by John Hodges, managing director, Infrastructure and Finance, BSR
As Managing Director for Infrastructure and Finance at BSR (Business for Social Responsibility), one of the world’s leading nonprofit business networks and consultants dedicated to sustainability with over 250 member companies, I interact with the heads of corporate sustainability for Fortune 500 companies on a daily basis. What is fundamental to these conversations, as well as to my regular conversations with the responsible investing community, is the increasing desire for companies to better understand the broader environmental and social impacts they are having, both positive and negative.
What I mean by “broader” are those impacts that are outside a company’s own walls. Measuring and describing real world impacts is not easy – developmental and non-profit organizations still struggle with how to do it most effectively. Having spent most of my career as a development economist at the World Bank and at other sustainability-focused organizations, I know firsthand that analyzing sustainability impacts can be a mixture of art and science.
The process for evaluating impacts, however, is relatively the same whether from the perspective of a developmental organization, a non-profit, or a for-profit company. The basic approach is to understand the progression from inputs to outputs, to outcomes, and ultimately to impacts.
Companies spend a lot of time in their sustainability reports discussing inputs and outputs, and in some cases outcomes (e.g. my company’s recent shift to only purchasing certified sustainable wood which means more sustainably managed forests which means reduced deforestation). The place where companies are struggling most is to analyze how these outcomes can lead to real world impacts at scale (e.g. reduced deforestation creates a cleaner watershed and less waterborne disease).
The Global Reporting Initiative (GRI), the standard that the majority of the world’s companies follow in their sustainability reports [1], has four main principles for disclosing sustainability information: completeness, materiality, stakeholder inclusiveness, and sustainability context. The last one of these, sustainability context, is my personal favorite. I find understanding a company’s sustainability context to be fundamental to understanding its corporate sustainability impacts.
The concept of sustainability context is simply that companies should present sustainability efforts in the context of wider economic, environmental, and social conditions and trends at the local, regional, or global level [2]. It gives all stakeholders the scale and understanding of the sustainability challenge at hand and the efforts needed to make a real world difference.
The World Bank and other developmental organizations focus on sustainability context. For example, before making any investment, the World Bank evaluates the broader sustainability challenges of its client countries and then articulates how the investment will create positive or mitigate negative sustainability impacts within that context. In my opinion, for-profit companies can do a better job of similarly analyzing the big-picture sustainability context when making business decisions.
A key concern is that without a sustainability context stakeholders are simply left wondering if a company’s sustainability impacts are actually a big deal or not. For example, Coca-Cola Corporation uses approximately 300 billion liters of water a year to make their products. The company has sustainability goals, which they are meeting, to replenish water resources and reduce water waste directly related to their operations.
That seems like a big deal, especially as 300 billion is a large number, Coca-Cola products are found everywhere in the world (I can personally vouch for North Korea), and global water scarcity is an increasing challenge. Stakeholders, including responsible investors, would be interested in what large-scale effect Coca-Cola’s efforts will have on regional or even global water supply resources and sustainability. Furthermore, they would be interested in any efforts being made to collaborate with others beyond Coca-Cola’s own water footprint for even greater impact and scale.
I have found that most companies do want to answer these big picture global impact questions, but they have not had a universal framework to help them do so, until now. The development community first made an attempt at a universal “sustainability context” framework with the Millennium Development Goals (MDGs), established in 2000 by the United Nations and other developmental organizations. The private sector was mainly left out of this first MDG process, however.
The second iteration of global development goals, the 2015 Sustainable Development Goals (SDGs), was more inclusive of companies’ views and their roles in achieving global impacts. It explicitly calls for private sector companies to take leadership roles and for public-private partnerships.
As a result, many companies are beginning to align sustainability efforts and even frame them within the relevant SDGs, which in turn has provided a natural habitat for the companies to describe sustainability context. BSR has spent a good portion of the last year promoting the SDGs as an effective sustainability context framework for our member companies. Some of our findings are available in joint research we conducted with the Global Compact earlier this year, A First Look at How Companies Are Responding to the SDGs [3].
Surveys show that many companies are already making public statements in support of the SDGs and aligning goals around the SDGs. Regarding Coca-Cola, the company now discusses its water sustainability efforts in the great context of the SDGs, specifically using SDG Goal 6 (Clean Water and Sanitation) and its sub-targets [4]. Other examples include Kering, which has aligned its natural capital accounting methodology to SDG Goal 15 (Life on Land) and Novartis, which has launched “Novartis Access“ in alignment with SDG Goal 3 (Good Health and Well-Being).
I find that investors in particular have an important role to play in evaluating companies’ long-term potential vis-à-vis sustainability context. After all, the sustainability context of a company can also provide insight into the potential market for sustainability-focused products and services. The SDGs are a very good indication of how the world will develop over the next 15 years and provide insights into the market opportunities, which will come with that development.
Looking back, the success of Whole Foods Markets was not due to the market for high-quality natural and organic foods at the time the company was founded. Rather, the company experienced significant growth by positioning itself as part of the solution to the context of poor nutritional trends, depleting seafood stocks, and unjust labor practices in agriculture. Investors that understood Whole Foods’ sustainability context well would have recognized the obvious growth potential.
I am seeing an increasing understanding of investors that having a positive global sustainability impact is essential for a company’s overall business success. The United Nations Principles for Responsible Investment also recently announced that it will work with its 1,500 signatories, which represent approximately $60 trillion in assets, to build the investment case for the SDGs.
Building on some of the first-mover cases listed above, there is an opportunity for many more companies to frame their corporate sustainability goals and impacts within the larger sustainability context. With the launch of the SDGs last year, there are emerging resources available to help companies do so. The United Nations Global Compact’s SDG Industry Mix provides guidance on which SDGs are most relevant to specific industries and examples of company efforts. BSR has also developed our own SDG Navigator to help our member companies as well.
Recently my BSR colleagues and I have been increasingly advising heads of corporate sustainability to take a look at the SDGs when they have questions about the sustainability context of their company. The SDGs provide the best universal framework I have seen in my career to begin asking the really important questions about corporate purpose.
Article by John Hodges, Managing Director, Infrastructure and Finance, BSR
With more than 20 years of sustainable development experience, John leads BSR\’s global infrastructure and financial services (www.bsr.org/en/industry-focus/financial-services) practices, advising companies on corporate sustainability strategy, responsible investing and project development, and environmental, social, and governance (ESG) risk management.
Before BSR (www.bsr.org), John was the founder and president of SunOne Solutions, a leading carbon project developer in North and South America. John worked as a staff member in the World Bank\’s sustainable development group, where he managed global energy and transport infrastructure projects and the vice president for sustainable development\’s front office, and served as the infrastructure advisor in the Thailand and Kosovo country offices. He has also held positions in the airline transport industry, with a private infrastructure project developer in Chile, and with an impact investing fund in the Balkans.
John holds an M.P.A. from Harvard University, an International M.B.A. from the University of South Carolina, and a B.S. in International Trade and Finance from Louisiana State University.
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