Mind The Gap by Salterbaxter MSLGROUP by MSL Global

DIRECTIONS 16 Each year, Directions takes an in-depth look at an area of sustainability and communications. This time, weâ&#x20AC;&#x2122;re delving into the quite sizeable gap that still exists between business and society. Itâ&#x20AC;&#x2122;s not the void that interests us so much as the question of how it can be shrunk. How do we move from just minding the gap to actually mending the gap?

INTO THE GAP 16

Inside, we hear from experts and practitioners on how business and society can be brought closer together, what the obstacles are, and what the priorities should be in the months and years ahead.

EXTERNAL CONTRIBUTORS ROBIN NUTTALL Co-author of ‘Connect: How companies succeed by engaging radically with society’ and Partner McKinsey & Company

PETER ZOLLINGER Head of Impact Research Globalance Bank

LAURA PALMEIRO Sustainability Integration Director Danone

JAN-WILLEM VOSMEER Corporate Social Responsibility Manager HEINEKEN

SOFIE SCHOP Senior Project Manager, Communications Sustainable Apparel Coalition

ALEXANDRA PALT Chief Sustainability Officer L’Oréal

DR. RENÉ BUHOLZER Managing Director, Global Head Sustainability & Head Public Policy Credit Suisse

RICHARD KARMEL London Managing Partner Mazars UK

SALTERBAXTER CONTRIBUTORS • NIGEL SALTER CEO

• KATHLEEN ENRIGHT Director Consultancy & Communications

• OLIVIA SPRINKEL Head of Salterbaxter North America

• HUW MAGGS Strategy Director

• ROISIN GREENE Account Director

• KRISTINA JOSS Senior Consultant

• CAROLINE CARSON Consultant

• ARABELLA BAKKER Director Consultancy & Communications

Amazing progress has been made on the sustainability front. • Most businesses now have detailed sustainability targets and strategies. According to a recent study by Accenture, 87% of CEOs say that sustainability is central to their planning and strategies. • Reporting and disclosure are now pretty much standard practice – there may even be too much. • Sustainability is starting to be part of the way that products and services are innovated and marketed. And the challenge of longer-term thinking and a reinvention of the role of capitalism is being championed by the likes of McKinsey, BlackRock, Morgan Stanley and Inclusive Capitalism. We even have a major agreement from Paris on climate to build on and the UN Sustainable Development Goals as a platform for global actions. So the plus column is looking pretty good. Is the job done? Well, no. From looking at 2015 and 2016 we see that in many ways things haven’t changed at all. VW’s share price dropped by over 20% at one point due to the quite astonishing emissions scandal. And the Panama Papers scandal proved that the issues of taxation and transparency are fundamental to rebuilding the trust in business and finance – and that there is still a very long way to go. It seems as if a lot of the work that has been done to date has been focused on ‘minding the gap’ – making sure business does less harm, protecting reputation, managing risk. But as most of us know, the big opportunities for business are not achieved when it just minds the gap. They emerge when business and brands actively seek to mend the gap. John Browne and

BUT AS MOST OF US KNOW, THE BIG OPPORTUNITIES FOR BUSINESS ARE NOT ACHIEVED WHEN IT JUST MINDS THE GAP. THEY EMERGE WHEN BUSINESS AND BRANDS ACTIVELY SEEK TO MEND THE GAP.

CONTENTS

Connecting the gaps The engagement gap

Profit and purpose The integration gap

Eye to eye The behaviour gap

14 Robin Nuttall describe this as ‘radical engagement with society’ and Robin talks more about this in our first article. So this year in Directions (number 16!), we decided to take a step back and assess some of the gaps that still need to be bridged. Don’t get us wrong, we celebrate and applaud the great progress being made in many ways. But our passion is in showing business the commercial opportunity it can gain if it goes beyond ‘housekeeping sustainability’ and truly seeks to connect with society’s challenges in order to secure and drive long-term success. There are gaps in policy, gaps in innovation, the value-action gap, gaps between ambition and reality, gaps in knowledge and understanding, gaps in finance, gaps in science. We see them all as opportunities for business to succeed rather than simply as problems. We’ve chosen a few that we think capture the heart of the debate. We know there are plenty more we could cover too – there are gaps in our gaps! We’d love to hear your views on these.

Consumer trust in brands The information gap

Speaking the same language The marketing gap

The investment gap How the financial sector can step up

Say_Do/Practice_Preach The implementation gap

Handle with care The human rights gap

Conclusion

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The public’s distrust of big business is nothing new. As far back as 97 BCE, for example, legal codes in Han Dynasty China considered ‘merchants; former merchants; sons of merchants; and grandsons of merchants’ certain kinds of criminals. But the cost of such unpopularity is much higher for businesses today than it ever has been. New technology and the public appetite for novelty can subject companies to relentless transparency. Missteps may trigger an availability cascade, with the media feeding its 24-hour news cycle with unverified and oversimplified information that the public embraces. In a matter of days or even hours, perceptions gain traction, and a corporation’s good standing, which may have taken years to build up, could be irreparably damaged.

THE ENGAGEMENT GAP: HOW BUSINESS CAN STEP UP 01 Take a hard look at the gaps between the business and its stakeholders. 02 Be prepared to redraw the lines of connection. This isn’t just about CSR strategy, it’s about the company’s forward direction. 03 Get the whole organisation behind a more connected mindset – it will pay off.

But there’s also opportunity here. While conducting research for ‘Connect: How Companies Succeed by Engaging Radically With Society,’ which I co-authored with former BP CEO Lord John Browne and Polaroid Swing Co-Founder Tommy Stadlen, we discovered that about 30% of corporate earnings is at stake in a company’s relationship with external stakeholders. What’s more, businesses that connect effectively with society can see a shareholder value boost of more than 20% over a single decade relative to peers. The bottom line is clear: if you can capture this opportunity, you can grow in a way that your competitors cannot.

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WHO TO ENGAGE Businesses need to develop strong connections with several stakeholders, including employees, governments and regulators, the environment, and NGOs. Employees both reflect and create their employers’ brands. In addition, employee morale greatly influences financial performance. One London Business School researcher, for instance, found that companies listed among the ‘100 Best Companies to Work for in America’ between 1984 and 2009 generated 2% per annum share price uplift versus their competitors. Governments and regulators, meanwhile, wield the greatest power of all over business, and they require companies to perform a unique and challenging balancing act. “Ignore government and its influence will eventually catch you off guard,” we write in ‘Connect,’ “commandeer it and you risk a backlash from society further down the line.” Lord Browne in 1997 became the first Big Oil chief executive to publicly recognise the link between man-made carbon emissions and global warming. He believes the environment may be big business’s most complex stakeholder. The rise of technology and NGOs have essentially given a new and powerful voice to environmental concerns. Business leaders should place their organisations at the centre of transformative solutions that make the low-carbon world an attractive destination.

THE ‘FOUR TENETS’ OF RADICAL ENGAGEMENT In ‘Connect’, we argue that conventional corporate social responsibility (CSR) efforts are inadequate for establishing and maintaining dynamic relationships with these complex stakeholders. I would characterise typical CSR initiatives as box checking, an activity that’s disconnected from the company’s core commercial activity. What businesses need instead is to identify and pursue their social purpose with the same rigour as they identify and pursue their commercial purpose. And that major shift in mindset needs to begin at the top of the organisation by adopting the following four tenets.

Map your world It may sound obvious, but it is absolutely critical to understand the trends that are shaping your context and to quantify the value at stake. Doing so effectively means considering your goals in relation to those of your stakeholders while bearing in mind the resources and influence each of you brings.

Define your contribution In ‘Connect’, we explain that knowing where your company can actually make an impact, versus where it can only be a spectator, is vital to set your engagement priorities. For every topic, firms should choose which combination of the ‘3 Cs’ of engagement strategy – contest; concede and lead; and collaborate – is most appropriate.

Apply world-class management – embed deeply within the business line “The management of the connection between business and society is rarely done as professionally as other parts of the business,” we write in ‘Connect’. In order to radically engage society, organisations should subject these efforts to the same four core management tools that they deploy in their commercial efforts: creating capability; organising to win; establishing processes; and measuring outcomes.

Engage radically Finally, businesses must fully embrace openness and transparency. As we write in the book: “To earn trust and credibility, the private sector should engage the external world on the front foot, building lasting relationships which are based on regular, authentic negotiation rather than public-relations propaganda, brinkmanship or passive silence.”

WHAT’S NEXT The future of public engagement will be shaped by three main trends: the rise of artificial intelligence; the shift of the world’s economic centre toward emerging economies; and the emergence of a wealthier, bettereducated, and more empowered global class than we have yet seen. This new generation could be the most lucrative in history for businesses. It will certainly be the most challenging. But we need not greet these disruptions grimly. With the right guidance, the most progressive businesses stand to gain huge ground against their competitors. Gaining support for these efforts will require structured thinking around their potential upsides and downsides as well as a concerted move from the back foot to the front foot in the way the organisation engages with society.

AND, AS WE POINT OUT IN ‘CONNECT’, THERE’S PERHAPS NO BETTER TIME TO INITIATE THOSE EFFORTS THAN RIGHT NOW. “Companies have never been more accountable for the positive contribution they make to people’s lives,” we write. “The connected firms of the future will push the boundaries of human possibilities in their quest to contribute. They will not fracture their bonds with society.”

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PROFIT AND THE INTEGRATION GAP

Danone has succeeded like few other big companies in putting sustainability at the heart of everything it does. Salterbaxter’s Olivia Sprinkel caught up with Laura Palmeiro, Danone’s Sustainability Integration Director, to find out how they’re bridging the integration gap.

Olivia Sprinkel: How important do you think it is for a business like Danone to have a clear purpose?

THE INTEGRATION GAP: HOW DANONE IS STEPPING UP 01 Everything Danone does is guided by a clear mission and purpose. 02 Group leadership have provided essential support for integration – including a group-wide manifesto and new integrated report. 03 There has also been a big push to engage employees at all levels, as well as suppliers and society.

Laura Palmeiro: It’s extremely important. At Danone, our mission shows us our direction as a company. Like many Danone employees, I find our mission to be very inspiring. It doesn’t say anything about profitability. Of course, profitability is necessary to remunerate our shareholders and also to reinvest in the future. But making money is not a purpose in itself. The purpose of the company is to deliver our mission of achieving health through food – and to do it in a sustainable way while benefiting the largest number of people. We aren’t just targeting a niche market or a specific social class. We want to reach as many people as possible with our brands.

For a long time, customers and the wider society have been distrustful of big businesses. The reasons for this are mainly historical, and there is a widespread perception that corporations are usually there just to make money. There have also been ethical issues, a misalignment between economic, social and environmental interests. In the past, most businesses didn’t address stakeholders’ interests, but only their own, and normally only in a financial sense. As we know, lots of companies have started to move towards a more comprehensive understanding of their responsibilities – to include shareholders, society and the planet. But there is still a misunderstanding and misalignment between business and society. This is something that will only change through greater

transparency. The only way to fill the trust gap is to become more transparent with external parties, to invite them in to give their opinions, to co-construct solutions together. To become more porous. Maybe even to bring outside parties into the governance of the company. OS Can you give some examples of how Danone is collaborating with external parties? LP We are strong believers in co-creation. It’s one of the guiding principles behind the different funds that we have set up. One of them is Danone Communities, where we are working to solve nutritional problems in different parts of the world. Then there is the Ecosystem Fund, where we are working with not-for-profit partners to create jobs and reinforce our local economic and social environments, or ecosystems. Together, we provide training and financial support for Danone business partners, to help them develop their businesses in a better way.

For example, some of our milk suppliers are very small farmers. We help them learn about optimal methods for cattle feeding, how they can increase their yield, how to improve the cows’ lives and reduce health problems – all of which increases the quality of the milk they produce. It’s a win-win situation – the farmer gets assurance that more of their milk will get to market, which means they make more money to support their families, and we are assured good quality milk. When we’re able to build strong ecosystems, everyone benefits.

WHEN WE’RE ABLE TO BUILD STRONG ECOSYSTEMS, EVERYONE BENEFITS. OS How is Danone going about the task of integrating sustainability throughout the business? LP The backbone of our sustainability approach is the Danone Way – a process that is now completely embedded in the day-to-day functioning of the company. It touches every area of the business:

compliance, governance, quality control, human rights, diversity and inclusion through to measurement of our carbon footprint, reduction of environmental impact, sugar reduction, adaption to nutritional needs. There are four pillars to the Danone Way: For each of the pillars there are different topics; for example, Better World (the environmental pillar) includes water, climate change, agriculture and plastic. Then within each of the topics are specific practices and policies, and targets to achieve in the near future. Each of our country business units does an annual Danone Way selfassessment. Then external audits are carried out to verify the process and the data. These audits reinforce the credibility of the whole process. They do this at the same time as reporting their financial situations. We then carry out external audits of at least 20% of the business. We first launched the Danone Way in 2001, initially with two or three Danone group companies, and now it covers 98% of our total turnover. We update the Danone Way every year to reflect our newest commitments.

PURPOSE

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THERE ARE FOUR PILLARS TO THE DANONE WAY: 01 02 03 04

UNIQUE BUSINESS APPROACH BETTER HEALTH BETTER LIVES BETTER WORLD

OS Who is responsible for implementing the Danone Way in your businesses, and how does this relate to the company’s other sustainability activities? LP Each business has a Danone Way co-ordinator. Sometimes it’s the environmental manager, sometimes an HR person. It depends on the configuration of the business unit. The Danone Way is only one of our tools, but it is the only one that is transversal, touching all of the various sustainability topics, and which enables us to see the overall progress. Each topic is then managed by topic owners. For example, our latest climate policy came out at the end of 2015 and is applied by our worldwide community of carbon masters, co-ordinated centrally, who have their own way of communicating, setting targets and delivering against plans. There are similar experts working in other social, nutrition and environmental topics. OS You also have a manifesto at Danone. Can you tell us a little about that? LP The manifesto is our mission in action. It is what we stand for, what the mission concretely means and what we commit to do. It represents our convictions as a company. Importantly, all Danone employees have a role in implementing the manifesto. We recently held our second Manifesto Day, where we connected 100,000 Danoners simultaneously, through Webex. The CEO gave an address and we shared progress and examples of the manifesto in action, including screening some short films that had been made about how the manifesto has come to life in our subsidiaries. Colleagues all over the world were tweeting and we enjoyed

being all together, whether in offices or in plants. Everyone could see the presentations in their own languages. It’s a big thing to do, and a technical challenge. But it is very inspiring, having the whole organisation together like that. It gives a sense of unity. OS You’ve also been working with the B Corp community. Are you looking to become a B Corp? LP We’ve signed an agreement last year with B Lab, the organisation behind B Corps. The Danone Way approach has existed for a long time and is embedded in our culture, including our ways of thinking and doing business. Our CEO met people from B Lab and realised that the Danone Way is essentially like an internal B Corp assessment. Much like the existing B Corp-certified companies, we believe that we are not only responsible to shareholders but also to civil society and all our various stakeholders. In both cases, it’s about creating dialogue with society and using business as a force for good. This led to the question: ‘Why couldn’t we become a B Corp?’ As we started to look into it, we saw that the existing B Corp assessment was really aimed at medium to small scale businesses and would therefore be extremely difficult for us to answer. We realised that if we supported the idea and wanted to become a B Corp, we would have to find a way for big companies to respect the same topics and logic that B Corp companies do now, but with an assessment process that’s adapted to fit the challenges of collecting detailed information across a big multinational. So we set out to try to certify at least 10 Danone subsidiaries in order to

understand the challenges. One of them, Danone Spain, has been recently certified and another one will most probably be certified before the end of the year. We’re using what we’ve learned from this process to help develop a questionnaire for big companies as part of a working committee that was formed. Other members include big accounting firms and financial institutions as well as companies such as Unilever and Natura. OS Danone recently published its first integrated report. Can you describe how that came about? LP Danone has always had sustainability embedded in its culture, but our way of applying this has become more structured in the last few years. We started formalising it with the Danone Way and by setting up the funds. And our latest steps are our manifesto and the integrated report. I think you need to have an integrated strategy to have an integrated report – and we’ve had an integrated strategy for many years. So it was only natural for us to embark on this project. But we needed to have the right organisation in place to make it happen. It has taken us a few years, but we finally published our first integrated report this year. In my view a perfect integrated report doesn’t exist so far. There is no unanimous agreement on what an integrated report should look like, and there can be very different interpretations. But I think we are going in the right direction by having a first version of an integrated report. We have already heard from stakeholders that they think it is a good tool. It gives all kinds of stakeholders – NGOs, unions, suppliers, rating agencies – more information on how our management

is actually making decisions, as well as the role of sustainability within our strategy, and this should help a lot in closing the transparency gap. OS What advice would you give to other companies on how to successfully integrate sustainability into the business?

THE MOST IMPORTANT THING IS TO HAVE FULL SUPPORT FROM TOP MANAGEMENT. LP The most important thing is to have full support from top management. Without that, it can be extremely difficult to put an integrated strategy into action. This is a condition for success.

OS A final question. Are you optimistic that the gap between business and society can be closed? LP I’m very optimistic, partly because society is becoming more challenging than it used to be. The work that NGOs and civil society are doing is extremely important. People have more information now, not to mention more means to exchange and share information, and this is a good thing in itself. It is a helpful challenge for big corporations, as it pushes them towards transparency and giving explanations. Companies are going to have little choice but to start integrating dialogue into their normal working processes. Younger generations are much more challenging to businesses than the generations that came before. They’re pushing businesses to keep evolving – through what they choose to buy, what they choose to share on the internet, where they choose to work. Millennials will help to make sure that we keep working to close the gap. So, yes, there are good reasons to be optimistic.

Once you have their approval, you should try and involve everybody in all operations. This is important for the buy-in of the project. Integrated sustainability will only really work if it is embedded throughout. It doesn’t work if it’s present in some divisions but not in others. And you need to be collaborating and co-creating solutions across the whole organisation.

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THE BEHAVIOUR GAP More companies than ever before have clear values and ambitious sustainability goals, but these are often a poor predictor of real employee behaviour. Salterbaxter’s Roisin Greene looks at how business can bridge the difficult gap between what employees say they believe – and what they actually do. Increasingly, people throughout business and society recognise the importance of acting responsibly. But this does not always stop us from making poor decisions, and then repeating the cycle. Why is it that our explicitly held sustainable values do so little to predict what we actually do? What’s true for individuals is also true for organisations. Even the best and clearest trickle-down strategies, processes, values and targets have their limits. It’s basic human nature to avoid loss, overvalue our own inputs and sometimes veer away from what we intended to do. This is why influencing employee behaviour is not only the next important step in many companies’ evolution as responsible organisations – for many, it’s also one of the toughest challenges they face. To put it bluntly, your company will never be truly sustainable unless all of your employees adopt truly sustainable behaviours. And for all the reasons just mentioned, this can be a big ask.

KEY OBSTACLES: HABIT AND BIAS It’s easy to assume that a lack of information is the main issue when people fail to act in their – and also society’s – best interests. But that’s not the whole truth. Education alone is almost never enough. We should stop wasting resources trying to de-bias employee mindsets with greenwashing and instead start to de-bias our organisational processes. The decision to give in to temptation and revert to old habits is a moment laced with many nuances. Employee engagement campaigns are designed with the best of intentions to raise sustainability awareness and influence behaviour. Which is why it’s such a shame that so many are formulaic, rooted in unrealistic assumptions about human behaviour and often lack in-built measurement of effectiveness.

THE BEHAVIOUR GAP: HOW COMPANIES CAN STEP UP 01 Adopt new frameworks and tools to help employees make better decisions. 02 Create a great employer brand to reinforce positive behaviours. 03 Boost ‘psychological safety’ to help employees adapt and speak with an authentic voice.

Organisations need to design new structures, strategies and processes to help bridge the gap between people’s explicitly sustainable values and their implicitly unsustainable actions. Let’s look at three key areas where it is possible for almost any organisation to make systematic improvements to help their people make better decisions, achieve sustainability targets and ultimately build a better society.

01. REMOVING UNCONSCIOUS BIAS Increasing employee diversity is a key pillar in many organisations’ sustainability plans, but this does not automatically mean the people in charge of hiring are making more diverse or gender-neutral recruitment decisions. To the contrary, many companies continue to overlook the best candidates in favour of the familiar. Why? More often than not this comes down to unconscious bias.

Harvard professor Iris Bohnet’s research has shown that the traditional, unstructured interview process is a poor predictor of on-the-job performance. Yet this approach continues to be used by most companies. Typically hiring managers are free to use the interview to explore details that they think are important, and this leaves the whole process open to their personal bias. One of the key issues at play here is overconfidence – the belief (perhaps entirely unconscious) that you are right and that your experience and expertise is better than that of others. And many hiring managers are simply more likely, by default, to hire someone who is similar to them (same gender, background, education or hobbies). Unconscious biases can affect employee decisions across the full range of companies’ sustainability aspirations. One of the best ways to combat this is by implementing smarter processes that reduce the effect of individual biases and help employees to make smarter, more responsible decisions.

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WE SHOULD STOP WASTING RESOURCES TRYING TO DE-BIAS EMPLOYEE MINDSETS WITH GREEN WASHING AND INSTEAD START TO DE-BIAS OUR ORGANISATIONAL PROCESSES.

Such improvements do not have to be complicated. In the case of fair hiring, simply removing names, gender and image cues from the hiring process can be enough to neutralise managers’ personal biases. Google has gone a step further and completely redesigned its recruitment process to remove unconscious bias. How? By structuring the content of their interviews using data. Before interviews, the company’s peopleanalytics departments crunch data and identify which interview questions are more highly correlated with on-the-job success and weigh them accordingly.

02. INFUSING YOUR BRAND WITH PURPOSE Employees seek out jobs and organisations that align with their values and give them a sense of genuine purpose. This is especially true among the youngest generation of jobseekers. In a recent Deloitte survey, millennials said they believed businesses were behaving with increasing responsibility – though most felt that businesses continue to focus too much on their own agendas. If an employee’s personal values are not in line with those of the company they work for, they are extremely unlikely to be willing or motivated to change their behaviour in support of the company’s goals. Ultimately millennials say that they want companies to focus more on people, products, and purpose – and less on profits. Organisations need to develop a strong employer brand that supports a culture in which employees’ work lives and personal values are aligned. A powerful employer brand ties all of the organisation’s activities together – leading with purpose and permeating into everything your employees do and how they do it.

For sustainability activities to be mainstreamed throughout a business, they need to be internalised by all employees and become a norm. When a well-meaning company creates ‘green teams’ to take on the sustainability activation, employees who are not part of these teams can end up deferring responsibilities – essentially outsourcing ownership of their individual sustainable behaviours. By contrast, some companies are using small ‘nudges’ throughout the organisation to change behaviour incrementally and create new norms. Each time these companies teach employees how to talk about the company purpose or sustainability initiatives in their day-to-day interactions with customers or suppliers, they are also reinforcing these behaviours within the internal culture. Merck has created an employer brand that is very effective in positioning the company values (‘improve life, achieve scientific excellence, operate with the highest standards of integrity, expand access to our products and employ a diverse workforce that values collaboration’) at the heart of every activity. So Merck’s Open Innovation Centre is designed using their own IP products; they use their expertise in drug and delivery systems to create new partnerships which deliver malaria and AIDS treatment more effectively; and they transfer what they have learned in delivering clean water to laboratories to supply water to communities in developing countries. The employer brand ties all of these initiatives together and communicates them consistently throughout the organisation, showing how they all contribute to a single purpose.

PSYCHOLOGICAL SAFETY STARTS AT THE TOP According to Harvard professor Amy Edmondson, there are three key steps to building psychological safety in any organisation. Leaders who want to create an internal culture of responsibility should take note.

03. THE IMPORTANCE OF PSYCHOLOGICAL SAFETY Now that sustainability issues are firmly on the table, organisations need to create teams and work environments that support positive behaviours, each of which in turn will support the company’s sustainability strategy. There is an increasing body of research suggesting that ‘psychological safety’ is by far the most important trait to develop high-performing teams. This is the belief that you will not be punished for speaking up with ideas, questions, concerns or mistakes. Without this sense of safety, employees focus on impression management and self-protection for fear of appearing ignorant, incompetent, intrusive or negative. Such fears are very common in the modern work environment, which leads to workplace silence and ultimately a decrease in learning and innovation, both of which are essential in moving towards a more sustainable organisation. In comparison, teams where members feel safer are more likely to admit mistakes, to partner and to take on new roles. How do we move away from an environment where being wrong is avoided like the plague, where blame is more important than gratitude and where outlying views are ignored?

Again, Google is a notable innovator. The company has found that psychological safety is the most important factor in its efforts to create high-performing teams. Topping a list that also includes dependability, structure and clarity, meaning and impact of work. To help its teams improve and to monitor that improvement, Google has created a tool called the gTeams exercise. It’s now been over a year since the launch, and the findings are revealing. Google teams that adopted a new group norm, such as starting meetings by sharing a risk taken in the previous week, have improved psychological safety by 6% and structure and clarity by 10%. Feedback from teams has suggested that having a framework to talk about these dynamics was the most impactful part of the experience.

DO THINGS DIFFERENTLY In order to win in an increasingly uncertain environment, companies need to do things differently. A final word of caution: when organisations try to optimise everything, it’s sometimes easy to forget that success is often built on human experiences. Ultimately, it’s how our people and our teams work together that brings about the innovation and change.

Frame problems as opportunities to learn For the vast majority of us, workplace uncertainty, complexity and interdependency are constants. Create a team dynamic where each member feels comfortable to ask for clarification or help and where they feel their input matters.

Acknowledge your own fallibility Leaders should demonstrate a tolerance for failure by acknowledging that they are not always perfect and share insights into how they learned from past mistakes. This creates a safe space to speak up and encourages team members to voice their opinions.

Model curiosity by asking a lot of questions This creates a need for team members to answer the question being asked and have their voices heard.

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C O N S U M E R

THE INFORMATION GAP Giving consumers more information about the sustainability of products is great in principle. But it won’t automatically foster more informed buying decisions. Salterbaxter’s Caroline Carson reviews the gaps in consumer transparency and she talks to Sustainable Apparel Coalition’s Sofie Schop about how they’re supporting brands to reach consumers at scale.

I N

B R A N D S

Consumer trust in brands and companies is a volatile commodity. With each emerging corporate scandal or ethics issue, public trust in big companies erodes, sometimes purely by association.

if a critical mass of companies manage to be fully transparent about the environmental and social impacts of their products, their action could set in motion a huge wave of consumer behaviour change.

Yet when governments or industry bodies sit down to hash out better standards for corporate accountability, it is almost always other stakeholders – such as investors, NGOs, employees, suppliers and partners – whose concerns and needs dominate the discussion, not the general public.

As more brands provide consumers with this kind of information, consumers will become more aware of the environmental and social issues and so begin to seek out this information from other brands, which in turn will need to provide a similar level of information if they want to compete. With time, this will bring tangible change, because brands with a poor record on social and environmental issues will be exposed and have little choice but to put their houses in order.

As a result, many businesses do not think of consumers as a main audience for their corporate sustainability programmes and reporting. More often than not, consumer engagement is seen as the preserve of the marketing teams, with little to do with corporate communications. The net effect is that consumer engagement on sustainability has lagged well behind initiatives aimed at other audiences. As a result, a lot remains unknown in this space. What do consumers want and need in order to be able to make more informed purchasing decisions? And is anyone prepared to reveal the good, the bad and the potentially ugly when it comes to their products?

THE CASE FOR GREATER TRANSPARENCY For companies, these are increasingly urgent questions. In our always-on, social media saturated culture it is becoming ever more difficult for brands to conceal or ignore any unpleasant truths that may be lurking behind their glossy advertising campaigns. If companies don’t tell, someone else eventually will. The trusted companies will be the ones that are willing to reveal all. But there is a much bigger idea at play here as well, a very simple idea really, but one that could be a game-changer:

WELL-INFORMED CONSUMERS CAN CREATE THE DEMAND FOR BETTER BRAND PERFORMANCE ON SUSTAINABILITY CRITERIA JUST AS THEY CURRENTLY DRIVE THE DEMAND FOR BETTER PRICING AND QUALITY OF PRODUCTS. TWO ROADBLOCKS: CREDIBILITY AND COMPARABILITY There are some big practical obstacles. One is the sheer challenge in establishing credibility around these sensitive topics, given that so many consumers no longer trust big companies to tell them the truth. A recent study, by TNS for The European Commission found that only about half

THE INFORMATION GAP: HOW THE APPAREL SECTOR IS STEPPING UP 01 The Susta inable Appa rel Coalition is developing gu idelines to help its member compan ies be more tra nspa ren t. 02 Competing footw ea r bra nds are shari ng da ta and insights to find ou t how best to provide this information. 03 Initia l insights suggest that simplicit y, comparabil ity and credibilit y of the information is key.

of European consumers trust companies’ claims about environmental performance. Also in that study, 58% said they think product labels do not provide enough information, and 48% said existing labels are unclear. So there appears to be a clear opportunity here for corporate innovators to build trust – and with it brand loyalty – by providing consumers more and radically clearer product information. But will consumers believe what these companies say, even if what they’re saying is clear? Probably not without some form of external verification. And unless it’s easy for consumers to compare different companies’ claims, the information won’t carry much meaning. For that to be possible, companies will need to collaborate across sectors in unprecedented ways.

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TRYING TRANSPARENCY ON FOR SIZE One industry that has made impressive strides towards consumer transparency is the apparel sector, thanks in no small part to the work of the Sustainable Apparel Coalition (SAC). The SAC’s members are a who’s who of leading apparel, footwear and home textiles companies, and they’re all being encouraged to make comparable sustainability information for their products and brands publicly available by 2020. The SAC has developed a roadmap to help members do this. But the big question remains: how should all this new information be displayed? What does genuine transparency look like in practice, and how much information is too much?

THE MAIN CHALLENGE IS HOW TO DISTIL ALL OF THE ISSUES FROM THE FULL LIFE CYCLE OF A SHOE INTO ONE EASY-TO-UNDERSTAND LABEL WITH ONE PERFORMANCE SCORE. To explore this, the SAC has been convening a group of member brands in an EU pilot project called the Product Environmental Footprint (PEF). This is a truly groundbreaking initiative, because it has major competing footwear makers – including H&M, Inditex, Nike and adidas – sharing product sustainability information freely with each other, to find the best way of sharing this information with consumers.

50%

OF EUROPEAN CONSUMERS SAY THEY TRUST COMPANIES’ CLAIMS ON ENVIRONMENTAL PERFORMANCE. IS STANDARDISED LABELLING THE ANSWER? As part of the pilot project, Salterbaxter has been working with the SAC to design and test a label that can meaningfully communicate product-level performance information directly on the shoe, plus a range of supporting communications that consumers can turn to if they want more detail. This is about giving shoppers the critical information they need, clearly presented and at exactly the right point in the buying process when it can help them decide whether to purchase or not. The main challenge is how to distil all of the environmental issues from the full life cycle of a shoe into one easyto-understand label with one performance score. A few months into the pilot, we’re already starting to unwrap some useful insights. We’ve found that once consumers understand what the initiative is about, many of them are receptive and think the new labelling will have a positive effect. But it is also becoming clear that third-party accreditation and/or verification of the standard will be important to build trust.

THE OTHER SIDE TO TRANSPARENCY For behaviour-change potential, labels carry a particular power to help consumers make quick, informed decisions. But that power depends almost entirely on how much the consumer already knows about the underlying issues at the moment they pick up the product. Traffic-light labelling schemes on food are a good example. They work because shoppers have learned, thanks to long-running campaigns and education initiatives, the significance of calories, fat, fibre and salt. Also because regulation (in most countries at least) ensures this information is displayed consistently across brands and products, making it easy for consumers to compare one product to another. In the case of sustainability impacts, some topics – such as labour issues – are already widely recognised thanks to the amount of publicity they’ve had, but many other issues, from waste and toxicity to energy efficiency and the supply chain – are much less known and understood. So while it will be important for companies to improve the quality and comparability of the data that companies present during the path to purchase, it is just as important to explain to consumers why they should care about these issues, by connecting them with how they experience the product. Only then will the information be truly transparent. There are no off-the-rack solutions, but the SAC’s pilot project has shown that there’s certainly willingness from leading brands to be proactive in doing what is needed to bridge the information gap. And once the big brands start doing it, surely more will follow suit.

Q&A

SS We aim to enable and encourage our members, which are brands, retailers, facilities and affiliates, to become fully transparent by 2020. In order to reach consumers at scale we create tools and provide support to our members, instead of reaching out to consumers directly. We also engage and partner with peers and key stakeholders like consumer associations and NGOs to start the public dialogue.

WITH SOFIE SCHOP, SENIOR PROJECT MANAGER, COMMUNICATIONS, AT THE SUSTAINABLE APPAREL COALITION

1 The Higg Index is a suite of self-assessment tools that enables brands, retailers and suppliers to measure their environmental, social and labour impacts.

CC Is the idea that the Higg Index1 will become a certification standard?

Caroline Carson: Transparency is one of the key pillars of the SAC’s 2020 vision and strategy. How has this been received by your member brands? Sofie Schop: Transparency – particularly consumer understanding and perception – is indeed an important part of our 2020 vision and one of the main reasons for members to join. By measuring sustainability performance, the industry can address inefficiencies, resolve damaging practices, and achieve the environmental and social transparency that consumers are starting to demand. CC Where is the demand for consumer transparency coming from? The consumers themselves? Or is it brands, regulators or NGOs who are driving the change? SS The demand comes from all of these stakeholders. This is why we work on creating one common language for the industry. We want consumers to speak this language, and we have invited stakeholders like brands, governmental institutions, NGOs and academics to create the language together. CC There are two sides to transparency: brands making it available and consumers engaging with it. The roadmap obviously starts with the former, but what plans are in place to build interest and demand for greater transparency in the apparel sector?

SS No. We’re developing tools that allow members to voluntarily share Higg Index performance information in a comparable way. What this will look like is something we are testing out by talking with consumers and other relevant stakeholders and peers. CC How has leading the EU initiative – the PEF footwear pilot – influenced the roadmap so far? SS It’s a huge influence. The footwear pilot will be an important resource of information. The outcomes will provide hugely valuable insights into consumer perceptions. The information we are gathering through this collaboration with the European Commission will be shared publicly and integrated into our broader transparency work. CC It’s impressive how open and honest the brands are able to be on the PEF project. SS Oh definitely. This is the way we at the SAC operate and I’m very proud of how it works. Everyone who commits to this project is really that open and willing to share. SAC is a coalition, so it is the members themselves who co-create the tools. Sharing insights is the way to create tools that will be useful and beneficial to everyone. CC What do you think transparency will mean for brands’ performance? SS Ultimately, the whole point is to accelerate improvement. Sharing performance information is a crucial first step. Comparability to other scores or performance over time will add essential meaning to the data.

G N I K A E P S SAME E TH GUAGE N LA

THE MARKETING GAP Too often in companies, the sustainability and marketing functions fail to understand what the other is saying. But profitability and purpose increasingly mean the same thing, says Salterbaxter’s Kathleen Enright. Jan-Willem Vosmeer shares how they work together at HEINEKEN. Companies will only be able to drive the change the world so urgently needs if they can rally all their stakeholders – including their customers – behind the sustainability agenda. Yet in many companies the sustainability and marketing functions barely talk to each other. When they do, it can seem as if they’re speaking different languages. We often witness the effects of this intra-organisational gap. On the one hand, we see chief sustainability officers (CSOs) struggling to translate their sustainability strategies through the brands and into consumer engagement; on the other, we see chief marketing officers (CMOs) struggling to leverage sustainability to bring meaning and value to brands. Does it have to be this way? Absolutely not. Having a sustainability strategy is part of the minimum license to operate, so it is hardly irrelevant to the work of the

marketing department. And marketers have a key role at the heart of the sustainability agenda as well. After all, they are the ones who will manoeuvre the difficult shift from corporate to consumer communications, getting sustainability out of the boardroom and into the living room. There is no one-size-fits-all model for resolving this issue. Each company has different drivers for sustainability and will need to structure itself accordingly, but there is one common factor for success: that marketing and sustainability need to work closer together.

GETTING THE STRATEGY AND STRUCTURE RIGHT In a sense, the business of sustainability is the management of a new type of knowledge. It doesn’t sit with one person. And it requires new ways of working and making decisions that sit with the many, not with the few.

MARKETING AND SUSTAINABILITY CAN BE SEEN AS TWO SIDES OF THE SAME COIN. Working together with different, often new, partners takes time. All parties need to go through a learning curve, develop a shared language and be able to trust each other. Collective ownership A few companies have stepped ahead of the curve in terms of spreading ownership of sustainability out across the whole organisation – so that it can drive innovation, generate employee pride and create new market opportunities.

THE MARKETING GAP: HOW CSOs AND CMOs CAN STEP UP 01 Choose strategic goals that align both the CSO and CMO agenda with a clear brand purpose. 02 Find a common language, possibly going so far as to coin a new term alongside ‘sustainability’. 03 Ask different questions and get new answers – look to the new ‘aspirational consumers’ for ideas.

For example, Nestlé has made the decision not to have a CSO so that the sustainability strategy is not an isolated concern but rather is shared throughout the business. Finding where to start This is not an overnight process. Clearly it won’t be possible to suddenly have every part of your company’s DNA come to the forefront in support of the sustainability strategy. Finding the right place to start is key, and this means choosing the right issues at the right time, delivered through the right brands and with the right partners. It’s important to make these decisions with a collaborative mindset; that is, aligning the sustainability and marketing agendas with the heart and purpose of the business. This is the only way to ensure the challenges – including the big sustainability issues – can be meaningfully addressed.

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SPEAKING THE SAME LANGUAGE Marketing and sustainability can be seen as two sides of the same coin. And when we look closely at those two sides and the language associated with each, we can see that CMOs and CSOs are often concerned about the same things. It’s just that when they talk about what guides them, they aren’t using quite the same terms. ‘You say pot-ah-to, I say pot-ay-to…’ CMO says today, CSO says tomorrow We regularly meet CSOs who say they are finding it difficult to get through to a particular marketer who manages a brand that is doing very well on an existing strategy, which has them easily delivering their targets and unlocking commercial rewards. Telling such a marketer that they need to change, because we think consumers need to be more responsible, is an understandably tough conversation to have.

‘YOU SAY POT-AH-TO, I SAY POT-AY-TO…’ Too often, what’s missing is the middle ground. And the truth is that sustainability and marketing both need short-term and long-term wins. Sustainability needs to be identifying the quick wins that will drive longer-term momentum, while marketing needs to remember that the role of marketing is brand guardianship, which has to be delivered over a long period of time.

CMO says digital, CSO says transparency When CMOs talk about ‘digital’ and CSOs talk about ‘transparency’, are they actually saying the same thing? Transparency has not only allowed businesses to show consumers the ‘good’ things they are up to, but has increasingly allowed the consumer to scrutinise the life cycle of the products they buy in to. Social media has been a catalyst for transparency and has allowed consumers and stakeholders to respond in the blink of an eye to an issue they feel is important enough to shout about. Together, social media and transparency have created a connection and a conversation between stakeholders, consumers, investors and businesses. Find your own interpretation To many people, the term ‘sustainability’ really means very little. It’s too broad, too generic, and yet contradictorily, also too narrow; a lot of people understand it to be mainly about environmental impact. In some areas of modern business, sustainability is increasingly associated with creating added value, while in the marketing world it is still associated with austerity and sacrifice. So, do we need a new word? I would argue that each company needs to find their own word or phrase to express their ambitions and the value they bring to the sustainability landscape. Language is appropriation. The more a term is owned and understood, the more it will become part of corporate culture. There are already some notable examples of this. Sony speaks of ‘Futurescapes’, Unilever speaks of ‘Sustainable Living’, PepsiCo speaks of ‘Performance with Purpose’.

WHAT A BRAND IS FOR In recent years, pressure from activists and governments has pushed many businesses to set more ambitious targets. An increasing number of businesses are building sustainability plans into their core strategies, with a joined-up structure that stretches across geographies, business functions, products and revenue models. From a consumer perspective, market saturation and mass media have shifted us into the ‘Era of Emotion’. People’s internal motivations have changed.

FOR A BRAND TO BE CREDIBLE AND AUTHENTIC, ITS PURPOSE HAS TO BE ROOTED IN A GREATER SOCIETAL NEED.

Our access to endless information and socialisation has given new life to age-old questions. ‘Why am I here? What impact do I want to have on the people around me?’

Authentic brand purpose Brand purpose sits at the heart of all this. The leading businesses and brands of the future will investigate and reimagine purpose and value. But brand purpose, done incorrectly, also has the potential to be the next wave of greenwashing. Consumers have fast realised this and are rejecting what they perceive as ‘counterfeit’ brand purpose – a pure marketing activity with no greater societal benefit. To unlock the rewards of brand purpose, it has to be an authentic brand purpose – one that is rooted in and supported by the company’s sustainability strategy. It needs to be about doing, not just saying. It needs to set commitments and deliver proof of promise through action and measurement. Change the brief What is standing in the way of marketers understanding the sustainability agenda and vice versa? We know that the language often used is confusing and misleading for both parties, but what it actually comes down to are the questions being asked upfront – the brief.

If we change the brief to ask different questions, surely we would get different answers? For decades, the green movement has been chasing the wrong ball: if only we could cultivate so-called ‘advocates’ (pejoratively dubbed ‘tree-huggers’) then we could scale the market for sustainable goods and tip the business paradigm toward more conscious capitalism. It’s time to admit that this was wishful thinking.

The data couldn’t be clearer. Advocates will never be more than 20% of the consuming public. But that’s okay because there’s a new kid in town, one who cares about style, shopping and status, as well as doing right by the planet. GlobeScan have named this high-velocity demographic ‘aspirational consumers’ and their emergence is significant for many reasons, but mainly because they are the largest consumer segment globally (39% of the population) and the first to unite materialism, sustainability, and cultural influence. In short, they are the most critical audience to reach and engage if we want to drive sustainable behaviour change at scale. Aspirationals want something to believe in and they want brands to stand for something bigger than a product or service. Give them an inspiring ethos. Bring a strong point of view. Back it up. And that’s where the glitch is. They need proof of promise, which is to say credibility. And marketers need their sustainability colleagues to help deliver this.

For a brand to be credible and authentic, its purpose – the ‘why’, its reason to exist – has to be rooted in a greater societal need. Purpose has to be about more than just selling more stuff. Sustainability provides the framework and the proof points to do this. It has become the new proxy for brand trust.

THE VIEW FROM HEINEKEN JAN-WILLEM VOSMEER, CSR MANAGER, SHARES HOW SUSTAINABILITY AND MARKETING ARE MEETING AROUND THE TABLE.

“It just makes sense to do it given that millennials – a key segment for our business – expect brands not only to be about lifestyles but also to contribute to solutions for the complex problems facing society. We very much believe that HEINEKEN’s brands can be gamechangers on topics like climate change, anti drink-driving or nature conservation, and for that to be possible we needed our sustainability and marketing people to work more closely together. Our focus on responsible consumption of alcohol is an example of this in practice – a public conversation driven by our sustainability strategy, on a topic that our whole organisation is passionate about. Beer brings people together, but we think it’s important to make the point that misuse of alcohol is not cool. Through Heineken, our flagship brand, we’re trying to make drinking in moderation aspirational. So we’ve launched global campaigns like ‘Dance More, Drink Slow’ and more recently ‘When You Drive, Never Drink’ (as part of our Formula 1 sponsorship) which are about repositioning moderate drinking as something that can be cool. It may seem strange for a beverage company to tell its consumers to drink less. But we see it as an opportunity both for society and for our business. And we’re providing a growing number of lowand no-alcohol brands and a range of serve sizes to give people who want to drink moderately, more options, while still having a good time.”

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THE INVESTMENT GAP Sustainable development will never happen on the scale that’s needed without an unprecedented injection of cash. Salterbaxter’s Huw Maggs and Kristina Joss note there are plenty of reasons to be hopeful that change is on the way. They talk to Credit Suisse’s Dr. René Buholzer and Peter Zollinger from Globalance Bank about how the financial sector can step up to the task. 22

THE VIEW FROM CREDIT SUISSE

HOW THE INVESTMENT GAP CAN BE BRIDGED

DR. RENÉ BUHOLZER, GLOBAL HEAD OF SUSTAINABILITY AND HEAD OF PUBLIC POLICY

01 More CEOs and CFOs need to articulate a sustainable business vision compelling enough to capture investors’ attention. 02 We all need to start thinking of our biggest societal challenges as opportunities for economic growth. 03 Today’s policy and research initiatives are not enough on their own, but could point the way towards systematic change.

We all know the significance of 2°C. But there is another number that could turn out to be just as consequential for the future wellbeing of the planet: $12 trillion. That’s the amount of renewable energy investment that Ceres and Bloomberg estimate will be needed over 25 years in order to prevent global temperatures from bursting past a certain dangerous climate-change threshold. By their projections, we’re currently on course to see only $5.2 trillion invested – less than half of what’s needed. And that’s just one example. To achieve the UN’s Sustainable Development Goals (the SDGs), something like 2.5% of global GDP needs to be invested in public and private initiatives every year. Is it happening today? Not by a mile. How can large-scale investors be convinced to move substantial capital into sustainable development opportunities? And why do so many investors seem so uninterested in making this happen?

THE KEYS INVESTORS HOLD Before we look more closely at the reasons for the investment gap, it’s important to note just how much financial power the investment banks, mutual funds and other large-scale investors actually hold.

LARGE-SCALE INVESTORS HAVE THREE MAJOR LEVERS THEY CAN USE TO ADVANCE SUSTAINABILITY – IF THEY CHOOSE TO. Together, these organisations exert tremendous influence on global investment flows and stock market movements. They pool huge sums of capital on behalf of asset owners. And they have the crucial role of allocating capital to businesses based on their expectations of future performance. These investors have three major levers they can use to advance sustainability in the financial sector – if they choose to. 01 They can advance the financial markets from within – by pushing for the markets to factor environmental, social and governance issues into company valuations. 02 They can ‘crowd in’ private investment, making use of financial innovations (new products, services, portfolios, investment strategies and structures) to make sure clients’ capital is directed towards environmentally and socially focused investments. 03 They can exercise their shareholder rights of active ownership to directly influence companies’ business, management and strategy.

Despite the need to significantly scale action, there is a growing cohort of financial institutions who are taking steps. One example is Credit Suisse. We spoke with Dr. René Buholzer to understand why and how the bank is scaling its sustainable investment activities. “Our sustainable investment focus at Credit Suisse has steadily evolved over time. This is not a new undertaking for us – we have been providing financial services to support education, nature conservation, gender equality and many other issues for a long time. But we have reached something of a tipping point recently, thanks in part to the influence of big global initiatives such as the SDGs and the UN’s Climate Summit. Globally, we are focusing on client segments where there is a clear need for better access to sustainable investment. Market research has shown that millennials are twice as likely to invest in opportunities with positive environmental or social impacts. So if we want to attract or retain this client base we clearly need to cater for their investment beliefs with an appropriate offering of products and services. The priority has to be integrating sustainability values into the overall investment process, which is conceptually and organisationally much harder than just creating an asset class. Looking ahead, we see an unprecedented opportunity to connect with our client and stakeholder communities through sustainable investment. And we think it is very important to keep the dialogue going, both internally and with our clients, around why we are embedding sustainability into our core business decisions and investment strategies – and why this is so valuable for Credit Suisse, our clients, and for society.”

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GAPS AND OPPORTUNITIES While we are observing signs of a more systematic approach on the part of leading investors, there are many gaps that still need to be addressed across the financial system before sustainable investment can be scaled up to the extent that the world needs. Here’s a quick look at five of the key gaps – which can also be seen as key opportunity areas, where change can take hold. And possibly already is.

The capacity gap Todays’ financial and social situation is unprecedented. There’s no way that established business models can offer all the knowledge, skills and processes that are needed to address the new challenges. Most investors simply don’t have the organisational capacity to take this on. Not yet, anyway. Since 2013, Morgan Stanley’s Institute for Sustainable Investing has been working to advance market-based solutions to economic, social and environmental challenges – in part by training and developing the next generation of sustainable investing leaders.

The metrics gap Most of the metrics that are commonly used by financial and sustainability professionals are incompatible. This leaves investors with a lot of work to do in order to translate ESG metrics into tangible investment decisions. The Task Force on Climate-related Financial Disclosures is working to develop a new metric standard, which would make it easier for investors and other stakeholders to compare companies’ climate-related risks. The task force has some significant clout behind it, it was set up at the request of the G20 and is chaired by Michael Bloomberg.

“Good climate-related disclosure standards exist. While some firms disclose using these standards as guidance, most don’t include them in their financial filings. That’s what is unique about the Task Force on Climate-related Financial Disclosures – while we are building off existing efforts, the recommendations we’re developing are specifically for inclusion in financial filings. We want to help institutionalise consideration of climate-related financial issues at the board and senior management level – and within the financial community.” Taskforce member and Global Head of Sustainable Business and Finance at Bloomberg, Curtis Ravenel

The communication gap Communication is a critical part of the sustainability agenda, but very few companies have so far hit on a narrative that’s clear and compelling enough for mainstream investors to take note. Even companies’ own investor relations teams often don’t see the point. There are already some notable exceptions, though. At ABB, the Swedish-Swiss power and automation technologies company, senior leaders have made it clear that sustainability is core to everything the company does, including financial relationships. Investor relations plays a key role in making sure ABB investors understand and are up-to-date on things like value creation and sustainable revenue and profit generation.

The policy gap The policy framework is skewed towards conventional investments. Big shifts in the rules and incentives governing financial markets are needed, both nationally and internationally, to encourage more investors to choose sustainable investing instead.

The UNEP’s Inquiry into the Design of a Sustainable Financial System is doing its bit to try and speed up the transition to a green economy through policy. The goal is to find best practice financial market policies and regulatory innovations that can make a sustainable financial system a reality faster.

The leadership gap Significant progress is never possible without leadership, and the investment situation is no different. Where are the outspoken leaders whose foresight and moral responsibility can inspire a definitive shift towards sustainable investing? Recently there have been a few glimmers of this type of leadership within the financial sector itself. At the Bank of England, Mark Carney has advocated for tougher corporate disclosure standards to help investors gauge climate change risks. And Larry Fink at BlackRock wrote to S&P500 CEOs imploring them to focus on long-term value creation. These are, so far, the exception. But there’s every reason to believe that a much more significant shift on the investment gap should be possible within another few years. Better conversations happening at higher levels could create a positive feedback loop and a decisive momentum. The question is: who will step up to really lead this process and define what comes next? Will the new leaders emerge from the finance industry, the investment community or the policy world? Whoever they are, a significant opportunity awaits.

Q&A

WITH PETER ZOLLINGER, HEAD IMPACT RESEARCH AT GLOBALANCE BANK

Huw Maggs: What do you think are the big gaps at the moment between the sustainability agenda and mainstream finance? Is this about communication, metrics or leadership?

FLIPPING THE SCRIPT COULD BRING SUSTAINABLE INVESTING INTO THE MAINSTREAM CONVERSATION.

Peter Zollinger: I would say that there is actually a bigger gap at play here, and it’s one that if bridged has the potential to address many of the underlying challenges you refer to. It’s the gulf that exists today between the mainstream discussion on the macroeconomy by politicians, economists, investors and others, and the narrative around global sustainable development challenges. Apart from a few isolated examples, these two conversations rarely connect – and they need to. HM How can the two sides of this discussion become more integrated in their thinking?

PZ There’s an opportunity to flip the sustainable development conversation on its head. Instead of asking how economies and markets need to change in order to align with big environmental and social challenges, we should really be asking how in solving these big challenges we can support wider economic growth. Now is a great time to have that kind of conversation. There’s a real window of opportunity. We have a global economy that’s not doing well. People are desperately looking for investment opportunities that bring some level of return in a zero interest environment, without excessive risk. Federal reserves and national banks are pumping money into the market with little to no success.

At the same time we have this other world opening up around the climate change conversation, the Sustainable Development Goals and the UN’s Inquiry into the Design of a Sustainable Financial System. Put these two things together, and the timing couldn’t be better for major change.

HM When you talk about flipping the conversation, what does that look like in practice?

PZ I think it can happen in many different ways. It’s really about asking the right questions. So for example: how can climate change solutions play a role in addressing slowing growth in China? How can the SDGs provide a lens of opportunity for growth and job creation in Europe? How could monetary policy support sustainable development challenges in ways that get economies going again? It’s not necessarily about having all the answers to these questions, it’s about getting these sorts of questions into the mainstream conversation. Flipping the script at this level could bring sustainable investing into the mainstream conversation at a lot of different levels. By starting at the top, we could see a knock-on effect as these conversations make their way into boardrooms, investment mandates and everyday exchanges between investment banks and their biggest clients. Then we might start to see all sorts of other gaps closing as well.

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THE IMPLEMENTATION GAP Lots of businesses have a plan for a more sustainable future. The hard part is making it real. Alexandra Palt, Chief Sustainability Officer at L’Oréal, talks to Salterbaxter’s Nigel Salter about going beyond the big ideas and headlines to drive business transformation through its sustainability programme, Sharing Beauty With All. 26

THE IMPLEMENTATION GAP: HOW L’ORÉAL IS STEPPING UP 01 Approaching sustainability as an opportunity to transform the business, with full support of the CEO. 02 Making it inspirational for employees and quickly rolling out practical tools. 03 Focusing on the ‘little wins’ that add up to big change.

Nigel Salter: Tell me a bit about the early days after the launch of Sharing Beauty With All and how you built the focus on the way it should be implemented. Alexandra Palt: Well, to be honest, our biggest fear in working through all the processes and targets of the new commitments was always that it might get seen as just a sustainability framework that is nice to have, but not central to the main business strategy. So we were quite obsessive about ensuring that senior management focused on what this would mean in practical terms and how it would change the business. We knew that our mission was to get this into the bloodstream and not to be something alongside the business. NS So how was it all received and how did you achieve what you were aiming for? AP It’s essential to find a way to work in the same direction as the company culture and to work from the inside as otherwise you create too many barriers. It all becomes a process of culture change but you achieve more change by working with the grain of the culture than against it. So we went through a

series of steps that were key to moving from awareness to action. I think it’s true to say that we didn’t have these specific steps planned out in sequence at the time and they were running all alongside each other at different moments.

STEP 01

The first step was really all about building awareness within our management and our brands. We helped them to understand the changes taking place in consumer demands and patterns, the facts about resource constraints and long-term risks, and also the opportunities that brands have to use this agenda in ways that support and drive the brand proposition and sales. This is the sort of information that they work with every day, so we needed to make sure we provided insights that helped and supported rather than more challenges and problems.

STEP 02

Step two was in two parts. We knew that we needed to have a beautiful branded programme that people within L’Oréal would look at and, to a degree, fall in love with and see as aspirational.

This was the power of the Sharing Beauty With All idea and also the look of the way it was all presented. This was actually crucial to winning the hearts of the people inside. The second part was to back the beauty up with practical tools – workshop toolkits, analysis tools, data to support research – made available super fast so that everyone could start working with the programme and the targets and get it into their everyday business thinking as fast as possible.

STEP 03

Step three was again a cultural point at L’Oréal that meant that the programme took root quickly beyond the corporate centre. Our culture is very entrepreneurial and so this meant that once the brands started seeing the potential of Sharing Beauty With All they started taking it all forward by themselves, taking the initiative and making it their own. This approach, where people don’t wait to be given direction or to be set rules, meant that we moved far faster than a top-down approach could achieve. Our culture meant that as soon as people ‘got it’ they didn’t need any more encouragement – they went and started working with it.

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STEP 04

And the fourth step was all about leadership. A lot has been said about this in different organisations, and I’m sure it can vary a lot, but I can only speak to the power of having the CEO fully committed and leading from the front on this. Jean-Paul Agon led the communications and made clear from the start that this was all about business transformation. He would mention our commitments at every single executive meeting, and it’s important to underline that performance against our Sharing Beauty With All targets is now a part of the bonus and incentive scheme across the business. NS What about rolling out regionally and in different country cultures. Has that been difficult? AP I would say that there is one overarching trend that has helped us with this – the move towards more natural cosmetics. While it’s not exactly the same issue of course, this has helped to create a more receptive conversation. Beyond that, you have to approach things very differently from country to country and actually from brand to brand. At each country level, we’ve needed to work with and make a feature of the local differences in focus and taste.

Otherwise it’s too easy for the regions to see this as another ‘corporate centre’ programme to put in place – and in some places ‘sustainability’ is really not recognised as an agenda at all. So in countries with issues around poverty and development, it might make most sense to focus on responsible sourcing of raw materials and job creation/ security. Whereas, in a country like Japan the biggest issue is recycling. So each local country has been allowed to ask ‘What makes most sense for us? What will help with our license to operate? What will help us drive more success?’ NS And so what do you see as the biggest achievements of the implementation programme so far? Your big progress on carbon and palm oil? AP No, strangely we actually see those as relatively easy areas to make progress and they make the big headlines but are probably not the best proof of our transformation. I think the biggest achievements are the many thousands of wins we have every day. These are less glamorous but it means that every decision

and process at L’Oréal now has sustainability considered in some way and every person is being touched by Sharing Beauty With All. New Product Development is the core of our business and sustainability is now central to it. That’s a real transformation. Beyond that I think there are now two new emerging pieces that are likely to be our biggest impact achievements. The first is the product assessment tool that we have taken two years to develop. We believe this will underpin all our progress to date, as it will mean that every single one of our products will be assessed across a full range of environmental and social assessment criteria. We have worked with experts and stakeholders from around the world to develop this and we have integrated the latest insights on science and subjects like planetary boundary thinking. This tool will drive scale on sustainability even further and faster.

NS Where next on this journey? What does L’Oréal want to tackle and make reality next?

The second big achievement that we are getting very excited about is the work we are doing to go beyond the ‘less harm’ approach. We want to move from fewer towards no impacts in our industrial activity – carbon neutral, no water, zero waste – and onwards to measurable positive impact. Our long-term vision is the restoration of ecosystems and we already have initiatives running in different countries on shea butter and rice where we are seeing carbon gains and the restoration of ecosystems.

NS And what about working with your suppliers? Have they been able to respond to your transformation fast enough? AP They are of course integral to this. We were very lucky in that the supply chain was already very well managed, but we have enhanced our approach by making sustainability one of the key selection criteria for a supplier. We also provide self-evaluation and learning tools to all suppliers to help them work to our guidelines. It means that they are now pushing us as much as us pushing them.

AP Three simple things. The first is consumer communication. We want to play a big role in the challenge of helping consumers to make different, better choices and to see value and aspiration in sustainability. Second, disruptive innovation. We see big changes coming in areas like packaging and in the evolution of beauty routines. This will be very exciting. And finally, positive impact. I think the role and expectation of business is changing and the most successful companies in the future will be those that are most positive in their impact, not just those that harm the least. And this will become measured and proven – so there will be no hiding place. And at L’Oréal, we want to be one of the companies leading the way on this.

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HANDLE WITH CARE

THE HUMAN RIGHTS GAP Human rights have moved further up the corporate agenda in recent years, though most companies are still trying to find a path to tangible progress. But we could be arriving at a turning point – when business shifts to seeing human rights as an opportunity, not just as a risk – says Salterbaxter’s Arabella Bakker. Richard Karmel, London Managing Partner at Mazars UK, also gives insight into how business can assess potential risks. Shortly after the launch of the UN Guiding Principles on Business Human Rights in 2011, John Ruggie, the UN’s Special Representative, told a journalist from Business Ethics: “It’s important to keep in mind that the principles are principles. They’re not a toolkit. You don’t take it off the shelf and plug it in and get an answer.”

for ‘human rights’ to appear as a single issue on a company’s materiality matrix, bearing no reflection of the breadth and complexity of the underlying issues. After all, human rights intricately interlinks with issues such as sourcing, working conditions, labour rights, pollution and water scarcity.

And therein lies both the opportunity and the challenge.

Whether by design or out of inexperience, it has sometimes seemed as if human rights is simply too big a topic for some companies to probe.

Business has often struggled to make an honest assessment of its impact on human rights. In fact, it’s not uncommon

THE HUMAN RIGHTS GAP: HOW BUSINESS CAN STEP UP 01 Assess the salient human rights issues Take a people-first (not business-first) approach to evaluate impacts. Look at the scale, scope and the remediability of impacts. 02 Engage stakeholders Get out and talk to all the relevant stakeholders and rights holders. For example: NGOs, communities, workers, consumers and supply chain partners. 03 Identify and activate the opportunities for change Find the opportunities for your company. This is about policies, operational changes and outcomes. 04 Report on human rights Develop the right level of reporting to meet stakeholder expectations. This could include a standalone human rights report, or a dedicated section in the annual or sustainability report.

DIRECTIONS 2016 SALTERBAXTER

WHY DOES THIS MATTER NOW? We are at a tipping point. The tide is beginning to change internationally with the advent of soft law, voluntary frameworks and public rankings, putting pressure on business to face up to its impact on human rights and to report with greater transparency. This is no longer a cause driven solely by NGOs and activists.

not the impact of human rights on the business. This is a subtle but significant shift in business’s understanding of the relationship between the two. Take for example a technology company. Its salient human rights issues might include conflict minerals and data privacy (potential risks to the business) as well as freedom of expression (an opportunity for significant social impact).

The principle of salience is invaluable in helping us understand and evaluate where the gap can be closed between business benefit and positive social impact. And the former should no longer be overstated at the expense of the latter.

Rather, human rights is moving firmly onto the agenda of senior business leaders in functions such as finance and risk. Here are just a few reasons why: • The UN Guiding Principles reporting framework • The EU Non-Financial Reporting Directive • The UK Modern Slavery Act 2015 • The US Department of State Trafficking in Persons Report 2015 • The Corporate Human Rights Benchmark (piloted in 2016). Never before has there been such a momentum of focus on human rights issues, engaging areas of the business that have the power and influence to accelerate meaningful and lasting change.

CHANGING MINDSETS Human rights has often lazily been seen as something that rests deep within the supply chain of large, multinational corporations with operations in developing countries. This mindset needs to change if business – including companies of all shapes and sizes – is to respond to the changing expectations of lawmakers, civil society and corporate peers. One of the strengths of the new UN Guiding Principles reporting framework is the focus on salient human rights issues. This means evaluating the business’s impact on human rights –

THE NEW REPORTING FRAMEWORK IDENTIFIES THREE FACTORS COMPANIES SHOULD LOOK AT TO IDENTIFY THEIR SALIENT HUMAN RIGHTS ISSUES: SCALE, SCOPE, AND REMEDIABILITY.

The new reporting framework identifies three factors to help companies identify their salient human rights issues. The first is scale – the gravity of the human rights impact and how much someone’s enjoyment of the right may be set back by the company’s activities. The second is scope – the number of people who could experience a negative impact. And the third is remediability – how easy it is for the impact to be righted.

THE OPPORTUNITY FOR HUMAN RIGHTS Human rights assessment should not become a mea culpa. Too often (and for reasons not unfounded), the relationship between business and human rights has been viewed with a degree of culpability. However, just as business has shifted from seeing sustainability as a burden to an opportunity, so too do human rights present business with the possibility of showing leadership and generating positive social impact.

Some companies undertake human rights impact assessments as part of the risk management process. That’s an approach which can help companies build resilience to risks while also identifying opportunities to drive positive change and create shared value for business and for society. Identifying and reporting on human rights has rarely been an easy task for business. Companies have been caught on the back foot, coming under fire for violations, poor governance and slow responses to crises. Yet the current momentum presents business with the opportunity to get on the front foot. There may not be an off-the-shelf toolkit for how to do this, but the UN Guiding Principles and other developments

Q&A

present sufficient guidance and frameworks for individual companies to take control of their human rights impact and to show leadership. The topic of human rights is firmly on the corporate agenda for the foreseeable future. We anticipate that the expansion of the UN Guiding Principles reporting framework database and the release of the Corporate Human Rights Benchmark will help to nudge more companies into action. Large or small, national or international, now is the time to view human rights not just as a potential risk to the business, but as an opportunity to create positive social impact – and in so doing to help close the gap between business and society.

WITH RICHARD KARMEL, LONDON MANAGING PARTNER, MAZARS UK

Arabella Bakker: To explain the concept of salience, which activities of a business – or supply chain – could pose the greatest risk to people? Richard Karmel: To address this simple question, you don’t only look for risks to the business; your starting point should be a thorough search for any possible risks to people. Only by starting with a people-first approach will you ensure all your risks are covered. In the mining industry, for example, the obvious risks might be health and safety (workers

getting injured), and community and environmental impact (putting waste back into rivers), but a less obvious risk could be the use of local military trained security who may pose the greatest risk to people. In the agricultural industry in Africa, a salient risk might be child labour, while a less obvious risk might be the possible abuse of workers transporting the product. These salient areas where human rights are most at risk are the same areas that, if neglected, could have an enormously negative impact on your business.

DIRECTIONS 2016 SALTERBAXTER

SO, WHETHER IT’S CALLED THE SHIFT FROM MINDING TO MENDING THE GAP, OR RADICAL ENGAGEMENT AND CONNECTION WITH SOCIETY, THE POINT IS CLEAR. THE GREATEST OPPORTUNITIES FOR BUSINESS ARE IN THE SPACE THAT REQUIRES ACTIVE INVOLVEMENT, MINDSET CHANGE AND IN SOME CASES, MODEL CHANGE. What’s interesting is that most organisations seem to be starting to realise this and are asking ‘how?’ rather than ‘why?’. This feels similar to a shift that happened a while back with sustainability generally, when companies and their leaders seemed

to suddenly change from resisting to simply accepting and focusing on how to address the challenges practically. So, the outlook is positive for those that want step out of the comfort zone. But as we’ve seen, there are a lot of gaps out there that need to be bridged –

and we know we’ve only scratched the surface. And as before, for the most part there aren’t big magic bullets or simple solutions. It’s all about mending the gaps one small idea, conversation or action at a time.

WHERE ARE YOUR GAPS?

01 INTEGRATION GAP

05 INVESTMENT GAP

How integrated is your sustainability strategy with your business strategy?

Are you articulating the business value of sustainability to mainstream investors?

02 BEHAVIOUR GAP

06 HUMAN RIGHTS GAP

How engaged are your employees on sustainability?

How are you doing on addressing human rights?

03 INFORMATION GAP

07 OTHER GAPS

How transparent are you with customers on sustainability performance?

What are the other significant gaps with society?

04 MARKETING GAP How well are your marketing and sustainability teams aligned?

HELP US FILL IN THE GAPS

Leadership gap

02 03 04 05

Got two minutes? Grab a pen and list five gaps that your business needs to mend. Consider how close â&#x20AC;&#x201C; or far â&#x20AC;&#x201C; your business currently is from the needs and demands of society as a whole. What would it take to genuinely mend the gap? Jot down any ideas that occur to you. Then consider sharing your thoughts with a colleague or collaborator. It could be the start of something important.

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ABOUT US Salterbaxter is the leading international sustainability strategy and communications consultancy. We help companies and brands Step Up to the changing relationship between business and society. We combine smart strategy, sharp insights and creativity to help businesses succeed. Whether it’s communicating to investors or opinion formers, engaging employees or changing consumer behaviour, our work delivers for our clients in three key dimensions: 01

PURPOSE

reating, defining, understanding and building C more purposeful organisations, strategies, brands and communications.

PERFORMANCE

trategies to drive better performance and S communications to make this performance transparent and trusted. 03

TRANSFORMATION

Helping to find the new models and drive the changes needed to fulfil the new contract between business and society.

Olivia Sprinkel olivia.sprinkel@salterbaxter.com Tel +1 646 500 7906

82 Baker Street London, W1U 6AE

14th Floor 375 Hudson Street New York, NY 10014

salterbaxter.com @salterbaxterMSL

ABOUT DIRECTIONS DIRECTIONS: Directions, now in its sixteenth year, Directions, now in its fifteenth year, is widely viewed as the leading annual is widely viewed as the leading annual publication on trends in sustainability publication on trends in sustainability and communications. and communications. Salterbaxter also produces Salterbaxter also produces supplements and events on supplements and events on key topics throughout the year. key topics throughout the year.

2001 Trends in CSR reporting

2002 Trends in CSR reporting

2003 Trends in CSR reporting

2004 Trends in CSR reporting

2005 Best in show of this year’s crop

2006 Is CR in your blood?

2007 Cutting through the noise of the climate change debate

2008 Sustainability gets tough

2009 Mapping the landscape of European CR

2010 The Innovation Edition

2011 Opportunity in the new age of uncertainty

2012 Profits from purpose

2013 Authentic?

2014 Getting under the surface

2015 The rise of science

2016 Mind the gap

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