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green@work : Magazine : Back Issues : Mar/Apr 2003 : Corporate Acts

Corporate Acts
Engage, Disclose and Act

The future of sustainable governance.

by Mindy Lubber

Just over 10 years ago, at the time of the Rio Summit, business resistance to the concepts of environmental responsibility, transparency and sustainability was deep and strong. In contrast, many of the world’s largest corporations today have explicit policies in favor of sustainable development. Businesses around the world are now exploring, at great depth and expense, their effects on biodiversity, water and energy use, and climate.

In the face of this progress is a new predicament: By seeming to embrace the idea of sustainability, there is a danger that business may co-opt it and strip it of any real challenge. If business appropriates the term, then business can redefine the goals and actions that constitute a successful fulfillment of them. A year or so ago, even the Business Roundtable circulated a memo in which it professed to support sustainability—and then defined it as a form of free trade.

While some corporations pursue genuine and substantive actions, others simply re-label their existing practices as sustainable. The challenge for the environmental and investor communities is to retain the right and responsibility to define the standards of behavior.

Three categories of actions must occur to meet the challenge:

* First, companies must engage in a serious and thorough manner with significant stakeholders.

* Second, businesses must disclose their policies and performance on labor, human rights and the environment.

* Third, companies must act—to take positive steps.

Individual firms have gone a long way toward engaging with stakeholders, disclosing their performance through environmental and other reports, and taking specific actions on everything from greenhouse gas emissions to labor practices to supply chain management.

At the same time, this increased activity has resulted in a serious problem. As companies are asked to engage, disclose and act, they too often pick among those options as though they were selections on a menu. Some engage, but don’t disclose. Some disclose, but don’t act. Some act, but never engage.

It is time for the investment and environmental communities to state clearly that, in the 21st century, it is not enough to do only one of those things.

In many communities, consumers can now purchase telephone service, cable television and high speed Internet access all bundled as one package. Investors and activists must convey to the corporate community that engagement, disclosure and action are a single, bundled package. In an interconnected globalized world, a well-run company, a company that will be a good investment for the short- and the long-run, does all three. Taking the issue one step further, investors and activists need to distinguish between high quality and low equality in each of three categories.

Engagement

Some forms of engagement are superior to others. Too many companies are now in the habit of inviting a few people to meetings that are not real dialogues, but rather covert sales presentations or dressed-up focus groups. Too many companies pursue the ancient strategy of divide and conquer, trying to build relationships and win favor with one set of activists and investors while leaving others out in the cold.

The only remedy is solidarity. Working together has been the key to success in the labor movement, the civil rights movement and the anti-apartheid movement, and in all previous efforts in social investing. Investors and activists can further the goal of effective engagement by supporting shareholder resolutions that ask companies to endorse the CERES Principles, a 10-point code of environmental conduct, and by supporting the goals of organizations such as the Social Investment Forum and the members of the CERES coalition of environmental, investor and advocacy groups.

Disclosure: Global Reporting Initiative

There are wide discrepancies in the quality and usefulness of reporting. The Social Investment Forum (SIF) has been a powerful national and international leader in asking companies to disclose their impacts in a candid, comparable manner that would be useful to investors. In 2002, a long-shared dream among activists was fulfilled, in part, with the launch of a common international disclosure standard, the official inauguration of the Global Reporting Initiative (GRI) at the United Nations and the release of the GRI’s new guidelines. The GRI provides globally applicable guidelines for reporting on the economic, environmental and social performance of corporations, governments and non-governmental organizations (NGOs).

As significant as the recent developments with the GRI might be, the organization will not by itself bring about a new era of corporate accountability and transparency. Companies must be asked to follow it. Investors must show that they are using the information that comes from it. Activists must continue to press for its improvement.

In places such as France, England, South Africa and Australia, governments, stock exchanges and large-pension funds are pressing for increased disclosure through the GRI. In the United States, many activists, including CERES, support the Corporate Sunshine Working Group’s campaign for new forms of disclosure; the goal is to secure a rapid and positive response from the Securities and Exchange Commission (SEC).

In anticipation of what investors and activists hope will be a mandatory requirement, it is essential to insist that every publicly-traded American company adopt the GRI. American firms are a slow and cautious bunch. Leaders in the environmental movement cannot allow their inertia to cause them to lag behind their European, Japanese and international counterparts in their rate of adoption of the GRI. Social investment firms such as the Calvert Group and other SIF members have asked their companies to use the GRI. Investors can make similar requests to their portfolio companies.

Investor members of the CERES coalition are working with a group of strategic companies on filing shareholder resolutions on GRI. Additional co-filers are needed to express vigorous and public support as well as proxy votes.

Unless the U.S. corporate community receives a clear signal from shareholders, then the international effort to secure this new form of corporate transparency may falter. Our foreign partners and allies know that the U.S. government will not provide any leadership on this matter—it is up to the U.S. investor community.

Action
The third area in which progress is needed is action. Action is necessary in every area that has broad impact on humanity and on the biosphere. There is a need to insure proper labor practices, human rights and living wages. It is essential to secure real investment in our communities. It is imperative that financial prosperity not be built on the suffering of others or degradation of the world.

Indeed, environmentalists are standing at a historic moment. At long last, the two great movements in shareholder activism—sustainability and governance, which have traveled on parallel tracks for several decades—are finally converging. A company that does not know how to integrate issues of sustainability into its long-term strategy is a poorly-run company. It is incurring large and potentially unacceptable risks for its shareholders.

Sustainable Governance and Climate Change
That’s why CERES, in partnership with many of its coalition members, launched the “Sustainable Governance Project,” which is working to promote and clarify the links between sustainability and good governance. CERES has identified key interlocks among corporate boards and is working to educate and engage key board members.

There is no better example of the link between sustainability and governance than in the issue of climate change. For more detail, please see the recent report entitled “Value at Risk: Climate Change and the Future of Governance,” which assembles some of the financial and economic impacts that can be expected (www.ceres.org/reports/main.htm).

The argument on climate change for companies and for investors is straightforward.

* First, humankind is facing the largest and potentially most damaging changes to the physical world in all of human history.

* Second, these changes will have an intensifying impact on all economic sectors, which means, in turn, that climate risk is now embedded, to some degree, in every business and investment portfolio in the United States.

* Third, prudence dictates that those who are responsible for preserving the value of these businesses and investments analyze this risk and take steps to mitigate it.

*
Fourth, a willingness to address the seriousness of embedded climate risk raises profound questions about both good governance and fiduciary duty.

Yet as straightforward as these propositions may be, many pieces still are not understood. A methodology must be developed on how to subject a portfolio to a complete and thorough climate analysis and how to integrate what is known from science into an evaluation of financial risk. The answers are yet to be determined, but the questions still must be asked, not only of investors and activists, but also of portfolio companies.

This is not easy work. It takes unflinching commitment and persistence. Yet history has shown that efforts can accumulate, that tributaries will converge and that, when they do so, they take on unstoppable power. That’s why Martin Luther King always used to quote the words of the prophet Amos, who said, “Let justice roll down like waters, and righteousness like an ever-flowing stream.” Justice is rolling down, the stream is ever gathering and through collective hard work its force will carry the world into a safe and prosperous future.


Mindy Lubber is executive director of the Coalition for Environmentally Responsible Economies (CERES), the coalition of environmental organizations, investors and social activists.

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