Lawrence Gikaru, Nadine Hawa, Daniel Liswood, Giles Parkinson, April Streeter and Sarah Volkman

People on the move [email protected]

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Ethical Corporation | January 2016

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Ethical Corporation | August 2014??? Ethical Corporation | January 2016EthicsWatch: VW scandal

EthicsWatch

Vehicle emissions

Long road ahead for VWBy Ellen R DelisioVolkswagen is facing a tough fight to satisfy the US authorities that it is making amends for emissions cheating

Volkswagen officials arrived in the US in January bearing apologies and fixes for the far-reaching emissions scandal that came to light in September 2015, but so far neither has been well-received.

Speaking at the Auto Show in Detroit, VW chief executive Matthias Mueller said: “We know that we have let down customers, authorities, regulators and the general public here in America. We are – I am – truly sorry for that and I would like to apologise once again for what went wrong at Volkswagen.” He added: “Our most important task in 2016 is to win back trust.”

But just a few days later the California Air Resources Board (Carb) turned down Volkswagen's plan to recall VWs with 2-litre diesel engines modified with emissions-test cheating devices, saying the company's plan was incomplete, a position with which the US Environmental Protection Agency (EPA) agrees.

According to Carb, Volkswagen’s plans for affected cars in California contain gaps; the descriptions of proposed repairs lack enough information for a technical evaluation; and the proposals do not adequately address overall impacts on vehicle performance, emissions and safety.

The company is also scheduled to propose a settlement to the EPA, in response to a lawsuit filed by the US Department of Justice against Volkswagen on behalf of the EPA, seeking billions of dollars in fines. The company is also facing lawsuits from car owners and has set up a no-strings-attached compensation programme, which would give each US owner $500, plus $500 in dealership credits and three years of roadside assistance, while not preventing them from joining a class-action suit, according to USA Today.

Volkswagen, EU circular economy and US drug price hikes

California turned down VW's recall plansNI

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Ethical Corporation | August 2014??? Ethical Corporation | January 2016EthicsWatch: VW scandal

Admitting defeatWhen the scandal was uncovered by the EPA, Volkswagen admitted to installing defeat devices in cars so their emissions appeared lower during testing than during driving. About 11m cars worldwide were affected, including about 580,000 vehicles in the US, which state and federal officials say are spewing high levels of nitrogen oxides into the atmosphere.

More bad news for VW followed in November: EPA officials notified VW that some diesel engines used by VW, Audi and Porsche cars, all owed by VW, also had devices to alter emissions, and VW announced that it had found that 1.4L cars sold in Europe were emitting more carbon dioxide than was originally claimed.

Because of different emissions regulations, fixing affected VWs in Europe is much simpler, and the company has said it will be installing new software in the cars and, in the smaller engines, a device that smooths out the flow of air towards the car’s air-mass sensor.

The European Parliament is currently weighing changes to vehicle emissions testing regulations that would require testing in real driving situations as opposed to the current testing, which takes place in a lab. “We are supportive of real driving emissions tests, because they give better measurements of emissions,” says a spokeswoman for the European Automobile Manufacturers’ Association.

Some environmental advocates are taking a more creative approach, determined not to let the opportunity to highlight flaws in the emissions regulations pass. Axel Friedrich, a

German emissions expert and one of the founders of the NGO International Council on Clean Transportation, maintains that VWs are not the only diesel cars pumping higher-than-permitted nitrogen oxides into the atmosphere, and argues widespread changes to the regulations process are needed.

He is working with the environmental group Deutsche Umwelthilfe in Germany to use local environmental regulations to put pressure on car manufacturers, according to BloombergView. He plans to sue German cities for not enforcing their local clean-air plans in an effort to prompt emissions standards changes. The goal is to establish a system of European Commission fines, to force improvements in bus and taxi emissions, and possibly even the prohibition of non-compliant vehicles from city centres.

Volkswagen hopes to win back trust

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PolicyWatch

PolicyWatch

Ethical Corporation | January 2016

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Taxes too lowTaxes on greenhouse gas emissions caused by energy use are still far too low in most countries to result in any meaningful switch away from the most emissions-intensive energy sources, according to an Organisation for Economic Co-operation and Development report published during the Paris climate summit. The OECD said energy use should attract a CO2 price of at least €30 per tonne, but

the levy is well below that for 90% of emissions from the world’s top 41 economies. For 60% of emissions, no CO2 price is applied. One country that could do much more to make the polluter pay is the US, with an “effective carbon rate” of less than €5, the OECD found. “We need an effective price on carbon emissions if we want to tackle climate change,” OECD secretary-general Angel Gurría said. “Unfortunately, implementation of the polluter pays principle is woefully lacking.”OECD report

Polluters arenʼt payingLandmark litigation

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Peru v GermanyA Peruvian farmer has started a novel climate-related lawsuit against German energy leviathan RWE. In late November, Saúl Luciano Lliuya, a smallholder from the northern Peruvian Andes, filed a case against the company in Essen, Germany, alleging that RWE has been responsible for 0.5% of manmade greenhouse

gas emissions since the 1850s and should pay €20,000 – or 0.5% of the cost – for flood prevention measures to protect his community in Peru. Lliuya's lawyers argue he has a case based on a provision in German law that a company cannot use its property to damage the property of a third party. Lliuya decided to go to court after RWE rejected a demand for payment earlier in 2015. Legal experts have said the case could set a precedent.

By Stephen GardnerGreen taxes, climate lawsuit, Amazon deforestation and oil lobbying

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Ethical Corporation | August 2014??? Ethical Corporation | January 20162016 preview

CSR strategy

Top trends for 2016By Ellen R DelisioAfter the ambitious Paris agreement on climate change, Ethical Corporation looks at the implications for investment, divestment, regulation and supply chain management

Last year ended with governments and business leaders worldwide energised to set ambitious goals to combat climate change after the summit in Paris.

In keeping with the growing trend, companies in 2016 will continue to adjust their supply chains and portfolios, while increasing the amount of information for investors and consumers, experts say.

“In order for companies to be seen as authentically embracing CSR values, this work can't be window dressing,” says Amy Hall, director, social consciousness, for Eileen Fisher, a US women’s clothing company with a global presence. “It must be ‘owned’ by every team, every employee in the company. This means greater cross-functional collaboration, greater emphasis on shared responsibility for the success of the company, and CSR values moving front and centre, acting as a filter for every important business decision to be made.”

Investment changesMore than ever before, consumer and investor demands are leading to ramped up sustainability efforts. Expect more extensive scrutiny of investment choices and supply chains in 2016, experts say, and more investors offloading

Consumer and investor demands are leading to ramped up sustainability efforts

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Ethical Corporation | August 2014??? Ethical Corporation | January 2016

The beginning of the end of coalCoal is increasingly viewed as the easiest fossil fuel to replace in a portfolio, especially since it is one of the least environmentally friendly, and more companies are letting it go.

“I think coal, particularly, will be a tool for divestment,” says Jeanett Bergan, head of responsible investments for KLP, Norway’s state pension fund. “The Norwegian pension fund is one of the world’s strongest investors and I think an exemplar for others. Our reasoning is that the UN notes that coal is not in the 2-degree scenario and eliminating coal is one of the easiest ways to get CO2 emissions down.”

In 2014, KLP decided to cease investing in companies that obtain more than half their revenues from coal-based activities, and that figure was reduced to 30% in December 2015. KLP and the KLP funds are also taking into account the ethical guidelines for the Norwegian Government Pension Fund Global (GPFG). KLP made its first divestment in December 2014 and to date has divested from almost 50 coal companies.

“We engage with companies before divestment; there is a great synergy between divestment and engagement,” says Bergan. “It is a great tool for changing company behaviour over time.”

KLP embarked on this strategy after one of its customers and owners, a municipality in Norway, asked if the company could exclude fossil fuels without hurting its return on investment. After a lengthy investigation that led to a public report, company officials concluded that it could not divest completely from fossil fuels, but coal would be possible, according to Bergan. “Even though coal is a cheap and reliable energy source, with the rapid expansion of renewables, coal is easily replaceable,” she says. “It creates so much more CO2, so we decided to bring new renewable energy sources to our portfolio. We want to commit to the greater scenario with our investments.”

One week before the UN climate talks in Paris in December, Germany’s Allianz, one of the largest financial asset managers in the world, announced plans to decrease investments in companies using coal over the next six months and ramp up funding in those concentrating on renewable resources.

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2016 preview

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Ethical Corporation | August 2014??? Ethical Corporation | January 2016COP21 review

Paris talks

A changing climateBy Giles Parkinson Companies are coming to terms with what the ambitious Paris agreement means for the way they operate

The superlatives were flying freely at the close of the UN-sponsored climate change talks in Paris in December. After 21 years of negotiations, 195

countries forged an agreement to ensure that average global warming would remain “well below” 2°C, and they agreed that they may even look at capping warming at 1.5°C above pre-industrial temperatures.

It was, by any standards, a momentous agreement, a landmark deal in the history of multilateral negotiations. To put it in the words of many an observer: this changes everything. And it has obvious ramifications for the business community. The question of corporate social responsibility, or CSR, if it was not already part of mainstream decision making within a company, now must be so.

The seismic shift that will occur in the next few decades demands that this is the case. It is not just about seizing the myriad opportunities that the multi-trillion-dollar transition to a low-carbon economy will offer, but it is also about self-preservation of those caught flat-footed in the face of progress.

TargetsFirst, though, to the agreement. The Paris deal calls for the world to reach temperature targets that many had thought would never be agreed. It will rely not on a top-down approach, but a bottom-up one. Pledges from more than

195 countries forged an agreement to ensure global warming would remain “well below” 2°C

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Ethical Corporation | August 2014??? Ethical Corporation | January 2016

Much has been, and will be, written about the lack of “legally binding targets”

180 nations have already pushed the world away from business-as-usual, towards a temperature target of between 2.7°C and 3.5°C (depending on whether one has an optimistic or pessimistic view of the pledges’ effectiveness).

That ambition will be ratcheted up through a series of mechanisms – a system of reviews and renewed pledges that will take place every five years, beginning in 2018/2020. Backsliding is not permitted.

Much has been, and will be, written about the lack of “legally binding targets” for individual countries. This, though, misses the point. Such legally binding targets would have been impossible to enforce, and even impossible to agree.

This is not to underestimate the scale of what is required to implement the 2015 agreement. And there are plenty of analysts who question whether the targets can be met, and in the timeframe agreed.

But one of the reasons that the world’s governments were able to reach such an agreement is the plunging cost of renewable energy technologies such as solar and wind, which have fallen by more than 80% and 50% respectively since Copenhagen, where talks failed in 2009 because the task looked too hard and too expensive.

Now, most analysis suggests a transition can be achieved at no added cost beyond business-as-usual. Big money has already moved. In the past two years, investment in new renewable energy generation, for instance, has outstripped that of fossil fuels, even though fossil fuel subsidies outstrip renewable energy subsidies by a ratio of nearly 10 to 1 – or by a ratio of 100 to 1 if you include, as did the International Monetary Fund, the environmental, health and social costs of fossil fuel generation.

Business leadersSo, in many ways, the agreement of 195 national governments simply reinforces the science and adds momentum to what is already taking place in the business community. Clive Hamilton, Australian researcher and board member of Australia's Climate Change Authority, said in Paris: “The most surprising revelation here has been the astonishing shift in the world of investors over the past 12 months.

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COP21 review

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Ethical Corporation | August 2014???Cheat sheet Ethical Corporation | January 2016

Corporate responsibility cheat sheet

Gender rights up the agenda for US firms A record 407 major US businesses received a perfect score of 100 in the 2016 Corporate Equality Index, an annual ranking of lesbian, gay and bisexual rights in US workplaces. Among those praised for their non-discrimination policies are Bank of America, Google, Ikea and Apple. In 2002, when the index started, only 13 firms achieved the top score. Today, 60% of US businesses offer transgender-inclusive healthcare coverage (up from zero in 2002), while more than 330 major employers

have adopted supportive inclusion guidelines for transgender workers who are transitioning. The index also finds that most (84%) large US employers now provide staff with education and training programmes that specifically include definitions and/or scenarios on gender identity in the workplace. Corporate Equality Index 2016

Land and climate, key sustainability themesWhen consumers think about sustainability, at the top of their minds is their impact on land and climate, according to a major public opinion survey by London-based research consultancy Future Thinking. Millennials (16-34 years) tend to look more broadly, incorporating the welfare of employees, customers and suppliers into their considerations – 24% of this group identified with these concerns compared with only 13% of consumers over 55. The importance that people place on sustainability issues differs according to

whether they use social media (86% of social media users consider sustainability important compared with only 76% for those who do not use social media). As to what messages consumers listen to most, minimising waste to landfills (cited by 39%), using sustainable ingredients (37%) and using renewable energy wherever possible (37%) top the pile. As for the public’s perception of a firm’s sustainability commitment, this is based much more on actions (36% say this is important) than their principles and truthfulness (20%). The base for the survey comprises more than 25,000 UK consumers.Future Thinking

By Oliver BalchWe read all the reports so you don’t have to

60% of US businesses offer transgender-inclusive healthcare coverage

86% of social mediausers consider sustainability important

Ethical Corporation | August 2014??? Ethical Corporation | January 2016NGO partnerships

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US case study

A pretty partnership?By April StreeterCompetitors Target and Walmart set out to do together what they couldn’t do as easily alone: shift the personal care and beauty products industries to safer ingredients and a new vision of sustainable products

According to a recent report by London-based C&E Advisory, enhancing reputation continues to be the top reason companies form NGO

partnerships. What is shifting, though, is that companies are moving to strategic relationships in their partnering. That means looking beyond the business case on internal sustainability actions, and even beyond actions in the supply chain, towards shifting whole sectors’ sustainability.

A three-way partnership between US retailing giants Target and Walmart and the UK-based non-profit group Forum for the Future is a good example of both the advantages and the pitfalls of entering this type of strategic relationship.

Target and Walmart are fierce competitors in the grocery sector. Yet the companies came together, combining their clout to help change the personal care and beauty products industry. By partnering with Forum for the Future, well known for its systemic approach to big sustainability issues, the partners hoped to more swiftly break down the formidable barriers to making personal care products more sustainable.

‘Pre-competitive’ collaborationThough it isn’t common for two powerful corporate competitors to work side

Target and Walmart are fierce competitors in the grocery sector

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Key insights from the beauty products and personal care (BPC) partnership1. Invest time – the upfront investment in building system maps and understanding the main

challenges meant that at the BPC Summit participants were able to join the core debates and solutions more quickly.

2. Take a system view – the beauty and personal care industry was stuck on sustainability; using system mapping enabled a fresh conversation.

3. Focus on people within the system – systems are people and they work through interactions between those people. Also, when it comes to persuading people to change, evidence, not just discussion, is important.

4. Identify leaders and nurture relationships – the support of Target and Walmart for Forum’s work was a key factor in compelling stakeholders from across the industry to come together in an unprecedented way.

5. Make time for participative diagnosis – after the Summit, Forum had a sense of what needed to happen with the three key areas for action that had been identified, but that was just the initial diagnosis. Next Forum had to delve deeper to understand the wider landscape and the different perspectives that existed.

6. Find better ways to be more than the sum of the parts. In the beauty and personal care industry, considerable work had already been done on preferred chemicals, ratings and information sharing, and green chemistry. Forum’s accelerator approach looked for ways to complement and fast-track what was already happening. n

Source: Forum for the Future.

Use evidence to persuade people to change

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Ethical Corporation | August 2014Report reviewReport review Ethical Corporation | January 2016

Diageo 2015 annual report

Short and stoutBy Sarah VolkmanDiageo scores some successes in its reporting, but this only highlights shortcomings in its sustainability performance

Diageo, one of the world’s biggest alcoholic drinks companies, has published its second integrated annual report, positioning sustainability

side-by-side with business performance. Based in London, Diageo owns giant brands including Johnnie Walker, Smirnoff, Captain Morgan and Guinness.

Diageo’s “something for everyone” approach targets direct and effective messaging to specific audiences across multiple channels. In its annual report, investors receive greater insight into sustainability risks and opportunities and the potential impact on business success. A Sustainability and Responsibility Addendum provides sustainability professionals with an indexed resource for detailed information specific to industry standards, based on GRI and UNGC, while Sustainability and Responsibility web pages provide a wider audience with high-level strategy put in simple terms. Overall, Diageo’s integrated approach is ahead of the curve. Now the same attention should be paid to creating compelling storytelling.

Successful integration Key to Diageo’s successful report integration is the weight given to sustainability performance. Diageo’s annual report places non-financial performance indicators – including alcohol in society, health and safety, water efficiency, carbon emissions and employee engagement – alongside standard financial metrics. The Risk Management and Principal Risks section of the annual report signals the importance of sustainability issues for business success. The risk associated with sustainability, talent and alcohol promotion and consumption are evaluated alongside business acquisitions, cyber threats and critical industry developments.

While Diageo’s report succeeds in integrating key sustainability issues into business performance, bigger picture sustainability strategy lacks follow-through on performance targets. Diageo’s sustainability strategy emphasises the issues it has deemed most material, focusing on three key areas: leadership in alcohol in society, building thriving communities, and reducing environmental impacts. Two of its three chosen focus areas meet the sector’s most material sustainability issues – alcohol in society and water conservation (within reducing environmental impacts). But coverage of the agricultural supply chain – workers and environmental impacts – is a surprising omission.

C-suite interview: Anisa Kamadoli Costa, chief sustainability officer of Tiffany & Co.

Top tips: Creating successful partnerships

Sustainability trends in mining, oil & gas

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