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Shoot for the stars, reach the moon.

The United Nations’ ambitious focus in the past 20 years to eliminate global poverty is commendable. Poverty is a huge, complex, systemically challenging set of interconnected problems.

For all the progress made, the process has not been without failures, omissions, mistakes, detours and missteps. All played out on the global stage. For everyone to see.

Sustainability practitioners face similarly complex, interconnected challenges that span the worlds of government, business and civil society.

There’s a lot we can learn from to learn from the work already done for us. All it takes is a willingness to look beyond our own sandboxes .

Here’s Part 3 of my co-authored series on Sustainability Metrics for Greenbiz.com.

What International Development Can Teach Business About Metrics

Since 2000, the International Development (ID) community’s battle to end (or substantially reduce) poverty by 2015 has played out on the world stage. There have been delays, defeats and some solid accomplishments. In doing so, the development community’s thinking has evolved about what best constitutes effective aid and how to know whether it’s working.

We find significant lessons for the sustainable business world in the story of the Millennium Development Goals (MDGs) and the groundbreaking shift towards metrics that occurred with the 2008 Accra Agenda for Action. The ID community has been considering questions of direction towards greater levels of sustainability and how to measure their actual effectiveness over 13 long years of debate and trial and error. We could learn from their longer experience with sustainability goals and metrics.

Between Two Rear Ends of a Horse

That’s the title I choose for this report from the Apr. 23 CSR Investing Summit: Measuring Responsible Leadership in New York City.

Topline: CSR Investing offers opportunities for long-term, sustainable value creation. But we won’t find them unless we stop siloing ESG factors mainly in terms of risks and negative screens and start applying ESG factors as value drivers. This holds true not in spite of, but because of, our increasingly unstable and unpredictable world.

*  * *

The past was about how ESG helped companies demonstrate their virtue by aligning a company’s actions with its values. The future of Responsible Investing builds on this by also creating value. That’s how Stephen Davis, Associate Director and Senior Fellow – Harvard Law School Programs on Corporate Governance and Institutional Investors, framed the CSR Investing landscape with the first presentation of the day.

Today, we’re somewhere in the middle, according to Davis. We’re searching for the tools, technologies and culture changes that will allow institutional investors to calculate the full impact of extra-financial—but highly material—ESG factors into their portfolio decisions. He cited three converging trends that are transforming the Capital Markets:

  • A growing awareness of potential risks and impacts from extra-financial material factors, such as environmental disasters and social issues.
  • A surge in measurement and reporting frameworks to help corporations and shareholders measure risks and how to better manage them, such as GRI, SASB, IIRC and S-Networks.
  • And thirdly, the rise in what Davis called “shareholder ownership with authority.” Institutional Investors are using the first two trends to take a far more assertive role in how companies are run.

Davis then contrasted these trends with a description of how today’s legacy culture and obsolete infrastructure are unprepared and unsuited to manage these new financial market realities. His analysis is that the Capital Markets are currently stuck between the status quo of “we’ve always done it this way” and the changes bearing down on them.

Thus putting us for the moment, he said metaphorically, “between the two rear ends of a horse.”

He went on to explain that this expression springs from the curious fact that the United State standard railroad gauge is precisely 4 feet, 8.5 inches. A historical review of how we build roads, so the story goes, leads all the way back to the original specification for an Imperial Roman war chariot. So in essence, our railroads are designed to accommodate the back ends of two war horses rather than the key performance needs of a modern transportation system.

While this story paints a vivid picture of how the status quo suffocates innovation, and it pains me to disagree with Professor Davis, the conclusion—modern rail gauge follows Roman road construction—is false. While U.S. rail gauge is exactly 4 feet, 8.5 inches, a strangely precise number, this is a case of convergent evolution rather than direct descent. (The full debunking can be found in this delightfully named 2001 U.S. Department of Defense journal article: “Roman Chariot, Railroad Tracks, MilSpecs and Urban Legends.”)

Said another way, the problem is that we’re hamstringing our future performance by replaying the moves that got us past results. Business-as-usual will not suffice for coming systematic disruptions in how Capital Markets work and the increasingly climatically unstable world in which they seek to operate, according to Davis.  We need better ways of looking forward.

Davis’ recommendations for where Responsible Investing needs to head include a vastly better educated and engaged citizen investor community, broad access to transparent ESG reporting tools, and political will.

Much of the rest of the day built on this foundation, with discussions of Board and Director fiduciary duty and performance, calculating ESG valuation, acknowledging supply chain risks and impacts that happen “outside the factory walls,” and integrating ESG factors into the investment process.

I’d like to direct readers to some of the reports and research mentioned during the day:

With the exception of Koehler’s presentation, the day’s presentations were mostly silent on the explicit risks of climate change disruptions as outlined by the World Bank’s Nov. 2012 report “Turn Down the Heat.” I was encouraged to hear about admirable progress being made by committed professionals to change hugely complex, interconnected financial systems for the better. And yet, I came away with a feeling of creeping around the edges.

I support a bolder stance by sustainable business and finance leaders to go beyond relative improvement goals based on past performance, to science-based absolute goals based on planetary limits.

So this is the challenge facing the Responsible Investing community: to champion the technology and business changes that allow ESG factors to carry their full weight in investment considerations. And then to make business and investment decisions that accurately reflect the risks and realistically embrace the opportunities that lie ahead.

I’m hopeful for a time when we will no longer need to identify externalities, and measure them, because we will have successfully learned how to responsibly claim them as a natural part of successful, sustainable business.

When this happens, we’ll no longer be behind the horses. We’ll be out in front.

 

They turned off the lights when they left the room.

And shut off computers and unplugged things.

That’s how the staff at a New Jersey elementary school cut their energy use by 52 percent and won the EPA’s 2012 Energy Star Battle of the Buildings challenge.

But that’s not the real story. Nobody really cares about the award. Sure, it’s nice. But nice doesn’t pay the bills.

I’ll tell you what this award means. One of my running partners is a fifth grade math teacher at the winning school, Demarest Elementary, in Bloomfield, NJ. I remember when she mentioned the program to me last year.

She didn’t talk about green, or energy, or sustainability. Rather, she said:

“We’re turning off lights when we leave the room and it’s going to save one of our jobs.”

The money saved on energy bills totaled up to about one staff position that wouldn’t need to get cut in annual budget negotiations.

One more teacher in the classroom, helping New Jersey kids get a good education.

This success didn’t happen in a brand-new facility with fancy solar panels, by the way. It’s a standard-issue 1950s multi-story school with large windows and cacophonous hallways. One of thousands just like it around the country.

If it can happen in Bloomfield, NJ, it can happen anywhere. And it will.

Read the full Energy Star Battle of the Buildings report.

Climate change is looking realer by the minute.

And with a growing recognition of the risks that climate change poses to the global economy, investor communities are taking steps to understand and manage those risks.

So in big news, an investor group announced April 8 of the first steps to set across-the-board sustainability listing standards for all stock exchanges worldwide.

This means that companies would be required to report on eight specific issues: climate change, diversity, employee relations, environmental impact, government relations, human rights, product impact and safety, and supply chain.

If it works, this will dramatically raise investor awareness about environmental, social and governance issues as need-to-know information.

Essentially, this reporting will shine a light on not only what and how much a company makes, but how they do it, and where, by whom, and their impact on the earth as a whole.

Via ceres.org:

Investors Announce Proposal for Sustainability Listing Standard for Global Stock Exchanges

A group of investors today announced a Consultation Paper with recommendations for integrating sustainability disclosure requirements into listing rules for U.S. and global stock exchanges.

The draft recommendations were developed by nearly a dozen investors who are part of the Ceres-led Investor Network on Climate Risk (INCR). BlackRock, British Columbia Investment Management Corporation, and the AFL-CIO Office of Investment are among those who participated on the INCR Listing Standards Drafting Committee.

The initiative is part of a growing effort by investors and stock exchanges, including NASDAQ OMX, to make environmental, social and governance (ESG) disclosure a consistent requirement for corporate listings on stock exchanges. While several exchanges have adopted their own sustainability listing requirements and guidance, INCR members and NASDAQ OMX have set out to develop a uniform standard that all stock exchanges can use.

Bloomberg’s coverage of this story includes some helpful background as well.

Via bloomberg.com:

Investors Propose Requiring Sustainability Data Disclosure
Investors Propose Data Disclosure Standard For Listing Companies

A global sustainability listing standard would allow investors to compare companies on their environmental, social, and governance performance.

The proposed listing standard would require companies to discuss how they determine which environmental and social issues are material to the company, to provide a link in their annual financial filings to a list of sustainability data, and to disclose information on eight specific sustainability issues or explain why they do not.The eight specific issues on which companies would be required to disclose information are climate change, diversity, employee relations, environmental impact, government relations, human rights, product impact and safety, and supply chain.

Some stock exchanges have already adopted sustainability listing requirements. Companies listed on the Johannesburg stock exchange must disclose sustainability information or explain why they do not.

Sweden requires all state-owned companies to report on corporate responsibility activities, and Denmark requires all listed companies to report on sustainability performance. Companies listed on the London Stock Exchange are required to report their annual emissions data as of April.

 

This makes me nuts:

“You have to choose between doing good and making money. That’s just how the system is set up.”

In other words, you’ll get dinged for doing good.

It shows up in articles like this, with a convenient strawman of theoretical lawsuits and an entrenched misunderstanding of governance laws.

Via wsjonline.com:

Can Firms Aim to Do Good If It Hurts Profit?

Blake Jones of Boulder, Colo., is one of the many modern entrepreneurs who say their goals extend beyond increasing the bottom line to such pursuits as reducing child poverty or protecting the environment. But he worries that embracing a mission other than maximizing profits could open the door to shareholder lawsuits because of decades-old corporate governance laws.

Utter nonsense.

It’s a false choice to say that it has to be one or the other.

(As a side note, Professor Lynn Stout has definitely staked the heart of the “Boards have a fiduciary requirement to maximize returns” belief. No. They don’t. See her book The Shareholder Value Myth. Why won’t this meme die?)

Responsible businesses do both today.

Via blueandgreentomorrow.com:

Saving the world or getting healthy returns is a false choice in finance

So, which is it for you: whales or your wallet? Do you want to save the world, or do you want financial success? Anna Laycock from Ecology Building Society is on hand to prove that the two aren’t mutually exclusive.

The long-term game here is about living and working responsibly today so that future people have the same chance. And yes, that means living and working profitably.

This is what responsible business have always done. Maximizing short-term gains is the newcomer to the table, courtesy of instantaneous trading and revolving door CEOs.

So when someone says that you can’t do well by doing good, walk the other way. They don’t have your–and your children’s–best interest at heart.

In fact, I’d question if they have a heart at all.

Less bad is not sustainable.

First, a shot across the bow.

This excerpt from the forthcoming book Flourishing: A Frank Conversation About Sustainability by authors John R. Ehrenfeld and Andrew J. Hoffman wastes no time on niceties.

Less bad is not sustainability. It’s still bad. And anything that’s bad, by definition, isn’t sustainable.

Via Greenbiz.com:

The Wrong-Headed Solutions of Corporate Sustainability
No matter how many times someone talks about what they are doing for sustainability — using green, sustainable or sustainability to describe a new product or new program to inform their customers — they are still in the world of Business (Almost) As Usual. It’s different from Business As Usual, but it is not the kind of paradigmatic or transformational shift that is necessary to address health, well-being, community building, interconnectedness and all the other parts of the vision of sustainability-as-flourishing.

At this moment in time, almost everything being done in the name of sustainability entails attempts to reduce unsustainability. But reducing unsustainability, although critical, does not and will not create sustainability.

What’s missing?

Context. Context. Context.

Our actions as companies and businesses have to be measured–and moderated–within the larger communities in which we work. Meaning, the entire world outside our factory’s walls. The impact of our business on the cities and counties we belong to. The oceans we share. The air we all breathe.

Here’s a simple example. Say, for instance, that a company reports that it has used 50% less water than the year before out of a lake next to the factory.

That’s progress. Less bad. But if the company is depleting the lake faster than the aquifer can replenish, the less-bad amount is still not good.

No amount of less bad can make up for the fact that, at some point, all the water will be gone. And then what?

These concepts are simple enough for a child to grasp, but somehow get lost in life’s complexities.

That’s why we need better ways to get our arms around it. The business world is starting to grapple with these issues, by incorporating this bigger picture.

Two important reads via Guardian.co.uk:

Closing the context gap: sustainability reporting is failing us: Sustainability reporting has only shown which companies are “less bad” when what we really need is a minimum standard(Ralph Thurm)

Development of real-world ecological budgets mean investors must consider companies’ environmental and social impact (Mark McElroy, Bill Baue, Cary Krosinsky)

And via CSRwire.com, an excellent synthesis by Elaine Cohen:

Getting the right knobs in place: closing the gap between reducing impacts and achieving sustainability

Dealing with our changing climate is about facing reality. We need to change how we use the world’s resources.  The future is about operating within a fair and reasonable competitive arena that ensures ongoing prosperity and opportunity for more of us.

Are our Earth’s resource finite, or not?

That’s the crux of the question answered by the Planetary Boundaries work done by the Stockholm Resilience Centre.

Their answer is: yes. There are Nine Planetary Boundaries. These limits describe how much we can use, destroy, eat and drink of our planet’s resources until we run the risk of running out. Ruining it for future generations.

This research isn’t comforting to think about. It raises all sort of uncomfortable discussions about fair-shares.

So it’s no wonder that there is a correspondingly robust controversy the role of this science in formulating policy.

Two examples, first one con and then one pro:

Roger Pielkejr, Jr.: “Planetary Boundaries as a Power Grab”

Victor Galaz: “Planetary Boundaries Strawman”

This conversation reminds me of climate change denialism tactics that try to win the argument on semantics over sense.

Since we don’t–and can’t–know for sure that the science is all correct, then we shouldn’t use it to make decisions?

That’s like going after a lion by the tail. Sure, it might look like the easiest place to grab, but you won’t be happy with the results once you’ve got it. Far better to go after the whole lion, if that’s your ultimate game.

“We cannot risk our kids’ futures on the false hope that the vast majority of scientists are wrong.” That’s the sentiment in yesterday’s Climate Declaration announcement.

Besides, what’s the harm if the scientists aren’t entirely right? We’ll have a cleaner, more energy-efficient world?

With the fate of the planet potentially at risk, we can’t waste time on inches and tails. We need to go for the whole lion.

If you want something done right, do it yourself.

That seems to be exactly what 33 leading U.S. companies intend to do about about taking action on Climate Change.

Read the Climate Declaration.

Yesterday, in coordination with Ceres and  its Business for Innovative Climate and Energy Policy (BICEP) coalition,business leaders from dozens of  profitable, responsible, highly regarded companies issued a call to action.

The Climate Declaration is framed around a single statement of economic opportunity:

“Tackling climate change is one of America’s greatest economic opportunities of the 21st century.”

(and it’s simply the right thing to do.)

Hear that?

The Declaration isn’t about how mitigating climate change impacts will be easy. Or required by federal regulators (although that might be coming later.)
No, because it’s hard. And in that hardness lies opportunity and the potential to make a whole lot of customers happy.
All while ensuring that there will be a planet on which to have happy customers a few generations from now.  That’s where the right thing to do part comes in.)

Here’s IKEA US President Mike Ward on how his company is taking steps to lighten their global footprint. And how there is a right connection between those actions and bottom-line, profit-reaping, employee-growing results:To Fix the Climate, Think Like a Business

According to the Ceres’ announcement, the inaugural signatories “provide approximately 475,000 U.S. jobs and generate a combined annual revenue of approximately $450 billion.”
I signed on yesterday for my small business. I hope millions of others will too.

Out of sight is not out of reach.

The NJ Supreme Court ruled today that the New Jersey Department of Environmental Protection (DEP) has the right to inspect private property covered by the state’s Wetlands Protection Act when they have grounds to suspect a violation has occurred.

With conditions.

Via Enviropoliticsblog.blogspot.com:

NJ’s top court rules on DEP access to private property

and NJSpotlight.com’s Tom Johnson:

State’s Top Court Curbs How Far DEP Can Go With Wetland Inspections

This settles years of litigation that had bounced up to the U.S. Supreme Court. The Court declined to hear the case and bounced it back to NJ’s top court.

The homeowners are required to pay the levied fine. As well, they must repair the wetlands they illegally filled in on their property. Going forward, DEP officials will need to notify property owners before inspections.

In our post-Sandy world, this is an important decision about how NJ citizens need to balance the rights of property owners versus the rights of everyone else.

 

Inspiring.

Last night’s Bard MBA in Sustainability’s program called The Frontiers of Sustainable Business was that, and more.

Hunter Lovins and Andrew Winston talked expansively about everything from proving the sustainable business case and setting science-based goals, to planetary limits and compelling narrative storytelling. And the role that business must play to stave off global climate catastrophe.

If you click just one link in this post, watch this: Unilever’s Lifebuoy: Help a Child Reach 5 Years

Three minutes. Then Share, Link, Tweet, Tag it to your networks.

 
The following is presented as things came up in conversation, more or less:


Books (Amazon links noted for easy reference. Buying used and local are always better):

Green to Gold, Andrew Winston

Natural Capitalism: Creating the Next Industrial Revolution, Paul Hawken, Amory Lovins, L. Hunter Lovins

Saving Capitalism From Short-Termism: How to Build Long-Term Value and Take Back Our Financial Future, Alfred Rappaport

Factor Five: Transforming the Global Economy through 80% Improvements in Resource Productivity,  Ernst Ulrich von Weizsacker

The Necessary Revolution: How Individuals and Organizations Are Working Together to Create a Sustainable World
Peter M. Senge, et al

Winning the Story Wars, Jonah Sachs

Bury the Chains: Prophets and Rebels in the Fight to Free an Empire’s Slaves, Adam Hochschild


Ideas/Articles (Wiki links for convenience; caveat emptor):

Michael Porter: Climate Change is unlike any other challenge the world has ever faced. (citation needed)

Not if. When. Make that now. Business leaders need to set science-based carbon goals. Setting targets based on prior business performance is irrelevant–and dangerously naive. It ignores the external realities of irreversible, inevitable global resource scarcity, social and climate disruptions.

Bhutan’s journey to Gross National Happiness

The evolution of the UN Millenium Development Goals to the new Sustainable Development Goals framework

Hunter Lovins’ work with the United Nations Development Programme

Planetary Boundaries

“Earth’s Tipping Point”, article in the journal Nature (June 2012)

“Global Warming’s Terrifying New Math”, Bill McKibben, Rolling Stone magazine (July 2012)

“Time to Wake Up”, Investor Jeremy Grantham on the price of everything going up (May 2011)

Unreasonable Institute partnering with Semester at Sea to offer Unreasonable at Sea

“The Elephant in the Room is Growth”, Patagonia founder Yvon Chouinard lays it out. (GreenBiz Forum SF, March 1, 2013)

“The Fallacy of the China Defense” (Stop claiming that China isn’t doing anything about climate change. It’s not true.) (March 2013)

“The fossil fuel industry is a rogue industry.” McKibben (December 2012)

David Keith on Tar Sands and CO2 Capturing Technologies (January 2013)

“The Tar Sands Disaster” What if Canada becomes like the U.S? (March 2013)

Unilever’s CEO Polaman Quit Reporting Quarterly in 2009. Long-term corporate stewardship is possible. It takes leadership. So let’s stop saying it can’t be done.

Earnings guidance is not a necessary evil to be endured. Coca-Cola, Google and Costco shun quarterly guidance and reporting too.

Systems Thinking as a core sustainability professional competency

“Looking Back on the ‘Limits to Growth'” Smithsonian Magazine looks back at the 1970s prescient description of our world’s current state. (April 2012)

Unilever Sustainable Living Plan

Buckminster Fuller’s Trimtabs

Mondragon Cooperative in Spain


On the power of conversations to change the world:

Daniel Ellsberg meeting Gary Snyder

Joyce LaValle gives Ray Anderson a copy of Paul Hawken’s The Ecology of Commerce


People:

David Brower

Paul Hawken

Ray Anderson

Michael Porter

Kees Kruythoff (Unilever President North America)