The top five trends in corporate responsibilityFollow @PwC
Author: Jonathan Grant, Director, Climate Change, PwC UK and Kirsty Jennings, PwC Global Corporate Responsibility Leader, PwC Australia
In the lead up to BITC’s Responsible Business week, we asked experts from around the PwC network and beyond for their views on the most significant trends in corporate responsibility (CR). Here are the five trends to watch:
1. There’s increasing social and environmental disruption - and there’s no avoiding it
Dramatic and unexpected changes to the global political, social, economic and environmental landscapes have made it a tough time to be in business. In the last 12 months, extreme weather events have had a devastating impact on communities with severe floods in Bangladesh, drought, mudslides and wildfires in California, and hurricanes in the Gulf of Mexico. Scientists are now increasingly confident in the links between this extreme weather and climate change.
Plastics pollution has suddenly hit the headlines, despite the fact that it has been building up in our rivers and oceans for decades. Elsewhere, companies are under pressure on issues of social inequality, modern slavery, the gender pay gap, and the treatment of staff, contractors and gig workers. While these may be global issues, many demand that corporate responses are relevant at the local or community level.
Dealing with this uncertainty is tricky enough, but companies can no longer sit on the sidelines of these changes. They are expected to speak up and take a stand on issues - even ones unrelated to their business. Two thirds of consumers responding to a recent survey said they want brands to take a stance on difficult issues. And 64% of respondents in the recent Edelman’s Trust barometer said they want CEOs to take a lead on policy change instead of waiting for government.
2. Investors, governments and others are piling on the pressure
Governments expect businesses to play their part in tackling these global challenges – and are not afraid to set ambitious targets. This has been particularly apparent since the Paris Agreement and Sustainable Development Goals were adopted in 2015. Governments starting to implement these agreements realise that they will not hit their targets without a significant contribution from the private sector.
This translates into increasing social and environmental regulation. It also means softer pressure such as recommendations, guidance and encouragement from governments for businesses to take a lead. Governments also recognize the power of their purchasing to drive change, with increasing requirements in public sector tenders on social or environmental performance.
Alongside the pressure from governments, there has been a surge in interest in CR from mainstream investors far beyond the socially responsible investment community. In January, Larry Fink, CEO of BlackRock, sent a letter to CEOs calling on companies to explicitly state their strategy for creating long-term societal value. He drew a clear link between positive societal impact and strong long term financial returns.
3. The corporate response - creating wealth worth having?*
In response to mounting pressure from governments and investors, CR is undoubtedly moving higher up the corporate agenda and into the boardroom. This is no longer about charity or philanthropy, but impact and activism. Increasingly, CEOs are getting stuck into CR: sponsoring it internally, championing it externally and inspiring and collaborating with others. For example, the CEOs of Ericsson, Olam International and Royal DSM are all well known for their positions on sustainable development goals (SDGs), sustainability and carbon pricing respectively.
As CR becomes more mainstream, businesses are reassessing their relationship with it. Leading global corporates are now talking about ‘Corporate Purpose’ and the importance of trust and ‘being trusted’ for business success. But purpose is meaningless unless it is central to business strategy and backed up through implementation and action in the business. Ultimately, focusing on purpose should ensure the business creates long-term societal value and remains resilient and sustainable.
A purpose helps explain why the business exists and what value it brings. Firms are increasingly looking at their core products and services in the context of purpose: either to articulate how their offerings already contribute societal value, or to innovate new ones that do.
*Creating wealth worth having was the purpose of Climate Change Capital.
4. Technology for good?
The current pace of technological development is being described as the beginning of the fourth industrial revolution (4IR). Companies and corporate foundations are looking at how embracing technology and innovation in their CR programmes can increase their positive impact on society and the environment. For example, some companies are already using a blockchain ledger to provide full supply chain traceability for diamonds, and more commodities are likely to follow. Artificial intelligence can solve big data problems, which could transform collection and reporting of a broad range of data beyond financials. This could enhance real-time performance monitoring and management.
Alongside innovation gains, today’s businesses need to mitigate the downsides, such as the jobs that are lost to AI and automation, the loss of privacy and data security, and the harm to physical and mental wellbeing. There is also high energy demand associated with cryptocurrency mining. We are likely to see growing pressure on companies to be transparent and demonstrate a responsible approach in their strategies for deploying new technologies and managing the impacts of these changes.
5. A more rigorous, quantitative approach to CR metrics and targets
CEOs across every region and country recognise that the world is moving away from measuring prosperity primarily through financial measures (e.g. GDP) and towards the use of multifaceted metrics (such as quality-of-life indices). However, the use of broader metrics in the business environment is still limited.
As companies tackle CR issues, they need to be more rigorous and quantitative in their approach. For example, in the past, emissions targets were, frankly, a bit random. There are now ‘standards’ for climate action, with widespread adoption of science-based targets for greenhouse gas emissions or commitments to 100% renewable energy.
Leading companies are now considering how their other CR targets can also focus on maximising end impact. We think we’ll start to see an acceleration in the use of more comprehensive and integrated performance measures driving strategy and business performance.
When analysing risk, companies are also taking a far more evidence-based and quantitative approach. Following the recommendations of the Taskforce on Climate-related Financial Disclosures, many companies are using climate scenarios to assess the risks that climate change poses to their operations and value chains. Investors are expecting more quantified financial information about climate risks and opportunities, in mainstream financial filings. This is a significant shift away from the anecdotes and emissions data provided in climate disclosures in the past.
We expect 2018 to be another rollercoaster year. The businesses that will thrive in these conditions will be those that genuinely engage and collaborate with a broad set of stakeholders, set out a clear and genuine purpose that resonates with their business, and back it up with rigorous numbers.