Sustainability back on the top of US agenda
It is a good week for sustainability. Early declarations of the President-elect indicate a return of United States into the Paris Agreement. His declaration of the US going net-zero by 2050 makes the country joining the run to zero – trend already visible during the UN General Assembly in September this year. This visible policy shift puts an additional pressure on American companies to develop robust sustainability strategies. Politico reported spokesman Matt Hill saying that President-Elect Biden will make clear that every American company has a “moral responsibility, societal obligation and business imperative” to curb climate change and build a sustainable future. This is a very strong policy shift which will have a global ripple effect in multiple industries.
Historically, European regulators were much stricter towards corporate actors in terms of compliance and non-financial reporting. As a result, many of the approaches towards CSR and then sustainability originated from Europe. This is still the case today with the EU Green Deal, due diligence rules and corporate responsibility (regulation or directive), or new budget allocations.
Biden also announced significant plans for a sustainable recovery for the US economy from Covid-19 on his campaign platform. He has called for investment into a “Modern, Sustainable Infrastructure and an Equitable Clean Energy Future.” His commitment to the Green New Deal marks a significant policy leap that necessitates changes in the way business considers sustainability.
The post-pandemic recovery plans announced by the EU and the US focus strongly on sustainability and climate action. At a national level in the EU, multiple countries attach ESG-strings into recovery financing, and this trend looks like it may continue in the US. Companies and industries will have to comply with this shift in regulatory discourse.
Shift towards ESG driven by investors’ demand
Prior to the pandemic, the World Economic Forum’s Annual Meeting in Davos featured a theme of “Stakeholders for a Cohesive and Sustainable World”. Many discussions called for an inclusive and holistic action plan to deliver on the Sustainable Development Goals by the planned 2030 horizon. At the same time, there is a growing pressure from investor community to tackle the social and environmental challenges as it creates good business returns.
In September during the UN General Assembly, there was an observable shift of discourse towards a broader ESG approach. The World Economic Forum and “Big 4” accounting firms called together for alignment in terms of reporting and indicators. At the same time, multiple companies took net zero pledges with different time horizons.
Not forgetting the SDGs
Interestingly, it appears that Science-Based Targets referring to the Paris Agreement and net-zero concept have become the point of reference in the ESG discussion, while the SDG framework dominates a broader sustainability discussion. It is important for the companies to keep focusing on a holistic approach to ESG beyond the “E”. In that sense the two approaches are not opposed but complementary. It is a relatively common error to benchmark the approaches or select one above the other. In order to effectively deliver on the declarations, the companies need to seek holistic approaches.
Time for action is now and requires vertical and horizontal integration
Establishing an Environmental and Climate Justice Division within the U.S. Department of Justice was one of the promises given by Biden’s campaign. This joins a plethora of other declarations linked with a broad ESG performance. Looking at increased regulatory and legislative pressure globally, it is an opportune time for companies to look at their ESG approaches with new lenses. The process can include:
- Defining or revising corporate North Star and vision to seek a place for the company in the society.
- Revising materiality analysis to identify the issue that will impact the business in the post-COVID context.
- Re-evaluating the stakeholder landscape by combining perception and network analysis to identify new friends and foes.
- Analyzing links between regulatory developments in various jurisdictions to identify priority action areas.
- Aligning compliance work with community engagement initiatives into broader sustainability agenda.
- Creating internal and external engagement plans to ensure that various stakeholders are engaged and share the same understanding of company’s destination.
- Reporting the performance in a transparent manner to engage with the relevant civil society actors.
Successful sustainability strategies are fully integrated into company’s operations and culture. What might sound obvious can be relatively complicated to execute. Strategic integration of sustainability requires, respectively, goal setting and alignment between various business functions. It must also be embedded into the individual, functional and regional KPI frameworks.
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