Corporate Social Responsibility (CSR) in Asia: Then and now

By Wendy Chapple & Jeremy Moon

◦ 3 min read 

This blog post is a repost and has first been published by Business and Society (BAS) blog on 27th of April 2022.

It is both a bit weird and a great honour to be invited to reflect on our paper, “Corporate Social Responsibility (CSR) in Asia: A Seven Country Study of CSR Web Site Reporting”. The process has given us a chance to reflect on what we knew then, what we know now, and how much things have evolved. Our reflections cover memories of the context and origins of the paper; the data available – and unavailable – to us at the time; the approach we took – and what we see as its virtues – and the results; and the relevance of the paper to CSR in Asia today – nearly twenty years on.

As is often the case, the origins of a well-known paper are curious. Our paper grew from the internationalization strategy of the University of Nottingham (UoN) where we then worked in the International Centre for Corporate Social Responsibility (ICCSR). UoN had opened a campus in Malaysia and was opening another in China. So, the Vice-Chancellor encouraged us to engage with our colleagues there …which made us think that we should probably know a bit about Corporate Social Responsibility (CSR) in Asia … hence the paper. Little did we know what this would lead to!

Thanks to the ICCSR, we had the funds to employ researchers with whom we analyzed web site reporting of 50 companies’ CSR in seven Asian countries: India, Indonesia, Malaysia, the Philippines, South Korea, Singapore, and Thailand (bringing a range of business systems in terms of size, religion and culture, political system, and economic development). Hang on, you say, what about China? Our answer is simply that at that time there were barely any Chinese MNCs with English language website reporting… which is certainly not the case now! Although our choice of sample skewed the population to the larger companies with a strong international business profile, this did not concern us as it strengthened the testing of the CSR-shaping role of national business systems.

We focused on broad CSR waves, i.e. community involvement, socially responsible production processes, and socially responsible employee relations. Whilst it enabled broad generalizability of the character of CSR nearly twenty years ago, it does raise some questions of compatibility with current CSR agendas in Asia. However, the more inductive identification of component CSR issues (e.g. community development; education & training; health and disability; environment) makes the findings amenable to temporal comparison, providing a more fine-grained analysis of activity within the waves. We also focused inductively on the dominant CSR modes (i.e. how the issues were addressed). This is when things got interesting. We started to see distinctive country patterns emerge in terms of issues within the waves (e.g. community issues were particularly prominent in India, Thailand, Malaysia and the Philippines, but less so in the other three countries), but this was not the case in the modes. The modes deployed within each of the waves were strikingly similar: philanthropy dominated community investment, and codes  and standards dominated production processes. In other words, the “what” rather than the “how” was nationally distinctive.

Some conclusions now seem uncontentious, most obviously that ‘community involvement’ is the CSR priority in Asia. Similarly, there is no “Asian CSR” model, but a set of nationally distinctive patterns of CSR behaviour, resulting from the national business systems, rather than development. Reflective of the impact of globalization on CSR, we found that companies operating internationally were more likely to adopt CSR than those operating only in their home country. One might expect that international exposure might lead to an increase in similarity of approaches across countries; however, we instead found that the CSR of the multinational companies operating in Asian countries tended to reflect their host rather than their home countries, reinforcing the national distinctiveness. However, this finding may be a little simplistic in the light of emerging tensions between international CSR approaches and host country experiences.

It is great to see that CSR in Asia has attracted a volume of research and we are delighted that our paper has been a reference point for some of this research.


Blog Editor’s note: The authors’ paper, “Corporate Social Responsibility (CSR) in Asia: A Seven Country Study of CSR Web Site Reporting” , is open access until December 31st 2022 as part of the journal’s 60th anniversary celebrations


About the Authors

Jeremy Moon is Professor at Copenhagen Business School, and Chair of Sustainability Governance Group. Jeremy has written widely about the rise, context, dynamics and impact of CSR.  He is particularly interested in corporations’ political roles and in the regulation of CSR and corporate sustainability. He is the Project Lead of the RISC research project.

Wendy Chapple is a full Professor of International Business and CSR at the Vienna University of Economics and Business (WU Vienna). She has played central roles in programme design and development, designing CSR related programmes and has been programme director for MSc and MBA programmes in CSR in the UK.  Wendy gained recognition for the development of faculty, programmes and research, by winning the Aspen Institute faculty pioneer award in 2008.  At WU, she will contribute CSR and Sustainability modules to the CEMs and undergraduate programmes.


Photo: Wikimedia Commons

EU proposal on Corporate Sustainability Due Diligence for human rights and the environment

Advancing responsible business conduct, but failing to consider key functional challenges for remedy

By Karin Buhmann

◦ 9 min read 

Why is the proposal important?

The EU Commission’s draft Directive on mandatory ‘corporate sustainability due diligence’  published in the end of February is already recognized to have the potential to become a game changer for responsible business conduct (RBC) in Europe and beyond. If adopted, the proposed Directive will turn international soft law recommendations for companies to exercise risk-based due diligence in order to identify and manage their harmful impacts on human rights and the environment into hard EU law and therefore binding obligations for companies. Companies will be required to exercise due diligence with regard to actual and potential human rights adverse impacts and environmental adverse impacts, with respect to their own operations, the operations of their subsidiaries, and the value chain operations carried out by entities with whom the company has an established business relationship. 

The proposal also aims to establish accountability through corporate liability for violations related to insufficient due diligence.

What the draft directive refers to as ‘corporate sustainability due diligence’ draws on what the OECD Guidelines for Multinational Enterprises refer to as ‘risk-based due diligence’, and what is referred to as ‘human rights due diligence’ by the United Nations (UN) Guiding Principles on Business and Human Rights (UNGPs). Indeed, the proposal refers directly to those two international soft-law instruments, which are generally considered state of the art for responsible business conduct (RBC).

This form of due diligence is a process to identify, prevent, mitigate, remedy and account for risks or actual harm caused by the company (or its partners) to society. Unlike financial or legal liability due diligence, the focus is not on risks to the company, although of course societal (including environmental) harm may also affect the company negatively (see also Buhmann 2018). 

For companies covered by the directive, this will fundamentally change RBC from being voluntary to becoming legally binding

The Draft has generally been welcomed by business associations, although some remain hesitant towards a (much watered-down) proposal to strengthen top-level sustainability corporate governance. Civil society also generally approve although the range of companies covered has been criticized for being too narrow, and business relations too focused on contractual relations rather than impacts. The proposal’s introduction of civil liability with EU courts for victims from non-EU countries has been lauded. Yet this could and perhaps should also usher in a deeper debate on the fundamental characteristics of what constitutes adequate or meaningful remedy for harmful impacts on human rights impacts or the environment, and as importantly, how host-country victims will be ensured a de-facto equal standing with frequently well-resourced EU companies in front of EU courts. This short note addresses all of the above issues.

Part of EU corporate sustainability law

After a slow start up to around 2011, the EU has been moving fast since in an incremental development of increasingly detailed obligations on companies, including institutional investors, with the aim of creating transparency on business impacts on human rights, the environment and climate. Given the speed and political support for adopting EU law on these matters, it is quite likely that the proposed Directive will be adopted, although possibly with some changes. 

The proposal forms part of the larger package of corporate sustainability legislation undertaken by the EU recently. This includes the Taxonomy Regulation (which also refers to procedures that companies should undertake to ensure alignment with the UNGPs ad OECD Guidelines); the Non-Financial Reporting Directive (requiring some information on due diligence and risk assessments on human rights), which is expected to be replaced by the Corporate Sustainability Reporting Directive; and the Disclosure Regulation, which requires financial product providers to publish certain types of sustainability related information, including information on due diligence related to harmful impacts on environment and human rights.

The draft Directive builds on a proposal from the European Parliament, but it also follows trends in several individual EU countries to introduce mandatory risk-based due diligence. 

What companies are covered?

The draft Directive applies to ‘very large’ EU based companies (more than 500 employees on average and a worldwide net turnover exceeding EUR 150 million). ‘Large’ companies (having more than 250 employees on average and more than EUR 40 million worldwide net turnover) are included if they operate in specific high-risk sectors: textiles (including leather and related goods), renewable natural resources extraction (agriculture, forestry and fisheries), and extraction of minerals.

The draft Directive’s listing of activities related to minerals is quite wide and applies regardless of the place of extraction. They will therefore apply to many types of raw-materials used in the EU, including those used for power and heating, construction and the ‘green’ energy transition.

Non-EU-based companies are covered if their turnover in the EU corresponds to that of ‘very large’ companies, or that of high-impact sector companies for activities in those sectors. It is expected that requirements will be cascaded onto SMEs through the value chains that they are part of. 

What are companies required to do?

Importantly, like risk-based due diligence and human rights due diligence, corporate sustainability due diligence is not a compliance obligation simply discharged by undertaking and documenting a specific action.

Rather, as established by the UNGPs and the OECD Guidelines, it is an ongoing task that requires continuous assessments of risks or actual harm, and re-assessments, follow-up and efforts to prevent risks from becoming actual harm, and mitigation and the provision of remedy when harm has occurred.

Although the draft Directive seeks to establish that, it does rely heavily on companies applying contractual assurances, audits and/or verification. As argued by the expert organization SHIFT, these are not necessarily the best options for the purpose.

The due diligence obligations proposed are generally in line with the UNGPs and the OECD Guidelines, but in some ways narrower. This applies in particular to the limitation of some aspects of the due diligence process to what the draft Directive defines as ‘established business relationships’, i.e. relationships of a lasting character. This contrasts with the UNGPs and OECD Guidelines which do not require a business relationship (e.g. with a contractor, a subcontractor or any other entity such as a financial partner) to be lasting but, rather, focus on the connection between the company and risk or harm. This is one of the points that have generated criticism of the draft. 

Directives must be implemented by Member States. The means that some specific requirements may differ across EU countries. However, regardless of this companies will be required to integrate due diligence into all their policies and have a policy for due diligence that describes the company’s approach, contains a code of conduct for its employees and subsidiaries, and its due diligence process.

This must include verification of observation of the code of conduct and steps to extend its application to ‘established business relationships’. In terms of specific steps, companies must identify actual and potential adverse impacts; prevent potential adverse impacts; and bring actual impacts to an end (whether they were, or should have been, identified) or minimize impacts that cannot be stopped. In that context they should seek to obtain cascading by seeking contractual commitments from business partners in the value chain.

However, contrary to the UNGPs’ recommendations, there is no requirement that the company actively engages with business partners in its value chain to enhance due diligence cascading. Moreover, the provisions on involving potential or actual victims (‘affected stakeholders’) meaningfully in the development of prevention action plans, let alone the identification and redress of risks and impacts, lags behind the UNGPs.

In line with the UNGPs and OECD Guidelines, ceasing business relationships is not considered the first option. Rather, collaboration should be sought in order to advance better practices. If that is not possible, cessation a relationship may be appropriate.

Companies must also set up a complaints mechanism that can be used by affected individuals, trade unions and civil society organisations. Moreover, companies must regularly monitor their operations and due diligence processes, those of their subsidiaries and ‘established business relationships’ in the relevant value chain. They must also regularly report on these non-financial issues. 

Overall responsibility for the due diligence actions is charged on a company’s directors as part of their duty of care.

Enforcement: administrative and civil liability

Companies’ compliance will be monitored by authorities in each EU country. They may request information from companies and carry out investigations based on complaints by individuals or organisations, or on their own initiative. They may impose interim measures to try to stop severe or irreparable harm, and sanctions for violations of the due diligence requirements.

Companies will not be entitled to public support if they have been issued with sanctions under the directive. 

Importantly, companies can be subject to civil liability for damages resulting from a failure to adequately prevent a potential harmful impact or bring an actual impact to an end. Civil liability means that victims (or in the terminology of the UNGPs and OECD Guidelines: ‘affected stakeholders’) must themselves sue the company. 

A step forward for accountability and victims – but multiple challenges remain

The institution of civil liability for third-country victims in front of courts in EU-based companies’ home states is clearly an advance in regard to establishing formal accountability. However, the complexities of the legal system, especially for those seeking damages through civil liability, can hardly be overestimated. This challenge has been absent from most discussions leading up to the current draft Directive.

By contrast to criminal courts, civil courts generally make judgments based on the ability of one party to convince the court of its arguments. Research has shown that formal civil liability regimes tend to favour those who have the legal knowledge resources to do so. A market based good, legal expertise can be very expensive. The better the record in obtaining results that a client wants, the higher the cost. This may cause a highly problematic discrepancy between the possibilities of victims/affected stakeholders and companies to argue their case. Even if some victims are able to be assisted by civil society organisations, their legal expertise for arguing a case in court, or their resources to obtain such expertise, will not necessarily match those of companies.

Moreover, the civil liability regime focuses on economic damages and compensation. Although that may be relevant in some cases, in others a sum of money does not adequately redress harm suffered. Indeed, the UNGPs emphazise that remedy can take many forms of which economic compensation is only one. 

Arguably, the draft Directive falls short of adequately considering the situation of victims in non-EU countries in regard to having not just formal but actual meaningful access to justice in front of courts. It presents an approach to remedy that does not necessarily fit the complex situations and limited resources of victims/affected stakeholders. It is to be hoped that as the draft will be negotiated and amended towards the version that may be adopted, this issue will gain further prominence.

Conclusion 

The draft directive is an important development towards ensuring that companies based or operating in the EU take steps to identify and manage their harmful impact on the environment and on human rights, and to provide accountability. Although the draft does not cover all EU-based companies, it does cover the largest ones, and large ones in the textile, renewable and non-renewable natural resource extraction, all of which are known to be high-problem sectors. However, the affected stakeholder engagement, remedy and accountability provisions of the draft display too limited understanding of the situation of victims/affected stakeholders.


About the Author

Karin Buhmann is Professor of Business and Human Rights at the department of Management, Society and Communication at CBS, as well as the Director of the Centre for Law, Sustainability and Justice at University of Southern Denmark. Her research and teaching focus on sustainability and responsible business conduct (RBC) with a particular emphasis on social issues, especially in climate change mitigation, business responsibilities for human rights, and sustainable finance.


Photo by Guillaume Périgois on Unsplash

Moving towards mandatory CSR – EU’s mandatory Human Rights Due Diligence proposal

By Johanna Jarvela

◦ 2 min read 

Last March European parliament gave a proposal to create mandatory Human Rights Due Diligence directive. The aim is to prevent human rights and environmental harm in a more efficient way, through regulation. The commission proposal is based on the UN Guiding Principles on Business and Human Rights and has three core elements: firstly, companies should themselves assess the risks of human rights violations in their supply chains, secondly, take action together with the stakeholders to address identified threats, and lastly – and most importantly – offer a system for access to remedy for those whose rights have been violated.  The commission is expected to give their resolution on the matter before Christmas, though the decision has been delayed already few times.

The EU proposal can be seen as a part of a continuum towards more mandated forms of corporate social responsibility (CSR). Traditionally CSR has been defined as something voluntary that companies do in addition to the letter of law in response to stakeholder pressures and societal expectations. At the level of individual organisations this has meant providing societal good through philanthropy and partnerships with NGOs or avoiding harm by improving the sustainability of business operations. Also, a great number industry level voluntary standards have been invented to solve the environmental and labour issues in transnational supply chains (Fair trade and Forest Stewardship Council being good examples). 

However, the past 20 years of voluntary measures have not been able to eliminate human rights violations in business operations. Indeed, it seems that voluntariness works for inspiring collaboration and innovating for better world.

In situations of wrongdoing, exploitation, and harm, stronger frameworks are needed to hold organizations accountable and offer remedy to victims. 

The recent development towards more mandated forms of corporate responsibility, like the French Due Diligence reporting Act or the UK Modern Slavery act, can be seen as efforts to respond to the accountability deficit. In June this year Germany passed a HRDD law stipulating that companies must identify risks of human rights violations in their supply chains and also take countermeasures. Also, Norway passed a similar law that requires companies to conduct human rights and decent work due diligence. Similar issues have been discussed in most of European governments.

There are caveats in creating this type of regulation. It might lead to tick-the-box type of exercises without true consideration for the human rights risk, burden companies if not given enough time and guidance to adjust, and transparency reporting does not seem to be enough to change business behaviour. One of the most difficult, yet most important, area in developing the new binding standards is the pillar three of UNGP: Access to Remedy. This pillar tries to ensure that in cases of violations, the victims will have a channel to make claims and receive remedy. Whether it should be civil or administrative liability or whether there should be an ombudsman in each country receiving complaints or via whistleblowing is all still in the air. What is clear is that whatever the final design of well-functioning HRDD system requires inputs and cooperation from businesses, civil society, and governments alike. Companies know best their supply chains, but sometimes NGOs may be a useful counterpart for identifying the risks and setting up stakeholder consultations. Finally, governments should be final proofers of the system ensuring accountability and enforcement. 

While some industry associations have raised concerns about the new regulations and the ability of European companies to oversee operations elsewhere, companies also evaluate that the new EU directive might level the playing field and give them a new tool in managing supply chains. Indeed, it seems that we are moving towards regulated CSR not only within EU but globally. UN has launched an intergovernmental working group to prepare a binding treaty on Business and Human Rights, there is an initiative for  minimum global corporate tax and efforts to close tax havens. More and more reporting is expected by companies, not only as increasing ESG reports to shareholders but more and more also as part of the mandatory legal requirements. 

Societal expectations are one of the key drivers for CSR. According to the latest polls it seems that European citizens and consumers expect the companies to upkeep good human rights and environmental standards within their global supply chains. 


About the Author

Johanna Järvelä,  is a postdoc researcher at Copenhagen Business School and member of the advisory committee for Human Rights Due Diligence Law in Finland. Her research focuses on the interplay of public and private governance in natural resource extraction and she’s especially interested in exploring how steer private sector towards providing societal good. 


Photo by Lan Nguyen on Unsplash

How the EU Taxonomy Impacts Businesses Beyond Europe

By Andreas Rasche

 4 min read ◦

In 2020, the EU launched its classification system for environmentally sustainable economic activities, the so-called “EU Taxonomy Regulation” (hereafter: the Taxonomy). The Taxonomy is part of an integrated system of new EU-wide sustainability regulations, including new disclosure requirements for investors. While the Taxonomy is based on EU regulation, it can be expected that it will also have effects on businesses beyond Europe. 

Basically, there are two ways in which the Taxonomy can affect non-EU companies. First, there are direct regulatory effects on non-EU companies. Because of the global nature of financial markets and the existence of global trade flows, non-EU companies will be directly exposed to the Taxonomy in different ways. Secondly, there will also be more indirect consequences, which I call “ripple effects”. Such effects exist because the Taxonomy raises the bar globally for how sustainability information should be disclosed, by whom it should be disclosed, and it which ways it can be disclosed. I briefly discuss both effects. 

Direct Effects 

In the short run, some non-EU companies will be exposed to the Taxonomy because of direct regulatory effects. Consider the following two examples: 

  • A non-EU investor or financial advisor that wants to offer products on the European markets will be exposed to the Sustainable Finance Disclosure Regulation (SFDR) which requires an alignment with the EU Taxonomy. To offer financial products on European markets non-EU investors will therefore have to align with SFDR and hence the Taxonomy.  
  • A non-EU company with EU-based investors is very likely to receive questions from these investors about the company’s alignment with the Taxonomy. Investors need this information to meet disclosure requirements under SFDR, for instance to classify their financial products in terms of their sustainability exposure. In other words, at least some non-EU companies will start disclosing more on Taxonomy-related indicators. 

I could list more examples here (e.g., non-EU asset managers wanting to raise money in the EU), but the message is clear: the effects of the Taxonomy are not limited to businesses located in Europe. Particularly, the Taxonomy’s interaction effects with SFDR will affected non-European companies as well as investors.  

Ripple Effects

Ripple effects are more indirect effects. They occur if an intervention, such as the introduction of a new regulation, creates further effects that reach beyond the system that was supposed to be influenced by the intervention. Such regulatory ripple effects can occur in different ways.

In the context of the Taxonomy, one important ripple effect is related to the practices of European businesses. Many of these businesses are global players, and they will apply the Taxonomy to their global operations regardless of whether these operations occur in a country that is legally covered by the Taxonomy. Sustainability reporting is usually done at the corporate level and therefore also includes firms’ non-European operations. The EU’s new disclosure regulation the Corporate Sustainability Reporting Directive (CSRD) will require that such reporting at the corporate level is taxonomy-aligned. In this way, European global players will “export” the Taxonomy to other parts of the world.

There are also ripple effects at the political level. The system of new EU legislation – including, the Taxonomy, SFDR, CSRD and other regulatory elements – is unique in the world. So far, no other region or country has a comparable system. However, the major economic regions in the world have also realized that future business will be difficult without sustainability-related regulations that enhance transparency and prevent greenwashing.

Consider two recent examples: In June 2021, the UK announced the creation of a Green Technical Advisory Group. This Group is supposed to develop and implement a UK green taxonomy, which is expected to be based in part on the EU Taxonomy system (e.g., in terms of metrics). In the US, President Biden signed Executive Order (EO) 14008 during his first days in The White House. While this EO does not aim at creating a US-based taxonomy, it has created a National Climate Task Force across different federal departments, which at least some see as an important step into the direction of more rigorous ESG-related regulation. 

Other countries and regions are likely to look to Europe when thinking about how to design a workable taxonomy regulation, as the challenges that have driven the creation of the EU Taxonomy are the same throughout the world: we need more transparency around sustainable economic activities, we need to better benchmark firms’ sustainable activities, and we we need to prevent greenwashing.

It is too early to say whether there will be convergence among the taxonomies developed by different countries and regions, but one thing is for sure: they are here to stay… 


About the Author

Andreas Rasche is Professor of Business in Society and Associate Dean for the Full-Time MBA Program at Copenhagen Business School. More at: www.arasche.com


Photo by Krzysztof Hepner on Unsplash

Are we asking the wrong questions in corporate social responsibility (CSR) research?

By Rikke Rønholt Albertsen

 3 min read ◦

The sustainability contributions of business are under increased scrutiny in society. Observations of greenwashing, blue-washing, corporate hypocrisy, and decoupling suggest the existence of an intentional or unintentional gap between espoused CSR strategies and actual sustainability outcomes at the societal level. In other words, there seems to be more “talking” than “walking”.

This has inspired a growing concern in parts of the CSR research community that maybe we have been asking the wrong questions. Is it possible that in some ways we are contributing to this gap between strategy and impact?

Next year, an entire subtheme of the annual European Group for Organisational Studies (EGOS) conference will be dedicated to “Rethinking the Impact and Performance Implications of CSR”. This subtheme will address the tendency in CSR research to focus on outcomes at the organisational level without analysing impacts at the societal level.

There are valid reasons for limiting the scope of CSR research in this way: from an organisational performance perspective, many of the traditional success criteria for CSR policies—such as strengthening legitimacy, market position, and employee satisfaction—do not require data to be gathered on sustainability impact from a societal perspective.

However, the urgency and magnitude of the current global crisis related to climate, biodiversity, and social inequality fuels the expectation that corporations should acknowledge their role in creating these crises and take decisive action to be part of the solution. From this perspective, one would expect CSR research to provide knowledge of how, when, and why CSR policies and practices truly contribute to solving sustainability challenges. Yet, as a review of current CSR literature shows, this is rarely the case [1].

So what constrains CSR researchers from addressing this impact gap? In the following, I will highlight two interrelated mechanisms that have emerged from my research.

1) Sustainability impact is non-linear, systemic, and complex.

The problem with measuring sustainability impact is that it does not conform to conventional systems of measurement and reporting. Company CSR reports primarily provide key performance indicators linked to resource use per unit of production or list company policies and protocols to ensure compliance with various sustainability standards. In general, companies tend to (self) report on the successful implementation of their (self-imposed) CSR strategy, which happens to align with existing business objectives. However, as dryly noted by former environmental minister and EU commissioner Connie Hedegaard: the need for CO2 reductions is not relative; it is absolute! The melting Arctic poles do not really care that a company has made an effort to reduce its relative emissions if the net result is still more CO2 [2].

The negative impact on ecosystems is subject to irreversible tipping points where effects compound and accelerate. Thus, the societal impact of a sustainability policy or protocol cannot merely be assessed at the organizational level. It must be traced up and down the value chain and checked for unintended systemic consequences and hidden noncompliance [3]. Think of ineffective emission off-set schemes or families impoverished by bans on child labour. Ultimately, being “less bad” does not necessarily amount to being good.

2) Researchers do not have the necessary information.

Analysing the societal impact of corporate CSR policies and practices is a highly resource intensive task, which requires an entirely different set of research skills and data access than traditional organisational research. Instead, researchers most often opt to evaluate sustainability performance through estimations, perceptions, and narratives offered by company staff in surveys and interviews [1]. This data is context specific and prone to subjective biases, making it difficult to draw objective conclusions about societal impact.

Consequently, because there is so little existing knowledge of the link between CSR initiatives and societal impact, the CSR contribution of corporations is primarily assessed based on compliance with reporting standards and commercial rating initiatives such as the Dow Jones Sustainability Index [4]. This, for lack of better options, becomes the go-to objective indicator of CSR performance used by CSR researchers. Through this self-fulfilling circular logic, these indicators are used to identify CSR high performers for research on best practice. CSR research thus potentially perpetuates the perception of what successful CSR policies and practices look like—all without examining the societal impact of these practices.

Is this a problem?

Just as corporations increasingly realise that addressing CSR issues is no longer optional, we as CSR researchers may need to move beyond asking how, when, and why corporations engage with sustainability and begin asking how, when, and why corporations contribute to sustainability. If we do not, we risk losing our relevance when corporations look to academia for guidance on how to design and implement CSR strategies based on maximum impact rather than just maximum compliance and minimal risk.

We are challenged to expand our field of enquiry and be innovative when assessing how the observed means ultimately align with desired ends. This will require forging research alliances with new knowledge fields and establishing relationships with new groups of informants beyond company employees. The first step, however, is to rethink the questions we ask.


Further reading

[1] J.-P. Imbrogiano, “Contingency in Business Sustainability Research and in the Sustainability Service Industry: A Problematization and Research Agenda,” Organization & Environment.

[2] C. Hedegaard, “Farvel til ‘logofasen’ -nu har vi set nok grønne slides,” Berlingske, 2020. [Online].

[3] F. Wijen, “Means Versus Ends In Opaque Institutional Fields: Trading Off Compliance And Achievement In Sustainability Standard Adoption,” The Academy of Management review.

[4] M. Zimek and R. J. Baumgartner, “Corporate sustainability activities and sustainability performance of first and second order,” 18th European Roundtable on Sustainable Consumption and Production Conference (ERSCP 2017).


About the Author

Rikke Rønholt Albertsen is a PhD Fellow at the Department of Management, Society and Communication at Copenhagen Business School and a member of the multidisciplinary CBS Sustainability Centre. Her research focus is on exploring and understanding gaps between the espoused sustainability objectives of corporations, and their actual contribution to sustainability. She has a background in consulting at Implement Consulting Group and in sustainability advocacy as co-founder of Global goals World Cup

LinkedIn Profile.


Photo by Emily Morter on Unsplash

Unaccounted Risk: The Case of Sulfur Hexafluoride (SF6) in Offshore Wind Energy

By Esben Holst & Dr. Kristjan Jespersen

◦ 5 min read 

Carbon accounting provides a science-based measurement of greenhouse gas (GHG) emissions, achieving greater accountability of companies’ emissions causing global warming. GHGs are reported in CO2 equivalents (CO2e), meaning GHGs with widely different chemical qualities and environmental impact can be presented in a single understandable metric. However, the underlying methodology is debatable. This article questions whether the CO2e of Sulfur Hexafluoride (SF6) is misreported.

What is SF6 and why is it a hurdle for a green energy transition?

SF6 is used as an insulator in a wide variety of electrical equipment, mainly to prevent fires in incidents of short circuits. It is found in transformers inside windmills, offshore and onshore substations, and in power cables.


(Illustration to the left shows a sideview of a windmill turbine – Source: CAT-Engines. Right: an offshore wind energy system – Source: Nordsee One GmbH)


SF6 is a synthetic man-made GHG and cannot be reabsorbed naturally like CO2, meaning once emitted, it does irreversible damage. Most GHGs remain in the atmosphere around 100 years – SF6 remains for 3,200 years. These numbers are given by the Greenhouse Gas Protocol (GGP) based on calculations by the Intergovernmental Panel on Climate Change (IPCC). 

The IPCC’s metric Global Warming Potential (GWP), reveals environmental harm of a given GHG in CO2e. What then, makes SF6 problematic when converted into CO2e? SF6 has a GWP 23,500 times higher than CO2 – a value that is difficult to comprehend. The GWP metric is calculated using a 100-year timeframe based on GHG’s environmental harm. Yet, SF6 has an atmospheric lifetime of 3,200 years, essentially leaving 3,100 years of environmental harm unaccounted for. Using a simple logarithmic function incorporating IPCC data accounting for the missing 3,100 years, the GWP almost doubles. As illustrated below, this indicates how SF6 may be misrepresented in terms of environmental harm in CO2e emissions reporting.



As found by AGAGE – MIT & NASA, other worrying trends are observed. The atmospheric concentration of SF6 has more than doubled in the past 20 years. Luckily, its current concentration in the atmosphere remains low relative to other GHGs such as Methane or Nitrous Oxide.


Source: AGAGE


Regardless, the GWP of these two GHGs pales in comparison to the mindboggling detrimental effect of SF6 on the environment. Emitting this gas should therefore be strictly regulated.

Greenhouse Gas Emissions Reporting – Diverging Approaches

It only takes a little digging into offshore wind energy players to uncover diverging conversion methods of SF6 into CO2 equivalents (CO2e). The GHG emissions reporting methodologies of industry leaders use different emissions factors to convert SF6 into CO2e. An example of underreporting is illustrated by Vattenfall in their 2019 sustainability report, reporting SF6 as 15,000 times more potent than CO2. The emissions factor given by the GGP is 23,500. Ørsted uses a GGP emissions factor for the same gas in their 2019 ESG report. Yet, while Energinet also states it uses the GGP reporting framework in their 2020 CSR report, it uses an emissions factor of 22,800. The ownership distribution between Vattenfall and Ørsted in the Danish wind farm Horns Rev 1 of 40% and 60% respectively, thus blurs accountability and severity of reported emissions. As highlighted by the BBC, atmospheric concentration of SF6 is ten times the reported amount by countries. The IPCC and GGP are also aware of this.

During the past decade…actual SF6 emissions from developed countries are at least twice the reported values. (Fifth Assessment Report of the IPPC)

Measuring Impact of SF6 Leaks by Offshore Wind Players

SF6 emissions will rise exponentially alongside expanding electrified energy infrastructure using equipment containing this gas. This, together with repeated SF6 leaks, perpetuates the worryingly steep upward trend in atmospheric content of SF6 shown above. In 2020, Energinet reported a leak of 763.84kg SF6, or 17,950,240kg CO2e. The environmental impact of this leak is about the same as the emissions of 53 SpaceX rocket launches. Energinet has since admitted to years of underreporting of SF6, leading to amended SF6 emissions related to normal operations doubling.

Leaks of SF6 are too common. In Ørsted’s 2020 ESG report, a major leak at Asnæs Power Station was mentioned without disclosing the actual amount – withholding important risk-related data from investors. However, Energinet disclosed an SF6 leak of 527kg at that same facility in their 2020 CSR report. The leak for which Ørsted is responsible, yet feels is not material to disclose, is therefore potentially around 12,384,500kg CO2e. Indicating light at the end of the tunnel, Vestas has included SF6 on their Restricted Materials list since 2017, as well as introducing a take-back scheme for infrastructure containing this gas – setting a better example for business models of our green energy transition leaders.

Strengthening the Global Response to Climate Change Risk

It is vital that we understand SF6 is so detrimental to fighting climate change beyond 2100 that it has no place in sustainable business models today. Even if CO2 emissions are reduced in alignment with 2100 Paris Agreement goals, reporting in a 100-year timeframe will not save a planet billions of years old. GHG reporting must be better regulated and scrutinised in order to deliver a truly green energy transition. Releasing a gas causing irreversible damage cannot be an acceptable trade-off for a short-term “green” transition. While most company reports claim no alternatives exist, this is not true. Therefore, SF6-free equipment must be mandatorily installed.

A green transition goes beyond 2100, yet poor regulation enables energy companies to present SF6-CO2e favourably by using lower emission factors. Offshore wind energy players have not provided comparable, accountable, and transparent reporting – indicating stricter regulations on GHG reporting are necessary.

The Way Forward: Better Regulation

In 2014, an EU regulation banned the use of SF6 in all applications except energy after lobbyists argued no alternatives exist. The EU acknowledges the environmental harm of SF6, yet EU action has been described as inadequate. Asset managers, institutional and retail investors are exposed to hidden environmental risks related to SF6 in terms of double materiality. Double materiality referring to the financial costs related to management of SF6 incurred once completely banned. Non-financial reporting of GHG emissions and CO2e needs to be regulated far more than current global regulations. Investors, society, and most of all our environment deserves better protection.


NOTE: This article is based on a Copenhagen Business School (CBS) research paper in the course ‘ESG, Sustainable & Impact Investment’ taught by Kristjan Jespersen – Associate Professor at CBS – as part of the newly introduced Minor in ESG. The paper questions the greenness of wind energy by using the case of three large offshore wind energy farms in Denmark: Horns Rev 1 & 2 and Kriegers Flak. The findings are based on ESG, sustainability & annual reports from 2015-2019 of all involved OEMs, manufacturers, operators, and energy grid providers. Implications of the findings point to a coming hurdle within the electrification of a global green energy infrastructure transition. 


About the Authors

Esben Holst, an SDG and CSR research intern at Sustainify, is a Danish-Luxembourgish masters student at Copenhagen Business School. Besides attending the newly introduced Minor in ESG at CBS, his past studies focus on international business in Asia and business development studies.

Kristjan Jespersen is an Associate Professor at the Copenhagen Business School. He studies on the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.


Photo by Karyatid on Unsplash

SFDR, NFRD and the EU Taxonomy – What is their relationship?

By Andreas Rasche

◦ 5 min read 

The new Sustainable Finance Disclosure Regulation (SFDR) is on the minds of many investors these days. While a lot has been written on SFDR itself, I discuss how it relates to the Non-Financial Reporting Directive (NFRD) and the EU Taxonomy on sustainable economic activities. Taken together, these regulations can be overwhelming and maybe even confusing. While this is not the right place to comprehensively discuss all three regulations, I make some clarifications on their interlinked nature. 

SFDR, NFRD, and the EU Taxonomy – What are we Talking About? 

To start with, let us briefly review the three legal instruments, all of which belong to a series of EU regulations under the EU Action Plan on Sustainable Finance.

  • NFRD is the EU legal framework for regulating the disclosure of non-financial information by corporations. It was adopted in 2014 and states that corporations have to report on ESG information from 2018 onwards (for the 2017 financial year). NFRD is rather flexible – it applies only to so-called “public interest entities” (basically rather big corporations) and it contains so-called comply-or-explain clauses (allowing for non-disclosure of information if this is made transparent and reasons are given). 
  • SFDR is the new EU regulation that introduces rules for financial market participants (FMPs) and financial advisers (FAs) to report on how they account for sustainability risks. SFDR applies at the “entity level” (i.e. requiring financial firms to report on how the whole organization deals with such risks) and also on the “product level” (i.e. requiring firms to report on how their financial products are affected by such risks). SFDR contains few comply-or-explain clauses (e.g., smaller firms, with less than 500 employees, can opt out of reporting on due diligence processes). The regulation asks all FMPs and FAs to report on sustainability risks even if they do not offer ESG-related products. If an entity offers ESG-related products, SFDR requires additional disclosures depending on how “green” the product is considered to be. SFDR came into force on 10 March 2021. 
  • The EU Taxonomy regulation (hereafter: the Taxonomy), which entered into force 12 July 2020, reflects a common European classification system for environmentally sustainable activities. Basically, the Taxonomy tried to answer the question: What can be considered an environmentally sustainable activity? Answering this question is essential for investors to prevent “greenwashing” – i.e. a situation in which financial products are marketed as being sustainable without meeting sustainability criteria. The taxonomy defines six environmental objectives, and it defines an economic activity as sustainable if this activity contributes at least two one of these objectives without, at the same time, doing significant harm to any of the other objectives. 
Differences and Commonalities 

To start with, it is important to note the different legal status of SFDR/the Taxonomy as well as NFRD. NFRD is based on an older EU Directive (2014/95/EU). Directives imply that EU member states have to translate the broad requirements into national regulation. By contrast, SFDR (2019/2088) and the Taxonomy (2020/852) are both based on European regulation, which is immediately enforceable and does not require transposition into national law. 

To understand how the three legal frameworks relate to each other, look at the Figure below. NFRD applies to corporations of all kinds. Hence, for investors NFRD is mostly relevant because it stipulates how investee companies report ESG data. SFDR, by contrast, most concerns financial market actors and ensures transparency about how these report on sustainability risks to their audiences (e.g., retail investors). The Taxonomy was introduced to have a common reference point when trying to figure out whether an economic activity really is sustainable. The Taxonomy therefore has the power to further specify the regulations set out in SFDR and NFRD. 

source: Andreas Rasche
Emerging Relationships  

The linkages between the three frameworks will be further specified throughout the coming years. While SFDR has been in force since 10 March 2021, it is only in the so-called “level 1 stage of development”. As with many EU regulations, level 1 development sets out the basic framework principles for a regulation, however without specifying technical details. SFDR level 2 will come into force once the regulation is complemented with Regulatory Technical Standards (RTS), which are developed right now. The RTS will also specify the linkages to the Taxonomy in more detail (e.g., related to the “do-no-significant-harm” concept inherent in SFDR). 

So, what can we say right now? The current versions of SFDR and NFRD do not yet link disclosures to the Taxonomy. This is likely to change, especially with the SFDR RTS being further specified and rolled out (in early February the European Supervisory Authorities released their final draft of the SFDR RTS). Moreover, the NFRD regulation is currently under consultation and will be revised in the near future. However, two important linkages are important to consider right now.  

  • First, the scope of the Taxonomy is defined through NFRD and SFDR. In other words, if an organization is affected by NFRD and/or SFDR, the Taxonomy will also be relevant for its disclosure practices. It is important to note here that the EU Taxonomy defines further mandatory disclosures in addition to what is laid out by NFRD and SFDR. 
  • Second, the Taxonomy asks companies (incl. asset managers) to report the percentage of their turnover and capital as well as operational expenditures that are aligned with the Taxonomy. It also asks asset managers to report the percentage of their portfolio which is invested in economic activities that are aligned with the Taxonomy. 
The Future

We will witness a good deal of technical specifications of all three regulations throughout the next years. SFDR level 2 reporting will kick in once the RTS standards are part of the reporting (probably by mid-2023); also by 2024 year-on-year comparisons of data points under SFDR will be likely mandatory. The six environmental objectives of the Taxonomy will be specified through technical screening criteria, some of which will be released very soon. 

It is good to see non-financial reporting and sustainable finance being backed by strong European regulations. It allows for more comparison and benchmarking and hence transparency. But, of course, we should also be prepared for a good deal of clarifications that will be necessary until institutionalized reporting cycles can fully kick in and unfold their potential. 


About the Author

Andreas Rasche is Professor of Business in Society at the Copenhagen Business School (CBS) Centre for Sustainability. His latest book “Sustainable Investing: A Path to a New Horizon” (with Georg Kell and Herman Bril) was published recently. Email: ar.msc@cbs.dk Homepage: www.arasche.com

Portfolios at risk of Deforestation

How can financial investors better understand underlying risks and act accordingly

By Amanda Wildhaber, Dominik Wingeier, Jessica Brügger, Nico Meier, and Dr. Kristjan Jespersen

◦ 4 min read ◦

Forests play a crucial role in tackling climate change and protecting biodiversity. Around 12 million hectares of tropical forest worldwide were lost in 2018 and approximately 17% of the loss stem from the Amazon alone. The main drivers of deforestations are soy, palm oil, cattle and timber production. As deforestation may harm a company’s reputation, directly affect its supply chains and increase regulatory risks, many institutional investors are concerned about the impact deforestation can have on their portfolio companies.

How can deforestation be measured?

The definition of deforestation risk from an investor’s perspective is difficult to lock-in because different frameworks and approaches focus on different aspects of the risks. The amount of information and the lack of transparency can be overwhelming to financial investors. Therefore, a helpful framework for financial institutions to systematically evaluate the deforestation risk management of portfolio companies has been developed. The framework is divided into two parts, an internal assessment of a company’s commitments and achievements regarding deforestation and an external assessment of outside policies related to deforestation, namely binding laws and private sector initiatives. The framework may serve to complete a scorecard which gives an overview of how well prepared a specific portfolio company is and if it is able to deal with deforestation risks and future regulatory changes. The final scorecard reflects the deforestation risk of financial institution’s portfolio companies.

Is voluntary support sufficient?

Many companies voluntarily support sustainability initiatives and follow zero deforestation commitments (ZDCs) to signal their intention to reduce deforestation associated with the commodities in their supply chain. The reasons behind their commitments include demonstrating corporate social responsibility (CSR), reducing the risk of potential reputational harm and supply chain disruptions. To understand the value of these commitments in mitigating deforestation and associated risks, it is important to critically analyse them in terms of their scope, effectiveness, monitoring and achievements. This includes for example, assessing how companies define deforestation and whether they systematically measure the compliance with their commitments.

External pressure to facilitate internal commitments

It is valuable to see companies implementing robust internal policies and commitments to manage and monitor their deforestation risk. However, it is also important to have external policies in place to hold companies accountable. There are two types of external policies the proposed framework is based on.

  1. The first type are binding laws which apply for portfolio companies and thus represent a regulatory risk. The EU Timber Regulation (EUTR) of 2010, which prohibits the sale of illegally logged wood in the EU, is one example for such a binding law.
  2. The second type are initiatives by third parties, which are of a non-binding nature and complement the binding law. One such initiative is the Roundtable for Sustainable Palm Oil (RSPO), which is an initiative by private companies as well as external parties targeted to eliminate unsustainable palm oil production.
How do the companies score?

Based on the assessment of the two pillars of the framework – internal and external – a scorecard is derived which assists investors to better understand how a portfolio company or a new potential investment is managing its deforestation risk. Answering questions with scores from 1 to 3, whereby 1 is the best score and 3 the worst, the proposed scorecard allows the quantification of the deforestation risk management of a company. While the distinction between 1, 2 or 3 is not always straightforward, the final score gives a tangible assessment of how well a company is positioned to manage its deforestation risks and associated future regulatory changes. The following scorecard provides an overview of the assessment and indicates how well Nestlé is managing deforestation risks.

Having such a scorecard allows investors to manage and mitigate the deforestation risks they face in their portfolios. In addition, the final scorecard enables investment analysts to directly compare potential investments with other companies and can be used as a parameter in the investment process.

The call for action is getting louder

New regulatory requirements, growing public scrutiny and extended private sector initiatives (such as the investor-led initiative Climate Action 100+), mean that it is becoming increasingly important to properly manage deforestation risks. This is also becoming a key concern for financial investors and it is time to think about systematic approaches on how to include deforestation into the investment process. The proposed framework is intended to serve as a starting point for just that. It allows a quantification of deforestation risk and the identification of critical factors. Building the basis upon which investors can engage with companies. This is a first step to support the mitigating of not only financial but also ecological risks.


About the Authors

Amanda Wildhaber is completing her masters in Economics at the University of St. Gallen. She works as a Junior Consultant in the Strategy team of Implement Consulting. Her interest in ESG and sustainable investments developed when she wrote her bachelor thesis on social enterprises in India.

Dominik Wingeier is studying master’s in Banking and Finance at University of St. Gallen. Dominik has been working for BlackRock where he was responsible for executing and monitoring primary, secondary and direct investments in infrastructure projects.

Jessica Brügger is studying master’s in Business Innovation at the University of St. Gallen. Jessica is currently a board member of the Private Equity & Venture Capital Club of the University of St. Gallen and is particularly interested in making the financial industry more attractive to women.

Nico Meier is studying master’s in Accounting an Finance at the University of St. Gallen. Nico has been working at BLR&Partners where he is responsible for private equity investments. Additionally, he has experience providing M&A, ECM and DCM services.

Kristjan Jespersen is an Associate Professor at the Copenhagen Business School. He studies on the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance.


Source: photo by Justus Menke on Unsplash

Is Pollution the Only Road to Business Prosperity?

Sustainable Visioning as a driver of Corporate Transformation

By Heather Louise Madsen

◦ 4 min read ◦

CO2 reduction is a hot topic for almost every company today. Here the focus is not just on the CO2 generated by the company itself, but also on the carbon emitted along its value chain. The problem is that changing processes, or even products and services, to make them more environmentally friendly can be a daunting and costly task. This can leave CEOs and other top managers wondering what the real cost and impact of CO2 reduction is, where to start, and whether it is even possible to create a prosperous business without generating pollution.

In answer to many of these tough questions, an increasing number of companies are succeeding in reducing carbon and completely transforming their businesses into sustainable and profitable powerhouses, using a combination of strategic vision and sustainability orientation.

A new CEO for a Company Topping the Sustainability Ranking Charts

January 1st, 2021 was Mads Nipper’s first day as CEO of the Sustainable Energy Giant Ørsted. And before the end of his first month in this new position, Ørsted ranked the most sustainable energy company for the third year in a row, and the second most sustainable company in the world after Schneider Electric. This raises the question, what is Nipper’s position on sustainability,  and are these views important for his role as CEO of Ørsted?  

In 2016, as the then CEO of Grundfos, Mads Nipper gave a presentation for the Global Compact Leaders Summit in New York where he stated: “I represent an SDG 6 and 13 company, who also happens to be the biggest water pump company in the world.” The UN Sustainable Development Goals (SDGs), representing a global platform and common language for addressing 17 core sustainability issues and their impact, also figure prominently in Ørsted’s corporate language. From Annual Reports to investor letters, Ørsted identifies SDG 7 (energy) and SDG 13 (climate action) as their primary impact areas. This indicates that there may be some very fundamental alignment between Nipper’s visionary statement and the mindset of his predecessors at Ørsted.

What led Ørsted to up-end their core business and undertake a sustainable transformation?

In 2001, Ørsted (then DONG Energy) hired CEO Anders Eldrup, just as Denmark was going through a liberalization of the electricity and gas sectors, which was putting extreme financial pressure on the company. Eldrup was the former Danish Secretary of State, and as such had extensive experience with both financial and political mechanisms. Seeing an opportunity to take advantage of an emerging political demand for climate action and policies to accelerate the development of offshore wind, Eldrup began increasingly to focus innovation resources on offshore wind and renewable energy, while the primary business of the company remained oil and gas. As renewable energy subsidy schemes increased in Denmark and the EU in the years that followed, Eldrup formulated a new company strategy that was released in 2009 called 85/15: “to transform our company from a situation of 15% renewable energy and 85% of fossil-fuel based energy to the opposite”. Jakob Askou Bøss, Head of Strategy and Communication at Ørsted, identified the strategic analysis of CEO Anders Eldrup as “The driving force behind formulating the new vision of the company,“ referring to the 85/15 objectives.

Despite the sacrifices that would need to be made as the core competencies of the company would have to be completely re-designed and transformed to focus on not-yet price competitive technology, the decision had been made. And this strategy was then further anchored to sustainability with Ørsted’s vision: “creating a world that runs entirely on green energy”. This vision made explicit the desire to reach outside of the organization with their “green” aspirations, connecting not only to ideals of wealth and prosperity, but also to planetary concerns.

These ‘green aspirations’ were then followed up by Eldrup’s successor Henrik Poulsen, who became Ørsted’s CEO in 2012. As stated by Poulsen:

“In the world of energy, the fundamental challenge we face is to transform our energy systems so that more and more of the energy we generate comes from renewable sources such as wind power, biomass and solar energy.”

Ørsted, Our sustainability reports, 2012, DONG Energy’s GRI Reporting 2012  

Poulsen then backed these aspirations by setting very specific targets for the company including “quadrupling our offshore wind capacity, from 1.7 GW in 2012 to 6.5 GW in 2020“. By 2017 Ørsted had completely divested all upstream oil and gas. This was also the year that newly built offshore wind became cheaper than black energy for the first time in history. By the time Ørsted reached 2020, the company was ranked number 1 of more than 7500 international, billion-dollar companies in the Corporate Knights’ 2020 index of the Global 100 Most Sustainable Corporations in the World, making Ørsted the most sustainable energy company in the Global 100 index. As demonstrated by Ørsted, strategic vision and sustainability orientation were used as drivers for innovation, transformation  and growing the company’s sustainable business and investment portfolio. But how can Ørsted’s story help other businesses? The answer lies in sustainable visioning. 

How can sustainable visioning help businesses onto a path of prosperity AND sustainability? 

Sustainable Visioning is a new term defining the management process of combining a strong strategic vision with the acknowledgement of the necessity of committing more profoundly to people, planet and prosperity concerns.

Madsen & Ulhøi, 2021

The following are guiding principals of sustainable visioning that Ørsted can be seen as applying, and which may be able to help other companies onto a similar path. First, in order for businesses to achieve sustainable visioning, they need to practice proactive, extroverted and visionary, rather than introverted approaches to sustainability. When working on sustainable innovations, it can also be wise to engage the Tripple Helix model including industry, universities and government working together. Innovation can also be usefully extended beyond products and services, to include business model innovation. This can help to navigate to a desirable sustainable future through direct planning, decisions, actions and behavior in all aspects of the business. And finally, taking a clear long-term orientation is also seen as important for sustainable visioning to be successful. 

In practice, following these key guiding principals of sustainable visioning may make it more likely to effectively link strategic visioning to long-term sustainability objectives, providing the necessary support for corporate growth and innovation needed to ensure a successful transformation.


Further Reading

Madsen, H.L., Ulhøi, J.P. 2021. Sustainable visioning: Re-framing strategic vision to enable a sustainable corporate transformation. J. Clean. Prod. 228.


About the Author

Heather Louise Madsen, Ph.D. is the PRME Strategy Manager at Copenhagen Business School, and has over ten years of professional experience working with sustainability. As a sustainability expert, she has worked with the organizational implementation of the UN SDGs in the private sector, and has extensive experience working with CSR, the UN Global Compact, carbon footprint reporting and social, environmental and economic sustainability. Heather is dedicated to topics of innovation, strategy, business transformation, organizational learning, business model innovation, renewable energy and sustainability.

Just announced: And the world’s worst company is …. Really?

Why naming a hardly known German company as the world’s most controversial company inadvertently makes a lot of sense

By Dieter Zinnbauer

Business bashing is a popular spectator sport in some quarters – sometimes justified, sometimes not. So there is certainly no shortage of strong contenders for the most controversial company contest. Who would be your pick for the 2019 shortlist? Perhaps one of the companies that led millions of people into opioid addiction? The biggest carbon dioxide emitter? Or someone from the big tech side that as many believe has ushered in a new, toxic era of surveillance capitalism?

Picking the unlucky winner is as difficult as it is subjective.  But as is always the case these days big data and AI are riding to the rescue. They are claimed to power an evidence-infused attempt by a boutique ESG consultancy to identify the most controversial company in the world. According to the inevitable marketing pitch, a secret-sauce algorithm churns through a proprietary database of millions of new and old media mentions for more than 140,00 companies to bring science to the art of naming and shaming and to reveal the 2019 most controversial company in the world.

And as just announced last week, the winner is:

Tuev Sued!

?

Tuev Sued?

If you are not a German car owner (the company is best known there for carrying out the obligatory and feared periodic car inspections) or an expert in technical certification issues you may have never come across this name before.

Tuev Sued is one of the big players in the global certification-of-everything business. Born as the Duev (“Dampfkesselueberwachsungsverein” – steam boiler inspection association) in 1800 to bring technical oversight to the issue of exploding steam boilers during the industrial revolution, the Tuev Sued (and its brother) Tuev Nord have grown into multinational enterprises that provide technical audits and certification services for an ever-growing number of products, processes and service across industries and across the world.

Arguably the main reason why Tue Sued was picked as the most controversial company (besides a weighing in favor of novel entries that guarantees sustainable newsworthiness to an annual ranking now in its 10th edition) is that it is implicated in the infamous 2019 Brumadinhu dam disaster in Brazil. A collapse of a dam erected by a mining company unleashed a toxic mudflow on the downstream communities that killed more than 250 people. Tuev Sued had carried out technical inspections of the dam and allegedly assessed it as safe. The case is still in court, no conclusive verdicts have been reached.

So is it fair to put the spotlight so fully on a comparatively small technical certification outfit, rather than say the big mining company that built and ran the dam?

Irrespective of what one thinks about the merits of this choice,  the case highlights what I would submit is one of the most fundamental and unresolved drivers of corporate irresponsibility: the persistent challenge to make all kinds of certification and assurance processes that are so essential to functioning markets and economies work as intended.

From the never-ending string of accounting and auditing scandals to the crucial role of rating agencies in the 2007+ financial crisis to emerging examples of greenwashing in the carbon market certification business, there as common thread: certification and assurance often fail to provide the independent, effective vetting that it is supposed to deliver.

Issues involved include:

  • the under-resourcing of the inspection process as neither principal nor agent have strong interests in overly strict and deep inspections,
  • pitching certification as loss leaders to open the door for upselling into other lucrative consulting services;
  • borderline rubberstamping of certifications to secure repeat business and avoid being viewed as difficult in the industry and thus putting off other potential clients.

Strengthening liability, setting more stringent standards for the standards watchdogs, tightening compliance measures and building public reputational pressure go some way to rework incentives towards more credible certifications.

But at the end of the day they are more ameliorative than tackling the root problem:

As long as certification services are selected by and directly paid for by the very clients that are meant to be certified, assured, rated or audited and as long as certification is strictly a for-profit business there are fundamental conflicts of interests at the root of these services that put their efficacy and independence at risk.

Ideas of how to rewire these markets and business models abound yet so far the problem of thin political markets seems to hold: both certifiers and certified have strong interests to preserve the status quo and formidable lobbying power to advocate for this, while the dull technical nature of the issues at stake and the dispersed group of beneficiaries from alternative solutions prevent a forceful, concerted push for better arrangements.

Yet there is hope that this fundamental conflict of interest issue will gain more prominence in the policy and public debates very soon. The emerging transformational push to de-carbonize businesses and economies relies in part heavily on carbon credits, carbon offsets and other green-impact instruments whose efficacy and the very reason for existence relies on proper certification and assurance.

 How to move beyond and away from issuer-directly-pays certification services will have to be an important part of the policy designs in the making.

Tuev Sued is a symptom of the problem – it is the systemic issue at the root of the case that justifies putting it into the spotlight – although it is unclear of the secret-sauce algorithm at work had this in mind when making the selection. 

Let’s hope that in twenty years’ time the idea of a rating agency, a dam examiner, a medical device inspector or a carbon credit certifier being selected by and paid directly by the people they are supposed to pass an independent judgment on appears as strange as the notion that a pharmaceutical company would be able to choose between different agencies to get its drugs approved and directly funds large parts of their budgets.


About the author

Dr. Dieter Zinnbauer is a Marie-Skłodowska-Curie Fellow at CBS’ Department of Management, Society and Communication. His CBS researches focus on business as political actor in the context of big data, populism and “corporate purpose fatigue”.

Twitter: @Dzinnbauer

Essays: https://medium.com/@Dzinnbauer

Working papers:  https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1588618

Photo by Icons8 Team on Unsplash

Better than nothing but still “exSASBerating”!

By Dieter Zinnbauer.

Why a powerful push by the world’s top asset manager towards more sustainability reporting still falls pretty short.

Great news

BlackRock, the world’s largest asset manager promises to leverage its weight and voting power for more consistent and comprehensive corporate reporting on sustainability. And this includes corporate lobbying.

Good news

The Sustainability Accounting Standards Board (SASB) standard that BlackRock backs also includes a reporting dimension on what it calls “Management of the Legal & Regulatory Environment”. According to the SASB this category “addresses a company’s approach to engaging with regulators in cases where conflicting corporate and public interests may have the potential for long-term adverse direct or indirect environmental and social impacts.” 

Now, this sounds quite promising.

It really seems to recognize the urgent imperative for business to align corporate political activity with its social and environmental responsibility and to assure all stakeholders in your reporting that this is the case.

Or to take a plain language and not entirely hypothetical example: as a responsible corporate citizen show everyone that you are not a hypocrite and that you do not lobby against improved fuel efficiency standards while at the same time celebrating your green credentials by supporting smart transport initiatives.

As the SASB further elaborates on this reporting dimension, the category addresses among other “a company’s level of reliance upon regulatory policy…  actions to influence industry policy (such as through lobbying) … [and ] it may relate to the alignment of management and investor views of regulatory engagement and compliance at large”[1]. And the related accounting metric mandates a “discussion of corporate positions related to government regulations and/or policy proposals that address environmental and social factors affecting the industry.”

One could be a stickler and criticize that this is not comprehensive and specific enough, as it, for example, does not require to disclose how much money is spent on specific lobbying issues or what other of the growing repertoire of corporate influencing and communication strategies beyond lobbying are deployed to shape the public policy debate on these issues.

But let’s be pragmatic, the fact that the world’s largest asset manager has chosen to explicitly demand reporting on lobbying from the many companies it invests in and also threatens openly to vote against boards of companies that do not play along is a great step forward.

But then the really not so good news

The SASB only requires companies to report on corporate political activity in sectors where this category is judged to be material. And quite startlingly corporate political activity is only viewed as material for some segments of the oil & gas sector, biofuels, and chemicals. That’s it.

How can this be? No mention of air freight & logistics, airlines, marine transportation or the car industry  – sectors in which many (but not all) companies are out in force to lobby against green taxes and/or higher resource efficiency standards, thus delaying much-needed investments in future-proof technologies and creating a regulatory backlog that all but exacerbates the material risks of stranded assets and failing business models further down the road.

How about construction materials or the steel industry whose future trajectories in energy efficiency or recycling and the rules and regulations that will apply are material to global sustainability and corporate success alike?

How about the meat, poultry and dairy sector? I have not researched their lobbying activities but would imagine that they are very much engaged around evolving rules for methane emissions as one of the most potent climate gasses in a world of growing appetite for meat. No need for investors to know how corporate strategy, public policy engagement and sustainability dynamics line up?

Or how about coal and electricity & power generation? Are these sectors viewed as a lost cause where corporate political action will simply be assumed to be misaligned with societal sustainability goals and thus not worthwhile accounting for? Does this do justice to and incentivize responsible corporate political engagement where it is perhaps more material and needed more than in many other areas?

These are just some examples with regard to climate change. Corporate political engagement is plausibly a material issues for many other sectors as well, for example when thinking about social aspects of sustainability, e.g. how platform economies craft business models and lobby on the rules that apply to gig work, how big tech seeks to shape privacy rules that are closely linked to their advertising-based business models…

Corporate political activity is a highly cross-cutting material issue. Expecting corporate reporting on it is urgent and most welcome. Yet, limiting this push to only five of overall more than seventy business sectors is more than unfortunate. Trailblazing trustees of our savings and investments and the reporting standards that they promote must and can do better.

About the author

Dr. Dieter Zinnbauer is a Marie-Skłodowska-Curie Fellow at CBS’ Department of Management, Society and Communication. His CBS researches focus on business as political actor in the context of big data, populism and “corporate purpose fatigue”.

Twitter: @Dzinnbauer

Essays: https://medium.com/@Dzinnbauer

Working papers:  https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1588618


References:

[1] Annotations as extracted from SASB materiality map https://materiality.sasb.org/

Photo by Guido Jansen on Unsplash

Adventures in Materiality. Notes from the first CBS Sustainability Seminar

By Steen Vallentin.

  • On October 31, 2017 the new CSB Sustainability seminar series was launched
  • With a room full of practitioners and academics, the topic “Materiality and Quantification” in CSR and sustainability reporting was discussed
  • Diverse input for discussions were given by presentations by CBS, DTU and a practitioner in corporate sustainability reporting

Approximate reading time: 4-5 minutes

All we need is Materiality?
Materiality is arguably gaining significance in corporate approaches to CSR and sustainability. While strong narratives remain important, they do not suffice in a world filled with increasing amounts of data calling for transparency and factual assessment of corporate accomplishments, progress or decline. There can, however, be a price to pay for an increasing reliance on metrics and measurements. What happens to ethical and moral concerns, to fundamental values and the sense of overall purpose if CSR/sustainability is reduced to a technical matter of taking numbers and ticking boxes? This was the topic of the first in a new series of CBS Sustainability Seminars. Here is some background on the topic and the seminar series, plus some notes on the presentations of the day.

The rise of materiality in CSR and sustainability
Sustainability reporting and efforts to assess the materiality of corporate responsibilities toward the people and the planet are undergoing interesting transformations these years. Not only is sustainability reporting becoming a more and more widespread practice internationally, due to mandatory disclosure requirements and the institutionalization of standardized reporting formats such as GRI and integrated reporting. We are also, among other developments, witnessing corporate efforts to integrate adherence to the UN Sustainable Development Goals into non-financial reporting formats, including materiality assessment, and companies committed to set and communicate science based emission reduction targets (see Science Based Targets).

The new cbsCSR sustainability seminar series: research-based & multidisciplinary
Hence, “Materiality and Quantification” was an obvious choice as topic for the first event in the new series of CBS Sustainability seminars that will be taking place from the Fall of 2017 and onwards. The inaugural seminar took place on October 31 and featured three speakers: Professor Andreas Rasche from CBS, Frances Iris Lu (CBS and Maersk) and associate professor Niki Bey from the Technical University of Denmark (DTU).

The purpose of the seminar series is to forge closer ties between researchers at CBS and professionals from companies and organizations – to enable collaboration and easier access to each other’s knowledge and resources on an ongoing basis. And to build stronger relations among researchers at CBS. The USP of the network is that it is research-based and multi-disciplinary. One aim is to help bridge divides between knowledge silos and facilitate dialogue between different knowledge disciplines. Another aim is to broaden the scope of how we think and speak about sustainability, and to explore how far we can take this concept – in different  indicated by its three pillars: environmental, economic, social. To this end, the seminar series will present many speakers from CBS and other research environments that would not ordinarily see their research as part of a sustainability agenda.

Materiality assessments are no moral assessments
In the first seminar, however, we were on familiar ground with regard to sustainability. Based on a forthcoming research paper (using data from the Netherlands and co-authored with Koen van Bommel and André Spicer), Andreas Rasche showed how sustainability reporting has gradually developed into being a more and more standardized and technical practice. A key concept in this research is commensuration, which refers to the process of transforming different qualities into a common metric. It reduces and simplifies ‘thick’ information into metrics that are comparable to other metrics. Over time, commensuration stimulates a standardization of the meaning of sustainability. When something is turned into a metric and standardized, it often leads to a crowding out of moral questions and concerns. Subsequently, sustainability reporting can be a driver of ‘amoralization’ processes by which questions of morality, values and purpose are replaced by technical performance measures. On the one hand, this technical and instrumental turn can be part of the explanation for why sustainability reporting has become so popular (because it sidelines ambivalence and difficult moral quandaries). This need not be an entirely negative outcome, as pointed out by a participant, because it can be an indicator of increasing business integration of sustainability. We do, however, on the other hand, need to be aware of the possible downsides of this proposed ‘technicalization of sustainability’.

Moving beyond ethical idealism – the price to pay for conquering the mainstream?
While this finding is based on a longitudinal empirical study, I have made a similar point in a conceptual paper reflecting on the effects of instrumentalization in the realm of CSR more broadly. To quote myself (at length):

“As a result [of instrumentalization], it is now all too easy to speak of CSR without making any mention of ‘ethics’ or bringing up moral issues or dilemmas; a development that can lead to a strangely depersonalized understanding of responsibility and which raises questions about the relevance of ethics for CSR altogether. Whether this is a problem or not is of course debatable. On the one hand, it can be considered as a sign of progress in the sense that the CSR debate (and CSR as corporate practice) has decidedly moved beyond ethical idealism and the subjectivity/arbitrariness that may be associated with individual values and choices. CSR has developed into a socially embedded, highly institutionalized and material phenomenon. On the other, it is worth pondering what, if anything, has been lost on the path to (apparent) victory in the public realm of ideas. Is the displacement of ‘ethics’ a sign that the responsibility discourse has lost its normative bearings and that this has been the price to pay for conquering the mainstream?”

A practitioner’s perspective on values & materiality: We can have it all – (can we?)
Frances Iris Lu gave a presentation of the evolution of materiality and materiality assessments in recent years, drawing on her experience from KPMG and Mærsk. She showed how materiality assessments can often, in practice, be rather loose exercises bereft of analytical rigor, but also how it is possible to add more rigor to the process. One key feature (and possible limitation) of a conventional materiality assessment is that it tends to focus strongly on the risk as opposed to the opportunity side of responsibility, making it difficult to reconcile with policies aiming to create (shared) value.

To bridge this gap, and to make room for the company values in the account of materiality, Mærsk has created a new ‘materiality beyond the matrix’ model. Frances presented this new and more comprehensive and multi-faceted model which accounts for materiality under the three headings: Risk, Shared Value, and Responsibility. Challenging the amoralization narrative presented by Andreas, Frances argued that we are seeing a sort of pendulum swing taking place in sustainability right now where values and purpose are getting more attention – alongside the continued focus on metrics.

Materiality and Quantification in practice: The Life Cycle Assessment Lens
Finally, Niki Bey brought the quantification of sustainability through Life Cycle Assessments (LCA) into the discussion. LCA is used as a general framework to avoid the problem of cost shifting across impact categories (e.g. using less plastic might ultimately increase food waste). Although the LCA is never completely objective, we need to try to approach matters of sustainability systematically and to focus on available facts – how far can we get in terms of what we know and what we can measure, instead of focusing on subjective criteria.

A participant mentioned enthusiastically that the LCA is the most important decision-tool she has ever worked with because it makes people able to move up and down in perspective and allow them to see the bigger picture in regard to sustainability and corporate responsibilities. While LCA is usually applied as a relative measure that can be used to compare and choose between different courses of action, it can also be applied in an absolute fashion, as with the Planetary Boundaries.

Overall, the seminar brought out as many questions as it did answers. We look forward to continuing this and other adventurous discussions in future CBS Sustainability seminars.


Steen Vallentin is Director of the CBS Centre for Corporate Social Responsibility (cbsCSR) and Associate Professor in the Department of Management, Society and Communication at Copenhagen Business School.

Pic by Miguel A. Amutio, edited by BOS.