Wellington, New Zealand, 15 May 2018: It’s been a couple of weeks since I got back from the World Business Council for Sustainable Development conference in Montreux, Switzerland. The jet lag is gone, and I’ve had some time to reflect on what I learned there. And I’ve had time to notice what ideas really stuck and I’m still feeling excited about, which is what I’ve tried to focus on here. It turns out there are quite a few things to tell you, so go and grab a coffee before you start reading. And in order to tempt you and keep you reading until the very end – that’s where I’ve put the data from WBCSD’s survey on the Sustainable Development Goals.
To watch WBCSD's highlights video following the conference, click here.
The cost of capital and Integrated Reporting and governance
At the time, the WBCSD’s CEO, Peter Bakker, surprised me with some of his assertions about the role of sustainability in business. He believes its role is changing; moving more towards corporate governance. He characterised the history of sustainability as business starting with philanthropy, moving to CSR, then to integrating sustainability and that the next step would be integrated governance. This all made pretty good sense to me.
Then he predicted that in five years’ time 50% of the attendees at the conference would be finance professionals because the issues that are ‘material’ will have changed so much.
He argued that in the next three to five years the key success factor for business will be cost of capital, which will be increasingly based on ESG (environmental, social and governance) performance. He talked about Danone and Olam who have done deals so that the interest rate on their borrowing ratchets down each year if they meet key ESG metrics.
I was pretty sceptical about this at the time, partly because I imagined that finance professionals would just add sustainability to the agendas of their conferences rather than attending a sustainability conference!
But a few days of thinking about it, and I think there is something in what Peter says. One of the trends we’ve seen at SBC over the past year is the growing focus on ESG from investors and Directors.
The NZX and FMA now recommend non-financial disclosure for businesses. SuperFund has responsible investment criteria and has divested where they consider the risks from climate change are too great. And directors are increasingly talking about these issues; Rob Campbell, 2017 Deloitte Top 200 Director of the Year, regularly comments on them on LinkedIn, and the Institute of Directors is integrating sustainability into its programmes. The Productivity Commission has also recently suggested that the recommendations from the Task Force on Climate-related Financial Disclosures be made compulsory for New Zealand businesses.
And this is what is occurring without even taking account of our changed political environment. Is now the time for us to start having more conversations with our accounting and finance friends?
Natural climate solutions
One of the most interesting topics discussed in Montreux was the concept of ‘Natural Climate Solutions’. This is a way of reframing the greenhouse gas abatement and mitigation potential of natural ecosystems - estimated as capable of delivering 37% of the global mitigation we need. By way of comparison, it might interest you to know that only 15% of global emissions are currently covered by a carbon price.
Natural climate solutions cover five main ecosystems: forests, wetlands & peat land, grasslands, agriculture, blue carbon (mangroves, seagrass), with soil as a key component of all of them. And they cover three areas of opportunity: protecting key ecosystems (conservation strategy), transforming how we use working lands (commercial opportunity) and restoring land at scale (commercial opportunity).
In this context, I also learnt the language of ‘carbon insetting’, which, as I understand it, is about businesses supporting carbon offsetting within their supply chain, rather than buying offsets that are outside it. The examples given were L’Oreal & Nespresso, of which you can find out more here.
I wondered if Air New Zealand’s recently announced partnership with Ngāti Porou might also be an example. Air New Zealand will purchase carbon credits from the iwi’s forest estates on the East Coast, which will increase the domestic forestry options available to the airline to meet its obligations under the Emissions Trading Scheme. And Air New Zealand will help Ngāti Porou promote its new Mount Hikurangi tourism venture in overseas markets and, where commercially practicable, bring some iwi primary sector products into its supply chain.
Future of Work
Last year in our strategy session with the SBC Advisory Board they clearly identified the Future of Work as a priority area for us to work on. The WBCSD got the same steer from their members so I took the opportunity to attend several of their sessions designed to start shaping a project up. My main observation is that there isn’t a clear problem definition yet, though KPMG did a very good job of outlining some of the key issues:
- 600% - 800% savings expected from investing in AI, robotics etc
- 62% of business leaders said they were reducing their reliance on labour
- 47% of jobs in US are at risk of being removed by AI, robotics etc
- 120m knowledge workers will be replaced by robots by 2025
- 30% increase in productivity when combining with robots and humans
They also framed the dilemma as positives balanced against negatives: positives that include: lower prices, more engaging work, better working conditions, improved safety and higher value jobs. And the negatives that include: job losses, skills mismatch, loss of tax revenue, loss of trust and wage deterioration.
WBCSD are considering starting their work on the technology side, since that’s the component that business has most direct control over. Some of the other themes they also expect to address through the programme include: technology for transparency, human robot collaboration, business ethics and jobs as the next externality.
We’ll keep a close eye on this programme as it develops, to see if it’s something we can leverage locally.
Sustainable Development Goals
The SDGs are well embedded in the WBCSD agenda, so I was pretty interested to note that they are already seeing signs of ‘SDG-fatigue’ and ‘SDG-wash’ - something for us to keep an eye out for here.
Some of you will have attended our SDG event with Mark Wilson, CEO of Aviva in 2017. At that event Mark shared his vision of creating an SDG benchmark for businesses. It turns out he’s talked the Dutch and British Governments into funding a feasibility study to look at doing just that. The feasibility study is being led by the Index Initiative and supported by WBCSD. Only the top 2000 businesses globally will be benchmarked, which is going to rule out the majority of NZ businesses. But there’s no doubt that if it goes ahead, it’s going to have an impact well beyond those 2000.
While I was in Montreux, WBCSD announced the results of their member survey on the SDGs. We shared the survey with SBC members, so of the 244 responses, across 43 countries and 4 continents, I’m expecting at least some to be from New Zealand. Overall 15% of the responses were from the Asia Pacific, 27% from Americas and 58% from Europe.
The observations and data points I noted as being of greatest interest were:
- Business is engaged, there is a lot of leadership and a lot of strategic intent, but the SDGs are not yet being operationalised. Business is looking for help.
- Most companies are looking primarily at their positive contribution. 69% had looked at positive contribution but only 36% are looking at the negative.
- Companies that are doing mapping are looking at the goal level but not getting into the underlying targets. 49% of analyses were at the overarching goal level with only 36% at target level.
- The focus is more on aligning SDGs to current strategy rather than using SDGs to change strategy - only 6% of respondents were setting new SDG related targets. 41% said they integrated SDGs into strategic thinking, but only 24% plan to use SDGs to inform and make changes to their strategy, 12% said they had done nothing yet. However, there was a question about whether this was due to time-lag in the strategic planning cycle.
- Most companies had 5 - 10 goals they focussed on. Most prioritised were
Goal 13 - Climate Change 61%, Goal 12 - Sustainable Consumption & Production 54% and Goal 8 - Decent Work & Economic Growth 52%.
- A lot of reporting is happening. 55% mention it in their reporting. 22% about how the company is contributing and 10% have a forward looking disclosure.
- Key challenges - biggest issue is lack of understanding of business case among internal stakeholders - 48%. Lack of clarity about regulatory implications - 41%. 38% complexity of agenda. 31% absence of clear targets. But there is little challenge with engaging top leadership only 19% saw it as a problem.
About the Conference
Held from 16 – 18 April 2018 in Montreux, Switzerland, the World Business Council for Sustainable Development (WBCSD) Liaison Delegate conference is an annual event. SBC is invited to attend this conference as one WBCSD’s Global Network partners. There were over 400 people there: 100 Liaison Delegates and 26 Global Network partners.