The circular economy shows its human side

March 29, 2021 by  
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The circular economy shows its human side Lauren Phipps Mon, 03/29/2021 – 01:30 This article originally appeared in the State of Green Business 2021. You can download the entire report here . As the circular economy ramps up, we’ve seen impressive innovation in materials, products, models and processes — but innovation on how we treat people has been notably absent. However, as companies, cities and countries alike adopt a more holistic lens and embrace circular principles, they are recognizing the opportunity to drive social change in lockstep with an economic transformation that puts people at the center.  In the context of sourcing and supply chains, we’ve seen this movie before. Facing legal pressure from governments, reputational risk from consumers and pushback from NGOs, the past two decades have seen a dramatic shift in sourcing protocols and upstream supplier engagement in an attempt to eradicate forced and child labor, conflict minerals and other human rights violations in supply chains. Yet, these efforts traditionally have acknowledged only one phase of a material’s life. In a circular supply chain, sourcing no longer focuses exclusively on virgin materials. As companies take responsibility for the entire lifecycle of their products, hazardous conditions in which a child disassembles a smartphone is as problematic as cobalt sourced using forced child labor in a conflict zone to make the smartphone in the first place. While the Basel Convention criminalized transboundary movement of hazardous waste (of which most electronics are classified) to limit some human health implications of electronics waste streams, plastic waste is another story, only recently having been included in the convention. In the absence of formal materials management infrastructure, waste collectors — skilled entrepreneurs in the informal economy that gather, sort and sell used bottles, caps and other valuable materials, sometimes culling them from landfills — have filled in a necessary gap to slow the leakage of plastic waste into waterways and through coastal communities. And as a growing number of companies commit to recycled plastics targets and circular plastics aspirations, the opportunity and necessity of partnering with these communities is becoming increasingly clear. Companies are beginning to expand the scope of sourcing considerations, deploying what they have learned in sourcing virgin materials to sourcing from previously used products and materials and applying these learnings downstream. HP Inc. offers a now-iconic example of meaningful downstream collaboration in Haiti, having partnered with waste-collection communities with the help of First Mile Coalition, an initiative of the nonprofit organization Work, to support the social infrastructure of plastic waste as well as the physical infrastructure of materials recovery. In 2019, HP invested $2 million in a new plastics washing line in Port-au-Prince to support the collection of ocean-bound plastic in the community, which the company buys from a local business to use in its laptops and ink cartridges. The effort not only has provided HP with a reliable supply of post-consumer recycled plastics to slowly wean itself off virgin materials, it’s also created more than 1,000 new jobs in Haiti by expanding the region’s recycling capacity. HP’s investment is an example of how capital is being deployed differently in the fight against plastic waste, focusing on community leadership rather than solely a technical, infrastructure development intervention. We’re seeing a similar, holistic approach to capital deployment to address the plastic waste crisis globally, including the Alliance to End Plastic Waste’s stated commitment to community engagement. Just as companies have prioritized transparency and traceability in upstream operations to address human rights, a circular supply chain calls for the same level of scrutiny downstream. Companies are beginning to expand the scope of sourcing considerations, deploying what they have learned in sourcing virgin materials to sourcing from previously used products and materials and applying these learnings downstream. But the opportunity for economic improvement isn’t limited to efforts in the Global South, and currently national governments are leading the way in a human-centered circular economy transition.  At the forefront is Europe’s Green Deal, the policy framework intended to bring the European Union to net-zero greenhouse gas emissions by 2050 while decoupling economic growth from resource extraction and leaving no person or place behind. The aim is not one or the other, but rather an integrated approach to resource stewardship, responsibility and climate mitigation. The European Commission’s associated Circular Economy Action Plan emphasizes the opportunity for social and economic development through circular value chains — to the tune of 700,000 new employment opportunities by 2030 in Europe alone. Circular business models require a suite of new expertise, from repair and refurbishment to disassembly, recovery and recycling, making way for a new class of sustainable and dignified jobs. One U.S.-based example is Homeboy Electronics Recycling, a social enterprise offering e-waste management and IT disposal while providing employment and training to people who face systemic barriers to work. A human-centered circular economy can’t focus solely on jobs and material management, but also must ensure access to the benefits of these new models. Consider the benefit to consumers of saving money by buying in bulk: Whether you’re buying dog food, rice or ibuprofen, buying more than a single serving upfront saves money and packaging. But without the cash to invest upfront, low-resource communities are burdened with a poverty tax in the form of a markup — up to 50 percent — for buying food and other necessities in small formats rather than in bulk. Chilean startup Algramo aims to address this by offering consumers the ability to buy the exact quantity they need but allowing them to pay the bulk price. Algramo partnered with consumer goods companies, including Colgate-Palmolive, Nestlé, Clorox and Unilever, to make heir products and reusable packaging formats available and accessible to everyone. The circular economy is a means, not an end, offering strategies and frameworks to create economic flows on top of material flows in support of a more sustainable, resilient and prosperous system. It works only if it can transform systems, not reinforce existing ones.  As human rights, economic inclusion and social equity come into focus within circular initiatives, the opportunity for a holistic understanding of what circular economies can enable is becoming increasingly clear. Pull Quote Companies are beginning to expand the scope of sourcing considerations, deploying what they have learned in sourcing virgin materials to sourcing from previously used products and materials and applying these learnings downstream. Topics Circular Economy State of Green Business Report Human Rights Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off A child picks up recyclable waste in a landfill. Shutterstock Tinnakorn jorruang Close Authorship

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Is TCFD a catalyst for transformational climate adaptation?

March 24, 2021 by  
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Is TCFD a catalyst for transformational climate adaptation? Karl Schultz Wed, 03/24/2021 – 01:00 This commentary is part of a series on emerging issues from Adaptation Leader. The Taskforce on Climate-related Financial Disclosures (TCFD), an initiative of the influential Financial Stability Board (FSB) , offers a framework for disclosure of climate risks. Despite the generally positive response and resulting buzz, in particular among advocates for climate action by businesses and those wanting to get on the bandwagon, the uptake of TCFD disclosures has been slower than its proponents had hoped. With time, the levels of disclosure likely will increase with more governmental mandates and shareholder activism on climate action. But the quality of the disclosures is critical in meeting the existential challenge of climate change. There are, of course, two sides of climate action that must be addressed: mitigation (usually by emissions reductions) and adaptation. Economic and social survival can be achieved only through both rapid declines in greenhouse gas emissions and, critically, armed with foresight on the impacts of climate change, decisive action to adapt to these impacts. Can TCFD stimulate adequate movement on both tasks? On its current trajectory, the answer is a clear “no.” Can TCFD stimulate adequate movement on both mitigation and adaptation? On its current trajectory, the answer is a clear ‘no.’ In their current form, the TCFD recommendations lack the specificity and enforcement mechanisms needed to induce broad-scale changes in corporate disclosure. Could they contribute to such a transformation or is this asking too much? We believe that with modifications to the recommendations and the resources to guide climate-related disclosure, TCFD’s activities could lead to important improvements. TCFD could unveil risks and opportunities with tangible impact on the bottom line. As corporate leaders realize that they have the potential to help their organizations adapt, thrive and gain competitive advantage through adaptation, the TCFD recommendations could spur an economic and social transformation. Missing pieces It’s important to understand what is missing in the current framework and disclosure regime. TCFD steers towards carbon exposure and transition risks. TCFD risks are broadly defined into two categories: physical climate risk and “transition risks.” Physical climate risks are risks of impacts caused by flooding, droughts and storms. Transition risks are the risks a company may face when society forces it to curtail its greenhouse gas emissions and the risks of impacts caused by policies and investments that lower emissions such as reductions in fossil fuel demand. TCFD guidance insufficiently emphasizes physical climate risks, which results in corresponding disclosures emphasis on transition risks. Adaptation strategy is under-emphasized. Only 7 percent of companies in the latest review by the FSB “disclosed information on the resilience of its strategy.” The short shrift given to adaptation strategy is quite shocking. Among the early guidance provided to any junior staffer in a corporate setting is some variant of, “Don’t just bring a problem to my attention, tell me how you propose to solve it.” In a climate action context, then, the response(s) being planned or taken to adapt to a changing climate is of primary importance. Adaptation metrics need further development. The International Platform for Adaptation Metrics notes, “One of the key barriers over and again acknowledged is the need for a global effort to build consensus on metrics to help governments, businesses and financial institutions to identify and steer investment.” The FSB acknowledges this insufficiency of guidance on metrics and targets, and recently has undertaken a consultation to identify “decision-useful, forward-looking metrics to be disclosed by financial institutions.” Unfortunately, it looks at high-end financial metrics (value at risk, for example), not the underlying metrics necessary to understand physical climate risk and adaptation. Limiting scope to financial disclosure is a missed opportunity. The TCFD — and it’s in the name — is focused on financial disclosure. The question, then, is by only looking at financial impacts, do the TCFD recommendations do enough to ensure that corporations understand what to do to adapt and be more climate resilient? Corporations need to explore the social and broader contextual, market, employee, customer and supply-chain environmental/physical climate risks, and the adaptation actions they are implementing or could undertake as well, if they are to truly consider the interests of all of their stakeholders. Focus on the disclosing corporate entity ignores important systems effects and solutions. Unlike carbon emissions and mitigation, physical impacts, risks and adaptation to climate change permeate whole systems . For many industries, common but complicated issues may require sectoral disclosures or initiatives, so as to give individual companies a sufficient level of understanding of the types, range and extent of climate impacts on their future assets, productivity, markets and broader stakeholder community. Driving adaptation Given that we are looking at an uncertain climate future, TCFD disclosures, if undertaken to instigate corporate adaptation foresight and nimble planning, could become a key aspect of corporate competitiveness. These disclosures will create positive feedback loops as companies strive to become best adapted and encourage public sector adaptations that further grow their competitive advantages and a more climate-resilient global commons. How could TCFD further contribute to corporate value creation and investment decision making, as well as to the transition to a climate change-resilient economy and society? To begin, we must surmount the considerable remaining hurdles impeding effective, action-oriented disclosures of physical climate risk and adaptation. Adaptation Leader suggests that FSB, corporate entities and other critical stakeholders (trade associations, governments, research bodies) focus on the following measures: Ensure that climate mitigation “policy failure” scenarios are considered to enable adaptation planning and enlightened investment decisions for extreme climate disruptions. Require and make TCFD guidelines and national disclosure policies clear on strategy resilience, including explicitly the need to include adaptation planning strategies. Redouble efforts to integrate not just financial metrics but also support efforts to achieve consensus on and provide guidance on coherent climate impact and adaptation metrics in disclosures. The FSB, national governments and industry associations should prepare guidance, approaches, sector-wide scenario planning methods and industry-specific tools, as well as support capacity building for evaluating corporate physical risks, impacts and adaptation options. Local and regional groups should develop system-wide scenarios and impact assessments to better inform localized corporate disclosure, which would better enable small and medium-sized enterprises to report. At a minimum, the FSB should work with non-financial governance and standards bodies to encourage greater integration of financial disclosure with environmental and social impact, risk and adaptation plans and disclosures. The FSB has taken on a difficult but important task, and thus far through TCFD, it is making some noteworthy progress in stimulating more and better climate disclosures. If we can build on the existing momentum while focusing disclosures more on physical climate risks and adaptation strategies, it may be possible to build the vastly greater direct action and social and political resolve needed to achieve a global economy and society that is resilient to the dramatic changes in climate that lie ahead. Pull Quote Can TCFD stimulate adequate movement on both mitigation and adaptation? On its current trajectory, the answer is a clear ‘no.’ Topics Reporting Climate Change Finance & Investing TCFD Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Shutterstock

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The rise of social metrics in ESG reporting

March 11, 2021 by  
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The rise of social metrics in ESG reporting Aman Singh Thu, 03/11/2021 – 12:00 Reprinted from GreenFin Weekly, a free weekly newsletter. Subscribe here . For years, companies have focused voluntary social reporting on metrics that are, let’s say, comfortable: government-mandated data, such as occupational health and safety or certain hiring metrics, that has been measured and managed for years. Add a few more nuanced data points, such as the results of an annual employee engagement survey or number of volunteer hours, and you get a bit more of a company’s approach to internal and community engagement. However, these data points — splintered and unwieldy — rarely have given investors the metrics needed to confidently evaluate risk and impact. Now, as we make our way slowly past the worst of the pandemic and face a consistent and ongoing call to action for racial justice and equity, things finally might be shifting. For years, companies have struggled to report on their social impact in a financially meaningful way — and taken solace in reporting efforts vs. impact. Along the way, multiple reporting frameworks have helped bring objectivity on some data points, including the Global Reporting Initiative (GRI), the U.N. Guiding Principles on Business and Human Rights  and the more recent — and perhaps the most detailed yet in scope —  Corporate Human Rights Benchmark (CHRB). Yet, there has been little consistency in corporate disclosures as adoption rates varied and as the focus deepened on easier quantified risks that have felt more urgent and actionable: greenhouse gas emissions; waste to landfill; diverse hiring/retention; etc. For instance, Unilever’s inaugural Human Rights report, published in accordance with the U.N. Guiding Principles in 2016, included multiple data points at the macro level, perhaps to make up for sparse company-specific data. For years, companies have struggled to report on their social impact in a financially meaningful way. That’s changing. Fast-forward to 2021, and Unilever’s third Human Rights report is a study in how social strategies and disclosure are evolving. The report offers a wealth of company-specific data such as the number of workers affected by discrimination, fair wages and working hours across the company’s supply chain. Direct impact numbers such as these more easily can be translated into measuring risk, making the disclosure more useful and implementable . Data that drives decisions Similarly, on the internal end, corporate reporting on diversity and inclusion — and lately, equity — performance across industries has been sporadic at worst and uneven at best. In 2020, this began to change: Global fashion house PVH released new data on living wages across its factories and benchmarked it against the rest of its beleaguered industry to show a clean, comparable view in 2020. For the first time, the company also disclosed diversity performance by store level, uncharted territory for most retail companies, which for years have focused instead on reporting the diversity of their boards of directors and leadership. Meanwhile, evidence is mounting on the correlation between good human capital management and financial performance. For example, the NYU Stern Center for Sustainable Business looked at more than 1,000 academic studies published between 2015 and 2020 on the correlation between financial and ESG performance . Just about 33 percent of the studies on investor portfolios found a positive correlation, while 26 percent found that companies with good ESG performance performed as well as conventional companies. I also posed the question to Erika Karp, founder of Cornerstone Capital and new chief impact officer at advisory firm Pathstone, who offered cautious optimism: “We are most definitely seeing a concerted effort to recognize the critical nature of governing with a social conscious,” she told me over email. “While the measurement of these factors is particularly challenging given lack of standardization, we do know that the interrelationships between the S, the E and the G are profound.” Context is everything (but hard to measure) At the GreenBiz 21 conference last month, I hosted a roundtable discussion along with Amanda Cumberland, senior manager for CSR strategy and insights at Cisco, and more than 50 attendees on how to make this growing surge of social data meaningful. According to Cumberland, measuring social impact at Cisco has been an evolving effort. With a public goal of “positively impacting one billion people through social impact grants and signature programs by 2025,” the team repeatedly has tweaked its measurement tactics, even developing a detailed Impact Framework along the way. As of Dec. 31, Cisco had reported 527 million people positively affected . However, herein lies a dichotomy. Efforts vs. outcomes Reporting frameworks such as GRI make it easy to overly rely on reporting efforts rather than impact by accommodating disclosure of actions vs. mandating. As a result, most companies have found little motivation to make the leap from intention to impact in their disclosures: from reporting volunteer hours to the number of lives affected; from diverse hiring to evidence of inclusive behavior, and so on. And for investors, intentions or volume of actions versus tangible results hold little value in assessing performance. This is where Tensie Whelan, director of the NYU Stern Center for Sustainable Business, sees a new level of seriousness beginning to emerge. “2020 shone a spotlight on the S in ESG, and corporate leaders and investors responded by beginning to get more serious about their social metrics,” she explained over email. “For example, many are beginning to report EEOC data publicly, which will enable accountability on diversity issues. More companies are increasing wages for their lowest-paid workers and many [companies] support an increase in the minimum wage as well, which will also improve their performance on social metrics.” With increased investor pressure sparking a quiet revolution in the expansion of measurable and meaningful environmental disclosure, perhaps with everything that 2020 threw at us, social reporting will see the same wave of maturity and transparency. After all, real progress — whether it is on inclusion or climate change — requires us all to do a better job at connecting the dots between people and planet. Or as Karp reminded me, “You can’t achieve women’s equality without access to water, education, healthcare, capital, broadband, etc. We need to impact the entire system.” Pull Quote For years, companies have struggled to report on their social impact in a financially meaningful way. That’s changing. Topics Finance & Investing Reporting ESG GreenFin Featured in featured block (1 article with image touted on the front page or elsewhere) On Duration 0 Sponsored Article Off Shutterstock

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Corporate philanthropy becomes a renewed focus for leadership companies

February 23, 2021 by  
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Corporate philanthropy becomes a renewed focus for leadership companies Myisha Majumder Tue, 02/23/2021 – 00:05 In 2020, philanthropic donations by major donors saw an almost 7 percent increase on a year-to-date basis. As companies direct more of their money to external charitable causes, internally decision-makers are assessing how the companies’ philanthropic efforts tie into their values, corporate responsibilities and sustainability strategies. For many, this includes weaving sustainability into their already established practices. Jeannette Astorga, head of sustainability at Zoetis, explained during the recent GreenBiz 21 event that the company’s philanthropy needs to be strategic and in line with the company’s sustainability strategy. During the session, Cecily Joseph, adviser for the Presidio Graduate School Initiative for Equity and Social Justice, highlighted the three major components of sustainability in business today — racial equity, climate change, and health and wellness. Joseph noted that racial equity is especially at the forefront of philanthropic strategy given a rise in calls for racial justice in 2020 in the corporate sector. “For companies, [racial equity] encompasses talent and workforce development that are internal to the company,” Joseph said. “[But also] systemic and institutional racism, policies, education.” A multifaceted approach for achieving racial equity is at the center of philanthropic efforts. For example, JPMorgan Chase committed $50 billion towards the advancement of racial justice — including $2 billion specifically for philanthropic efforts — while also working inside the company to diversify its employees. Joseph also cited Apple ’s and Intel’s recent initiatives dedicated to racial equity, pointing out that those initiatives are fueled by philanthropy dollars. While racial justice has become a top corporate priority for many companies this past year, the increased prevalence of the climate crisis has led to further emphasis on using philanthropic dollars on climate change. The violent North American wildfire season , the midwestern and southern winter storms last week and 2020 ending as the hottest year on record, tying with 2016, have made it clear we are entering a new phase of climate catastrophe. And while philanthropic donations towards climate change, in particular, have doubled in the last five years, they still only account for less than 2 percent of total philanthropic donations. But 2020 also presented an opportunity for corporate leadership to look closer to home than a typical philanthropic venture. As the coronavirus pandemic pushed people into isolation, drastically increased burnout and created intense stress, companies worked to support the well-being and the emotional sustainability of their employees.  Philanthropic donations towards climate change have doubled in the last 5 years, yet still only account for less than 2% of total philanthropic donations. In addition to her normal philanthropic work, Kimberly Paxton-Hanger, co-owner of Kwik Lok, worked to give her employees a sustainable lifestyle that supported their communities and families, and helped them be good stewards of their home environment. According to her, this holistic approach made it so that “[the company’s] values are reflected in everything you choose to do.” According to Kwik Lok’s 2020 Corporate Social Responsibility report , the company covered 100 percent of health insurance costs in the U.S. during COVID-19 and nearly one-third of U.S. employees participate in “a company well-being program.”  Astorga explained how during the pandemic, Zoetis looked for ways it could help people struggling outside the company and support healthcare workers. The animal health company donated its cold storage equipment to food banks and personal protective equipment to local hospitals. But to enact true and lasting change, both Paxton-Hanger and Astogra highlighted the need for long-term partnerships. “We want to have partnerships where we are actually interacting with them in a way that is part of our core business operations,” Astogra said. In doing so, sustainability can become a part of the business, rather than solely a one-off philanthropic goal. As Joseph looks to the future, she finds a powerful truth and wisdom in BlackRock CEO Laurence Fink’s 2021 letter to CEOs. In his letter, Fink underscores the importance that no issue is independent of social consequences. Philanthropic work is one pathway of many, that must work in conjunction with others, to achieve equity and justice. “[We are seeing] interconnectedness between philanthropy and sustainability in a way we hadn’t seen before,” Joseph said. Pull Quote Philanthropic donations towards climate change have doubled in the last 5 years, yet still only account for less than 2% of total philanthropic donations. Topics Corporate Social Responsibility Corporate Strategy Philanthropy Corporate Social Responsibility Corporate Strategy ESG GreenBiz 21 Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off There is a renewed focus on what corporate money can and should be doing in the philanthropy space.  Via Shutterstock.

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Corporate philanthropy becomes a renewed focus for leadership companies

Community investments pay dividends

February 15, 2021 by  
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Community investments pay dividends John Davies Mon, 02/15/2021 – 00:00 This article originally appeared in the State of Green Business 2021. You can download the entire report here . Corporate community investment historically has been the realm of philanthropy and volunteerism departments, but there are a growing number of examples where direct investment by businesses benefits operations as well as the communities in which they serve. In 2019, the Business Roundtable redefined the purpose of a U.S. corporation as being “to promote an economy that serves all Americans.” In a survey of 2,511 registered U.S. voters by Real Clear Opinion Research, 77 percent of respondents agreed: “The purpose of a corporation is to maximize financial returns for its shareholders, but also to deliver value to customers, invest in employees, deal ethically with suppliers and support the communities where they work.” When it comes to investing in employees, Tyson Foods faces the challenge of its plants being predominantly in rural areas with limited labor pools, and with many of its front-line team members recent immigrants. To address this labor shortage, the company launched the Upward Academy , offering free and accessible classes in English as a Second Language, High School Equivalency, U.S. citizenship, financial literacy and digital literacy. The program is still in its early stages but all signs point to the investment paying off in terms of employee engagement and retention, and leading to a stronger local community. Purchasing and sourcing strategies are also getting realigned to support local communities as well as smallholder farmers around the globe. Supply experts at Sodexo, a French foodservice and facilities management company, have worked with the Sustainable Purchasing Leadership Council to target local and seasonal produce, working with local farmers and producers around each of its client sites. This approach evaluates environmental, social and economic impacts on the community and helps local businesses to thrive, which in turn benefits the company’s clients. Corporate sourcing decisions can drive change for communities around the world. Companies such as Mars and Griffith Foods have established sustainable sourcing programs that seek to create societal value while generating business benefit. As noted in its 2020 annual report, Griffith receives high-quality raw materials from trusted partners while farmers receive on-farm and in-community support from a consistent buyer. The alignment of capabilities and community is a growing business trend as companies move away from pure checkbook philanthropy. In these and other examples, community investments typically start with nonprofit engagement, aligning with on-the-ground resources that provide local knowledge and connections. The alignment of capabilities and community is a growing business trend as companies move away from pure checkbook philanthropy. Companies such as HSBC and PwC have shifted to a more strategic approach by integrating their giving and volunteering. HSBC envisions a Venn diagram of urgent needs and financial literacy, where the overlap identifies opportunities to help the underserved develop soft skills to boost employability and financial capability. PwC took a similar approach to combining philanthropy with volunteering, providing employees paid time to support educational initiatives in entrepreneurship and financial literacy, leveraging their consulting skills to better the community. AT&T has reinvented its philanthropic approach so that it looks more like its store franchise model. AT&T Believes is a localized effort to create positive change in the communities where it operates, letting local employees determine how to best have an impact. Wells Fargo has launched pitch competitions to fund breakthrough ideas that promise new ways to create urgently needed affordable housing nationwide. Such initiatives are part and parcel of recent efforts to measure the social contribution of business. There are currently few standards to guide and measure community investment and other social impacts.  Danone, Patagonia and others have been certified as B Corporations , identifying them as businesses that meet the highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose. B Lab, the organization behind the voluntary standard, offers an assessment tool that can start companies on their journey toward strategic community investment. Pull Quote The alignment of capabilities and community is a growing business trend as companies move away from pure checkbook philanthropy. Topics State of Green Business Report Corporate Social Responsibility Social Justice Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Image: Shutterstock/Rawpixel

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Why data and measurement are key to a circular economy transition

February 12, 2021 by  
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Why data and measurement are key to a circular economy transition James Woolven Fri, 02/12/2021 – 01:00 This article originally appeared on Circulate News . Measuring financial results, customer retention, productivity and inventory are all commonplace, but these measurements alone are no longer enough to tell a business whether it will stand the test of time. To be successful, it is becoming increasingly clear that businesses need to consider their social and environmental impact — or else be caught out by changing legislation or left behind by customers. What once simply could be written off as a “negative externality” has financial implications and has to be central to business strategies. This means changing the way businesses see their role in society and, ultimately, transforming the economy. Our current economic model is based on extraction and waste. It is linear — we take materials from the planet, make products from them and eventually throw them away. This take-make-waste economic model fundamentally cannot work long term. It relies on the extraction and eventual disposal of finite materials and — to satisfy an ever-growing demand for resources — encroachment into natural ecosystems, resulting in greenhouse gas emissions and staggering biodiversity loss. Alternatively, an economic system based on the recirculation of resources and the regeneration of natural systems offers a way forward that can work in the long term. This model, known as the circular economy, could help tackle the world’s biggest challenges, such as climate change, biodiversity loss, waste and pollution. The circular economy is underpinned by three principles, each driven by design: eliminate waste and pollution; keep products and materials in use; and regenerate natural systems. Circular economy is gathering momentum and is being embraced across the public and private sectors around the world. For example, more than 50 global leaders, including CEOs of some of the world’s largest companies, policymakers, philanthropists, academics and other influential individuals, signed a joint statement in June calling for a transition to a circular economy in response to the economic impact of the coronavirus pandemic. In the plastics sector, more than 1,000 organizations have united behind, and are working towards, a common vision of a circular economy for plastics . As organizations begin to make strides in their efforts to transition away from a linear way of doing business and to implement real-world changes, clear and comparable metrics will be valuable for assessing their success and planning future actions. It is vital that we understand how to achieve a circular economy beyond the recirculation of materials. Upstream solutions such as product and service design are essential to eliminate waste before it happens. Jarkko Havas, insights and analysis lead at the Ellen MacArthur Foundation, explains: “Implementing changes can only be effective when we have a clear vision of a future state, an understanding of where we are now and a view of how quickly we are moving between the two states. Measuring progress and tracking changes is an essential factor in the transition to a circular economy.” Measuring the circular economy transition for businesses To understand whether business activity is achieving the aims of a circular economy, business leaders need access to data that measures the circular economy performance of their business, alongside the more commonplace metrics used for assessing the business. However, measuring circular economy performance is a relatively new area and this can lead to misinterpretation of circular economy, with the outcome being well-intentioned incremental tweaks to linear systems, rather than the adoption of truly circular business models. The concept of a circular economy, and what it means for businesses, has been interpreted in many ways. As a result, standardization of the concepts behind circular economy and their inclusion into broader non-financial reporting standards are areas of ongoing work. Measuring circular economy performance also requires data on areas of a business that haven’t traditionally been measured, such as the circularity of water flows or physical assets. Havas adds: “It is vital that we understand how to achieve a circular economy beyond the recirculation of materials. Upstream solutions such as product and service design are essential to eliminate waste before it happens. On an organizational level, we also need to ensure that the circular economy is a part of strategy, risk assessment and organizational targets, to name a few.” In order to measure circular economy performance, it is important to take stock of the concrete results of a company’s efforts to transition to a circular economy — to create a snapshot of the company’s current circularity, in terms of material flows and business models. However, it is also important to look at things that enable the transition to happen, such as senior leadership buy-in and necessary infrastructure. This gives an insight into companies’ circular economy potential. As more businesses have employed circular economy models, a number of initiatives have been developed to measure circular economy performance. This includes the Circular Transition Indicators by the World Business Council for Sustainable Development and the Ellen MacArthur Foundation’s Circulytics tool, of which version 2.0 recently has been launched. Broader reporting frameworks, such as the Global Reporting Initiative, also have started to embed concepts of the circular economy. Anna Krotova, senior manager for standards at the Global Reporting Initiative, says: “Since its last revision in 2016, we have updated the GRI Waste Standard to reflect the continued transition to the circular economy. This update will help thousands of GRI reporters look beyond operational waste, towards understanding how their activities, products and services cause or relate to waste impacts, and where in the value chain they are exposed to risk. Consequently, this will enable organizations to identify circularity opportunities and demonstrate to their stakeholders — such as communities, customers, investors and governments — how they are adopting a holistic and progressive approach to waste and resources management.” Circular economy measurement is also an ongoing area of work for Europe’s new Circular Economy Action Plan. The action plan calls for improved metrics to monitor the progress towards circularity. This monitoring should cover the interlinkages between circularity, climate neutrality and the zero-pollution ambition. The Bellagio process is an initiative taken by the Italian Institute for Environmental Protection and Research and the European Environment Agency to respond to this need. We therefore need to focus our attention on more than just the flow of materials, and include also environmental and social aspects. The circular sustainable life should be a good life. Peder Jensen, expert, circular economy and resource efficiency, at the European Environment Agency, says: “Circularity is an idea as old as nature itself. So it is really the linear model that is the ‘odd one out.’ Only by transitioning to a circular model can we ever establish a real model for sustainable development. We therefore need to focus our attention on more than just the flow of materials, and include also environmental and social aspects. The circular sustainable life should be a good life. “The Bellagio principles are a set of guidelines on how to monitor the transition to a circular economy. The principles focus on capturing both the narrow material flow related aspects (circular material use) and the broader aspects linked to the environment and social implication. In this way, it pays tribute to the broadly accepted concept of sustainability and sustainable development.” Havas adds: “At the Ellen MacArthur Foundation, we are working on measurement on many fronts: We continue to develop our company-level circular economy measurement tool Circulytics together with our network of companies; work with circular economy measurement standardization as a liaison to the ISO technical committee on circular economy; with non-financial reporting standards efforts; and with public sector actors especially in the EU. Our food initiative has also developed a city self-assessment tool for cities to understand solutions to achieve a circular economy of foods. Our aim is to act as an impartial organization on these different levels of measuring the circular economy, and to bring consistency across them.” Benefits of circular economy measurement Having access to metrics assessing the circular economy performance of a company can have a series of benefits, both for the individual companies themselves and for the overall transition to a circular economy. Establishing the extent of a company’s circular economy performance can be a motivating force to drive faster, fuller adoption of the circular economy. It can empower strategic decision making, helping companies fully realize circular economy opportunities and can help to drive continued progress. The systemic transition to a circular economy creates value and opens up opportunities for collaboration with a view to open innovation. If made publicly available, data on the circular economy performance of companies also can help accelerate the wider transition to a circular economy by giving the financial world a metric on which to base investment decisions. Given that the circular economy is a complex and many-faceted system, making decisions on whether a company is “circular” can be complicated for investors without clear, consistent and comparable metrics. Intesa Sanpaolo was an organization involved in the joint statement calling for a circular economy transition. The bank’s global head of circular economy, Massimiano Tellini, says: “The systemic transition to a circular economy creates value and opens up opportunities for collaboration with a view to open innovation. The change of cultural paradigm generates both a benefit for our customers, in terms of increased competitiveness, and an opportunity for us in terms of advisory and business origination. The renewed awareness of the urgency of this change determined by the pandemic and the opportunity offered by the Next Generation EU plan are key elements for a redefinition of the development model on an international scale investing in innovation and training. “These aspects stimulate a dialogue based on the sharing of approach and information assets combined with the impact capacity of each player in favor of the transition, with the natural consequence of involving more and more actors in a common path to accelerate the transformation.” Pull Quote It is vital that we understand how to achieve a circular economy beyond the recirculation of materials. Upstream solutions such as product and service design are essential to eliminate waste before it happens. We therefore need to focus our attention on more than just the flow of materials, and include also environmental and social aspects. The circular sustainable life should be a good life. The systemic transition to a circular economy creates value and opens up opportunities for collaboration with a view to open innovation. Topics Circular Economy Data Ellen MacArthur Foundation Waste Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Photo by  Freedomz  on Shutterstock.

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PepsiCo CSO on embedding sustainability into ‘day-to-day business’

February 1, 2021 by  
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PepsiCo CSO on embedding sustainability into ‘day-to-day business’ Heather Clancy Mon, 02/01/2021 – 02:00 The number of companies proclaiming their intent to go net-zero by 2050 has expanded exponentially in the past 12 months, but the ones short-cutting that commitment by a decade are a rarer breed. In mid-January, PepsiCo joined that club with a strategy to reduce its greenhouse gas emissions by 40 percent across its entire value chain by 2030 and to reach the elusive net-zero emissions status 10 years before it’s called for by the Paris Agreement. The latter commitment is one touted by members of The Climate Pledge, orchestrated by Amazon and Global Optimism, although PepsiCo isn’t a member of that campaign as of this writing. The same week that PepsiCo announced its new ambition, the company’s foundation extended the terms of its 14-year-long relationship with the Inter-American Development Bank — with initiatives including a fund meant to promote the inclusion of women in regenerative, sustainable agricultural models in Latin America. The extension will see $6 million more invested through 2026, initially in the Dominican Republic, Ecuador and Guatemala. Even though the foundation is a separate entity, there is a close link between its mission and the company’s sustainability goals, according to senior executives. These initiatives, for example, are thought of in terms of years rather than months. “We have to have the certainty that the community will invest the time and willingness to go on with a program for several years, and we need to create awareness,” said PepsiCo’s Latin America CEO, Paula Santilli, when I asked her about how communities are selected. “We choose mathematically and analytically and concentrate on those communities on the wrong side of the poverty line.” I’ve got history in sustainability, but I’m a business guy. In addition to Santilli, I recently chatted with PepsiCo Chief Sustainability Officer Jim Andrew about the link between sustainability and community development, as well as the strategy behind some other developments announced as part of its updated climate strategy — such as its new Sustainable from the Start product development philosophy and two new internal carbon pricing programs meant to embed climate-centric thinking into everyday business decisions. Andrew, an avid scuba diver who joined PepsiCo about 4.5 years ago after heading strategy and innovation at Royal Philips, took over as CSO after Simon Lowden retired last fall. “I think speed is of the essence, not just for PepsiCo, but for the whole world, for the planet and all the people in it,” Andrew told me when I asked for the motivation behind the accelerated goal. Following is a transcript of our discussion, edited for clarity and length. The Frito-Lay facility in Modesto, California. PepsiCo accelerates efforts to build a more resilient and sustainable food system, reducing absolute GHG emissions more than 4 percent by 2030 across entire value chain and pledging to net-zero emissions by 2040. Photo courtesy of PepsiCo Heather Clancy: The goals were finalized alongside the response to the COVID-19 pandemic. Did that experience influence the final shape of the climate goals? Was anything adapted or reconsidered because of what was going on? Jim Andrew: Certainly COVID-19 has been a challenge for everyone on multi levels. But what I think it’s done, it’s really shone a light on the need to be even bolder and move even faster. What has it done? It has, I think, sharpened the focus on the need to move urgently. We all saw that the food system is probably more fragile than we thought. We saw that the need for a food system that is sustainable, that is regenerative, that is inclusive, it’s probably bigger than we thought. In that respect, it didn’t influence what we wanted to do, but it probably helped re-emphasize the need to be big and be fast. Clancy: You mentioned a couple of interim goals to the 2040 one. I’m just curious if you have other short-term milestones that we should expect or watch for. What should we watch for? And how will PepsiCo disclose them? Andrew: You should watch for transparency, consistency and regularity in our reporting. We are completely open in that. Any goal we set, believe me, there’s a lot of work behind coming up with those goals. We put as much work into ensuring transparent reporting because it helps us be accountable — both internally and externally, candidly — and also helps us track progress. We’re a company that likes to set a big objective out there and then go get it. One of the big parts of my job is mobilizing the organization. I’ve got history in sustainability, but I’m a business guy. I didn’t major in environmental science. I’m a business guy working to drive in partnership with our CEO, Ramon Laguarta, and the rest of my executive peers to really drive the organization forward. Having clear goals, having really good data integrity, is at the heart of all of our ESG reporting. That’s important because then we know how we’re doing. It also builds trust. That’s something that we take really importantly. So what are you going to see from us? We’re going to report our progress annually in our sustainability report. We have one coming up in a few months and will be happy to talk to you again, when that comes out. Anytime we can provide real-time updates, we will. All of the reporting entities, we’re in alignment with — the Global Reporting Initiative, the CDP, the Task Force on Climate-related Financial Disclosures. We just issued our first [TCFD] report. So, we are going to be transparent; you’re going see it on a regular basis. Our objective is set some bold goals, and then go get them and hold ourselves accountable. Clancy: Since you brought it up, how will you engage the PepsiCo organization to deliver, especially when we’re all in this new age of remote work? Andrew: It’s been incredibly exciting to me to see just in four months the level of excitement in our organization. We’re 260,000-odd people around the world, 200-plus countries and territories. We’re a big complex organization, but there’s a level of interest and excitement. People get it. You ask me, how am I going to engage? There’s three things that you’ve got to do. The first is you’ve got to excite people. With PepsiCo, when you announce an ambitious goal, like our climate goal, people get excited and they get energized. Honestly, a lot of our partners — our bottlers, our co-manufacturers, our suppliers — I’ve had a lot of people reach out to me and say, “Hey, this is really exciting. How can we help? We’re in on it.” So the first thing you got to do internally and also externally is excite and a big goal does that. You know, make no small plans? I think that’s one of the real keys to make sustainability work. You got to embed it in the business strategy, the business processes and the actions everybody takes every day. The second is, there is a level of education that’s important. When we talk to people internally about regenerative agriculture, Scope 3 emissions, those are terms that to most people are new. So we need to introduce those terms. We need to educate people on why the goals matter, but most importantly, how are we going to achieve them. Because that’s what it’s all really about, and we’re doing that across the company. Because we’re Scope 3, it’s got to be across your whole supply chain. We’ve rolled out, as part of the climate goal, a really well-done employee training program specific to our employees to help them understand the role of us as a company, and then the role of them as individuals. What can they do to mitigate climate change? And then finally, it’s about engagement, it’s how do we take that excitement, take that education and then really engage people to drive real action. Because ultimately, it’s about action, it’s about results, it’s about moving the needle. And so that’s everything from, how do we give people the tools? How do we put it in their incentives? How do we talk about it on a regular basis? How do we measure it clearly, because what gets measured gets done, all those things. So: Excite, Educate and Engage. Clancy: How will the Sustainable from the Start Program be implemented, and which product divisions will be first to adopt it? Andrew: That’s a great question, because this is one of my real beliefs and one of my real emphases, which is how do you get sustainability not as something that happens “over there,” but that is really part of the day-to-day business, part of the day-to-day work. Because if it’s part of what we do every day, then it happens and that’s how you really drive action. So, we’re looking at where there are business processes where we can embed sustainability. New product development is a great example. Everybody, every part of the company is interested in and cares about what happens in new product development. So we started this program called Sustainable from the Start, and it really puts sustainability at the heart of product design and new product development, because what it does is it encourages, but it also enables product development teams to make environmental impact a part of their decision-making from the very beginning as they think about the whole product life cycle. We’ve rolled out some tools that really help, because you’ve got to make it simple. The less friction that we can introduce, the easier it’s going to be. So we gave people a set of tools, so that they can estimate, for example, the carbon and the water footprint of products and development, and what are the choices that they make early that are going to affect those footprints. And then they can compare that data to some best practice benchmarks that we’ve built in, so they know what good looks like and they can make more informed decisions. Things like recyclability impediments. If people don’t know, they will not be able to make the kind of decisions that they will if they’re informed. That gets back to the education point I was making as well. If they’re informed and they’re energized and they’re motivated, then they’re going to make decisions that will have big impacts as we move through the life cycle. A big focus of the Sustainable from the Start program is reducing GHG emissions, sure, but also things like discouraging the use of non-recyclable packaging, because that’s really important. So we’ve conducted life-cycle analyses, carbon footprints. We’ve done it for about a quarter of all of our brands now, and we’ve got plans to get all of them done. When you’re a company as big as PepsiCo, you’ve got a lot of brands, so it takes a little while to go through. We’ll have more to share on this — again, transparency, openness. But it’s a great business tool that we’re actively embedding, so that people are thinking about this, from the beginning, as a part of their day-to-day jobs. Because I think that’s one of the real keys to make sustainability work. You got to embed it in the business strategy, the business processes and the actions everybody takes every day. A farmer gives her livestock water in Cucungara, Peru. The success of infrastructure projects piloted by PepsiCo and the IDB in these rural communities has attracted additional support from international public sector partners that has been used to fund new infrastructure, including pipe systems and treatment plants. Photo courtesy of PepsiCo Clancy: Can you share more detail about the internal carbon pricing programs? Why are you embracing them now? Did they take effect? When will they take effect? Andrew: That’s another great example of where we’re trying to take environmental sustainability considerations and just put them in the normal flow of business. So, we’re going to have to collaborate and get employees involved, and also partners and suppliers and everything. There’s a couple that we mentioned. One is, how do we eliminate the carbon impact of employee business air travel? A lot of people travel; a lot of people may or may not fully understand what the implications are of that. What we have done is we have said that anytime any employee is going to travel by air for business, we’re going to put a price on that. And then we’re going to take that money, and we’re going to deploy it with a third party into our supply chain. It’s not something that’s out there, it’s put into our supply chain, to fully eliminate the impact of the emissions from that flight. And it’s flight by flight. And it allows every employee, every time they book a flight, to see that their choice has an impact and also that we as a company will do something. Again, it’s about how do you excite people because people get excited about, “Hey, I can do something.” It’s about how you educate them, because it’s right there, it’s going to be in the booking tool. We are programming it, as we speak. Then it’s ultimately about how you engage them, so they go do something. So that’s one. We’re rolling it out now. By the middle of this year, it’ll be up and running, full go. Then we’re also looking at how we build the carbon impact into carrier selection for third-party logistics. We’re working with our procurement team, so that the climate goals are a part of the consideration when they’re choosing carriers. Because what this will do is it will help you enforce, again, climate considerations and business decisions, which will help drive GHG reductions. And then we’re going to learn from these things, and we’re going to look for where can we continue to expand across other business processes, ways to just embed this into the everyday thinking in activities. Clancy: Those are great examples. Thank you for being so specific. Andrew: The carrier selection is being piloted right now. The employee air travel right now, obviously, we’ve got to do a little programming and not a lot of people are flying a whole lot right now. But the carrier selection program is being piloted right now. Clancy: The pandemic has underscored the fragility of the recycling infrastructure around the world, as well as the food system. What new investments is PepsiCo making to improve collection? And what steps are you taking to increase the use of recycled content in your packaging? Andrew: We have a very clear vision, and that’s a world where packaging never becomes waste. That is front and center for everything we do in packaging. There’s really three things that we have to [enforce that policy]. The first is reduce plastic use. The second is improve recycling, and the third is reinvent our packaging. Let me talk about those now and answer your question. To improve recycling, especially as you say, given some of the challenges, this is a systemic change that is necessary and it requires a lot of partnerships across the full value chain. It requires collaboration between the public sector and the private sector. And it really is how do we work together end-to-end for a circular economy for plastics? We set goals, and then we go and we work really hard to go achieve them. But you’ve got to be transparent along the way about what’s working, what’s not. Specifically to your question, in the last three years, we’ve pledged more than $65 million globally for recycling and collection. A little over a year ago we issued our first green bond. It was a $1 billion green bond. We’ve allocated just about half of that, I think it was $447 million, of the proceeds to projects that advance sustainability. Roughly $200 million of that was specifically to procure recycled PET in our North American beverage packaging. You want to talk about creating a market, that’s creating a market. We have brands, whole brands that are [using] 100 percent recycled PET in Europe. We’ve targeted 100 percent recycled PET in nine countries for our lineup of Pepsi-branded beverage bottles by the end of 2022. We’re working to both support the recycling infrastructure in partnership with other people in the supply chain, public entities, competitors, because this is something that we all have to work on. And then we’re also working at driving demand because if we drive demand and make clear what our commitments are, that helps support the investments that people need to make all along the chain. [Editor’s note: PepsiCo brands using 100 percent PET for their packaging include LIFEWTR, Tazo Tea and Naked Juice.] Clancy: The PepsiCo Foundation has invested considerably in cultivating economic growth and opportunities for women and disadvantaged communities around the world. How does the PepsiCo corporate sustainability team collaborate on those projects? How do they shape the execution of your strategy? How are they aligned? Andrew: We work very closely with the foundation. Again, this is a great example of where we work to use the scale and the reach that PepsiCo has to have a positive impact really across communities around the world, where we operate and to really show some leadership in helping to build a food system that’s sustainable, regenerative and inclusive, to your point. So what we’re always trying to do is work on both people and planet. The foundation and the business have very much those objectives. A good example of collaboration — in addition to the climate news we announced — was the announcement where PepsiCo, in particular our Latin American operations, with our CEO there, Paula Santilli, and the PepsiCo Foundation announced that they are expanding the social and environmental impact partnership that we have with the Inter-American Development Bank. We will go another five years through 2026. It’s a nearly $6 million investment. It builds on the heels of what has been a very successful investment in a partnership over the last 14 years. Over the last 14 years, we’ve supported about 19 million people across Latin America and the Caribbean, on five big pillars of things that are really, really important: water access; nutrition; sustainable agriculture; inclusive recycling; and disaster relief programs. There’s a great example of where the business, the foundation and third parties have been able to collaborate in ways that are more powerful. It’s one of those one plus one plus one equals probably seven. A lot of people have had been helped by a partnership that none of the organizations could do by themselves. Clancy: What’s on your mind right now that I haven’t asked about that you feel like we should talk about more? Andrew: This is something I’ve been thinking about a lot. The challenges that the world is facing, when it comes to climate — again, go back to our recent climate announcement, which is top of mind — are challenges where no company, no government, no NGO can do it themselves. The need for collaboration, for partnership, for working together, has never been higher. These are difficult challenges. These are not things that can be solved by any one entity, and they’re not things that are there to be solved overnight. But they are also things that we can’t wait on. The science is clear, the need is clear; the time to act is now. All of us have to find partners to move forward. There’s going to be some mistakes, there’s going be some things that won’t work but together, we have to work together, find those areas of common interest and where we can complement each other, and then move forward with urgency. That’s why we looked and said: “We want big goals, we want goals that will motivate not only ourselves internally, but also other folks externally.” I’ve gotten a lot of calls from people saying, “Hey, great, how do we team up? I see you’re interested in this; how can we work together on that?” That’s what we need. I wake up every day, I wake up every morning, and I worry about what’s going on and sustainability and how PepsiCo is going to drive forward and meet our goals and move the needle on things. But I also think about, how can we do that with others? So, to me, that’s so important and I’m not sure that is fully appreciated by everybody who needs to work together. Clancy: There is a certain amount of skepticism about some of these big alliances right now. How do you keep them relevant and authentic? Andrew: You have to be open, transparent; you’ve got to build trust; and then you’ve got to show results. I think if those things happen, a lot of problems are going to take care of themselves. Back to the question you asked about milestones, transparency. We don’t set goals that we don’t think we can achieve. We don’t know always how we’re going to achieve them because they are big goals, and they’re bold, and they’re aggressive. But that’s what’s needed. But we don’t set ones just to get a headline or, as much as I love talking to you, we don’t set big goals just to be able to go do interviews. We set goals, and then we go and we work really hard to go achieve them. But you’ve got to be transparent along the way about what’s working, what’s not. How are we doing? Clancy: I just have one last question. What’s your most important priority as a chief sustainability officer at this time? Andrew: Oh, that’s easy. I’ve probably got the best job in the company because I get a combination of the chief sustainability role, and also some business responsibilities, which are all about sustainability. But the most important thing is easy, which is achieving the goals we’ve set. That’s hard to do, but easy to say. But that’s the priority. Ultimately it’s about how do we make the planet better for both the planet and for the people on the planet. How do we drive forward results around climate? How do we reduce emissions? How do we increase our renewable electricity to 100 percent globally? How do we end up at net-zero? That’s what is the most important part of my job. That’s what motivates me, because that’s what ultimately will show up and create real change. I need to work with a whole lot of people internally — 260,000 people have all got to be pulling in that direction. It starts at the top and goes all the way down to our frontline workers, but it also is true externally. But that’s my priority 1, 2, 3, working in every way that I can, with everybody to help us achieve the results that we know are necessary for the planet and the people on it. Pull Quote I’ve got history in sustainability, but I’m a business guy. I think that’s one of the real keys to make sustainability work. You got to embed it in the business strategy, the business processes and the actions everybody takes every day. We set goals, and then we go and we work really hard to go achieve them. But you’ve got to be transparent along the way about what’s working, what’s not. Topics Corporate Strategy Corporate Social Responsibility Net-Zero Carbon Pricing Collective Insight The GreenBiz Interview Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off PepsiCo CSO Jim Andrew

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5 steps boards can take to be ESG-ready for 2021

January 21, 2021 by  
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5 steps boards can take to be ESG-ready for 2021 Pamela Gordon Thu, 01/21/2021 – 01:40 Amongst the many dramatic challenges global businesses faced in 2020, one that had been simmering for years bubbled up and promised to stay at a high boil in 2021 is ESG: Environment, Social, Governance.  Signs that ESG expectations were becoming more ubiquitous included the establishment of global ESG standards published by the World Economic Forum’s International Business Council in September and BlackRock’s call for a globally recognized framework for investors to understand individual company risks.  Despite years of progress by leading corporations toward ESG, corporate social responsibility (CSR), environmental health and safety (EHS) and sustainability goals, the reality is that board members overseeing these companies are still trying to discern how all of this applies to them. In fact, in PwC’s annual Corporate Directors survey , which includes responses from more than 600 public board directors, only half (51 percent) say their board fully understands ESG issues impacting the company. That same study shows, however, that in 2020, 45 percent of directors say that ESG issues are a regular part of the board’s agenda, which demonstrates an increase from 34 percent in 2019. Time for training How can boards (public and private) improve their efficacy in ESG oversight for long-term value? As ESG experts, Presidians and members of the Athena Alliance (community of female corporate board directors and executives), we set out to help boards to become ESG-ready .  To start, we uncovered board members’ keenest ESG-education needs by surveying sitting board members at public (39 percent) and private (61 percent) companies, generating annual revenues of less than $50 million to $3 billion. They look to ESG to realize the following areas of corporate success: Source: Presidio Graduate School survey, October through December 2020 Then, we developed an ESG training for board members, along with the following five recommendations for board members to get ESG-ready for 2021. 1. Understand why boards need to be ESG-ready In our survey, 47 percent of directors believe ESG is important for brand equity and reputation, 24 percent cited both customer and investor pressure, and 18 percent pointed to risk management and board pressure. One sitting board member said that ESG is “an inherent part of the business model.” Board oversight includes advising the management team on the company strategy, and ensuring improved long term value for all stakeholders. Directors must understand how ESG issues can affect that strategy, and be in a position to assess and address both challenges and opportunities. To get started, align the board on why they should care, in light of demands from stakeholders such as customers, employees, investors, communities and suppliers. Invite an ESG expert to convey how ESG is material to your particular company.  2. Add ESG to your next board meeting agenda When asked what level of importance their boards put on ESG, 76 percent of our survey respondents said “important” or “very important,” yet only 47 percent said their companies report on ESG, and 35 percent said their board provides ESG oversight. Compare that to the 45 percent stated by public companies in the PwC survey, and we are still looking at less than half of company boards addressing ESG even as investors and other business stakeholders demand it. Add ESG to your next board agenda, even if only to start the conversation with the management team. You may be pleasantly surprised to learn that somewhere in the organization people have been working on ESG initiatives and have been waiting for the conversation to reach the board. Risk and reputation are two of the most fundamental aspects of “duty of care” for sitting board directors. Corporate leaders who take a broader view of their long-term strategy, including how they will meet ESG demands, will be better positioned to address new risks and opportunities.  3. Select an ESG oversight structure that aligns with your company More than half (52 percent) of our survey respondents serve on the Nominating and Governance committees of their boards, with 20 percent stating they sit on a specialized ESG/EHS working group or committee. Some companies split the elements of ESG between committees, with “social” sitting with the compensation committee for example, as they typically manage diversity, equity and talent initiatives. Because ESG strategy should align with business strategy and focus on material risks and business drivers, the full board will want to understand the ESG messaging and how those risks are being mitigated. A recent article by the Harvard Law School Forum on Corporate Governance offers an excellent guide on how to address ESG and corporate governance within the board committees, noting most importantly, “Because ESG strategy should align with business strategy and focus on material risks and business drivers, the full board will want to understand the ESG messaging and how those risks are being mitigated.”  4. Arm yourself with expertise In the PwC survey, respondents agreed that ESG issues are playing a larger role in their board discussions, and should be included in determining the company strategy. In fact, 67 percent of directors said the company should include climate change, human rights and income equality in the company strategy, a 13-point increase over 2019. Interestingly, female directors were more likely (60 percent) to see the link between ESG and company strategy than their male counterparts (46 percent), and agreed in higher percentages (79 percent vs. 64 percent) that climate change and human rights issues should be part of forming the company strategy.  As your board recruits new directors or replaces sitting directors, consider adding a director with ESG expertise, supplemented with an independent ESG consultant for a broader and future view. 5. Get educated When asked from which aspects of ESG education their boards would most benefit from, respondents prioritized: 1) diversity, equity and inclusion, 2) ESG/CSR reporting, 3) products’ environmental footprint/impact, 4) company operations’ environmental footprint/impact and 5) climate and renewable energy. Most prefer a half-day training, with some wanting a customized training for their entire board and others wanting to join training comprising individual board members representing diverse companies. Having interviewed board members over the years for materiality assessments, PGS Consults analysts note that board directors acknowledge their limited understanding of ESG and are genuinely open to learning more. The COVID-19 lockdown in March created a dramatic shift in board member interest in ESG — from polite inquiry to a more urgent need to know. Pull Quote Because ESG strategy should align with business strategy and focus on material risks and business drivers, the full board will want to understand the ESG messaging and how those risks are being mitigated. Contributors Leilani Latimer Topics Corporate Strategy ESG Collective Insight Thinking in Systems Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Shutterstock Freedomz Close Authorship

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Welcome to a new era of ESG and sustainable finance

January 21, 2021 by  
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Welcome to a new era of ESG and sustainable finance Joel Makower Thu, 01/21/2021 – 01:30 Adapted from the premiere issue of GreenFin Weekly, a free e-newsletter focusing on trends in ESG and sustainable finance. Subscribe using this sign-up page . What a moment to launch a newsletter on ESG and sustainable finance. The topic has become front and center in sustainability and finance circles and, suddenly, in Washington, D.C. A vast ecosystem is in play. Investors have awakened to the notion that how companies manage environmental and social issues is nearly as key to their risk profile and profitability as are financial fundamentals. Banks and insurers are factoring climate risk and social issues into their products and portfolios, accelerating a shift that’s been gearing up for years. Companies are warming to a world of deeper transparency and disclosure demands by investors, lenders, customers and others, and are trying to keep up with the dynamic world of standards and frameworks with which they’re being asked to comply. Oh, and it’s the dawn of a new U.S. presidential administration that sees virtue in assertive action on a range of social and environmental issues. We’re entering a new era, one in which companies are less able to hide behind their pronouncements and good intentions. We’re entering a new era, one in which companies are less able to hide behind their pronouncements and good intentions. Accountability is the new watchword. Action, not announcements, is the currency. The arrival of Team Biden itself promises to be a game changer. By the time you read this, we already may have learned about some of the incoming president’s first moves in this arena. Suffice to say that the new administration’s ambitions are significant — and the expectations could not be higher. After years of spinning wheels and grinding gears, there’s renewed hope for moving forward. All of this is bringing new players to the table — those inside organizations whose remit up to now hadn’t included such things as climate risk and human rights. Those in finance, investor relations, government affairs and risk management are grappling with new kinds of disclosure, increased investor scrutiny, new regulatory regimes and stepped-up activist pressures (not to mention media enquiries) around a host of nonfinancial issues. Investors, for their part, are similarly finding themselves swimming in uncharted waters. Even job seekers are starting to scrutinize the ESG data of prospective employers. We’ve been covering many of these topics for years on GreenBiz.com. Now, we’re stepping things up, elevating ESG and sustainable finance across our portfolio, starting with this newsletter and the GreenFin 21 conference in April as well as through webcasts, podcasts and many other things we do. Each week, a member of GreenBiz’s stable of journalists will take the helm of GreenBiz Weekly on a rotating basis, offering a fresh perspective on ESG and sustainable finance, and point to key stories from across the Web. We won’t cover everything — just the important things. Here are just a few storylines we’ll be following in this newsletter: The convergence of standards: This is No. 1 with a bullet. The mélange — some would call it a morass — of ESG standards and frameworks has been a problem for years. Now, various efforts to align these disparate approaches aim to create harmony from this chaos. But even these harmonization efforts are competing with one another. Which one(s) will win out? It’s an open field. The secret life of ESG data: How it’s compiled and deployed isn’t always clear. As such data is used for everything from assessing creditworthiness to determining where the next generation of talent wants to work, understanding the data itself — how it is compiled and used — will be critical. It’s time to bring ESG out of the black box. The growth of sustainability-linked finance: Another year, another record in the issuance of green bonds, climate bonds, sustainability bonds and others, as well as sustainability-linked loans. But issuing such bonds can be fraught with complexity. How are companies managing? We’ll take you behind the scenes. Investor expectations on DEI: As diversity, equity and inclusion issues have grown inside companies, investors are struggling to understand how to assess company actions. Black Lives Matter, #MeToo and other social movements are seen as both risks and opportunities for companies, and large institutional shareholders are starting to weigh in. Nature on the balance sheet: Biodiversity is an emerging area of investor interest and concern and is being integrated into ESG disclosures. What should companies be doing to prepare? The role of boards: Getting boards of directors on board with ESG issues is no small thing, and many boards aren’t prepared to provide adequate guidance and oversight. What are the competencies boards need to have? What are some key policies boards are adopting? That’s just a taste. As I said, it’s a fast-growing, ever-changing field. There’s no shortage of topics — and we’re just getting started. We look forward to joining you on this journey each week as we uncover and analyze new topics, interesting people, insightful reports, emerging trends and other useful resources to help you and your team move forward. To subscribe to GreenFin Weekly, published Wednesdays, click here . Pull Quote We’re entering a new era, one in which companies are less able to hide behind their pronouncements and good intentions. Topics Finance & Investing ESG GreenFin Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Shutterstock

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Welcome to a new era of ESG and sustainable finance

What I learned about water in 2020

December 30, 2020 by  
Filed under Business, Eco, Green

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What I learned about water in 2020 Will Sarni Wed, 12/30/2020 – 01:30 Last year around this time, I focused on digital technology solutions for water with this essay, ” 2019: The Year Analog Solutions Died .” I stand by this perspective, as the COVID-19 pandemic has accelerated interest and adoption of digital technologies across the water value chain. However, I wanted to share six new learnings from this pandemic year related to digital transformation along with other observations about the topic of water.   1. Digital transformation is about people: The digital transformation of water was well underway pre-pandemic and accelerated quickly during the past nine months. What was once anticipated to be a multiyear transformation occurred rapidly, with both the utility and industrial sectors scrambling to identify digital technologies and integrate them into their operations to adjust to remote workforces. Two aspects of the digital transformation took on more prominence: the critical importance of the workforce and the role of earth observation science (EOS) technologies. First, the critical importance of people in digital transformation cannot be underestimated. Transformation will stall or fail if there is no alignment between business strategy and culture, and there is a lack of investment in the workforce. The insights on digital transformation from 2019 papers and research came to the forefront (” IWA Digital Transformation ” and ” The Technology Fallacy “). The key takeaways are that successful investments in digital water technologies require a strategy, commitment by leadership, investment in the workforce and establishing and nurturing a culture of learning. The most important from my perspective is creating a culture of learning — it will contribute to attracting and retaining talent. We also witnessed the emergence of EOS technologies to provide real-time water quality, ecosystem health and flood prediction analytics from satellite data acquisition and analytics companies (such as Gybe , 52 Impact and Cloud to Street ). Digital technologies are connecting across the value chain of utilities and industries for a more real-time view of water quality, quantitative evaluations of ecosystems and flood prediction. 2. We need a “skunkworks” strategy for innovation: Innovation in water technology and business models is slow for several reasons. The competition is the status quo (the installed base). In general, organizations “try” to innovate from within, and water is a public health issue, so utilities can’t take risks. We don’t have the luxury of time to wait for innovative technologies and business models to scale. At this rate, we won’t achieve United Nations Sustainable Development Goal 6, which sets the goal of clean water and sanitation for all. What we need is a skunkworks mindset and strategy. If other industry sectors such as the aircraft and aerospace sectors can innovate quickly and at scale, so can the water sector. For those unfamiliar with the term, the relevant characteristics of a skunkworks project are outlined as a concentration of a few good people solving problems far in advance, at a fraction of the cost of other groups by applying the simple, most straightforward methods possible to develop new projects (paraphrased from Kelly Johnson ). 3. Water is not (just) the water industry: The issues and opportunities related to water are not just about the water industry. We need a more expansive view of the role of water in society and our environment. For example, water has economic, business, social and spiritual dimensions. The water industry sector mostly focuses on economic and business dimensions and rarely, if at all, on the social and spiritual dimensions. I would reframe the narrative to focus on humanity’s relationship with water (especially health and wellness, and natural ecosystems). Water doesn’t come from the tap or bottled water, so let’s protect watersheds and ecosystems. This message needs to be communicated simply and clearly to those outside the water sector. 4. Diversity is critical to solving wicked water problems: Society would benefit from greater diversity in solving water challenges as it is doubtful solutions exclusively will come from the usual suspects (myself included). We need vastly more diversity in age, gender, race, geography and from industry outsiders. Increasing diversity will not happen organically; we need to be proactive and work at it or we are destined to bring the same ideas to the party. As Ben Dukes, a friend and colleague, often says, “What got you here won’t get you there.” 5. Innovation in investing in water remains a challenge: Water technology entrepreneurs and startups continue to be challenged by traditional venture capital and private equity investment models. Water is not cleantech and requires more patient capital, which is in short supply. However, there are encouraging signs as initiatives such as Anheuser-Busch InBev’s 100+ Accelerator and Microsoft’s $1 billion Climate Innovation Fund invest in innovative water and sustainability solutions. The increased interest during 2020 in environmental, social and governance (ESG) performance has also focused more on innovative water solutions. 6. Water is not climate: The statement “If climate is the shark, water is the teeth” is misleading and not helpful. This year, climate change continued to gain traction within the private sector in the form of new commitments and investments from companies such as Amazon, Google and Nestle, among many others. This is certainly to be applauded. However, a cautionary word: Solving climate change will not solve the fundamental issues with water scarcity, poor quality and lack of access to safe drinking water, sanitation and hygiene. The potential and likely failure to achieve SDG 6 can be attributed to public policy failures sch as pricing, allocations and lack of funding. We can solve climate change and water and need to focus on both. There is no shortage of lessons learned from 2020. While it was a profoundly challenging year, we do have an opportunity to do better by critically examining what needs to change in the years ahead. This past year has framed my view of what the future may hold for 2021 as we build back better . I will share my thoughts on 2021 in my next Liquid Assets column. Topics Water Efficiency & Conservation Innovation Corporate Strategy Featured Column Liquid Assets Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Photo courtesy of Shutterstock/ Chepko Danil Vitalevich

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What I learned about water in 2020

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