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Ceres Conference and Report Ask: Is Corporate Sustainability Gaining Ground or Losing Pace?
May 6, 2014
“But we've got huge opportunities to solve mega-challenges profitably,” Winston added.
The warnings of Silent Spring and Limits to Growth are coming true, Gilding soberingly pointed out: Global social and ecological systems are now breaking down, facing us with a choice between watching trillions of dollars of value destroyed in stranded fossil fuel assets or harvesting trillions in value, newly created by clean energy.
“It's time to turbo-charge sustainability with systems changes,” declared Ceres president Mindy Lubber.
And Ceres supplied the data to support these assertions. The Gaining Ground report, released at the conference and marking Ceres' 25th anniversary (hence the hashtag #Ceres25), finds evidence of “incremental change, but not the transformational change needed,” said Simon MacMahon, Global Director of Advisory Services for Sustainalytics, which conducted the research.
Take, for instance, climate disruption, the first systems change Lubber cited in need of addressing. Gaining Ground found only 35 percent of the 613 large, publicly traded US companies studied setting time-bound greenhouse gas (GHG) emissions reductions targets — up a mere 3 percent from the last study two years ago, which similarly gauged progress against the Ceres Roadmap for Sustainability. How best to remedy this problem? Companies need to “set GHG reduction goals aligned with climate science,” Lubber said.
This echoes Winston's message in The Big Pivot, which devotes a whole chapter to setting “Big, Science-Based Goals” (that I discussed with him before his new book launched). Indeed, Winston and colleague Jeff Gowdy conducted in-depth research (available at the PivotGoals website) on 2,104 sustainability goals of Fortune 200 companies, and found only 13 — that's right, 13 out of more than 2000! — that are explicitly based on science (another 117 — a mere 5.6 percent — have goals that happen to align with science, but are not explicitly science-based.). How is it that goals purporting to advance sustainability — which is, after all, a science-based discipline — can so flagrantly flout science?
Which leads to the related question: Why have companies proceeded at such a slow pace when it comes to advancing sustainability? In a panel devoted to the Ceres Roadmap and Gaining Ground findings, EMC Chief Sustainability Officer Kathrin Winkler opined that such culture change needs time to take hold, particularly with the poor state of public discourse on complex issues such as climate change. EMC walks its talk on this front, numbering amongst a small handful (literally) of companies that have set GHG reduction goals explicitly tied to thresholds established by climate science (as Winkler explained to me here).
Likewise, Ford “complies with a science-based GHG reduction glide path to do our fair share portion for addressing climate change," said Global Social Sustainability Manager Thomas Niemann, a fellow panelist. Given that the lion's share of the automobile carbon footprint comes not in production but in use, Ford applies this approach to product design to create future fleet emissions that align with the trajectory of emissions reductions specified by climate science.
A third panelist, Nike’s General Manager for Sustainable Business and Innovation, Agata Ramallo Garcia, weighed in on how the sporting apparel maverick reduces environmental impact while making money. “We implement sustainability via systems innovation and business growth decoupled from resource constraints,” she said. Nike CSO Hannah Jones echoed and expanded these sentiments in the next morning's plenary panel, positing that business model innovation can create value by dematerializing products in ways that close the loop in a circular economy. “Sustainability is really an investment into the viability of your business going forward,” she stated.
But how do companies measure market latitude in the face of shrinking ecological resources? The “Lost in Translation: Capturing Impacts of Sustainability Initiatives” panel focused on this question, with Stathis Gould of the International Federation of Accountants (and contributor to the International Integrated Reporting Council Business Model Background Paper) stating that “natural capital adds context for valuing nature; but nature also has intrinsic value.”
This statement highlights the need to balance impacts on the multiple capitals (including natural, social, human, and financial capitals discussed in IIRC's Capitals Background Paper) against constraints on those capital resources — a concept succinctly encapsulated in the final paragraph (58) of the IIRC Value Creation paper:
“Ultimately value is to be interpreted by reference to thresholds and parameters established through stakeholder engagement and evidence about the carrying capacity and limits of resources on which stakeholders and companies rely for wellbeing and profit, as well as evidence about societal expectations. Interconnections between corporate activity, society and the environment, and the purpose of the corporation should therefore be understood in terms of what the corporation, society and the environment can tolerate and still survive — that will be the main determinant of value. The challenges will be to reach agreement at corporate, national and international level on what those thresholds and limits are, how the resources within those limits should be allocated, and what action is needed to keep activity within those limits so that value can continue to be created over time.”
Or, as fellow panelist Curtis Ravenel, Bloomberg’s Global Head of Sustainability, said, “Sustainability data needs context — no bees and bunnies,” referring to the distressingly common corporate practice of relying on feel-good graphics instead of hard data to convey sustainability performance.
Which brings us back to the opening plenary moderated by Winston, and a potential solution to the “we're screwed” problem. Plenary panelist Christy Wood, Chair of the Global Reporting Initiative, stated, "we need to create mechanisms for valuation of natural & social capital," embracing the multiple capital framework in ways that hearken back to language from the second generation of GRI Sustainability Reporting Guidelines (or G2):
Many aspects of sustainability reporting draw significant meaning from the larger context of how performance at the organizational level affects economic, environmental, and social capital formation and depletion at a local, regional, or global level. (emphasis added)
This quote — which suggests that the value of natural and social capital is tied up in its “formation and depletion” — comes from the definition of the GRI principle of Sustainability Context (see here for a dialogue with GRI co-founder Allen White on the conceptualization of this key principle). The current definition of Sustainability Context (which drops the capitals reference in favor of “limits and demands placed on environmental or social resources”) adds, “For example, this could mean that in addition to reporting on trends in eco-efficiency, an organization might also present its absolute pollution loading in relation to the capacity of the regional ecosystem to absorb the pollutant.”
Applying this logic to GHG emissions calls on companies to report their carbon footprints in relation to thresholds such as 2°C warming or 350ppm atmospheric carbon concentration. However, as we've seen, less than 1 percent of companies set their sustainability goals according to the ambition and pace required by science (and less than 6 percent comply with science unintentionally.) Which means that over 90 percent of companies' so-called sustainability goals are locked into the kind of incrementalism that systematically (and systemically) precludes the transformational changes needed to actually achieve sustainability.
So, if we want the next Ceres progress report in two years to produce findings pointing more toward “we're saved” than “we're screwed,” the corporate community will need to double down on measuring performance through the lens of science and other measures of real-world thresholds – in other words, companies will need to start applying Sustainability Context.