Insight February 2022

The greater your influence, the greater your responsibility



Just as I wrote this a few days ago I found the hashtag #businessforukraine – why not check it out if you need inspiration about what you could do?

Who carries the responsibility to do something about the situation in Ukraine? In my opinion, we all do. And the greater your power, as an individual consumer and investor or as a company, the greater your responsibility. Not that different from climate change. It’s not up to governments and multilateral organizations to fix it. Yes, they are means, and potentially very powerful means, but they will not do much the minute they realize we don’t care. So, we need to care and we need to act

A CEO that I’ve worked with for some time one day stopped, almost in the middle of a sentence, looked at me and said: “You know, it’s at the moment that our sustainability work starts hurting a little that it gets really exciting”. With that he meant that sometimes the right way is not always the cheapest way.

I think the same is true for how we adapt to the new security order in Europe, after Russia attempting to invade Ukraine. Some partnerships may have to be paused or let go off, while new once needs to be initiated. That doesn’t mean that all Russian investments necessarily need to be de-invested, but I think you need to have a clear idea of who benefits from your partnerships or investments.

On February 28th the IPCC released a report on adaptation

The IPCC did the same some 6-7 years ago but while a lot of pages were then occupied with what may happen, this report spends a lot of time on what has already happened. While IPCC notices that limiting global warming to 1.5 degrees will limit the impacts, but many effects are already a fact, and an estimated 3.6 billion people live in settings that are highly vulnerable to climate change. And hence we need to adapt. There isn’t really any viable choice. And generally speaking, developing economies and poor people are more vulnerable to a changed climate than the rich, and since they have often had a limited role in causing the change, it may be argued that there is a legitimate argument in advocating for climate justice in adaptation. Both out of moral reasons and to prevent uncontrolled migration movements, conflicts over scarce resources, impacts on food production, global trade and so forth. Climate change will impact businesses in many ways, some of which we probably haven’t even anticipated yet.  Effective adaptation measures are hence critical – both in the short- and long term. Read the report here  (summary for policy makers)

Climate resilient development is enabled when governments, civil society and the private sector make inclusive development choices that prioritise risk reduction, equity and justice, and when decision-making processes, finance and actions are integrated across governance levels, sectors and timeframes (very high confidence). – “Climate Change 2022 (IPCC), p 32

Comment: As a management consultant I want operations to run smoothly and business to be effective. But I’m also beginning to believe that at times companies need to look at their margins, allowing for and preparing for the unexpected. Competing solely with price may not be such a good idea in the long run. I believe that CEOs of some of our well-functioning and highly efficient European companies may have something to learn from their counterparts in developing economies where interest rates, regulations and pricing often is far more difficult to predict. If you have presence in or if you have suppliers on developing markets, you may find it interesting to talk to some of them – how do they adapt? And what could you do to ease that adaptation?



The Social Taxonomy: how investments can promote social sustainability

The social taxonomy; i.e. the European Commission’s attempt to expand the environmental taxonomy so that more private capital is directed towards environmental and social sustainable activities and goals. This taxonomy is getting increased attention as the working group on sustainable finance has now presented their recommendations (see the report here). While there are many similarities in relation to the environmental taxonomy, there are also a couple of differences; “A social taxonomy has to distinguish between such inherent benefits and additional social benefits that directly contribute to the realization of human rights such as improving access to quality healthcare or ensuring decent jobs.” In addition, while the environmental taxonomy is largely based on science, a social taxonomy takes its starting point in agreements and conventions.

The report gives focus to three areas, or stakeholder groups (which are the same as in the proposed Corporate Sustainability Reporting Directive, CSRD):
1) Decent work
2) Adequate standard of living and well-being for end-users
3) Inclusive and sustainable communities and societies.

There are companies and industry associations that have flagged their skepticism toward a social taxonomy. They are not necessarily against the idea of companies playing an important role when it comes to social sustainability, but they claim its benefits are not on pair with the cost in terms of increased reporting requirements and general bureaucracy. It’s difficult to know if they are right or not. Personally, I often find that we have too many poorly designed public and company specific regulations and that these contribute to decreased efficiency and decreased pleasure of work.

However, a system solely based on good-will and trust wouldn’t last long, which is why common agreed standards – and rule of law for that matter – also helps us build a better society where fair companies have a potential to grow, while those with other objectives will find it increasingly difficult to operate. What the actual consequences of the social taxonomy will turn out to be remains to be seen but I do know of several companies who awaits the taxonomy with great anticipation. It’s going to be very exciting to follow the further process around this taxonomy and I’m fairly sure we will have reason to revisit the social taxonomy in coming newsletters!

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